Aspira Women's Health Inc (AWH) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Vermillion reports preliminary fourth quarter and full year 2011 results. (Operator Instructions) As a reminder, this conference is being recorded, Thursday, February 23, 2012. I would now like to turn the conference over to Ron Both, Managing Director with Liolios Group. You may proceed, sir.

Thank you, operator, and welcome to the conference call. Today Vermillion issued preliminary financial results for the fourth quarter and full year 2011, which is also on our website and we encourage everyone to refer to it for more details.

Some of the commentary and answers to today's questions may contain forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements. Vermillion is providing this information as of the date of this 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.

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, changes in government regulations, payer reimbursement, relationships with our strategic partners, and other factors as described in the Vermillion 2010 Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K.

A telephone replay of this call will be available beginning approximately one hour after the call through March 23, 2012. A copy of our earnings release for the period ended December 31, 2011 is available on our website at www.vermillion.com.

At the request of the Company, this call is being recorded. The entire contents of the call, including the question-and-answer session that will follow, are the copyrighted property of Vermillion with all rights reserved. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Vermillion, Incorporated is strictly prohibited.

The agenda for today's call will be as follows. Gail Page, the President and Chief Executive Officer will lead off of by providing a brief corporate update. She will be followed by Eric Schoen, the Chief Accounting Officer, who will provide a financial overview. Gail will then close by providing a more detailed update on the year. With that, I would like to turn the call over to Gail.

Thank you, Ron. Let's begin with an update on the sales front.

Our Q4 guidance was 4,000 to 4,200 tests and Quest Diagnostics performed an estimated 4,118 OVA1 tests during the quarter. That is a 40% increase over our volume of 2,935 in Q4 of 2010. This marks the fifth consecutive quarter where we have met or exceeded our guidance.

For the year, our testing volume was 15,225 tests, an increase of 147% over 2010 at 6,155 tests.

We recently expanded OVA1 payer coverage by adding Wellmark South Dakota and Wellmark Iowa. In all, 24 independent Blue Cross/Blue Shield plans representing approximately 38 million lives are now covering OVA1. Including Medicare and other regional plans, total coverage for OVA1 is estimated to be roughly 85 million lives.

We are very pleased to announce today that the Department of Defense has added OVA1 to their contract effective January 1, 2012. There are more than 45 military medical center in the U.S. and numerous military medical clinics and facilities around the world that now have access to this very important triage test.

Turning to our product pipeline, on our last call we announced that we had completed our intended use study on VASCLIR, our test for the detection of peripheral artery disease, with positive topline results. As promised, we have now completed the analysis and write-up of these results.

Last month we submitted an abstract to a well-recognized national vascular medicine conference for presentation in the first half of 2012. And this month, we submitted a research article for publication in a prestigious peer-reviewed vascular medicine journal.

We expect to have news soon on the success of these submissions. In the meantime, we are exploring additional publications made possible by the clinical data we collected during the study. These efforts will provide the foundation for discussions with the FDA on the paths to regulatory clearance.

With regard to OVA2, our product design efforts have been enhanced by the addition of Correlogic asset we purchased last quarter. Not only did we acquire over 1,800 prospectively collected clinical samples from ovarian cancer diagnostic trials conducted by Correlogic, we also acquired an important patent estate, based on discovery efforts, which span well over 200 proteomic biomarkers. This compliments Vermillion's strong IP position in oncology, affording us a wide range of design options moving forward.

Testing of OVA2 prototypes is an active area of collaboration with our academic partners at Johns Hopkins University. We anticipate further patents and potential product designs to emerge from this work later in the year. I look forward to discussing some of these milestones in greater detail in a few minutes.

For now, I will turn it over toe Eric Schoen to discuss our financial performance.

Thanks, Gail.

