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Vermillion Shareholders Seek to Replace Current Board Members Including CEO Page


This story originally ran on Feb. 29 and has been updated to include comments from an investor.

By Adam Bonislawski

Three Vermillion stockholders this week notified the firm that they intend to nominate two people for election to the company's board as they seek to replace as directors company president and CEO Gail Page and John Hamilton, a former executive at Depomed.

The shareholders — George Bessenyei, Robert Goggin, and Gregory Novak — issued a statement today and have filed soliciting materials with the US Securities and Exchange Commission. They plan to nominate Novak and Goggin to the board at Vermillion's upcoming annual shareholder meeting.

Goggin is an owner and director of law firm Keller & Goggin. Novak is managing partner and CEO of law firm Novak Druce + Quigg as well as a partner in Oxford Capital Group, the Switzerland-based investment firm of which Bessenyei is also a partner.

In their statement, the three investors said Vermillion has been "plagued by gross mismanagement," noting that the company's stock price has declined by more than 90 percent in the past two years.

Citing Vermillion's 15,000 OVA1 sales in 2011 and the potential of the company's Vasclir test for peripheral artery disease, they asserted that "the sum of [the company's parts] is likely ten times higher than the current market capitalization of Vermillion."

Vermillion has a market cap of around $21.1 million. The firm's shares closed yesterday at $1.33 and were up nearly 8 percent at $1.43 in early Wednesday trade on the Nasdaq. Its 52-week high was $7.60, reached on May 13.

The move by the trio follows a letter Bessenyei wrote to Vermillion shareholders in December in which he said he had learned that Medicare had been denying OVA1 claims at a rate of more than 80 percent, a fact that, if true, could significantly affect the firm's revenues from the test.

In a document filed with the US Securities and Exchange Commission, Page responded that a figure Bessenyei cited regarding Vermillion's Medicare billings was incorrect. However, her response did not rebut or otherwise address the 80 percent denial rate Bessenyei claimed in his letter (PM 12/23/2011).

Under Vermillion’s licensing deal with Quest, the company receives an upfront fee of $50 for every OVA1 test performed plus 33 percent of Quest's gross profit. It is this latter portion that could be affected by reimbursement rates. Vermillion receives from Quest cash each month representing an estimated payment of this variable rate revenue, and once a year the parties go through a “true-up” process to determine the precise amount of variable rate revenue owed.

According to Vermillion, these "true-up" figures for 2011 are due at the end of the month, after which the company will be able to provide better clarity on OVA1 reimbursement levels for the year and their effect on revenues.

Vermillion stockholder George Kafkarkou told ProteoMonitor that, although he was not associated with plans to nominate Novak and Goggin, he supported the effort.

In addition to the falling stock price, Kafkarkou, who owns 120,000 shares in the company, cited concerns about the recent departure of "seemingly very capable" personnel, including former chief financial officer Sandra Gardiner, who left the company in October, and chief medical officer Eric Fung, who in November left fulltime employ at the firm and now works for the company as a consultant.

"You see the stock price crashing down; you see key people leaving the company … you see … a lack of sharing with shareholders in the public domain in terms of some reimbursement issues," Kafkarkou said. "So all these things do not breed confidence."

Have topics you'd like to see covered in ProteoMonitor? Contact the editor at abonislawski [at] genomeweb [.] com.

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