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Vermillion Focuses on Sales Force Expansion, OVA1 'Relaunch' to Drive Sales after Q1 Decline


NEW YORK (GenomeWeb News) – After reporting earlier this week that its first quarter revenues declined due to fewer OVA1 tests being performed, Vermillion officials said the firm has recently expanded its sales force and expects to see an uptick in sales of its flagship test beginning in the third quarter.

The firm reported after the close of the market Thursday that its first quarter revenues fell 7 percent to $305,000 from $328,000 in Q1 2013, while product sales of $191,000 were down 11 percent from $214,000 year over year. Those sales were based on 3,817 OVA1 ovarian cancer tests performed in Q1 versus 4,274 tests performed in the year-ago period.

On a conference call following the release of the company's earnings, Vermillion VP of Finance and Chief Accounting Officer Eric Schoen attributed the drop in OVA1 sales primarily to a reorganization of sales staff in advance of the launch of the firm's Aspira Labs clinical reference laboratory, as well as having several unfilled sales representative positions in key territories during the quarter.

Schoen said that the company "roughly tripled [its] field sales presence at the beginning of the second quarter," adding that it expected to begin seeing the results of these additions in the third quarter of this year.

These additions are part of what Vermillion has characterized as a relaunch of OVA1, as the company works to increase adoption of the test after several years of flat sales.

A key part of this effort was the appointment last month of James LaFrance as president and CEO, replacing Thomas McLain. Elected chairman of Vermillion's board in December, LaFrance was previously CEO of biotech firm Omnyx, as well as an executive at Ventana Medical Systems (now part of Roche Diagnostics).

In an interview with ProteoMonitor this month, LaFrance said that his appointment was not "a reflection on [McLain's] performance," but stemmed rather from the company's need for sales and marketing experience as it works to drive commercialization of OVA1.

LaFrance noted as well that the appointment stemmed in part from his relationship with Jack Schuler, Vermillion's largest private shareholder and one of the main participants in the $31.5 million equity financing round the company closed in May 2013.

The two worked together at Ventana, LaFrance said, "so there was definitely a bit of a past and comfort level [between] Jack and I, and that is partly what drove the [CEO] change, as well."

Schuler nominated LaFrance as Vermillion's chairman as part of the May 2013 financing deal.

LaFrance emphasized to ProteoMonitor that key to the company's new strategy was taking control of the sales process from Quest, which had been responsible for OVA1 sales and marketing under the companies' licensing agreement.

"We had very little transparency with our partner relationship with Quest," LaFrance said. "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."

Vermillion announced termination of the Quest licensing agreement in August 2013. However, Quest has disputed the effectiveness of this termination. Quest continues to be the sole provider of the OVA1 test.

This will change when Vermillion begins offering OVA1 out of Aspira, which the company expects to be up and running sometime this summer. The launch of Aspira could also aid in Vermillion's efforts to obtain payor coverage for OVA1, Schoen told ProteoMonitor, noting that payors typically want to talk not to a test's manufacturer, but, rather, to its provider.

"Up until the launch of Aspira, Quest was the sole provider," he said. "So, this gives us the chance now to engage directly with those payors."

On the earnings call this week, LaFrance noted that Vermillion hopes by next year to significantly up the number of lives covered for OVA1 from the current 56 million.

One key aspect of this effort is the collaboration announced last week between Vermillion and the Moffitt Cancer Center on a study aimed at generating clinical and economic data to support the use of molecular diagnostics, including OVA1, in ovarian cancer care.

Funded by an unrestricted grant from Vermillion, the effort will consist of two phases: the first, a retrospective study benchmarking the standards of care provided to patients with ovarian, fallopian tube, and primary peritoneal cancer; and the second, modeling improvements in care and cost savings afforded by the use of molecular diagnostics like OVA1.

The study is one of three ongoing health economic studies evaluating OVA1, LaFrance said, adding that this data would help establish "the clinical and economic benefits for payors, which will help propel coverage and payment level decisions."

The company last year launched a similar study under a cooperative research and development agreement with the US Army Medical Research and Materiel Command. However, on this week's earnings call, SVP of Business Development and Chief Scientific Officer Donald Munroe said that study had been put on hiatus "due to an organizational change within the [Department of Defense]."

He said that Vermillion expected to resume the study in the second half of the year.

Vermillion's OVA1 relaunch efforts led to significant spending increases during the quarter. The company's R&D expenses for Q1 were $1.2 million, up 148 percent from $484,000 in Q1 2013, while its SG&A expenses were $3.1 million, up 28 percent from $2.4 million in the same period last year.

Also contributing to the jump in expenses were increased costs related to Vermillion's collaboration with Johns Hopkins University on its OVA1 platform migration and next-generation test, Schoen said.

He added that given the company's increased R&D activity and sales force headcount, it anticipates operating expenses of between $4 million and $5 million per quarter for the remainder of 2014.

Regarding the OVA1 platform migration, LaFrance said that Vermillion during the quarter completed US Food and Drug Administration 510(k) pre-submission steps and that it is targeting launch of OVA1 on the new platform in early 2015. Vermillion has not disclosed what platform it is migrating the test to, but LaFrance said the company planned to announce its choice of platform next quarter.

He added that the new platform would allow for a higher degree of automation at the Aspira Labs facility and would also help in terms of increasing options for international market expansion of OVA1.