NEW YORK (360Dx) – During Vermillion's Q1 earnings call this week, President and CEO Valerie Palmieri declared that the company had completed the rebuilding and transformation phases of its three-part business plan and was now ready to embark on the final phase, the growth stage.
The shift comes as rising per-test revenues and a slowing cash burn suggest a plausible path to profitability for the Austin, Texas-based diagnostics firm. But to get there the company will likely need to significantly boost sales volume of its OVA1 ovarian cancer test, something it has struggled, without success, to do since the test launched more than seven years ago.
In fact, since Vermillion began transitioning OVA1 sales from its former partner Quest Diagnostics to its subsidiary Aspira Labs in 2014, testing volumes have dropped dramatically — from 17,004 tests performed in 2013, to 16,839 in 2014, to 13,598 in 2015, and to 9,125 in 2016. In Q1 of this year, the company sold 2,293 OVA1 tests, keeping roughly even with its 2016 pace.
At the same time, the move to bring OVA1 testing in house has allowed Vermillion to capture more revenues per test, which has kept overall revenues more or less steady despite the drop in volume. The company posted full year revenues of $2.6 million in 2013, $2.5 million in 2014, $2.2 million in 2015, and $2.6 million in 2016. In Q1 2017, it had revenues of $726,000, putting it on pace for full year earnings of around $2.9 million.
However, even with Vermillion predicting that it will average less than $2 million per quarter in expenses for the remainder of 2017, that level of revenues would still leave the company far from profitable. To close the gap, the company is pursuing a strategy under which it will add both in-house salespeople to regions with high potential for sales growth, as well as ink deals with outside labs for coverage of particular areas. Both are approaches it has pursued before to little effect, but Palmieri suggested on this week's call that new data from recently completed studies, along with increasing payor coverage for OVA1 and new bioinformatic offerings, could this time yield more favorable results.
Vermillion is now adding two new sales representatives covering areas with large metropolitan populations as well as payor coverage for OVA1. She noted that during Q1, territories where sales representatives were present saw OVA1 sales grow 23 percent year over year, while sales in non-covered territories decreased 20 percent year over year, indicating the need for increased sales efforts to drive volume.
The company also plans to drive sales through relationships with outside laboratories, Palmieri said. She cited labs including Laboratory Corporation of America, Quest, Bio-Reference Laboratories, and Sonic Healthcare, saying that for these companies "50 percent of their revenue is women's health-based."
Palmieri said the company is looking to make agreements with such labs for OVA1 "to complement our sales force in regions where we don't have sales contracts but where there is a large metro base or where we have significant payor contracts."
Vermillion's previous attempt at outsourcing OVA1 sales — through its licensing agreement with Quest — proved unsatisfactory, as evidenced by its decision to terminate the agreement. Palmieri acknowledged this in comments last year similarly discussing potential OVA1 sales agreements with outside labs, saying that the company was "not looking to repeat Quest."
At that time, she said Vermillion was in late-stage discussions with several clinical labs and that an agreement was "eminent." During last week's call she said the company has "partnerships that are in process right now, and we have partnerships that are actually [about] to start."
Palmieri said the company aimed to increase its current sales capacity by 25 percent in coming quarters.
Vermilion has, in the past, significantly expanded its sales force without seeing much result in terms of increased sales. For instance, in 2014, the company tripled its direct sales force but saw OVA1 sales volume drop over the next year as it shifted its business internally from Quest to Aspira Labs.
One factor Vermillion hopes will lead to a more successful outcome from its current "growth" initiative is additions in payor coverage for OVA1. In the first quarter of 2017, Vermillion was at nearly 96 million covered lives for OVA1, which Palmieri noted represented roughly 30 percent of all covered lives in the US. The company is "now focused on turning these positive medical coverage decisions into contracts allowing patients to access OVA1 as an in-network benefit."
Also key are recent and soon-to-be-published studies that Vermillion hopes will bolster the clinical and economic case for OVA1. On last week's call, Marra Francis, Vermillion's chief medical officer, cited an economic impact study the company has submitted for publication that found that use of OVA1 for assessing ovarian adnexal masses could provide substantial savings, compared to use of the standard biomarker CA125.
She also noted a study published in the International Journal of Gynecological Cancer in February that looked at the performance of OVA1 in combination with a symptom index. The study, which was done in collaboration with Renata Urban, a gynecologic oncologist at the University of Washington, found that OVA1 used in combination with a symptom index could distinguish between cancerous and benign ovarian adnexal masses with a sensitivity of 100 percent and a negative predictive value of 100 percent. The combination's specificity was still relatively low, however, at 36.3 percent. Physicians have cited OVA1's low specificity as a significant shortcoming.
Vermillion is also trying to drive OVA1 sales through the introduction of what Palmieri called "bioinformatics" products, which combine OVA1 with additional data. It launched the first of these products last week at the National American Congress of Obstetricians and Gynecologists annual meeting. The product, called OVA1 plus, combines a patient's OVA1 score with transvaginal ultrasound. In a 2014 study in the American Journal of Obstetrics & Gynecology, the company and collaborating researchers found that combining ultrasound and OVA1 significantly improved specificity compared to either test done separately, though at the cost of lowered sensitivity.
Palmieri said Vermillion was planning in Q3 to launch a second bioinformatics test. In the past, the company has referred to these tests as part of its OVAx pipeline, and said that it aimed to launch a new such test every two to two-and-a-half years.
Vermillion is also continuing its limited rollout of its Overa product, a second-generation version of OVA1, though the company has not yet attributed any revenue specifically to sales of that test.
It is also building its Aspira IVD clinical services business, launching a global DLL-3 companion diagnostic enrolling trial for a large pharma firm that Palmieri said the company believes will put it "on the radar screen with the other pharma companies."
She said, however, that slower-than-expected trial enrollment could delay revenues from the deal, noting that this could lead to lower than anticipated revenues in Q3.