Vermillion this week reported that testing volume for its OVA1 ovarian cancer diagnostic is growing at a double-digit clip and that it stands to book a larger share of OVA1 revenues under a new agreement with Quest Diagnostics.
Despite the increase in OVA1 sales, however, company officials lowered their 2010 guidance from 8,000 to 10,000 OVA1 sales to a range of 5,000 to 5,500 sales for the year. During a conference call to discuss the company's third-quarter results, CEO Gail Page attributed the shift to a more time-intensive sales approach focusing on educating gynecological oncologists, and an initial failure to take into account the likely slowdown in physician visits during the holiday season.
The company posted third-quarter revenues of $413,000, $114,000 of which came from sales of OVA1 tests.
During the quarter, 1,973 OVA1 tests were performed, up 74 percent over the approximately 1,130 tests performed in the second quarter. The $114,000 in OVA1 revenue represented a 153-percent increase over the $45,000 in OVA1 sales the company posted the quarter before. The company did not report any revenues for the third quarter of 2009.
Early fourth-quarter results suggest that sales of the test have continued to grow at the same rate, Page said during the call.
The $413,000 in total revenues was a 20-percent jump from $344,000 in the second quarter, with the $299,000 not generated by OVA1 sales coming from license revenue related to the achievement of milestones under the company's strategic alliance with Quest.
The new deal with the diagnostic giant extends Quest's exclusivity period for OVA1 by two years, with an option for a third, and replaces the previous revenue split for OVA1 sales with new terms more favorable to Vermillion.
Under the old agreement, Vermillion received a royalty payment of 25 percent of Quest's gross profit on each OVA1 test sold. The new agreement, which will be applied retroactively to all tests sold since the product's commercial launch in March, provides Vermillion an upfront fee of $50 for every test performed plus 33 percent of Quest's gross profit.
Asked why the company negotiated an upfront fee as opposed to an even higher percentage of gross profits, Page noted that the fee would be helpful to the company from a cash flow perspective, particularly as it works to smooth out OVA1's reimbursement cycle.
"This agreement provides for us a certain amount of cash flow up front, and it allows us a certain time to really work with [Quest] and the payers to get the payments sort of ironed out and established," she said.
Vermillion's per-test revenues dropped to $91.20 for the quarter, down 45 percent from an average of $131.58 per test in the second quarter. However, Jeffrey Salzman, corporate director of reimbursement, said that the company didn't "believe that the average sales price numbers actually imply anything at this point," and that it expected "the rate of reimbursement to vary quarter-to-quarter or even month-to-month based on a number of factors including the payer mix and billing cycle, especially while payer coverage is first being established."
At the roughly $100-per-test reimbursement rate Vermillion has averaged since launching OVA1 in March, sales of 5,000 to 5,500 tests in 2010 would put the company's OVA1 revenues in the range of $500,000 to $550,000 for the year. That would be significantly less than the $9.7 million in OVA1 revenues the company predicted in a document filed with the SEC on Dec. 4, 2009. The same filing predicted $34 million in OVA1 revenues in 2011. At the current reimbursement rate, the company would have to sell 340,000 tests next year to meet that projection. In the United States, ovarian masses are detected in approximately 250,000 women annually.
The company, which received a CE mark for OVA1 in September, is planning an international roll-out for the test in 2011, Page said, and has begun talks with Quest about offering the diagnostic in India, Mexico, and England. It has also identified China and Brazil as markets of interest, she added.
During the call, Page also noted that Vermillion has begun an intended-use population study for its peripheral arterial disease test Vasclir in collaboration with researchers at the Colorado Prevention Center. The study, which Page said should allow the company to finalize the test's biomarker algorithm, will be completed in the summer of 2011.
Vasclir is the second test Quest accepted from Vermillion as part of the partners' three-test strategic alliance. PAD currently affects some 12 million Americans, with the incidence of the disease expected to rise as the incidence of diabetes increases. Last week Vermillion received $244,479 in Therapeutic Discovery Project tax credits for the development of Vasclir, as well as $244,479 for work on OVA2 – an expanded version of OVA1 (PM 11/05/2010).
The company's R&D spending jumped 191 percent in the third quarter to $1.1 million from $382,000 a year ago, and its SG&A costs rose to $2.9 million from $310,000 in the same period last year.
The firm's net loss for the quarter fell to $2.7 million, or $0.26 per share, from more than $11 million, or $1.72 per share, a year ago.
As of Sept. 30, it had $25.3 million in cash and cash equivalents.
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