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With Opening of Clinical Lab, Vermillion Puts in Place Key Part of OVA1 Sales 'Relaunch'

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Vermillion announced this week the launch of its new clinical reference laboratory, Aspira Labs.

Scheduled to open next month, the lab provides Vermillion with an in-house facility for running its OVA1 ovarian cancer test, allowing it to end its reliance on Quest Diagnostics, which has previously run all OVA1 tests under the two firms' licensing agreement.

According to Vermillion VP of Finance and Chief Accounting Officer Eric Schoen, in addition to OVA1, the company plans in the future to offer out of Aspira non-Vermillion tests related to gynecologic oncology and women's health.

The lab will be led by Herbert Fritsche, formerly clinical chemistry section chief in the Department of Pathology and Laboratory Medicine at MD Anderson Cancer Center.

The Aspira launch marks a key step in what Vermillion CEO Thomas McClain characterized to ProteoMonitor as a "relaunch" of OVA1. A significant focus for the company of this relaunch has been extricating itself from the Quest licensing deal, which Vermillion believes has proved a hindrance in increasing uptake of the test. In August 2013, Vermillion said that it had terminated this agreement. However, Quest has disputed the effectiveness of this termination.

Under the two companies' agreement, Quest holds exclusive commercialization rights to OVA1 in the clinical reference lab marketplace in the US, India, Mexico, and the UK, as well as non-exclusive rights to commercialize OVA1 globally outside these countries. Quest's exclusive commercialization rights run through September 2014, with the company then having the option to extend the exclusivity period for an additional year.

Under its agreement with Quest, Vermillion receives an upfront fee of $50 for every OVA1 test performed plus a royalty payment of 33 percent of Quest's gross profit. This latter portion Quest pays to Vermillion once per year.

Upon announcing its termination of the Quest deal, Vermillion said that it would allow Quest to continue to make the test available so long as Quest continued to "make the payments and provide the reports to Vermillion" as called for under the agreement, and that Vermillion determined "that Vermillion and Quest are negotiating in good faith towards alternative terms."

Assuming Vermillion does, in fact, begin offering OVA1 through Aspira next month, it could provide an indication of Quest's willingness to counter Vermillion's termination claims. To date, this question has been somewhat academic, as, even after termination of the agreement, Quest has remained the sole provider of OVA1.

Vermillion said that, having terminated the agreement, it would make OVA1 available through additional channels, but, thus far, it has not announced sales of the test through any entity other than Quest. According to the company, in 2013, all of its OVA1 revenue was generated through Quest.

Quest did not respond to request for comment on whether it planned to take legal action were Aspira to start offering OVA1.

Running OVA1 in house could presumably provide a boost to Vermillion's bottom line, given that it would receive the full profits from the test rather than the $50 per-test fee and 33 percent royalty it currently receives from Quest. In 2013, Vermillion received a $75 royalty per test, indicating that gross profit per test was roughly $230. It is uncertain how the margins for OVA1 tests run out of Aspira would compare with those run by Quest. Nonetheless, it is likely the company would take in a larger amount per test than it does currently.

In his comments explaining Vermillion's move away from the Quest agreement, though, McClain has focused less on the deal's fee and royalty structure and more on the obstacles it has presented in terms of driving physician adoption.

For instance, in an interview with ProteoMonitor earlier this month, he noted that the company has found "that when [OVA1] is commercialized by a large lab like Quest that is commercializing thousands of tests, when [sales reps] have time with a physician, they are not going to be able to devote a significant amount of time to OVA1 specifically."

"If they get three minutes with a doctor, they may mention OVA1, but they're not going to spend more than 15, 30 seconds [talking] about OVA1," he said. "And because this is a very specialized test, it requires more time."

Another problem has been the lack of customization in sales approach, Donald Munroe, Vermillion's chief science officer, told ProteoMonitor.

"If you were talking about a pregnancy test then it's basically a one size fits all product," he said. "But that is definitely not the way cancer care needs to be delivered. The way it needs to be delivered in the country is different from how it needs to be delivered in the city, for instance, and these care paths actually need to be tailored in order to get uptake."

"If you don't know your customer, then you are trusting that they can just pick up the box and use it as is," he said. "And all the information we have says that that is not the way to go. You really have to work with them to adapt it and customize it to their own local region."

Additionally, McClain said, running sales through Quest has proved problematic in terms of quickly getting data on things like physician ordering trends, making it difficult to prioritize doctors for follow up and additional education.

"With better information and real-time information, we'll be able to make our sales force much more effective," he said. "That is how you run a first-class sales process."

Even with an improved sales organization, though, Vermillion faces a daunting challenge as it chases profitability. In 2013, the company saw a more than 15 percent uptick year over year in OVA1 test volumes in territories covered by its own field sales reps. Extrapolating those gains across the company's full sales territory, the increase is still well short of what would be needed for it to break even given its current spend rate. In 2013, Vermillion posted $2.6 million in total revenues against operating expenses of $11.3 million.

There is also the question of whether physicians are failing to order OVA1 due to unfamiliarity with the test. Since 2011, four studies assessing the performance of OVA1 have been published in peer-reviewed journals, including, in March, a paper in the American Journal of Obstetrics & Gynecology that indicated that OVA1 combined with imaging could reduce the number of ovarian cancers missed with imaging alone.

Additionally, the Society of Gynecologic Oncology in May 2013 issued a statement saying that "recent data have suggested that [OVA1], along with physician clinical assessment, may improve detection rates of malignancies among women with pelvic masses planning surgery."

In its 2013 10K filing, Vermillion estimated that "over thirty percent of US gynecologic oncologists are supportive or advocating the use of OVA1." As of December 2013, more than 6,700 accounts had ordered the test.

McClain said, though, that the company feels it has set the table for growth going forward.

"We did a lot of work in 2013 to be able to understand the market, understand the physicians," he said. "And now with all the clinical data [the company has] gathered … we need to get that message to the market."

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