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Vermillion Posts 11 Percent Rise in 2012 Revenues, 8 Percent Uptick in OVA1 Sales

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This story has been update to include comments from a Vermillion executive.

Vermillion this week reported fourth-quarter revenues of $1.1 million, a 32 percent rise from $868,000 in Q4 2011. This beat the consensus Wall Street estimate for revenues of $900,000.

The quarterly revenue increase was driven by a 32 percent increase in sales of its OVA1 ovarian cancer diagnostic to $1 million from $755,000 in Q4 2011. License revenues were flat year over year at $113,000.

Fourth-quarter 2012 product revenues included $549,000 in variable royalty payments from the full year of OVA1 sales owed Vermillion through its licensing deal with Quest Diagnostics. Under this agreement, Vermillion receives an upfront fee of $50 for every OVA1 test performed plus a royalty payment of 33 percent of Quest's gross profit. This latter portion Quest pays to Vermillion once per year.

For full-year 2012, Vermilion reported total revenues of $2.1 million, up 11 percent from $1.9 million in 2011. Sales of OVA1 rose to $1.6 million from $1.5 million, while the company's license revenues were the same as 2011 at $454,000.

The company posted 4,260 OVA1 sales in the quarter, up 3 percent from 4,118 in Q4 2011; and 16,460 for full year 2012, up 8 percent from 15,225 in 2011. Both numbers were in line with its guidance.

The company said it expects the number of OVA1 tests performed in Q1 2013 to range between 4,250 and 4,550. It did not provide full-year guidance for the number of tests it plans to perform in 2013.

In addition to the modest growth in OVA1 sales, Vermillion saw an increase in the variable royalty payments it receives from Quest for the test.

In 2011, the company received $549,000 in royalties for roughly 11,700 tests that Quest determined to be "resolved," meaning that their payment status – whether reimbursed or non-reimbursed – was considered final. That amounted to an average of $47 in royalties per test paid to Vermillion.

In 2012, the company received $816,000 from roughly 13,700 resolved tests, an average of $60 per test.

This increase in royalties per test was due largely to an increase in the number of resolved tests that were reimbursed versus not, interim CEO Bruce Huebner told ProteoMonitor.

Such a rise in reimbursement levels could be an encouraging sign for investors given the company's struggles in this area (PM 12/23/2011).

During an investor call following the release of the earnings, Huebner cited the company's efforts to improve reimbursement and coverage of OVA1. He said it is "currently involved in discussions" with national insurers including Humana, Aetna, Wellpoint, Anthem, as well as various regional payors and that it expects "to add at least two national payors and several regional payors by the end of the year." This effort, he said, would be aided by at least three new publications the company is planning, following up on its recent OVA500 study (PM 8/3/2012).

Huebner also noted that the Category 1 Current Procedural Terminology that Vermillion received for OVA1 went into effect in January. The code, he said, "streamlines the processing of claims and strengthens our reimbursement position."

He added that the company is discussing with Quest an effort to improve reimbursement in part by implementing a "proactive response to denials," and also plans to continue its Vermillion Claims Assistance Program, which assists physicians in appealing patient bills with an eye toward encouraging reorders of OVA1.

One of the challenges Vermillion has faced in driving adoption of OVA1 is the test's relatively low specificity, which physicians have told ProteoMonitor could make doctors hesitant to use the test for fear of outsourcing patients to specialists due to false positives (PM 5/13/2011).

Huebner noted that the company with its collaborators at Johns Hopkins University recently completed a Phase I discovery effort looking for markers for inclusion in a higher-specificity second-generation OVA1 test.

The researchers identified "several design options… which achieve this goal," he said. "This [second-generation] OVA1 upgrade will allow doctors to retain a substantially higher fraction of benign cases without sacrificing the features and benefits of OVA1."

He added that Vermillion was investigating use of this second-generation test for applications including selection and monitoring of post-surgical therapy as well as use of its markers in disease areas like cervical, vaginal, and endometrial cancer. To support these activities, the company has extended its research agreement with Johns Hopkins and researchers Daniel Chan and Zhang Zhang for another three years, he said.

Huebner also said that, based on data from the OVA500 study, the company may pursue expansion of OVA1's labeling claims to include detection of early stage-ovarian cancer prior to surgery for an adnexal mass. Currently, OVA1 is labeled for use only as a triage test prior to surgery for such masses. "A logical step is to submit new labeling claims to the [US Food & Drug Administration]," he said.

He also briefly addressed Vermillion's Vasclir test for peripheral artery disease, noting that the company plans to obtain a commercial partner to continue development of the test and hopes to finalize an agreement with one by the end of the year.

Also this week, a group of dissident shareholders who are seeking to elect a member to Vermillion's board at the company's upcoming annual meeting filed a document with the US Security and Exchange Commission making the case for their candidate.

Claiming that the company has failed to capitalize on OVA1's potential while also overpaying management and mismanaging relationships with partners and researchers, the group advocated for shareholders to elect lawyer and Vermillion investor Robert Goggin to the board, in place of the company's candidate, Roberta Della Vedova.

The shareholder group, which consists of Goggin along with investors George Bessenyei and Gregory Novack, had previously sued Vermillion over its decision to eliminate the board seat vacated by company CEO Gail Page upon her dismissal.

The suit was part of a larger, ongoing effort by the trio to influence the direction of the company by winning control of seats on its board. The suit was dismissed in November (PM 11/30/2012), but the group has since filed an appeal. Last week the Supreme Court of the State of Delaware denied Vermillion's motion to affirm in the case, meaning that the appeal will be allowed to go forward.

Vermillion's net loss for the quarter was $1.4 million, or $.09 per share, compared to a net loss of $3.1 million, or $.21 per share, for Q4 2011. The average analyst estimate was a loss of $.12 per share.

The company's R&D spending for the quarter was $333,000, down 72 percent from $1.2 million year over year. Its SG&A expenses dropped 22 percent to $2.1 million from $2.7 million.

For the year, Vermillion's net loss fell by 60 percent to $7.1 million, or $.48 per share, from $17.8 million, or $1.25 per share, in 2011. This was driven by sharp drops in R&D spending, down to $2.2 million from $5.4 million, and SG&A costs, down to $8.2 million from $14 million.

The company finished the year with $8 million in cash and cash equivalents.

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