This story originally ran on Nov. 9 and has been updated to reflect new information from Vermillion.
Vermillion said this week that it has purchased substantially all of Correlogic's assets for $435,000 in cash.
The deal comes as Correlogic has reached an agreement to settle its dispute with Quest Diagnostics and Laboratory Corporation of America regarding rights to its ovarian cancer program.
The purchase, said Vermillion CEO Gail Page, gives the company "access to prospectively collected samples, intellectual property, and software, all of which could accelerate our ovarian program," including its second-generation ovarian cancer diagnostic OVA2. The deal also potentially provides "further IP protection," she noted.
The acquisition also includes Correlogic's assets related to other disease indications, including breast, prostate, and colorectal cancer.
Vermillion announced the acquisition during an earnings call reviewing its third-quarter 2011 results. For the quarter, the company posted revenues of $320,000, down 23 percent from $413,000 a year ago.
The decline came from a drop in licensing revenues tied to achievement of certain milestones under the company's agreement with Quest Diagnostics. Those revenues fell to $114,000 from $299,000 in the year-ago quarter. Product revenues — all from sales of its OVA1 ovarian cancer test — increased 81 percent to $206,000 from $114,000 the year before.
The company hit its Q3 guidance of between 4,000 and 4,300 tests with an estimated 4,108 OVA1 tests performed in the quarter.
Vermillion's net loss for the quarter rose to $4.7 million, or $.31 per share, from $2.7 million, or $.26 per share, a year ago, and beat Wall Street estimates of a loss per share of $.36.
The firm's R&D costs increased 27 percent to $1.4 million from $1.1 million a year ago, while SG&A costs rose 21 percent to $3.5 million from $2.9 million. The total increase in operating expenses, Vermillion said, was due to higher clinical trial and collaboration costs related to its ovarian cancer program and its Vasclir test for peripheral artery disease.
Vasclir is the second test Quest Diagnostics accepted from the company as part of the partners' three-test strategic alliance agreement, and is currently one of its primary research focuses. According to Page, Vermillion plans to schedule a meeting with the US Food & Drug Administration to discuss results of an intended use study for the test that it completed earlier this year and to present these results at a "major cardiovascular meeting" during the first half of 2012.
With regard to OVA1, reimbursement is currently the primary impediment to wider adoption, William Creech, the company's vice president of sales and marketing, said during the call.
"We continue to build the business and see new accounts," he said, but acknowledged that some doctors are less likely to reorder "when they see patient bills." The list price for the OVA1 test is $650.
Creech added that OVA1 sales had seen "no impact from competition," a reference to Fujirebio's ROMA ovarian cancer diagnostic, which received FDA 510(k) clearance during the quarter. The ROMA test uses a combination of blood tests for the proteins HE4 and CA125 with the Risk of Ovarian Malignancy Algorithm, or ROMA, to determine the risk of ovarian cancer in pre- and post-menopausal women with a pelvic mass. It is a potential competitor to OVA1, comparing favorably to the Vermillion product in terms of clinical specificity and cost (PM 9/9/2011).
Page said that the company plans to keep its comments regarding the ROMA test to a "minimum at this point," noting that "there has not been a whole lot of marketing around the product."
"We have a good head start, and I think we've done a good job branding OVA1 with physicians," she said, adding that key to this branding is "the quality of the OVA1 clinical trials."
Nevertheless, one purpose of the Correlogic purchase is deterring future competition, Page noted.
"There's always a lot of white noise out there by companies claiming to be in this space," she said. "By taking this IP and software, we can harvest it, and we can also sort of keep other people out of that space, if you will."
Australian diagnostics firm Healthlinx is one company whose ambitions in the US ovarian cancer testing market could be complicated by the acquisition. Healthlinx is the owner of OvPlex, an ovarian cancer diagnostic currently available in Australia, the UK, Singapore, and Malaysia. The company is also interested in moving into the US, and in May hired Aurora, Colo.-based CPC Clinical Research to help it prepare a pre-IDE submission to FDA and coordinate meetings with the agency.
