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Vermillion Posts $344,000 in Q2 Revenues, Including First Sales of OVA1 Test

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By Adam Bonislawski

Vermillion this week reported revenues of $344,000 for the second quarter, including $45,000 from product sales of its OVA1 protein biomarker-based ovarian cancer test – the first revenue the company has posted from sales of the test since its commercial launch on March 11.

The remaining $299,000 was license revenue related to the achievement of milestones under the company's strategic alliance agreement with Quest Diagnostics. Vermillion, which emerged from Chapter 11 bankruptcy protection in January, reported no revenue in the year-ago period and $73,000 in revenues in the first quarter of this year.

In an earnings call, Vermillion chief financial officer Sandra Gardiner said that 1,247 OVA1 tests were performed in the second quarter, with the company recognizing revenues for 342 of them. Revenue for the balance of the 1,247 tests was recorded as deferred revenue, comprising roughly $100,000 of the total $1.315 million in deferred revenue posted for the quarter. The remaining deferred revenue represented money the company expects to earn for the achievement of milestones under its agreement with Quest.

CEO Gail Page estimated that the company would sell between 8,000 and 10,000 OVA1 tests total in 2010, and put the long-term market opportunity for the test at over 1 million units per year.

The company is "driving hard to tap into this [market] as quickly as possible," she said, noting that Vermillion has hired 11 salespeople since the beginning of the year, bringing its total number of employees to 23. She also said that a "key driver of market adoption will be the acceptance of the OVA1 clinical trial manuscript by a peer reviewed journal."

The company launched this clinical trial in 2007 to demonstrate OVA1's improved performance over current standards of care, which were physical and radiological exams. The trial eventually enrolled 550 patients across 27 clinical trial sites.

OVA1 received approval for Medicare coverage on March 11 and is being covered in the amount of $516.25 per test. The average reimbursement rate for the 342 tests recorded as revenue during the quarter was $571, which Page said indicated that private insurers offering higher reimbursement rates were approving OVA1, as well.

According to the company's licensing agreement with Quest, it receives a minimum of 25 percent of Quest's gross margin on sales of the test. Gardiner said that it was too early to say what future reimbursement rates would be, but did say she believed the $516.25 reimbursement rate offered by Medicare was "the floor."

In June, Vermillion received a European patent covering the use of the OVA1 biomarkers for the detection of ovarian cancer (PM 06/04/2010). According to Page it expects to receive a CE mark for the test by the end of 2010 and to launch commercially in Europe and beyond in 2011. The company's initial strategy involves working with Quest to market the test in England, India, and Mexico, she said. It also plans to explore expansion into other parts of Europe, Asia, and South America.

During the quarter, the company reduced its net loss to $698,000 from $1.8 million in the same quarter last year. Its second-quarter 2010 loss included non-cash expenses of about $371,000 in stock compensation expenses and $828,000 related to a debtor's incentive plan. Vermillion also recognized gains of $3.5 million from the exercise and fair value revaluation of warrants during the quarter.

On a per-share basis, it saw a loss of $0.07 for the quarter, compared to $0.28 in the year-ago period.

As of June 30, Vermillion's cash and short-term investments totaled $29 million. The company, which recently moved its headquarters to Austin, Texas, from Freemont, Calif. was relisted on the Nasdaq last month (GWDN 07/06/2010).

Future Plans

Vermillion's research and development spending rose nearly 58 percent during the quarter — to $938,000 from $595,000 in the same period the year before. According to chief science officer Eric Fung, the company's R&D efforts are currently focused on two primary areas: development of its Vasclir biomarker blood test for peripheral artery disease and development of OVA2, an expanded version of the OVA1 test.

"We're evaluating and validating biomarkers that may expand our ability to other diagnostic arenas in the field of ovarian cancer. Our initial plan for OVA2 includes additional biomarker discovery to enhance the overall positive predictive value and specificity achieved by OVA1," he said, noting that the company will provide an update on that program at the end of the year.

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With regard to the Vasclir PAD test, Vermillion plans to begin an intended use population study for the test by the end of the year, Fung said – the next step, he noted, in bringing it to market. Vasclir is the second test Quest accepted from the company as part of the partners' three-test strategic alliance agreement. According to Fung, PAD currently affects some 12 million Americans, with the incidence of the disease expected to rise as the incidence of diabetes increases.

A commercial release for Vasclir "depends on how far we get with the clinical trials," Page said, adding that it was still several years away, "certainly not 2010 [or] 2011."

Fung said that the company had put development of its Alzheimer's disease biomarker panel on the backburner. It received a US patent for the use of biomarkers for the diagnosis of Alzheimer's in June, but, Fung said, that reflected "work that was done a few years ago and is not currently an active program" (PM 07/02/2010).

"Obviously we have to allocate our efforts in R&D as judiciously as we can, and our primary areas of focus are OVA2 and PAD," he said.

Fung did suggest, however, that Vermillion might seek to develop the Alzheimer's biomarkers in the future.

"Because there are companies and because there are people interested in developing tests for Alzheimer's disease I think it represents a very important asset for this company," he said. "It represents an asset that we can continue to develop internally, or it may be an asset that we choose to partner out."

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