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Verisante's Q1 Revenues Plummet as Firm Slows Aura Sales Push to Build In-house Team

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NEW YORK (GenomeWeb News) – Verisante Technology last week posted a sharp drop in Q1 2014 revenues, as the firm terminated its Canadian distributor agreement for its Raman spectroscopy-based Aura skin cancer detection device, choosing instead to pursue a direct sales approach.

For the quarter, Verisante reported revenues of $40,000, down 83 percent from $235,000 in Q1 2013.

The decline stemmed primarily from the fact that the Vancouver-based company stopped aggressively pursuing Canadian sales of the Aura, instead focusing during the quarter on building an internal sales staff, Versante CEO Thomas Braun told ProteoMonitor.

"Basically, we had no sales and marketing department [for much of the quarter]," he said. "So we weren't able to be as aggressive as we would [have] liked."

Verisante hired two salespeople during the quarter and aims to hire an addition five, Braun said. The company is planning a new funding round to support build-out of its sales staff, he added, noting that it wasn't targeting a specific amount in the round, but would "basically do the best we can."

The company's move fits into a broader trend within the molecular and proteomic diagnostic business of firms eschewing third-party sales organizations in favor of doing sales and marketing in house.

For instance, while a number of early proteomics diagnostics developers chose to license their products to large clinical reference labs with the aim of using those companies' large sales forces to drive test adoption, some have since reversed course after disappointing results.

Most notable among them is Vermillion, which in August 2013 announced termination of its licensing agreement with Quest Diagnostics, under which Quest was largely responsible for sales of the company's OVA1 ovarian cancer test.

As Vermillion Chairman, President, and CEO James LaFrance told ProteoMonitor last month, the company "had very little transparency with our partner relationship with Quest. We could see the outcomes, which, frankly, were not very good, but exactly what was going on in the field and even how much effort they were really applying to the OVA1 test, and how they were attempting to create value in customers' minds, [that was] totally unclear to us."

While not entirely analogous to the Vermillion-Quest arrangement in that Verisante relied on a device distributor as opposed to a reference lab, the company's issues with outsourcing sales of the Aura are similar.

"By and large, we found that the distributor model doesn't really work well because the distributors don't really make any great effort to sell," Braun said. This, he noted, is particularly a problem with novel products like the Aura, where customer education is required.

"If there's already a market for a product, already demand, [distributors] will distribute it," he said. "But when you have a brand new technology, it really does work best to sell it yourself."

Braun noted as well that Verisante was unable to rely on its Canadian distributor to handle customer training and repairs.

"We had to train people ourselves. If something went wrong we ended up having to fix it ourselves," he said. "We were constantly sending people out, so we thought, 'Why don't we just do it ourselves?'"

Verisante launched sales of the Aura in February 2013, placing an initial production run of 10 devices in Canada and Europe.

While the company's internal sales staff will focus initially on the Canadian market, Braun said Verisante will likely also shift to an in-house model in Germany – one of the main markets for the Aura – while continuing to work through distributors in smaller markets. In addition to Germany, the company has distribution agreements covering Austria, Liechtenstein, Switzerland, the UK, and Ireland.

Verisante also aims to sell the device in the US, and has begun preparation of a regulatory submission to the US Food and Drug Administration, Braun said. The company has received Health Canada approval, Australian Department of Health approval, and an EU CE mark for the device. It is also pursuing regulatory approval in Brazil and Mexico.

The company has also completed a commercial prototype of its Core device, which is intended for the detection of cancers including lung, gastrointestinal, and cervical. Both the Core and Aura use Raman spectroscopy to measure the levels of various biomarkers – including proteins, nucleic acids, and metabolites – to distinguish between benign and malignant lesions. By comparing the patterns of spectra generated by the device, clinicians can differentiate between the two.

Researchers at the BC Cancer Agency recently completed a three-year study investigating the utility of the Core for detecting lung cancer and are now preparing the data for publication, Braun said. He added that a Chinese group has begun a study investigating the device for detection of pharyngeal cancer and that Verisante is working with a group of UK researchers to launch a study of the device in brain cancer.

The Core makes use of an endoscopic version of the Raman-spectroscopy system, which allows it to be used in vivo. This feature, along with the device's speed of detection, makes it a potentially interesting medical research tool, Braun noted.

With this in mind, the company in February launched a research-use-only version of the device, named the VRS.

"With a [Raman] spectrometer that is sensitive enough to do measurements on tissue in half a second, we have something that is quite unique," Braun said, noting that typically Raman spectrometers are used only ex vivo and require 20 seconds or more to take a reading.

The company placed its first order of the VRS during Q1 to an unnamed research university in the US.

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