Vermillion's (VRML) CEO Valerie Palmieri On Q1 2016 Results - Earnings Call Transcript

| About: Vermillion, Inc. (VRML)

Vermillion, Inc. (NASDAQ:VRML)

Q1 2016 Results Earnings Conference Call

May 16, 2016, 04:30 PM ET


Valerie Palmieri - President and CEO

Eric Schoen - VP, Finance and CAO

Donald Munroe - SVP, Business Development and CSO


Mark Massaro - Canaccord Genuity

Mary Kate Gorman - Canaccord Genuity

Adam Evertts - LifeSci Capital

George Cafocaru - Private Investor



Good afternoon, ladies and gentlemen and welcome to this First Quarter 2016 Vermillion’s Earnings Conference Call. My name is Rebecca and I'll be your coordinator for the call today.

With me today are Valerie Palmieri, President and Chief Executive Officer; Eric Schoen, Vice President of Finance and Chief Accounting Officer; and Dr. Donald Munroe, Senior Vice President of Business Development and Chief Scientific Officer; This afternoon they’ll recap first quarter 2016 performance and discuss key accomplishments and priorities in 2016.

Before we get started, I would like to point out that there will be a replay of this conference call available via telephone and Internet. Please refer to today’s press release for replay information. This presentation contains and answers to today’s questions may contain forward-looking statements. Including statements regarding Vermillion’s plans relative to trial services business as Vermillion’s plans to commercialize Overa and anticipated use of proceed for Vermillion’s loan from the State of Connecticut, Vermillion’s plan with respect to launching a pelvic mass registry, including its stability to finalize a grand contract with the Cancer Prevention and Research Institute of Texas to help fund the registry, anticipated tests and in future periods, expected progress with respect to Vermillion’s strategic plan.

Vermillion’s ability to recapture clients as part of its sales initiatives and Vermillion’s ability to establish in the case of Overa and continue to improved in the case of the OVA1 payer coverage for its test including though additional clinical utility and help economic publication. You are cautioned not to place undue reliance on forward-looking statements.

Vermillion is providing its information as of the date of the conference call and does not undertake any obligation to update any forward-looking statements contained on this call as a result of new information, future events or otherwise except as required by law. Forward-looking statements reflect management’s current estimates, projections, expectations or beliefs and involve risks and uncertainties that could cause actual results and outcomes to be materially different.

Risks and uncertainties that may affect the future results of the company include, but are not limited to the competitive environment, the speed of market adoption of Vermillion’s products, Vermillion’s ability to commercialize Overa inside and outside of the United States, Vermillion’s ability to enter into a new line of business with ASPiRA IDB incorporated, Vermillion’s ability to develop and commercialize additional diagnostic products and achieve market acceptance with respect to those products, changes in government regulations, Vermillion’s ability to obtain and maintain required regulatory approvals, payer reimbursement and other factors as described in the Vermillion annual report on Form 10-K of 2015 and Vermillion’s quarterly report on the Form 10-Q for the first quarter ended March 31, 2016. Following the Vermillion’s teams remarks, we will open the call for your questions.

Now I would like to turn the call over to Ms. Palmieri. Please go ahead.

Valerie Palmieri

Thank you, Rebecca. Good afternoon everyone and welcome. Our update today will include a review of our progress on our strategic plan as well as a review of our first quarter 2016 financials and results.

Let me start with our strategic plan. For 2016 we have two phases of our plan. The two phases are number one, a transformation phase, which begin in 2015 and plans to continue through 2016. And number two, a domestic and international market expansion and growth phase, which we believe will demonstrate meaningful results in 2016 and beyond.

Let me first address the transformation phase of our strategy. This phase changes our focus from solely a technology license company to a licensing plus a diagnostic service company through ASPiRA Lab.

In addition, we've formed a brand new IVD researches -- research services lines of business known as ASPiRA IVD, which we plan to meet the unique research needs of the in vitro diagnostics or IVD manufacturers studying high complexity tissue and genetic assays. I will discuss this new line of business in greater detail later in today’s call.

Our transformation phase for 2016 includes five major objectives, first and foremost, our 510(k) marketing clearance from the U.S. Food and Drug Administration for Overa; as well as our targeted product Overa. Second, the continued development and publication of strong health economics and Clinical Utility Study Publications to continue to drive deposit medical policy coverage and guidelines for our products.

Third, the creation of two new ASPiRA awareness and distribution channels. Number one, the initiation of international distribution arrangement and number two, the creation of our direct-to-women campaign otherwise known as the OVA1 awareness program.

Fourth is the kickoff of a first in kind pelvic mass registry to support the development of new products and predictive analytics in ovarian cancer as well as a differential diagnosis of debilitating benign diseases that also present at pelvic masses and lastly, the diversification of our revenue channels and maximization of our operating infrastructure.

