Vermillion said this week that it sold more than 3,000 of its OVA1 ovarian cancer tests in the first quarter and generated $431,000 in total revenue, compared to revenue of $73,000 in Q1 2010.
The company posted product revenues of $317,000, compared to none a year ago, and licensing revenues of $114,000, compared to $73,000 in Q1 2010. It said that 3,080 OVA1 tests were performed during the quarter, representing a 5 percent sequential increase over the fourth quarter of 2010. This number fell within the firm's guidance of 3,000 to 3,500 tests for the quarter, but its results fell short of analysts' expectations of $520,000 in revenue.
During a conference call following the release of Vermillion's Q1 results, CEO Gail Page noted that the company has had two peer-reviewed manuscripts accepted for publication in the June edition of Obstetrics & Gynecology. These papers, one of which was published this week in the journal's online edition, could help drive physician adoption of the test, said Laura Havrilesky, a gynecological oncologist at Duke University.
Vermillion emerged from Chapter 11 bankruptcy in January 2010 and began offering OVA1 two months later. Sales of the test, however, have lagged behind expectations, with the company lowering its 2010 guidance from an initial 8,000 to 10,000 tests to 5,000 to 5,500 tests and ultimately selling 6,155.
Havrilesky suggested that these slower-than-expected sales numbers could stem from the lack of peer-reviewed data available on the test, something, she added, that the Obstetrics & Gynecology papers might remedy.
"That is exactly the forum for this kind of data," she told ProteoMonitor, noting that positive results in a peer-reviewed journal would be crucial to wider acceptance of the test by the gynecological community.
In particular, Havrilesky said, articles on OVA1 in peer-reviewed publications would be essential to convincing medical organizations like the American College of Obstetricians and Gynecologists to incorporate the test as part of their patient care guidelines, which, she added, "is what would actually really drive the business of this type of a test."
Page suggested likewise, saying on the conference call that what the company is "really striving to get [its] test to be the standard of care" — a goal that she said would ultimately lead to profitability.
The company is still some ways from that goal. As CFO Sandra Gardiner noted on the call, given Vermillion's current spend rate of roughly $4 million a quarter, it would have to sell between 65,000 to 80,000 tests this year to break even. Vermillion forecast that 3,200 to 3,500 tests will be performed during the second quarter, but did not provide full-year sales guidance for OVA1.
Gaining the endorsement of oncological gynecologists like Havrilesky remains key to the company's OVA1 strategy, Page said, "because the gynecologists will rely on the consultation of these specialists in determining when to best use OVA1."
Speaking before either of the Obstetrics & Gynecology papers were available online, Havrilesky noted that it appears OVA1 could be useful in helping physicians determine whether a patient's pelvic mass is likely to be cancerous — in which case they might choose to send them to a gynecological oncologist for follow-up.
However, she said, the question remains of how much value the test really adds. "It's not clear to me from the data that's been presented so far what the difference is between the ACOG guidelines for referring patients with a mass to a [gynecological] oncologist versus the performance of [OVA1] for that," she said.
The numbers presented in the paper released this week essentially confirm the data on the test that was previously available, demonstrating that replacing CA125 with OVA1 increased the sensitivity of the ACOG referral guidelines from 77 percent to 94 percent while dropping specificity from 68 percent to 35 percent. Previously released numbers on the test had shown that it increased sensitivity from 72 percent to 92 percent and dropped specificity from 60 percent to 36 percent compared to CA125. The CA125 test is currently the standard protein-based diagnostic for ovarian cancer.
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The high sensitivity but low specificity of OVA1 indicates that while the test would catch more cancers, it would also result in more patients being sent to specialists unnecessarily. This, Havrilesky said, could be one of the things making physicians reluctant to embrace the product, as unnecessarily passing on patients to a gynecologic oncologist is undesirable in terms of both patient care and lost business for the referring gynecologist.
"If you're a gynecologist and you're sending every single patient who comes in the door with a problem out to a specialist, that's perhaps not financially good and also perhaps not really in the best interest of all your patients," she said. "Looking at those [specificity] numbers, if you were sitting in your general OB-GYN practice, they might be a little concerning – 'A lot of my benign cases are going to go out the door because I'm doing this test on everybody.'"
Remarks by Page during the earnings call suggest that the company is aware of this concern. Discussing the development of Vermillion's next-generation ovarian cancer diagnostic OVA2, she cited initial data presented by its collaborators at Johns Hopkins University describing biomarkers that can improve on the clinical specificity of CA125.
"Improving on clinical specificity will be a key feature in future tests for the diagnoses of ovarian malignancy," she said.
In an e-mail to ProteoMonitor, Andrew Berchuck, director of gynecologic oncology at Duke University Medical Center and former president of the Society of Gynecologic Oncologists, said that the relatively high cost of OVA1 is one of his main issues with the test.
OVA1 "costs $650 compared to $50 for a CA125 [test]," he said. "And if one wants to add a second marker that complements CA125, they can order a [human epididymis protein 4 test] for $50. So the OVA1 test is not a great value, especially since its value is not that much better than CA125 alone."
According to Page, roughly 2,000 physicians have ordered an OVA1 test, which represents 5 percent of the reported gynecologists in the US. Internal company data "reflects support" for the test from approximately 25 percent of the country's 800 practicing gynecologic oncologists, she said.
Page also announced on the call that Vermillion and Qiagen have partnered to create a pilot medical education program starting in June that will offer gynecologists "the latest in gynecological cancer diagnosis." The program will launch in six locations in the US and will be targeted to general gynecologists, offering information on detecting and managing ovarian and cervical cancers. Both firms expect to offer the program in the third and fourth quarters on a wider basis.
In addition to OVA1 and OVA2, Vermillion continues to work on its peripheral artery disease diagnostic Vasclir. The company is a little more than halfway into enrolling patients for an intended-use study for the test, said chief scientific officer Eric Fung. He added that the company expects to have an algorithm for the test as well as some top-line data in the third quarter and then plans to arrange a pre-investigational device exemption meeting with the US Food and Drug Administration.
Vermillion also announced changes to its corporate bylaws, shortening from 12 months to 90 days the advance notice shareholders must give regarding matters they wish to vote on at the annual meeting. The changes, which will take effect with the 2012 shareholder meeting, come after recent criticisms by James Besser — a managing member of Manchester Management, a Boston-based hedge fund that holds a nearly 10 percent stake in the firm — that management is unresponsive to shareholders and has eroded the value of the company's shares (PM 04/22/2011).
Besser's concerns were not assuaged by the changes, however. In a letter sent to Vermillion on May 12 and filed with the US Securities and Exchange Commission, he said that due to his dissatisfaction with the company's performance, he would be withholding the vote of his proxy for the June 6 meeting "until alternate write-in candidates can be proposed."
The amended bylaws, he said, failed to address his issues with management, noting that "the change in the written notice period will not be put into effect until the 2012 annual meeting … by which time Vermillion will have spent $30 million of capital at the current burn rate."
For the first quarter, Vermillion narrowed its net loss by 63 percent to $4.3 million, or $.34 a share, from $11.6 million, or $1.14 a share, a year ago.
Its R&D spending rose to $1.2 million, a 60 percent increase from $748,000 in the prior-year period. SG&A costs rose 57 percent to $3.6 million from $2.3 million.
It ended the quarter with $40.2 million in cash and cash equivalents.
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