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Vermillion Posts 3 Percent Rise in Q3 Revenues; Touts Study Addressing OVA1 Specificity Issues

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Vermillion reported this week that its third quarter revenues were up 3 percent year over year at $330,000 versus $319,000 in Q3 2012.

The company posted product revenue of $216,000, up 5 percent from $205,000 year over year. That revenue was based on 4,328 OVA1 ovarian cancer tests performed in Q3 2013 versus 4,100 tests performed in the year-ago period.

The revenue figures, the company noted, do not include the additional royalty component of revenue based on 33 percent of Quest Diagnostics' gross margin, which Vermillion receives once a year under the two parties' licensing agreement for OVA1. In 2012, the payment from Quest provided Vermillion with $816,000 in revenue, or an additional $60 per test.

The company's license revenue in Q3 was flat at $114,000.

In May, Vermillion filed a notice of default with Quest in an effort to end the firms' license agreement. On a conference call following the release of its financial results, Vermillion President and CEO Tom McLain said that Quest has disputed this notice. He added that in its notice of default Vermillion included "a proviso that Quest can continue to make OVA1 available to healthcare providers on the same financial terms following the termination while negotiating in good faith towards an alternative business structure."

McLain noted that in regions covered by company sales representatives, OVA1 test volumes were up 15 percent compared to Q3 2012. Based in part on that success, he said, the company added sales reps to two new territories during the quarter. It also added two managed care directors, giving it a total of 10 sales reps and four reimbursement specialists.

McLain also addressed a recent preliminary ruling from the Centers for Medicare & Medicaid Services that could negatively impact reimbursement for OVA1. That ruling recommended that coverage for multi-analyte algorithm-based assays like OVA1 not factor the algorithm portion of the test into pricing. Instead, the test price will consist only of the cost of running the individual markers – a formula that would likely result in lower CMS payments for OVA1.

Since that preliminary ruling, Vermillion "has been actively engaged in a process involving members of Congress, leading research institutes, the FDA, the NIH, and industry organizations to cause CMS to reconsider this position," McLain said, adding that if these efforts fail to sway CMS, the company plans to appeal the decision.

Beyond the CMS recommendations, Vermillion also suffered a blow last quarter from a ruling by BlueCross BlueShield's Technical Evaluation Center that classified OVA1 as "experimental/investigational," meaning that it did not meet their criteria for coverage. This ruling led to 10 BCBS plans reversing their positive coverage decisions for OVA1.

McLain said this week that this decision did not affect OVA1 test volumes in the third quarter, however, he added, the company would not know how it affected revenue-per-test until it receives its annual royalty payment from Quest.

Vermillion's net loss for the quarter was $2.3 million, or $0.10 per share, compared to a net loss of $2.0 million, or $0.13 per share, in Q3 2012.

The company's R&D expenses for Q3 were $553,000, up 29 percent from $429,000 in Q3 2012. Its SG&A expenses were $2.1 million, down 5 percent from $2.2 million in the same period last year.

As of Sept. 30, Vermillion had cash and cash equivalents totaling $14.6 million.

The company noted in a statement that it expects its expenses in the fourth quarter to run between $2.4 million and $2.9 million. Around $300,000 of this will go toward purchase of a new in vitro diagnostic platform for research and development as part of the company's plan to migrate OVA1 to an automated platform. The company has targeted early 2015 for launch of an automated test, which will require US Food and Drug Administration 510(k) clearance.

The company expects that migration to an automated platform will help it expand the OVA1 customer base, making it possible for a wider range of facilities to perform the assay, McLain said. He added that with its collaborators at Johns Hopkins University's Institute for Biomarker Translation and Research, Vermillion has completed an assessment of "potential technical obstacles" related to the migration and that "the technical outlook for the next phase of formal development work is promising."

McLain also provided an update on the company's efforts to develop a second-generation OVA1 test with its Johns Hopkins collaborators, noting that it aims to launch such a test in 2016. In total, Vermillion has agreed to pay Johns Hopkins roughly $1.6 million through June 2015 for work on the automated OVA1 platform and the next-generation test.

McLain also highlighted on the call a pair of publications on OVA1 published this month in the American Journal of Obstetrics & Gynecology.

The first of these analyzed 770 subjects to determine how use of OVA1 as a triage tool affected the proportion of patients passed onto gynecological oncologists for surgical intervention. Comparing use of OVA1 to the current modified American Congress of Obstetricians and Gynecologists guidelines, which combine use of clinical assessment and the protein marker CA125, the researchers found that OVA1 detected 90 percent of malignancies versus 79 percent for the ACOG guidelines. As previous studies have also shown, however, OVA1 demonstrated lower specificity than the ACOG guidelines, resulting in 56 percent of patients being recommended for referral to a gynecological oncologist, versus only 33 percent for the ACOG guidelines.

In the past, this low specificity has raised concerns among some physicians, as it likely leads to patients being passed on unnecessarily to gynecological oncologists. This, they have said, could make gynecologists wary of using the test for fear of losing their patients based on inaccurate results (PM 5/13/2011).

The AJOG paper also found, however, that in actual clinical practice, the referral rate of the studied patients had, in fact, been 60 percent — higher than what was recommended by OVA1 testing. This, the paper's authors wrote, suggests that "in real-world clinical practice, there are many variables that could trigger referral" beyond those outlined by the ACOG guidelines. Although, as the authors noted, the study had a number of limitations in terms of the physician populations investigated that could have biased these results, it suggests that OVA1's low specificity might not be as problematic as some have thought.

The second AJOG paper compared the effectiveness of OVA1 to the modified ACOG guidelines for detecting early-stage ovarian cancer. The researchers evaluated 1,016 patients, finding that OVA1 plus clinical assessment detected cancer cases with sensitivity of 95 percent and specificity of 44 percent, compared to sensitivity of 80 percent and specificity of 77 percent for the modified ACOG guidelines.

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