Last month, we formed a new wholly owned subsidiary within the ASPiRA channel strategy called ASPiRA IVD. We plan to offer IVD clinical trial services to third party customers through ASPiRA IVD. Our goal for ASPiRA IVD is to become a leader in IVD trial services and to enhance our pipeline of future technologies by fostering relationships with the IVD companies that use ASPiRA IVD services.

I will now go into detail on the first objective. As reported in our last earnings call, we received FDA clearance of Overa, our next generation OVA1 product on March 18, 2016. While as of our last earnings call, we were considering launching Overa only through an early access clinical study.

We are now pleased to report that we will now be launching Overa as part of a targeted launch program. This targeted launch program will allow Overa to be used in clinical practice as well as allow us to build for the testing unlike the early access approach, which would have been limited to a perspective clinical study it will not include a reimbursement component.

I’m also happy to report that we've [opened now] a targeted launch program at the Annual American Congress of Obstetrics and Gynecology Conference on May 14, where we introduced Overa for use in specific markets. We are committed to commercializing Overa in a phased approach that will provide broad coverage, value-based payments as well as access to an improved pelvic mass risk assessment tool.

The first phase of our plan is to commercialize Overa as a targeted launch program, which we just described, which will be ongoing over the next 12 to 18 months. Our targeted launch program or TLP is focused on driving protocol and practice integration with select strategic customers and healthcare systems. Dr. Donald Munroe, our Chief Scientific Officer will offer some comments about the targeted launch program of Overa in a few minutes.

Our next objective is the publication of foundational peer reviewed papers for OVA1 and Overa peer dossier including clinical utility studies, a 360 degree review of health economics, our validation studies for Overa as well as several scientific and clinical publications.

At March 2016, we published the results from OVA1 clinical study as a peer-reviewed Journal Current Medical Research and Opinion or CMRO. This study is titled the Clinical Utility of an Elevated Risk Multi-Variant Index Assay Score in ovarian cancer patients.

This study led by Dr. Ramez Eskander, at the University of California at Irvine found that pre-surgical identification of high risk patients using OVA1 prior surgery led to nearly all patients who had primary ovarian malignancies being referred to the specialist at the OVA1 at Gyn oncologist.

These findings demonstrate, the primary clinical utility of OVA1 since initial treatment by gynecologic oncologist who is associated with a 30% survival benefit due to their specializing. We plan to add additional clinical utility and health economic publications as part of a robust payer dossier reporting the value and economics of OVA1 and Overa clinical practice.

Dr. Munroe will discuss this in detail during his presentation. Please keep in mind this evidence is also important for inclusion in regional and national guidelines. Regarding guidelines we have continued to see progress with key regional professional societies on updating the guidelines for pelvic mass diagnosis and management. As a result of recent meetings, we are actively working with two professional societies on guideline update.

Our third objective is a creation of two new ASPiRA distribution and awareness channels. The first distribution channel, which we're in the process of creating is a focused international distribution network. Since we received the CE Mark in Europe for Overa in October 2015, we have seen interest from various potential international distributors and we are in active discussions with several of them.

We are very happy to announce our first international agreement with a South Korean distributer Biomedical Science or BMS. This agreement serves to both bring Overa to Korean patients and expand Overa’s reach outside of the U.S. as a component of our growth strategy.

The new agreement to distribute Overa in South Korea would be a mass will serve as a model for additional agreements with distributors and laboratories in select global market. We believe that Overa’s proven diagnostic technology running on the Roche Cobas 6000 Platform lays a solid foundation for global commercialization, so women worldwide can more easily benefit from our technology.

Keep in mind that about 90% of the ovarian cancer worldwide are outside of the U.S. and we have just started to enter that market.

The second distribution channel is the creation of our patient awareness and education channel through our OVA1 awareness team. This team includes Shannon Miller, the most decorated American Gymnast of all time and ovarian cancer survivor and the team of NASCAR Sprint Driver, Martin Truex Jr. and his partner Sherry Pollex, an ovarian cancer thriver.

We have made many options in choosing spokespersons to help us promote OVA1 and Overa and chose Shannon and Sherry not only because they are both ovarian cancer survivors, but also because they are very active in the community advocating for ovarian cancer awareness and understand just how OVA1 can potentially help women can better care, which may result in improved survivorship.

With assistance from Shannon and Sherry, our awareness team has been instrumental in Q1 and enhancing our efforts to raise patient, family and carry of our awareness regarding ovarian cancer as awareness is still a major void.

Our primary goal is to educate women, the people who love them and the overall medical community through their patient experiences and journeys using meaningful multimedia campaigns to build awareness.