Our product revenues for the fourth quarter and full year 2011 are subject to change, pending receipts of the 2011 annual "true-up" report from Quest Diagnostics and are therefore not being reported herein. In addition, receipt of the ruling in the Molecular Analytical Systems binding arbitration is pending and could also impact our 2011 results. Therefore, the following financial data is both preliminary and unaudited.

License revenue for the fourth quarter of 2011 totaled $113,000, compared to $196,000 for the same year-ago period and related to the Company's achievement of certain milestones under the Strategic Alliance Agreement with Quest Diagnostics.

Operating expenses for the three months ended December 31 and the full year 2011 were $4.0 million and $19.5 million, respectively. Operating expenses included $0.3 million and $3.3 million in noncash stock-based compensation expense in the 3- and 12-months ended December 31, 2011, respectively. This compares with operating expenses of $4.5 million and $15.7 million for the same three-month period in full fiscal year 2010.

Operating expenses included $1.6 million and $4.9 million in noncash stock-based compensation expense in the 3- and 12-months ended December 31, 2010, respectively. The increase in of year-over-year were due primarily to increased average headcount in sales and marketing and related costs to the establishment of adoption and reimbursement for OVA1, higher clinical trial and collaboration costs for the ongoing development of the Company's ovarian cancer program in VASCLIR, as well as an increase in legal fees, including those associated with our Molecular Analytical Systems litigation.

Research and development expenses for 2011 also included $435,000 for the Correlogic asset acquisition.

Our current shares outstanding are $14.9 million. Our weighted average shares outstanding for the three months ended December 31 and the full year 2011 were $14.9 million and $14.2 million, respectively.

Cash and cash equivalents at December 31, 2011, were $22.5 million. We utilized $5.0 million in cash during the fourth quarter, including $435,000 for the Correlogic asset acquisition. We expect $3.0 million to $4.0 million of cash utilization during the first quarter of 2012.

As disclosed in January, the Company plans to reduce cash-based operating expenses to approximately $12 million in 2012, down from $16.2 million in 2011. This was a result of a proactive and purposeful management plan to sharpen our focus in 2012.

An important accomplishment for the Company was highlighted in an 8-K announced and issued on February 14, 2012. The Company entered into a settlement agreement with a third party related to losses on the Company's short- and long-term investments in previous year. The Company will receive a total settlement of $1.0 million, with $535,000 payable by March 1, 2012 and $465,000 payable by September 1, 2012. The Company expects to receive approximately 7.0% of the total amount, or $700,000, net of legal and related costs.

This settlement was the result of a gain contingency, which we have been pursuing for several years. Due to a confidentiality clause in the settlement agreement, we will not be identifying the other parties in the settlement or providing more detailed information, other than to state that it is not related to our ongoing Molecular Analytical Systems or Bio-Rad Laboratory's litigation. The onetime gain from this settlement will be recorded in our results for 2012. Also, in January 2012, our bankruptcy case was formally closed.

Now I'll turn it back to Gail for a discussion on various corporate initiatives.

Let me begin by describing our progress on the sales activities and then we will address what we learned in the first full year commercialization, what our goals are for 2012, and how we plan to be successful at addressing these goals.

In terms of OVA1, as I mentioned earlier, Quest Diagnostics performed an estimated 4,118 OVA1 tests during the quarter. As expected, holidays impacted our growth during the quarter. However, October was our strongest month since launch and the quarter was the strongest since launch in terms of evaluating average daily volume.

We continue to track the total number of doctors ordering OVA1. At the end of Q4, over 3,700 doctors have ordered OVA1, a 15% increase over Q3. This represents approximately 11% of the total gynecologists in the United States. We continue to focus on gynecologic oncologists' support. In Q4, we engaged with and gained support from approximately 24 additional gynecologic oncologists, now totaling more than 275 specialists supporting OVA1.

Let me summarize briefly what we have accomplished in sales and marketing during the course of 2011.

We hit significant growth milestones that mirror or exceed the growth curve of other successful women's health companies such as Digene, Cytec, Conceptive, and Genomic Health in their early launch stage.

