Please standby. Good day and welcome to the Vermillion Second Quarter Results Call. Today's presentation is being recorded. At this time, I would like to turn the conference over to James LaFrance, Chairman, President and CEO. Please go ahead, sir.
Thank you, Lia. Good afternoon, everyone. Thank you for joining us. As has been discussed in private calls Vermillion is in commercial transition period. We believe that in order to realize full value of our novel and proprietary OVA1 test in today's changing market, Vermillion must take direct control of our commercial progression. We need to be able to serve and message our customer base directly, and we need to be able to properly price the value of our products in the market. We've undertaken several initiatives in 2014 to enable our commercial transition. We've built up our commercial management team and sales, marketing and reimbursement. At the start of quarter two we tripled the size of our direct sales force. And in June we successfully opened our own CLIA lab testing facility ASPiRA LABS. We began to see the impact of these actions in Q2 with a 10% order volume increased over the prior quarter. The commercial transition will accelerate over the balance of the year as we complete the negotiations which will redefine our strategic relationships with Quest Diagnostics. Beside our commercial transition efforts, we continue to make progress on our product pipeline. We've developed the option to speed up the introduction of our second generation OVA1 by combining our platform migration regulatory path with biomarker panel advancements rather than sequencing them serially. This will allow us to potentially launch our product improvements to OVA1 in the second half of 2015, six months earlier than planned. For more details on this change, I'll turn to Donald Munroe, our Chief Scientific Officer. Donald?
Thanks, Jim. First, I'll talk about our platform migration program and then some important progress we've made towards a second generation OVA1 biomarker panel. Based on market feedback and our benchmarking, we are announcing today the selection of the Roche Cobas integrated IBD system as our initial choice for OVA1 platform migration and development of the second generation OVA1 product. Roche is one of the top IBD automation companies worldwide and currently offers all five OVA1 analytic. In addition, Roche offers a wide range of other assets and the ability to automate custom asset and panels on board. Development work to migrate OVA1 to the Cobas platform was completed earlier this quarter successfully meeting all development objectives, this included requirements gain from our pre submission meeting with FDA last quarter. At the same time, we initiated parallel development work on the Zhang Z OVA1 product design to see whether we could move up our original 2016 launch date. You may recall that the design goal for the Zhang Z product was to reduce the rate of benign positive cause without sacrificing OVA1 outstanding sensitivity, negative productive value and detection of early stage ovarian cancer. Our team working together with our CROs and collaborators at Johns Hopkins has nearly completed this development work and will soon be ready to start the validation phase. Our Zhang Z development results look promising. In fact, after comparing them with new market research from customers, gynecologic, oncologists and payers, we have made the decision to show further effort on platform migration of the current OVA1 panel in order to focus on the Zhang Z panel, targeting the launch in the second half of 2015. At this time, we are not prepared to disclose specific Zhang Z biomarkers or development results. But by the end of 2014, we plan to submit abstract describing the development result for presentation and publication in early 2015. So you can expect to hear more in the future calls. We will also discuss with FDA this change in plan and the most effective method to pursue 510(k) clearance of the approved OVA1 test. Jim?
Thanks, Donald. I would now like to ask Eric Schoen, our VP, Finance and Chief Accounting Officer to review our second quarter financial performance. Eric?
Thanks, Jim. Today we filed our second quarter 2014 financial results in a press release and our Form 10-Q with the Securities and Exchange Commission. Both of which are available for download via the Investor section of our website at www.vermillion.com. Total revenue for the second quarter of 2014 was $324,000, comprised of $211,000 from product sales of OVA1 and $113,000 from license revenue. Second quarter 2014 product revenue was derived from 4,203 OVA1 [4,223, see press release] test performed. This was consistent with the 4,184 test performed in the year ago quarter. While test volumes were flat with the prior year, we were pleased to see the bounce back from the lower Q1, 2014 volume of 3,817 test, representing a 10% quarter-over-quarter increase.
Total revenue for the six months ended June 30, 2014 was $629,000. $402,000 from product sales of OVA1 and $227,000 from license revenue. We do expect to see a benefit in the form of increased test volumes from the April 2014 expansion of our field sales force in the second half of 2014. OVA1 revenue in 2014 included only the $50 fixed portion of revenue per test from the OVA1 test performed. The OVA1 product revenue in both periods did not include the additional royalty component of revenue based upon 33% of Quest Diagnostics' gross margin. The company recognizes this portion of revenue when reported by Quest Diagnostics via an annual true-up after the end of the calendar year.
