This story originally ran on Jan. 4 and has been updated to include additional information about company restructuring.
Vermillion said this week it would restructure “to reduce headcount and other expenses” as it aims to bring its cash-based operating expenses to around $12 million in 2012.
It announced the resignation of chief financial officer Ashish Kohli, who the company said left due to the elimination of his position. It also this week reduced its board from eight to seven members and eliminated four territory development managers and one regional sales director role.
According to the company, as of Dec. 31, 2011, it had $22.5 million in cash, and it expects to spend between $3 million and $4 million in the first quarter of 2012 as it wraps up claim activities related to its emergence from bankruptcy protection.
Vermillion filed for Chapter 11 bankruptcy in March 2009, exiting a year later.
The company said that its operating activities in 2012 will focus on furthering the commercialization of its OVA1 ovarian cancer diagnostic as well as development of its next-generation ovarian cancer test OVA2 and peripheral artery disease diagnostic Vasclir.
It added that it has begun exploring partnerships for this product pipeline “with the goal of accelerating development and bringing additional resources to the commercial effort.”
Vermillion currently has a strategic alliance with Quest Diagnostics under which Quest provided the firm with a $10 million secured line of credit to be forgiven upon the achievement of certain milestones – specifically the development, US Food and Drug Administration clearance, and commercialization of up to three diagnostic tests.
Thus far, Quest has accepted two tests – OVA1 and Vasclir – under the three-test agreement and has forgiven $3 million of the $10 million loan. The alliance expires on Oct. 7, 2012, upon which Vermillion must pay Quest the outstanding principal amount and any unpaid interest. The agreement has, however, expired and been extended several times in the past.
“Given the short-term challenges in both our business and the industry, the company will sharpen its operational focus resulting in an extended runway,” Vermillion CEO Gail Page said in a statement.
Even with reduced spending, however, the company must significantly up OVA1 sales to turn a profit. As then-CFO Sandra Gardiner noted during Vermillion’s Q1 earnings call, given a spend rate of roughly $4 million a quarter, it would have to sell between 65,000 to 80,000 tests per year to break even (PM 5/13/2011). The company has not released final numbers for 2011 sales of OVA1, but it sold roughly 11,000 tests in the year’s first three quarters.
Recently, the amount of revenue that will ultimately be recognized from these sales has come into question. In December, Vermillion shareholder George Bessenyei – a Switzerland-based investment advisor – alleged that Medicare has been denying OVA1 claims at a rate of more than 80 percent, a fact that, if true, could significantly lower the revenues expected from the OVA1 tests Vermillion has reported as performed in its 2011 earnings reports (PM 12/23/2011).
In a document filed with the US Securities and Exchange Commission, Page said that Bessenyei had overstated the amount of OVA1 Medicare billings. However, she did not challenge his claim of an 80 percent denial rate and did acknowledge that reimbursement has been a problem for OVA1, noting that the company continues “to advise investors to be mindful that, at this stage of market adoption, reimbursement for the OVA1 test remains a significant challenge for the company.”