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Vermillion Posts Flat Q2 2013 Revenues

Vermillion's Q2 Revenues Flat at $323,000

NEW YORK (Genomeweb News) – Vermillion reported after the close of the market Wednesday that its second quarter revenues were essentially flat year over year at $323,000 versus $321,000 in Q2 2012.

The company posted product revenue of $210,000, up 1 percent from $208,000 year over year. That revenue was based on 4,184 OVA1 ovarian cancer tests performed in Q2 2013 versus 4,150 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 firm's license revenue in Q2 was flat at $113,000.

In a statement accompanying the release of the results, Vermillion CEO Thomas McLain said that the company had faced "significant challenges from the changing regulatory and reimbursement environments in the US," noting, in particular, an April ruling by BlueCross BlueShield's Technical Evaluation Center that classified OVA1 as "experimental/investigational."

This ruling led to 10 BCBS plans reversing their positive coverage decisions for OVA1. And, while the company said that these reversals did not impact OVA1 sales in the quarter, it "has created market uncertainty," McLain said.

The company said it has "implemented a multi-front approach to address" the ruling, and noted that the opinion was "based on data published through 2012 and did not consider several important 2013 developments including publication of results from a second large confirmatory clinical trial of OVA1."

In addition to taking steps to address the BCBS ruling, Vermillion also signed during the quarter a cooperative research and development agreement with the US Army Medical Research and Materiel Command to assess health and economic benefits of OVA1. That agreement "is the first in a series of outcome and economic studies that will demonstrate the value of OVA1 and establish its benefit in improving health system efficiency," McLain said.

McLain also discussed the company's efforts to extricate itself from its licensing deal with Quest as part of a larger initiative to take a more active role in driving sales of OVA1. Raising the matter during a conference call following release of the Q2 results, he said that ending the Quest agreement would help Vermillion expand "the addressable market for OVA1 in the [US]" by allowing the company to offer the test through other reference and clinical labs.

As McLain noted, Vermillion in May filed a notice of default with Quest alleging "material violations, breaches, and failures to perform" by Quest under the companies' agreement. Under the terms of the agreement, McLain said, if a party fails to cure material defaults within 90 days of the notice, the other party can end the agreement.

Vermillion sent the notice on May 23, making August 21 the 90-day deadline. Quest has disputed Vermillion's assertions, McLain said. He declined to provide further details on the dispute.

Vermillion's net loss for the quarter was $2.1 million, or $0.11 per share, compared to a net loss of $2.0 million, or $0.13 per share, in Q2 2012.

The company's R&D expenses for Q2 were $554,000, down 45 percent from $1.0 million in Q2 2012. Its SG&A expenses were $1.9 million, down 37 percent from $3.0 million in the same period last year.

According to the company, the drop in operating expenses was due primarily to one-time items in 2012, including US Food and Drug Administration post-marketing study start-up costs, proxy contest and related litigation expenses, and CEO severance — items not repeated in Q2 2013.

Eric Schoen, Vermillion's chief accounting officer and vice president of finance, said that the company expected to spend $1.8 million to $2.3 million in cash on operations in the third quarter.

As of June 30, Vermillion had cash and cash equivalents totaling $16.4 million.

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