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Vermillion Sees Spike in OVA1 Sales But Path to Profitability Remains Challenging

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NEW YORK – Having posted two solid quarters, cancer diagnostics firm Vermillion appears at last to be making progress at growing sales of its ovarian cancer test OVA1.

The company still faces a challenging path to profitability, however, as it struggles to comply with Nasdaq listing requirements and could soon see competition from a new test positioned to directly compete with OVA1.

In Q3 2019, Austin, Texas-based Vermillion posted revenues of $1.3 million, up 66 percent from $774,000 in the year-ago quarter. Product revenues were $1.2 million, up 68 percent from $738,870 in Q3 2018, with 3,602 OVA1 tests performed during the quarter, up 82 percent from 1,981 OVA1 tests performed in Q3 2018.

In Q2 2019, revenues were up 61 percent year over year, marking a sharp shift in sales trajectory after roughly half a decade of essentially flat OVA1 sales volumes following the transition of sales from Vermillion's former partner Quest Diagnostics to its subsidiary Aspira Labs in 2014.

On the company's Q3 earnings call this week, Vermillion President and CEO Valerie Palmieri said the company expected the strong revenue growth to continue and projecting that it would exceed 100 percent in Q4 2019.

The company attributes the strong growth to several factors, including significant investment made in its sales force in recent years as well as the launch in Q4 2018 of OVA1plus, a test that combines the original OVA1 assay with the second-generation Overa assay.

According to Vermillion, OVA1plus improves on the specificity of the original test, which has been an issue for some physicians. Additionally, the test is available through a decentralized platform the company launched in Q4 2018. That platform allows hospitals and large doctors groups to perform the test locally and send the data to Vermillion for analysis, an approach the company said has improved its reach in the geographic areas it targets.

Vermillion has also moved into genetic testing, launching in June its Aspira Genetix test, which tests for hereditary breast and ovarian cancer (HBOC) syndrome. Currently, it offers this test separately from OVA1 but Palmieri said during the earnings call that it planned to incorporate this genetic information into its OVA1 reports "in the coming quarters," adding that the company believed it would "refine the risk assessment for ovarian cancer by incorporating HBOC into the [OVA1] calculation."

Despite the sales force expansion, new releases, and upswing in test sales, however, Vermillion is still a ways from profitability. While revenues were up 66 percent in Q3, the company's net loss was up 44 percent, from $2.7 million in Q3 2018 to $3.8 million in Q3 2019. Palmieri said the firm would break even at somewhere between 20,000 and 25,000 OVA1 sales annually, meaning it would need to see around 100 percent growth over its Q3 2019 sales numbers.

Meanwhile, Vermillion's stock price has not risen above $1.00 per share since June, which prompted a delisting warning from Nasdaq in August. The company has until Jan. 29, 2020, to regain compliance, which will be achieved if the closing bid price of its stock is at or above $1 for a minimum of 10 consecutive business days at any time prior to that date.

Robert Beechey, the company's CFO, said on the earnings call that Vermillion hopes to drive its stock price upward through continued growth and a reduction in cash utilization. He announced that the company was closing its in vitro diagnostics services business, which he noted has "generally had negative margins."

He added that the company has the capacity in place to meet higher demand with minimal added cost and that it expects "gross margin to continue to expand as we ramp up volume and achieve scale."

Palmieri said on the call that she did not think Vermillion would need to raise capital in the "foreseeable future." The company said in its form 10Q that it believes its "current working capital position will be sufficient … for at least the next 12 months, though it also noted that "management believes that successful achievement of our business objectives may require additional capital."

Vermillion finished the quarter with $14.6 million in cash and cash equivalents.

The company could also face competition in the next year or so from diagnostic startup InterVenn, which recently announced interim results from its mass spectrometry-based glycoproteomic test for triaging pelvic masses, an assay aimed at the same market as OVA1 and OAV1plus.

InterVenn CEO Aldo Carrascoso said that in data from 200 prospectively analyzed patients, it's test distinguished between benign and malignant masses with a sensitivity of 91 percent and specificity of 92 percent. He did not provide a breakdown of the test's performance by cancer stage but said that it had performed well across all stages.

Assuming the InterVenn data holds up, its test's performance would be competitive with OVA1plus in terms of sensitivity and significantly better in terms of specificity, though, unlike Vermillion, InterVenn has not yet published any data on its test in peer-reviewed publications, making it difficult to assess its effectiveness.

InterVenn is currently working to enroll 1,200 patients to validate its ovarian cancer test and is targeting a commercial launch in Q4 2020, Carrascoso said.

Vermillion aims by that time to be pushing beyond the pelvic mass triage space where it has operated thus far and into additional applications, most immediately monitoring of patients with suspected benign masses who are not recommended for surgery.

Palmieri said Vermillion has developed a seven-marker panel that it believes could be useful for monitoring this cohort, which comprises 500,000 to 1 million women in the US. The company is currently running a prospective study evaluating the test and plans to launch the assay following completion of the study.

Palmieri added that Vermillion also believes the seven-protein panel could be useful for monitoring asymptomatic patients with BRCA mutations predisposing them to ovarian cancer.