Vermillion Reports Fourth Quarter and Full Year 2013 Results

Vermillion, Inc. has reported on its results for the fourth quarter and full year ended December 31, 2013.

Q4 and 2013 Key Developments

• OVA1® product revenue increased 29% to $2.1 million in 2013 versus 2012 due primarily to improved claims resolution and higher realized revenue per test.
• For the full year 2013, OVA1 tests totaled 17,004 tests, up 3% from 16,460 in 2012. For areas where Vermillion sales representatives called on physician offices, volumes increased by more than 15% from 2012.
• At December 31, 2013, the company's cash and cash equivalents totaled approximately $29.5 million, up from $8.0 million at the end of the previous year. The increase included $17.6 million received in connection with the exercise of common stock warrants in December 2013.
• During December 2013, the Center for Medicare & Medicaid Services (CMS) issued its final Clinical Lab Fee Schedule determinations. The guidance specifies that pricing for OVA1 will be determined using a market value based method (Gap-Fill). This resolved a significant market concern regarding the methodology for pricing OVA1. Vermillion will next pursue a national price through CMS for its OVA1 test in 2014.
• Two clinical publications in the quarter provided additional evidence to help physicians and health care providers understand the clinical value of OVA1. One study showed the positive performance of OVA1 in triage of women with early-stage cancer compared to today's standard of care. The second study assessed the value of integrating OVA1 into standard care practices to help assure a gynecologic oncologist is consulted when a woman is at higher risk for an ovarian malignancy.
• James T. LaFrance joined the company's board and was elected chairman, bringing almost 30 years of diagnostic industry experience to the company's board of directors.
• Marian E. Sacco joined Vermillion as senior vice president of sales and marketing and chief commercial officer. She brings more than 25 years of diagnostics experience in product development, worldwide marketing, operations and sales management in both private and public companies focused on women's health and oncology.

Q4 2013 Financial Results
Total revenue in the fourth quarter of 2013 increased 39% to $1.6 million from $1.1 million in the same year-ago quarter. Fourth quarter of 2013 revenue was comprised of $1.5 million in OVA1® product revenue and $113,000 in license revenue.

The OVA1 product revenue in both quarters includes an additional royalty component of revenue based on 33% of the Quest Diagnostics gross margin on OVA1 tests. Vermillion recognizes this portion of revenue when it is reported by Quest Diagnostics in a 'true-up' after the end of the calendar year.

Fourth quarter of 2013 product revenue was comprised of $211,000 from 4,218 OVA1 tests performed (at the fixed $50 per test) and $1.3 million from the 33% royalty on 16,745 OVA1 tests reported by Quest Diagnostics as resolved in 2013. The resolved tests include both reimbursed and unreimbursed tests for which Quest Diagnostics considers the payment status as final.

By comparison, revenue in the fourth quarter of 2012 included $213,000 of product revenue from 4,260 OVA1 tests performed (at the fixed $50 per test), and $816,000 from the 33% royalty on 13,709 OVA1 tests reported by Quest Diagnostics as resolved in 2012.

Total operating expenses in the fourth quarter of 2013 increased to $3.3 million from $2.4 million in the same year-ago quarter. The increase was primarily due to expanded research and development headcount and Johns Hopkins University collaboration costs to advance Vermillion's platform migration and next generation test.

Net loss for the fourth quarter was $1.8 million or $(0.07) per share, as compared to a net loss of $1.4 million or $(0.09) per share in the same year-ago quarter.

Full Year 2013 Financial Results
Total revenue for the full year of 2013 increased 23% to $2.6 million from $2.1 million in 2012. Total revenue in 2013 was comprised of $2.1 million in product revenue from OVA1 and $454,000 in license revenue. Product revenue from OVA1 in 2013 included $851,000 from 17,004 OVA1 tests performed (at the fixed $50 per test) and $1.3 million from the 33% royalty reported by Quest Diagnostics for 2013.

By comparison, revenue in 2012 was comprised of $1.6 million in product revenue from OVA1 and $454,000 in license revenue. Product revenue from OVA1 in 2012 included $824,000 from 16,460 OVA1 tests performed (at the fixed $50 per test) and $816,000 from the 33% royalty reported by Quest Diagnostics for 2012.

For the full year of 2013, total operating expenses were $11.3 million as compared to $11.4 million in 2012.

For the full year of 2013, net loss was $8.8 million or $(0.42) per share as compared to a net loss of $7.1 million or $(0.48) per share in 2012. The prior year included one-time gains on a sale of an instrument business and a litigation settlement totaling $2.5 million.

As of December 31, 2013, cash and equivalents totaled $29.5 million. The company utilized $2.9 million in cash in the fourth quarter of 2013, and expects between $3.5 million and $4.0 million in cash outlay during the first quarter of 2014. The expected increase is due to ongoing costs of the company's research and development programs, as well as expansion of its sales force in 2014.

Management Commentary
"Our revenue growth in 2013 demonstrates the value of Vermillion's increased efforts in directly promoting the use of OVA1 in the U.S. market," said Thomas McLain, Vermillion's president and CEO. "With the knowledge and experience gained during the year, we plan to significantly expand our sales efforts in 2014. While we will continue to partner with Quest Diagnostics to make OVA1 available in the U.S., we expect that our direct efforts will lead to a higher volume of tests and increased revenue per test. We plan to apply the proceeds from the warrant exercise in December to support this expanded direct commercialization effort, as well as advance our next-generation ovarian cancer diagnostic."