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Vermillion Hoping New Service Business Will Boost Revenue Growth

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NEW YORK (GenomeWeb) – Vermillion continues to struggle to drive uptake of its OVA1 ovarian cancer test, but the company's fledgling in vitro diagnostic service business could provide an alternative revenue stream.

The service business, which the company is calling Aspira IVD, generated $155,000 in revenue from two projects in the second quarter of 2016. Though modest, this number nonetheless represented more than 20 percent of Vermillion's $709,000 in Q2 revenues, and, on a conference call following the release of the results last week, CEO Valerie Palmieri said the company expected this business to grow significantly in 2017.

Aspira IVD "is on track to start multiple IVD studies in the second half of 2016," she said, noting that the business is targeted toward "IVD manufacturers and pharma [firms] commercializing high-complexity assays."

The strategy is not uncommon among proteomic diagnostics companies, a number of which have looked to establish service businesses while continuing to work on test development and commercialization. Perhaps the biggest success in this regard has been Somalogic, which derives the bulk of its revenues from it SomaScan assay platform.

Somalogic was founded with the goal of developing proteomic tests using its aptamer-based Somamer technology, and it continues to pursue this business, with plans this year to launch out of its CLIA lab a nine-protein test for secondary risk prediction in cardiovascular disease. Since its release in 2012, SomaScan has become the company's main money-maker. The platform generated $10.5 million in revenues in 2013, roughly doubled that in 2014, and, according to the company, saw slightly slower but still substantial growth in 2015.

A less successful example is BG Medicine, which generated service revenues through collaborations including the High Risk Plaque initiative as it worked to commercialize its BG Galectin-3 and CardioScore cardiovascular tests. The company continues to struggle with adoption of its tests, however, and this year voluntarily deregistered its common stock and became a non-reporting company.

Vermilion's services business is not based on a proprietary technology like Somalogic's SomaScan, but the company believes it can build the business by leveraging its experience and infrastructure in IVD development as well as its pelvic mass repository bank, Palmieri said.

The company is running the business both out of its Texas-based CLIA lab and a new CLIA lab it is building in Trumbull, Connecticut using a loan of up to $4 million from the Connecticut Department of Economic and Community Development. Vermillion received the first $2 million of the loan in April with the remaining $2 million to be disbursed upon the meeting of certain milestones. The company may be eligible for forgiveness of up to $2 million of the loan's principal if it meets certain job creation and retention milestones as measured by March 1, 2018.

Palmieri said last week that Aspira IVD has completed its site qualification process, having had several of its customers out to inspect it facilities, and is "on track to start multiple IVD studies in the second half of 2016" with significant growth expected in 2017.

The company aims to provide services both to other IVD companies who are working for pharma and pharma firms directly, Palmieri said, adding that Vermillion is also interested in pursuing potential companion diagnostic opportunities that might arise through Aspira IVD's work.

Ultimately, though, Vermillion's success will likely depend on its ability to drive sales of OVA1 and its second-generation ovarian cancer test Overa.

Gerald Commissiong, president and CEO of Amarantus Bioscience, touched on this point in an interview with GenomeWeb earlier this year covering an unrelated set of proteomics diagnostics firms also using a service business as an alternative revenue stream. In March, Avant Diagnostics, Amarantus Diagnostics, and Theranostics Health merged. Discussing the merger, Commissiong noted that from Theranostics' point of view, the deal was interesting in that it gave it access to Avant's and Amarantus' diagnostic products.

Theranostics had a revenue-generating pharma services business but, Commissiong said, it was unlikely to justify the $14 million invested in it to date through service revenue alone.

"The pharma business model, while it's attractive from a revenue generating standpoint in terms of small amounts of revenue, you're never going to get any valuation based off pharma services," he said. "So if you are the investors, you have already sunk in $14 million, and you are asking people to pony up more money. But there is no path to a real valuation of that $14 million with pharma services."

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