In March, we launched our awareness campaign called To date we have reached over 700,000 people through our print, digital and social channel. We measure our success as follows, number one, increased traffic to our ovarian cancer risk quiz. Number two, the number of people reach through live and digital life sessions with our OVA1 awareness team members. And number three media coverage in our major markets.

I would like to share with you some of the results. Since the load of our campaign traffic to our ovarian cancer quiz on our website has increased seven fold. The question is what has increased, increase in custom orders. Today we've had a few orders that we believe have been directed by the claims, but are early in the process of measuring the overall impact.

Second, as Shannon Miller has been featured in news coverage in local markets for Florida, Texas and Philadelphia. these broadcasts according to the news exposure statistics have reached over 700,000 viewers in total. And last in January Martin Truex Junior and life partner Sherry Pollex were featured and discussed at OVA1 on the Fax Sports Pre Race Show for the Daytona 500.

This broadcast in Martin's article published in Players Tribune according to the news exposure statistics have reached a combined audience of over one million people.

Our next objective is the kickoff of a first in kind pelvic mass registry to support the development of new products, predictive analytics in ovarian cancer and the differential diagnostic of debilitating benign conditions that also present as pelvic masses.

There are two foundational elements of the pelvic mass registry that are underway. First the investment in our IT infrastructure to support large amounts of data and clinical informatics and second, finalizing our three year study protocol and setting up our initial registry sites in the second half of 2016.

Our first milestone in this phase is the creation of our IT infrastructure to house our ASPiRA Lab in IVD services, informatics capability supporting the pelvic mass registry and a new IRB consented ASPiRA clinical testing registry.

Our goal is to build a continuously expanding data engine for deeper understanding of both benign and malignant pelvic masses as responding grounds for future algorithms for early detection, system management, diagnosis and prognosis of gynecologic diseases.

Inputs to this array of databases will include patient-reported symptom surveys, physicians’ assessments, imaging information, current diagnostics as well as new biomarkers from a variety of [NOAs] such as DNA, RNA, proteomic markers etcetera.

Once we have this foundation in place, data collection with our hardware instrument system should be actionable. We believe that the future data registry with our current specimen bank and our daily specimen acquisitions will together comprise the largest non-screening and rich collection of data from benign and malignant pelvic masses.

We expect the registry to develop enterprise assets not just for our present focus in ovarian cancer, but also allow us to identify biomarkers which may address benign care pathway dilemmas for a very large potential market of 20 million patients, including women who have endometriosis, polycystic ovary syndrome and other gynecologic diseases.

We are also close to finalizing a contract for a $7.5 million grant from the Cancer Prevention and Research Institute at Texas with MD Anderson as our primary clinical partner. We are now finalizing the study protocol, working through the IRB approval and negotiating key contracts with a goal of enrolling the first patient in the registry the second half of this year.

Please note that receipt of any CPRIT funds is subject to successful negotiation of a contract between the parties and may include the payment of future royalties to CPRIT by Vermillion.

The fifth and last objective of our transformation phase is the creation of a new service within the ASPiRA channel strategy known as ASPiRA IVD. We formed ASPiRA IVD in April 2016. ASPiRA IVD will be a specialized laboratory service provider dedicated to meeting the unique testing needs of IVD manufacturers commercializing high complexity assays.

We planned for ASPiRA IVD to leverage Vermilion’s existing specimen bank database, FDA experience and laboratory informatics to provide high quality IVD testing services, while potentially enhancing our pipeline of future technologies.

Recent acquisitions have disrupted the existing IVD services marketplace, creating opportunity for both customer and talent acquisition. Precision Medicine and Companion Diagnostics is the fastest growing segment with 50% of the biopharma drug pipelines having an associated biomarker.

We intend to vest in infrastructure in for now to become leaders in precision medicine in the area of women’s health and we believe this new service line will also enhance our pipeline of innovated diagnostic technologies.

Also as a part of fulfilling this transformation base we received a $2 million in proceeds from a loan up to $4 million from the State of Connecticut Department of Economics and Community Development. We anticipate that proceeds from the loan will be primarily utilized to fund the build out of our new Trumbull, Connecticut facility including investment in ASPiRA IVD’s new laboratory services as well as the information technology infrastructure.

This concludes my introduction. So let's now turn to the financials. I’ll hand the call over to Eric Schoen, our Chief Accounting Officer and Vice President of Finance for review of our first quarter 2016 financials. Eric?

Eric Schoen

Thanks, Valerie. Today, we furnished our first quarter 2016 financial results in a press release and filed our Form 10-Q with the Securities and Exchange Commission which is available for download via the Investor section of our website at

Total revenue in the first quarter of 2016 was $505,000 compared to $951,000 in the same year ago quarter. All first quarter 2016 revenue was recognized from product sales of OVA1 by ASPiRA Labs.