Operating expenses for the three and six months ended June 30, 2014 were approximately $5.8 million and $10 million respectively. Operating expense included approximately $0.4 million of non cash stock based compensation expense in the second quarter and $0.5 million in the first half of 2014. This compares with operating expenses of $2.4 million and $5.3 million for the same three and six months period of 2013. Operating expenses in the prior year included just $0.1 million and $0.2 million of non cash stock based compensation expense in the same three and six months period.
The year-over-year increases are due to our significant investments in operations in 2014. This includes cost to the expansion for our field sales force which was roughly tripled in April 2014 and cost to open and brand ASPiRA LABS. We've also extended our research and development effort to bring our next generation diagnostic test to market.
Net loss for the second quarter was $5.6 million or $0.15 on weighted average shares outstanding of $35.9 million. Total net loss for the six months ended June 30, 2014 was approximately $9.5 million or $0.27 per share on weighted average shares outstanding of $35.8 million. Our total shares outstanding at June 30, 2014 was $35.9 million.
Cash and cash equivalent at June 30, 2014 were $22.2 million. The company utilized $3.8 million in cash in the second quarter. We expect $4.5 million to $5.5 million of cash to be utilized in the third quarter. We expect the third quarter of 2014 to be our high point for cash utilization before normalizing at a lower level beginning in the fourth quarter.
Finally, I want to give an update on our ASPiRA LABS. We were pleased to open the lab at end of June. For those who of you have experience with CLIA lab, it is just one sense to say this successfully open the lab. However, the amount of effort that goes into the one sense and getting it right is significant considering the customer logistics, regulatory and operational element. We spent approximately $600,000 on direct lab cost in the first half of 2014 with the bulk of those cost in charge to general and administrative expense prior to the lab opening. We will continue to incur both recurring and non-recurring costs in the third and fourth quarters before settling into a more normal state of lab operations and cost. We are now regularly processing test through the lab and we'll begin to revive volume and other metrics once volume reaches meaningful levels. Remember, the lab is only open for one week in the second quarter. We are still in the process of implementing both our medical billing and laboratory information management systems and expect substantial completion in the third quarter. The billing and collection process for laboratory billing is complex and time consuming, particularly in the case of a claim denial and appeal. We also expect that initially we will be recognizing revenue on a cash basis and thus they will be a lengthy lag period between performing a test and being able to recognize ASPiRA revenue for that test. Accordingly, we believe the relevant metrics for the second half of 2014 is the test volume and growth rate for ASPiRA rather than GAAP revenue recognized in our financial statement.
Now, I'll turn it back to Jim.
I mentioned previously in discussion on commercial transition and need to build out our commercial management team expertise. This morning we issued a press release on two critical commercial hires. One of the biggest challenges facing diagnostic companies today is reimbursement. It is a dynamic, constantly shifting environment, we can drive adoption and demand creation all day long but in the end to be successful you must convince both private and public payers to cover your test at an adequate value level. The hurdles for gaining payer acceptance in the current environment is high and getting higher, specifically as it relate to Vermillion, we've relied on Quest Diagnostics for reimbursement and payer coverage. As we move into a do it yourself mode with reimbursement, is essential to our success to have a strong payer relations capabilities within our organization. As such we've created the newly established executive management role of vice resident of sales and manage markets reporting to me. Recognizing that reimbursement is one of the biggest sales challenges, we will restructure and have one leadership role directing both functions. We will be in a position to fill and announce these positions soon.
In today's press release we announced the hiring of David Jansen to newly created position of Vice President of Marketing. David joined us from women's health industry leader Myriad Genetics where he has helped drive their tremendous success in establishing BRCA testing as a standard of care in breast cancer. David brings over 20 years of marketing, strategy and execution experience and will be directly responsible for our positioning, messaging and branding in the market place. With this level of high caliber hires with specific discipline expertise, I've determine that the flatter management structure is called for to ensure high levels of communication and collaboration amongst the management team. As such with these hires we have eliminated the role of chief commercial officer. Marian Sacco who joined the company in December is departing the company.
Operator, this concludes our prepared remarks and we are ready for questions.
(Operator Instructions) And it appears that there are no questions at this time. And thing is that we have no questions at this time. I would like to turn the call over to our presenter for additional remarks.
Thank you, Lia. In closing, thank you again for your interest today. We are company going through a significant commercial transition. We made good progress in Q2 on this transition with the opening of ASPiRA LABS. We demonstrated that our new sales force can drive order growth. We advanced our product pipeline and added depth to our management team. It is strong, steady progress quarter-on-quarter which will eventually lead us to significantly higher revenue base, profitability and proper valuation over time. Thank you.
And ladies and gentlemen, that does conclude today's conference. Thank you for your participation.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!