Vermillion has created successful brand awareness for OVA1, beginning the process of changing a standard of care that has been in place for almost 25 years. The fact that 11% of generalists have ordered OVA1 is a remarkable feat for an early-stage, high value diagnostic launch.

The sales and marketing team have built a strong base of more than 275 key opinion-leaders that are supportive of OVA1 and an expert group of greater than 30 speakers who presented at over 90 medical education events in 2011.

During 2011, we used a variety of channels to educate physicians on the utility and benefits of OVA1. These efforts included advertising in physician journals, participating in exhibiting at key industry events, including 18 in the fourth quarter.

We use social media to educate and empower women. The 2011 goal was to have a base in excess of 10,000 followers and we surpassed this target by over 2,000 people, becoming one of the top resource sites for women concerned about ovarian cancer. More important, we are learning of positive patient outcomes as a result of women telling their physicians about OVA1.

These are all very important building blocks and they are critical to developing this new market, which will result in the long-term growth of the Company. That said, in the past couple of quarters, we have observed a plateau in OVA1 growth. Our analysis has identified a number of challenges and our 2012 plan of action will look to address them.

First, the number of doctors ordering OVA1 continues to increase. However, changing the practice management pattern can be a challenge when the average gynecologist sees about 2 to 4 eligible patients per month. Additional effort is required to establish a consistent ordering pattern. Interest, coverage and patient bills are a concern to the physician and can disrupt the ordering patterns of a generalist who is supportive of OVA1. This is evidenced in the analysis of order and reorder statistics.

So, moving forward in 2012, here are the key initiatives to assure growth while addressing these market development challenges.

We are developing programs with Quest that will assist the physician and provide assistance to patients who receive bills based on insurance denial.

Our territory development managers are focused on efforts that will have a positive impact on regional payers and create positive coverage decisions.

Our territory development managers will be working with local key opinion leaders and meeting with medical directors to discuss the unmet clinical need, our Technology Assessment Package and an increasing in experience in case studies showing the positive outcomes to utilizing OVA1.

The support and endorsement of gyno will remain a key initiative and we will have a significant presence at the GOG in San Diego, the winter SGO in Squaw Creek and the Annual SGO here in Austin.

We have engaged Lehman Millet, a leading medical diagnostics marketing communications research firm to refine the OVA1 brand position and messaging. Our new campaign will be used to continue targeting generalists, gynecological oncologists and the payer community.

Medical education programs are a must for generalists and attending their key meetings, such as the annual ACOG meeting in San Diego and the district ACOG meetings across the U.S. in October will provide an opportunity to launch our new programs in development with Lehman Millet.

The recent positive decision by the Department of Defense provides a new market opportunity for growth and the Company will work with Quest to target key facilities and drive the adoption of OVA1. As discussed earlier, we see coverage and reimbursement as a key strategic initiative.

Now let me make a few comments on our 2012 reimbursement plan. Compared to similar early-stage molecular diagnostic companies, we have made great strides in obtaining coverage since the launch of OVA1. New and innovative diagnostic tests often face reimbursement challenges that can effect adoption. The three key focus areas are coding, claims and coverage, or payer adoption.

In conjunction with our partner, Quest Diagnostics, we are consistently addressing these three areas as aggressively as possible.

First, let me discuss coding. OVA1 is a new class of diagnostics and therefore no specific code existed upon the launch. This is often the case and companies will bill using a miscellaneous code, which is the path Vermillion and Quest have implemented.

Now, after being on the market, creating demand, demonstrating the utility of the test, obtaining coverage and reimbursement, the Company has undertaken the ambitious step of filing for a CPT code specific to OVA1. Achieving a unique category one CPT code is a critical step in the Company's commercialization efforts.