This effort could run into IP issues, however. A valuation of Healthlinx done in June by Australian consulting firm Acuity Technology Management noted that Correlogic's OvaCheck panel includes three of the five proteins comprising the OvPlex panel. Given that Correlogic's OvaCheck patent was filed prior to Healthlinx's OvPlex patent, "there remains a risk that not all claims [related to OvPlex] will be granted in all jurisdictions," the Acuity report said.
In a September shareholder update, Healthlinx said that as part of its US strategy it would seek "to acquire distressed synergistic assets from a company in Chapter 11." The update did not name the company in question, and Healthlinx managing director Nick Gatsios declined to comment, but, based on the description provided in the update, it appeared that the firm being targeted was likely Correlogic (PM 10/14/2011).
Correlogic filed for Chapter 11 bankruptcy on July 16, 2010, and this March embarked on an effort to auction its assets. At that time, the minimum bid for the company's assets was set at $1.35 million or at $850,000 for its ovarian cancer assets alone. However, the highest and best offer the company obtained was a $250,000 bid for its ovarian assets.
On June 23, Correlogic canceled an auction scheduled for the following day, choosing to postpone sale of its assets until it was able to settle an ongoing dispute with Quest and LabCorp regarding rights to OvaCheck (PM 7/8/2011).
Upon filing for bankruptcy, Correlogic sought to reject OvaCheck licensing agreements it had signed with Quest and LabCorp, claiming that uncertainty over the validity of the agreements was an impediment to obtaining new investment and was hampering its reorganization efforts (GWDN 07/23/2010).
In particular, Correlogic said this uncertainty stemmed from the fact that the licensing agreements were signed in 2002 when OvaCheck was still a mass spectrometry-based test. Since then it had migrated to an immunoassay version, which, the company claimed, wasn't covered by the deals with the reference labs.
In October, the US Bankruptcy Court in the District of Maryland ruled in Correlogic's favor, allowing it to reject the licensing agreements, over Quest and LabCorp's objections (PM 10/08/2011).
This, however, didn't fully settle the dispute as both reference labs maintained that even were the licenses rejected they still held rights to OvaCheck under section 365(n) of the bankruptcy code, which provides certain rights to intellectual property licensees in order to protect businesses from disruptions arising when a licensor seeks to reject a license agreement as part of a bankruptcy proceeding.
This portion of the dispute has remained an open question, with Correlogic suing Quest and LabCorp in June for declaratory judgment, requesting that the court rule that the company's agreements with the two reference labs encompass only the original mass spec-based tests and not the multiplex immunoassay known as OvaCheck.
A trial had been set for Dec. 6 to resolve the matter. However, according to documents filed this week in US Bankruptcy Court for the District of Maryland, the parties have reached an agreement under which Correlogic will provide a non-exclusive license to Quest and LabCorp to all IP rights to the OvaCheck test as it existed prior to the company's bankruptcy filing in exchange for a cash payment of $75,000.
The agreement expressly excludes intellectual property to the second-generation OvaCheck diagnostic that Correlogic has been working on since its bankruptcy filing. That test, Correlogic CEO Peter Levine told ProteoMonitor in a July interview, consists of "fundamentally different [protein] panels from the original OvaCheck" that Correlogic submitted for US Food and Drug Administration approval in December 2008.
Like the original diagnostic, OvaCheck 2 is intended as a triage tool for distinguishing between patients with and without ovarian cancer in symptomatic cohorts. Vermillion will acquire rights to this test as part of its purchase of Correlogic's assets, although, Page noted on this week's earnings call, the company has no intentions of commercializing an OvaCheck test.
Both the settlement with Quest and LabCorp and the sale to Vermillion require court approval. Correlogic has filed a motion to expedite that approval process.
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