First quarter revenue in 2015 was comprised of $635,000 in OVA1 product revenue, primarily from Quest Diagnostics sales of OVA1 and $316,000 in license revenue. We do not expect to recognize any license revenue in future quarters.

Also product revenue in the first quarter of 2015 included the one-time recognition of $163,000 in deferred product revenue upon the signing of our commercial agreement with Quest Diagnostics in March 2015. Thus the quarters are not directly comparable.

Product revenue in the first quarter of 2016 was derived from 2,265 OVA1 tests, all performed by ASPiRA Labs. ASPiRA Labs performed a total of 216 tests in the first quarter of the prior year in addition to the 3,567 OVA1 tests performed at Quest Diagnostics. We estimate that OVA1 volume for the second quarter of 2016 will exceed 2.300 tests.

Revenue for ASPiRA Labs contractual clients is recognized when OVA1 test is performed. All other ASPiRA Labs revenue is being recognized on a cash basis and thus for non-contractual clients there is a lag period between performing the test and being able to recognize revenue for that test.

Cost of product revenue in the first quarter of 2016 totaled $528,000 and was consistent with the comparable prior year quarter. Total operating expenses in the first quarter of 2016 increased to $4.9 million compared to $4.7 million in the same year ago quarter.

The increase was due primarily to cost related to establishing the laboratory needed to launch ASPiRA IVD and severance costs related to our February 2016 restructuring. In order to improve operating efficiencies, we took steps to reduce go forward operating expenses by approximately 20% from our 2015 quarterly run rate.

Net loss for the first quarter of 2016 was $4.9 million or $0.09 per share on weighted average shares of $52.1 million. This compares to a net loss of $4.1 million or $0.10 per share in the first quarter of 2015 on 43.1 million shares outstanding.

Cash and cash equivalents at March 31, 2016, were $13.1 million. The company utilized $5.6 million in cash in the first quarter of 2016 including $600,000 of capital expenditures primarily for IT infrastructure and ASPiRA IVD’s laboratory build out.

Subsequent to March 31, 2016, we received million in disbursements, a loan up $4 million from the State of Connecticut Department of Economics and Community Development. The remaining $2 million will be disbursed if and when the company achieved certain future milestones.

Including the $2 million received from the State of Connecticut, the company expects net cash utilization of $2 million to $3 million in the second quarter of 2016.

Now I will turn it back to Valerie.

Valerie Palmieri

Thanks, Eric. I would like to discuss our sales strategy and performance for Q1 2016. As reported on our annual earnings call, Q4 2015 volume was down. Based on late Q1 and early Q2 trends we believe that OVA1 testing volumes have now stabilized. Our volume per day was 38 per day in Q4 2015, 36 in Q1 and 38 per day thus far in Q2.

As explained in the last earnings call, we believe as the major cost in the reduction in testing volume in Q4 was due to a slower than anticipated conversion of the client build contract, which we are actively pursuing.

Keep in mind; we’re also focused on large accounts so that all contracts will be transitioned. Based on focusing on large efficient accounts, the goal of our client recapturing program is to gain approximately 25 specimens per day. To date we have contacted 100% of all former customers and we have recaptured 7% of the goal volume over the last 60 days.

In addition to the client recapturing program, we have done a 360 degree review of our sales analytics and physician ordering protocol for repeat volume senders as well as those not sending after their first specimen.

We have identified several ways in which we believe we can ensure that our products is indoctrinated into the practices clinical assessment. This may result an improved sales efficiency and test utilization over time. Keep in mind since the core of our STs is integrating our products into physician’s practice in a systematic way, this includes surveying patients as their annual checkup, the assessment of other diagnostic such as identifying ultrasound criteria, which may identify high risk patients earlier in the patient journey.

Lastly, we are also finalizing strategic regional lab agreements for OVA1, which will differentiate their offering within their current Obgyn practices. The goal of these agreements is to maximize their distribution efforts through strategic sales teams. The goal of the ASPiRA lab sales team and labs commercial teams is to work together to integrate OVA1 as per the physicians protocol and if successful this should expand our currency position.

As part of these arrangements we will be implementing specialized training programs, designed to train these commercial teams to become pelvic mass products experts. Let's now review the progress on publications, the targeted launch program for Overa and our pelvic mass registry.

I’m going to turn it over to Don Munroe, our Chief Scientific Officer. Donald?

Donald Munroe

Thanks, Valerie. Let me start with a publication update.

At the Annual Meeting of the Society for Gynecologic Oncology in March, two Vermillion’s sponsored posters were presented, which should result in peer reviewed papers in the coming months. One led by Dr. [Sean] at the Moffitt Cancer Center in Tampa, Florida. Looked at the upstream quality of care among all ovarian cancer patients referred to Moffitt between 2000 and 2014.