The application for the category one CPT code has been filed with the AMA. No decisions has yet been received. A successful application will help streamline claim processing and payment and may accelerate the further coverage in adoption of OVA1 by private payers

The second challenge is to optimize the claims process. In the early launch of a product that does not have its own CPT code, claims can be rejected due to lack of medical necessity, lack of payer understanding, or even billing process errors. To resolve these, our territory development managers are engaging with physicians' offices to assist the appeals process and are using these claims to educate payers and create awareness about the medical necessity of our test.

With regards to payer coverage, as we described on our previous call we continue to focus ongoing efforts towards obtaining national coverage decisions. However, these typically have a much longer lead time due to industry-established processes and timeframes. In most cases, these entail clinical and technical reviews that are performed on an annual basis.

To that end, we have assembled a Technology Assessment Package that will provide a nucleus of material tailored to each national plan. Initial reactions to our Technology Assessment Package have been positive and we look forward to communicating coverage decisions in the near future.

Second, we have launched a program to aid local key opinion leaders to work with health plans to support coverage for OVA1. These strategic actions are necessary steps to convert those plans representing middle majority and later adopters.

So, to summarize reimbursement and payer initiatives, Vermillion and Quest Diagnostics continue an aggressive reimbursement plan with specific steps designed to succeed.

The last strategic initiative that we will discuss relates to standard of care for adnexal masses. Incorporation into guidelines can be a catalyst for the adoption of the diagnostic test such as OVA1. We are encouraged by the fact that OVA1 has a favorable mention by the National Comprehensive Cancer Network Guidelines and the ACOG community opinion published in March 2011.

However, the real opportunity is to establish OVA1 as the standard of care in the presurgical triage and evaluation of adnexal masses. Therefore, we see an opportunity to enlarge our body of peer-reviewed OVA1 publications supporting medical necessity and efficacy.

To this end, two critical R&D activities are well underway. The first is a major new clinical study of OVA1 focused on its performance in the predominantly premenopausal, non-gynecologic oncologic patient population. This will follow up on and extend the landmark studies of Ueland and Miller with a completely new patient cohort in an independent, multicenter patient population. We will provide an update on our next quarterly call and expect this study to be submitted later in 2012 for publication in a leading clinical journal.

The second is a series of Vermillion-assisted independent clinical research studies of OVA1. Through this new program, Vermillion offers limited support for well-qualified principle investigators in the form of materials, testing services and scientific consulting. As a result, we are currently in discussion with a number of potential investigators to support new research publication on OVA1's clinical utility, cost effectiveness and potential line extension.

Now that we have addressed the three strategic initiatives that are currently underway, we will turn to our guidance.

We expect 4,000 to 4,300 OVA1 tests to be performed in Q1 2012. This takes into account the challenges that we outlined above, plus the fiscal nature of our business. The goal for Vermillion in 2011 was to create an awareness of OVA1 and better understand the areas and regions of the country which provided adoption, coverage and key opinion leader support.

At the end of the first year, we seized the opportunity to realign our efforts to maximize those areas for which we have experienced an early adoption. It is our goal to fully develop these areas, while continuing to expand ever so cautiously.

For a small microcap Company like Vermillion, it is always a fine balance between commercializing the product in front of you and moving the pipeline forward while managing the cash. Not an easy task, but one this management team is committed to.

We are fortunate to have the following, which provides the Company a foundation from which to build upon - cash on hand, a leading clinical laboratory partner, an FDA-cleared product which addresses an unmet medical need, compelling early payer acceptance, and an exciting high-value pipeline.

In closing, 2012 will be a year of executing on our plans, keeping in mind the ultimate goal of making OVA1 the standard of care in managing the adnexal mass.

Thank you. Operator, we are ready for questions.

Chris, Roth Capital Partners

Hey guys, this is Chris in the line for Matt.

Hi Chris. This is Gail.

Hi. You said OVA1 is already placed in about 11% of the docs. I was wondering if you could just describe the reorder rates you're seeing there and any trends over the course of the quarter would be helpful.

