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Vermillion Sends Quest Notice of Default Alleging Breach of Strategic Alliance Agreement

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Vermillion this week sent Quest Diagnostics a notice of default under the companies' Strategic Alliance Agreement relating to Vermillion's OVA1 and Vasclir diagnostic tests.

The notice asserts "a number of material violations, breaches, and failures to perform by Quest Diagnostics under the Strategic Alliance Agreement." According to Vermillion, the alliance agreement states that "if a party fails to cure material defaults within 90 days of the date of the notice of default, the other party has the right to terminate the" agreement.

The move would appear to be an attempt by Vermillion to extricate itself from the agreement with Quest, which gives Quest rights to Vermillion's OVA1 ovarian cancer diagnostic and its Vasclir test for peripheral artery disease.

On a conference call last week following the release of its Q1 earnings, Vermillion CEO Thomas McLain announced that the company would be taking over from Quest Diagnostics as leader of OVA1 commercialization efforts (PM 5/17/2013).

The change, McLain said, is motivated by the firm's belief that the sales force of a large clinical reference lab is not necessarily best-suited to driving commercialization of a single specialty diagnostic like OVA1.

"As a high-value diagnostic, retaining current users and expanding into new accounts requires a specialty sales skill set," McLain said. "Coverage is also a significant factor in driving increased use of the test. That is not core to a high-volume reference laboratory business model."

Ending its agreement with Quest could allow Vermillion to market OVA1 and Vasclir through additional clinical reference laboratories as well as retain a larger percentage of revenues from the tests. Currently, Vermillion receives an upfront fee of $50 for every OVA1 test performed plus a royalty payment of 33 percent of Quest's gross profit.

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