Overall only 57% of the 345 patients met minimal National Comprehensive Cancer Network or NCCN standards for pre surgical work up. In fact some ovarian cancer patients experienced referral delays of up to two to three years and over 40 different pathways were observed.

In addition 11% of the patients were operated on by a non-specialist prior to referral, thus we believe that even for the most advanced cancer centers there is a great opportunity to improve the speed and efficiency of getting the patient to the right specialist.

A second poster was presented by Dr. Renata Urban at the University of Washington Medical Center in Seattle, Washington. She presented results from combining the Overa algorithm under its generic name MIA2G or Multi Variant Index Assay Second Generation with a patient reported symptom index.

The poster reported in intruding proof of concept for a potential future personalized risk index based on MIA2G scores and patient reported symptoms. We plan to include the symptom index in the design of our pelvic mass registry.

Finally, just two days ago, another study was presented at the Annual Meeting of the American College of Obstetricians and Gynecologists here in DC led by Dr. Lee Shulman from Northwestern University School of Medicine in Chicago. The study compared Overa to the ROMA algorithm on the Roche Cobas platform using serum from almost 1,000 subjects collected in two previous OVA1 trials.

ROMA is an algorithm in which list is predicted using levels of two cancer antigens CA125, C4. Overa includes these markers, but also includes three host response biomarkers; Transferon, April life approaching A1 and follicle stimulating hormone or FSH.

The major finding of the study was that there were approximately 60% fewer false negatives with Overa compared with the ROMA algorithm. Remember a false negative means that a patient who has an ovarian malignancy, may end up being TRIO generalist who is not trained to deal with ovarian cancer.

ROMA sensitivity was lowest for Stage 1 and non-epithelial ovarian cancers substantiating gaps in ROMA effectiveness, which have been noted in previous studies. This work will also be submitted for publication soon.

Next I’ll briefly outline key elements of the Overa targeted launch program or TLP. The TLP has three primary goals; first to enhance our commercial opportunity in settings where OVA1 is not gaining traction or as not being commercialized. Second, to pilot customized local practice protocols, which optimize care with Overa and third, to develop perspective evidence of Overa clinical utilities supporting national payer coverage.

The first goal will be tackled with commercialization efforts focused on strategic accounts and healthcare system. We're currently in the process of qualifying these accounts. Once qualified, these perspective accounts will be categorized into two groups. One for the Overa targeted launch program and another that will participate in Overa clinical utility studies.

For the Overa Targeted Launch Program we plan to seek partners to help us customize care protocols that have measureable benefits. For example by optimizing cost and minimizing the length of stay for low risk patients. Sites will be selected based on commercial appeal and their willingness to standardize a successful care path including Overa, which will help us gain local coverage and reimbursement.

The second group will help us conduct Overa clinical utility studies. We will target healthcare systems with strong champions high patient volume and a proven ability to manage physician participation and compliance. We anticipate the study outputs will support payer messaging and reinforce Overa’s value in the host healthcare system.

Turning to our pelvic mass registry, we're nearing the final selection of a Clinical Contract Research Organization or CRO based in Texas but with national capabilities and experience. We expect to announce the CRO when this process is completed.

In addition a clinical master protocol has been developed for the registry and we’re working on the details of electronic data capture, imaging and symptom indexes and by a biorepository.

Lastly, we’re proceeding with contract and IRB discussions with MD Anderson Cancer Center and expect to open a dialogue with several other hubs in the next quarter toward our goal of two hub sites and 100 patients enrolled in the pelvic mass registry by year end.

Now I’ll turn it back to Valerie.

Valerie Palmieri

Thanks, Donald. In closing we believe that the first quarter of 2016 has built a solid foundation for continued success throughout the remainder of the year. We believe we are well positioned to enter the market expansion and growth phase of our strategy this year.

This next phase of our strategy is three core foundation blocks. Number one in the U.S., starting the Overa targeted launch program with regional partners and large health organizations, while maintaining consistent commercial traction with OVA1.

Number two, outside the U.S. We plan to continue our efforts to develop key strategic arrangements in specific countries aimed to maximize our ability to distribute Overa via the Roche Cobas 6000 platform and lastly, the delivery of State of the art informatics tools to the patient. provider and payers.

Once these three core foundation blocks are in place, we believe we will have the ability to provide solutions for all of the diseases affecting women that can lead to pelvic mass. Keep in mind pelvic masses impact 20 million women in the U.S. and more than 300 million women worldwide.

In simple terms, our vision and primary goal is to be the global diagnostic leader in advancing women’s health, coupling cutting edge information and new technologies. We are starting with the needle in the haystack ovarian cancer and we're well on our way to launching software and diagnostic solutions that we believe may truly change the outcomes of ovarian cancer and pelvic mass management worldwide.

That concludes our presentation, and we’re ready to take questions.

