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Struggling Vermillion to Expand Business Strategy Beyond Proteomics-based Testing

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NEW YORK (Genomeweb News) – Having struggled unsuccessfully for several years (and through several management teams) to drive adoption of its OVA1 ovarian cancer test, Vermillion said this week that it is shifting to a new strategy in which it will seek to broaden its business beyond proteomics-based diagnostics to encompass a variety of testing tools.

Vermillion Chairman, President, and CEO James LaFrance announced the new strategy during a conference call following release of the company's Q3 financial results. For the quarter Vermillion posted revenues of $323,000, down 2 percent from $330,000 in Q3 2013, and OVA1 test volume of 4,325, essentially flat with 4,328 tests performed in the year-ago period.

The flat sales are despite a Q1 "relaunch" in which Vermillion expanded and reorganized its sales staff. At the time, the company said that it expected to see results from this reorganization starting in Q3.

The second quarter launch of Vermillion's Aspira Labs CLIA facility has also done little thus far to drive test volumes. The company opened the lab as part of its effort to take control of OVA1 sales back from Quest Diagnostics, which had been the sole provider of the test under a licensing agreement between the two companies.

In August 2013, Vermillion said that it had terminated this agreement (though Quest has disputed the effectiveness of this termination), and LaFrance has since characterized termination of the agreement as a key part of Vermillion's strategy to improve OVA1 sales.

On this week's conference call, Eric Schoen, the company's vice president of finance and chief accounting officer, said that test volumes performed by Aspira were not yet "meaningful" enough to break out separately from the company's overall OVA1 sales, noting that they represented less than 5 percent of test sales. He added that the company expected to begin breaking out Aspira OVA1 sales in Q4 2014.

As LaFrance noted, if the company is able to generate significant sales through Aspira, it would provide a solid boost to its bottom line. Vermillion receives an average of $125 per OVA1 test through its agreement with Quest. Tests run through Aspira, though, would pay the company closer to the $330 per test Quest nets, he said.

Vermillion's newly announced strategy suggests, however, that the company is no longer counting solely on OVA1 revenues to carry it to profitability.

Vermillion aims to become a "bio-analytic solutions company focused on gynecologic disease," more broadly, LaFrance said, adding that the company plans to "expand beyond biomarkers and pure diagnostic measurement to include other modalities such as imaging, clinical risk factors, and patient data" in its testing.

These additional measures, LaFrance said, will allow Vermillion to boost the specificity of its testing – something that has been a concern among some physicians regarding OVA1.

Vermillion also plans to build a gynecologic disease sample and data registry, which, LaFrance said, will allow company researchers to retrospectively search for correlations and do prospective validation.

The shift in direction would seem to suggest Vermillion feels that proteomic data alone will not provide the performance required for a commercially successful test. However, the company continues to work on its next-generation proteomics-based OVA2 ovarian cancer test, which includes three of the original five OVA1 biomarkers along with two new protein markers.

OVA2 is intended to offer improvements over OVA1 in terms of specificity and negative predictive value. LaFrance said the company plans to submit OVA2 to the US Food and Drug Administration for 510(k) clearance in January with an eye toward a commercial launch in the second half of 2015.

Vermillion also plans to move into the laboratory-developed test business, LaFrance said, noting that it aims by the end of 2015 to "demonstrate proof of concept" for a series of LDTs it is calling OVAx. These LDTs will include data on clinical risk factors and patient history to improve performance of OVA1 and OVA2.

LaFrance said that the company plans to launch new tests in the OVAx series every two to two-and-a-half years, roughly half the time it has taken for the launch of OVA1 and the anticipated launch of OVA2.

A key part of this effort, and the company's effort to take control of OVA1 sales, is achieving national licensure of Aspria Labs, LaFrance noted. Currently, the lab does not have licensure in several states, including New York, Florida, and Pennsylvania that, he said, "make up a sizeable portion of our total OVA1 volume."

He added that until it achieves full licensure for Aspira Labs, Vermillion will continue to use Quest as a commercial partner for OVA1. Given that Quest has disputed Vermillion's termination of their licensing agreement, it remains to be seen whether the company plans to take any sort of legal action now that Vermillion has notched sales of the test through Aspira Labs.

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.

In a 10-Q filed this week with the US Securities and Exchange Commission, Vermillion said that it has "been in active discussions with Quest Diagnostics for some time on both settling our contract dispute and creating a new go-forward relationship" and that the company believes it "may be able to reach a negotiated settlement by the end of 2014."

Vermillion's net loss for the quarter was $5.6 million. Chief Operating Officer Valerie Palmieri said, though, that the company did not anticipate requiring additional investment as it moved forward with implementing its new business strategy.

Schoen said Vermillion expected Q3 to mark the peak of its cash utilization. However, he said the company anticipated spending of between $4.5 million and $5 million in Q4.

As of Sept. 30, Vermillion had cash and cash equivalents totaling $16.8 million.

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