Question-and-Answer Session


Thank you. [Operator Instructions] And your first question will come from Mark Massaro with Canaccord Genuity.

Mark Massaro

Hey guys, thanks for taking the question.

Valerie Palmieri

Our pleasure, Mark. Good afternoon.

Mark Massaro

Good afternoon. Wanted to ask about the targeted launch program and have you identified any more color as far as whether or not you’ve identified the location that are appropriate at this time I know it's too early, but if you could comment on initial early adaptor sites and whether how far along you are in the dialogue?

And related to that, I just want to make sure I understand that you will continue to sell OVA1 test as you roll out the PLC?

Valerie Palmieri

That is correct Mark. So, it is early in the process and in fact we are today or this weekend we launched it at the -- at ÀCOG in terms of the target and launch program. The goals to focus on strategic accounts and healthcare system that can really indoctrinated into protocol.

And also they want to support us with the payer March, that’s going to be very critical. So we don’t -- I don’t have any specific examples that I want to call out, but I can tell you that between our KLO networks track record that we built with OVA1 and also differentiation with Overa we have a large number of customers that want to be involved in the program. I will be able to share more of that in the next call.

Mark Massaro

Okay. I appreciate that you guided to touch volumes that are sequentially higher than Q1 in your guidance for Q2. Modestly surprised that they declined sequentially and so -- and I understand that they are all done at ASPiRA Labs.

My question is on an apples-to-apples basis, if you take the 2,265 tests done at the ASPiRA Labs at Q1, how does that compare to the volumes done at the ASPiRA Labs in Q4?

Eric Schoen

Well, Mark in Q4, ASPiRA Labs did 2500 tests. So, it’s a decrement of about 240 tests, basically in Q4 there were only a few tests run at Quest Diagnostics.

Mark Massaro

Got it. Okay. So just -- so it looks like a decline approximately 200 or so volumes in the quarter sequentially, would you attribute the bulk of this to the -- for our conversion of client build and I understand that you are embarking on recapturing some of the volumes from Quest.

Could you provide a little more color as far as what gives you confidence that your volumes will increase sequentially given the knowledge of converting the client build contract?

Valerie Palmieri

Sure, a couple of different components, one is although we, we felt we over-communicated the change via Quest and ourselves and we worked hand-in-hand, we did find on the -- under some of the initial calls that customers just were needed another what I call, verbal and physical call.

They thought the test was no longer available and in fact there was -- we have a handful where it was a Eureka moment whether there was a wow, the test is still available. Send me 10 kits. So, I think that, think about it we had -- we started out with a large number of customers spread throughout the country.

We focused on the AD20. Of course we want to focus on the most efficient customers, but its finding those needle in a haystack and we’ve now contacted a 100% of them and there has been no, what I consider objection that says, I don’t like the tests. It's not useful clinically. It's really us getting them reengaged and ensuring that we stay top of mind. So nothing negative on the feedback, when we called them and hit the refresh button with them.

Mark Massaro

Okay. Great. And can you comment on whether or not you're still considering partnering with the regional national referred laboratory and if not we’d love to hear an update on your direct sales efforts and where you stand with headcount?

Valerie Palmieri

Sure, yes we are looking to partner, we have two active partners and I would say late stage negotiations and that is still part of our plan. Our team is consistent today. Basically we have about 11 people in the field in terms of our sales team and keep in mind that is also we’re going to complementing that with our regional lab as well as additional outsourced sales component as well.

So we’re looking to optimize their sales process, optimize their sales call and believe that both an internal and I call the right partner on the external makes the most sense.

Mark Massaro

Okay. Great. Thanks for that and did I understand correctly that you're guiding to cash utilization of $2 million to $3 million in Q2? It looks like you used $5.5 million in Q1 so would be curious to learn what the delta will be?

I understand that you have a plan to reduce OpEx by 20%. I guess where have the cuts occurred and how do you think about pro forma spend as you look in a little more of a granular fashion in terms of the builds in marketing and R&D bucket?

Eric Schoen

Sure, Mark. So first of all when I gave the guidance of $2 million to $3 million, that’s after considering that we got the disbursement of $2 million from the State of Connecticut. That’s point one. Point two, the way I want you to think of our restructuring is in 2015 on a quarterly basis, we spent about $5 million a quarter in operating expenses.

Our goal is to get that down to about $4 million in operating expenses per quarter in 2016 on a go-forward basis. In Q1 we had severance cost and cost of the restructuring. Most of those costs did come out of sales and marketing you asked. We took heads probably down from 20 to the 11 that we have now in the field, it's now right sized.

Going forward what you might see is when we do kick off the registry and if and when we do take the CPRIT proceeds, you would see an uptick in R&D expenses because naturally when you hire a CRO you make an upfront payments and then there is ongoing cost of that.

Mark Massaro

Got it. No it's very helpful. Is the Connecticut the $2 million from Connecticut, is that related to the Trumbull Connecticut facility and just want to make sure I understand the rational to establish that facility and how that played out briefly.

Valerie Palmieri

Sure, we had several leases that were up Mark in Texas and we looked at several areas and we found Connecticut to have the -- what I call the best deal between the real estate component and also the loan. So that loan is allowing us to build our infrastructure for IT and also for IBD trial services channel.

Mark Massaro

Okay. How should we think about the IT services component of your business as we look out longer term, not like am asking a question, but into say 2017, do you think it can be a meaningful component of your business and if so, how we think through how the clinical trials initiatives can bear fruit in the future?

Valerie Palmieri

So we formed the business in April. We anticipate the business definitely to say make a positive improvement to our operating expenses and we will see that in 2017.

Mark Massaro

Got it. Maybe my last question is just on congratulations for adding Shannon Miller and Sherry Pollex. As we think about those two appearing in the media and raising awareness for testing, can you describe some additional ways that you will use them and so how should we measure some as they're being out in the field talking about the importance of being tested to potentially increase tax utilization in the future. Are there certain metrics that we can look at to monitor progress?

Valerie Palmieri

Yes so we are as I said, we had actually a few examples where individuals saw Sherry let’s say in the Daytona 500 interview or they called at her lab and said hey I saw this on Facebook or heard about this on Twitter.

So we’re very early in the process right now. We’re trying to put together a scorecard in a dashboard to make sure that we’re looking at the return on investment as well as we can hone our resources in the right place.

So I can tell you even from the ACOG experience here, it was a moment not just for Sherry but a moment for the physicians attending the presentation, which you presented at. So truly impactful and as you know women control healthcare this country not only from inside of their family. So it’s I think it’s too early to tell, but I do think it will be impactful in short order.

Mark Massaro

Okay. And can you comment if there was a initial stocking order for the South Korean distributor and how should we think about distribution outside of South Korea, Europe and other locations in the balance of '16 and into '17 and then just be curious if you made to what extent you think international will be a meaningful component of revenue?

Valerie Palmieri

So we laid down the foundation after our CE Mark started. Of course we were hit with tons of enquiries and we’re going after -- we’re working with distributors that have track record right that we can be efficient with our time. They understand the process etcetera.

So this BMS deal we actually just completed so in terms of any type of stacking orders; no, there is no stacking orders that I can report on right at the moment. but there are 50 million people within Korea and they also have a what I call a system where there is a lot of private pay with market. So they are used to basically distributing new technology, new Western technology. So more to come on that.

Mark Massaro

All right. And so just related to that, sensible strategy to go after a private pay market, given I imagine the coding for test like OVA1 it's probably less drive into 89 states, but will you continue to look at other private pay partners?

Valerie Palmieri

Absolutely, yes absolutely. So but we’re looking at markets where number one ovarian cancer is a large problem. Asia huge issue; number two large private pay market. Number three, working with distributors that have track records. So we are not recreating the wheel and we want to utilize 2016 to get our foundation laid and really see the fruits of that foundation in 2017.

Mark Massaro

Great, I think that's everything for me.

Valerie Palmieri

Excellent. Thank you, Mark.


And your next question will come from Mary Kate Gorman with Canaccord Genuity.

Valerie Palmieri

Hi good afternoon.

Mary Kate Gorman

Hi and just as a follow-up to Mark’s question, I was wondering if you could give a little bit more color on the $7.5 million grant you’re working with for Institute Texas?

Valerie Palmieri

Sure. It’s a grant that we were awarded last year. We are currently in negotiations with CPRIT and it is really a third party endorsement for our technology. We're building a 3,000 registry which are going to track 3,000 patients over three years represent with pelvic mass.

And it will be a one of a kind pelvic mass registry. There is nothing like this in terms of a database or informatics database that has been created to-date. So our goal is to use this as our sporting ground for new algorithms, not only for ovarian cancer, but also benign conditions that present as pelvic masses.

Mary Kate Gorman

And thus in terms of timing of the negotiations, are you able to provide more color in terms of what inning you might be in?

Eric Schoen

Sure, Mary Kate. We’re getting close with it. We expect to finish up in Q2 of '16 or early Q3.

Mary Kate Gorman

Great. Thank you so much.

Valerie Palmieri

Thank you.


From LifeSci Capital we'll hear from Adam Evertts.

Valerie Palmieri

Hi Adam.

Adam Evertts

Thank you. I think my questions actually have been answered. Appreciate it.

Valerie Palmieri

Thank you.


And that concludes our question-and-answer session. I would now like to turn -- actually we just got a question in the queue. And we will hear from George Cafocaru. He is a Private Investor.

Valerie Palmieri

Good afternoon George.

George Cafocaru

Hi Valerie, thank you for taking my question. Just a couple of questions, the South Korea distributor deal, is that what you were referring to when I think one of the words in the last earnings call was there is an agreement that's eminent, is that what you were referring to or is this a relatively new deal?

Valerie Palmieri

George it's a good question honestly. I would say that we’ve got several deals. So I can’t say that's the specific one to be honest with you, but we have several international strategic partnerships that are in the hopper and some of them may have gotten over the goal line quicker than other. So I can’t say this is specific one no.

George Cafocaru

And these are the full process, do you guys thinking about this in terms of having an exclusive partner in each of these international regions of does it depend on the country for example in South Korea, it’s a big population is this an exclusive relationship?

Valerie Palmieri

It depends on the partner and depends on the country and also depends on honestly the geography. So if you have a partner that's very concentrated in a certain area we may take Partner A in one area and Partner B in another area.

So it’s very dependent, but we want to give them the most leverage and also we want to give them the most opportunity to really drive the business. So, really creating a win-win.

George Cafocaru

Okay. Very good. In your prepared remarks, you mentioned something over the lines around, some kind of progress for guidelines. I’m not sure I understand that. Could you elaborate on that a little bit in terms of the progress you feel you're making for guidelines at ACOG?

Valerie Palmieri

Well, not really ACOG. So, what we're working on is regional guidelines. So in specific regions, they are groups that are very astute and they -- GYN in general understand the pelvic mass management is a problem in certain regional societies see it as a larger problem.

We will say all are equal and start the same George to be honest with you, but there are specific regional societies that have really identified with our technology and are really pushing it forward which is -- which could be a huge once, once recognized that the others kicks too. So there is two regional societies that we are actually working on and there is more to come on that very shortly.

George Cafocaru

Okay, obviously I’m hanging on the term there is more to come very shortly from these regional two, but I see that’s very interesting indeed and very encouraging. Okay just a final question if I could, I notice all the social media presence is under the brand name of ASPiRA.

How do guys think about that? What’s the consideration there? The name of the company is Vermillion, the labs at ASPiRA, but all the social presence on Twitter and Facebook and so forth and all a lot of this new PI activity, which is very welcome to see I must say seems to be around the ASPiRA name, how do you guys think of that?

Valerie Palmieri

Well, we look at first thing of ASPiRA basically signifies ASPiRA in our mind and we're aspiring women and it is wholly owned subsidiary of Vermillion. We also want to George separate our wholly owned subsidiary on diagnostic from our licensing and device company.

So, we did not want to call one, Vermillion Diagnostics and another one called Vermillion Licensing. So, that’s why we separated them, but ASPiRA is the offering to the customer and we see the customer as the patient, the physician and the payer and that’s why we’re consistent with that message on all those fronts.

George Cafocaru

Okay. So we should continue to expect to see the brand of ASPiRA being developed further, right, that's what's the plan…

Valerie Palmieri

That is correct.

George Cafocaru

Very good. Alright guys, thank you very much. Thank you for taking my call.

Valerie Palmieri

Our pleasure.


And that does conclude our question-and-answer session. I’d now like to turn the call over to Ms. Palmieri. Ms. Palmieri please proceed.

Valerie Palmieri

Thank you, Rebecca. To conclude we have a steadfast execution plan to change the course of pelvic mass patient management in the U.S. and worldwide. We've completed one of the three major strategy phases our rebuilt phase.

We're now focusing on completing out transformation phase. The four key elements of the transformation phase are as follows. First, the successful deployment of our commercialization strategy based on focused clinical utility and health economics to drive sales into ramp payer coverage and obtain guidelines for both OVA1 and Overa.

Second is rolling out a true pelvic mass diagnostic offering with a portfolio of test in conjunction with our strategic life partners. Third, developing key results from our new distribution channels including international and direct-to-women awareness and ASPiRA IVD.

And finally laying the foundation for our one of a kind public mass registry, which will be the core of our big data engine and pelvic mass portfolio. As we build our database, we plan to build upon our existing bio-analytics solutions platform to not only change the way ovarian cancer is managed, but also push early detection upstream and build the proprietary portfolio to manage pelvic mass conditions, which impact on out of every five women in the U.S.

Our end goal is to serve our global market, with strong proprietary science, coupled with a platform that will drive profitability and overall shareholder value. Thank you for joining us today and thank you for your interest in Vermillion. We look forward to seeing you at the upcoming medical meeting and investor conferences.


Again I’d like to remind everyone that this call would be available for replay through May 30 starting later this evening via the link provided in today’s press release as well as available in the Investor Section of the company’s website.

Thank you, ladies and gentlemen for joining us for our presentation. You may now disconnect.

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 All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!