Hey Chris, this is Bill. We manage or monitor reorder rates or ordering volumes in six different categories and we don't discuss those individual categories, but we continue to see growth, topline, and also in the individual categories, especially reorders. Obviously we have some that do not reorder and those are the issues that Gail pointed out.

Okay and then how are the accounts reacting to the current availability of reimbursement for OVA1? What are seeing there?

Could you repeat that question? You cut out. Sorry.

Oh, yes. Can you hear me?

Yes.

Okay. Just how the accounts are reacting to the current availability of reimbursement for OVA1 there?

How are the accounts reacting? Well, the first question that the physician ask us is insurance coverage and what their gynecologic oncologist feels about test, but they still see the value of the OVA1 test and its performance. So we continue to see new doctors ordering.

Okay and then considering the variable component of our revenue from the Quest is such a significant percentage of your ASP per test, should we expect to wait another 12 months after the March true-up here to have any clarity on how the test is being reimbursed? Or do you expect the Company to have better visibility regarding reimbursement sometime this year?

We don't know the answer to that. We do know we'll get clarity on 2011 results in the next month, but, pending the analysis of those, we don't know if we will get better data until the next true up report.

Okay and then a last question. Can you elaborate a little bit on the CPT code application and any expectations around that for the year? Thanks a lot.

Yes, this is Carl Swanns. Thank you. As mentioned, as Gail mentioned, the application is an important step in establishing OVA1. This process can be very lengthy and requires the steps that she mentioned - widespread utilization, publications and coverage. We feel we had those things in place and we had a good application. We filed that application and are awaiting hearing from the AMA. The AMA has certain processes and we need to be respectful of those so that we don't jeopardize our application.

Okay. Thanks a lot.

Thank you.

Trey Cobb, Stephens, Inc.

Good afternoon. This is Trey for Scott. Gail, maybe first could you talk a little bit about the incremental doctor adds in the quarter? If my math's right here, you added somewhere around 500 new docs in the fourth quarter. Is that right?

Yes. From 32 to 37.

Yes, that's absolutely correct.

Okay and so when -- I guess the biggest pushback you're getting right now in terms of the reorders is the lack of insurance coverage. Maybe if you could just give you a little color on how those talks with payers are going. You've had several peer-reviewed publications now. You've had the positive commentary in the ACOG. Just maybe any color there or progress that you've made just in terms of telling us those conversations?

Sure. I think one of the things that we're doing is the more payers that we are able to get out and speak to, each payer has its own process and its own like review process. Some only see people periodically. They only review things on an annual basis. But we've tried to get a better understanding of what they're looking for.

Now, as you know, we're fairly early in the game. I mean, basically we launched the middle of 2010 and a lot of the larger payers, they won't even see a company until you've been on the market a substantial amount of time and there's a lot of volume that creates them to see you. But I think we've done a good job of trying to understand and so we've had two things that we've done in response to that.

One is working with Donald in putting these studies together. We think those will be very instrumental. Also this Technology Assessment Package that Carl has assembled over the last few months has been very instrumental in addressing what we believe. It has certainly gotten us in the door.

And thirdly, and not last, is this application of the CPT code. It's very early for a Company of this size to be able to pull something like that off and I can tell everybody on this call this team worked very hard to do that and we're very proud of that accomplishment.

And then, I guess on the timing of the studies, you may have mentioned that and I just may have missed it, but when should we be looking at those coming out?

Well, as we said -- this is Donald Munroe. How are you doing? Well, first I just want to say that I guess doctors are creatures of habit and we're really working against those 25 years of ingrained habits. Although we have the one clinical publication, we believe that further publications are going to provide a better basis of evidence and just help to turn the tide.

We actually have been working since the launch of OVA1 to collect additional patient samples. We're in the process of analyzing data now. We're going to be working with some very renowned investigators to analyze that and address the questions that are outstanding. And so we believe that we should be able to have a publication, hopefully, in 2012 and that's really the best we can say right now. We hope it would be sooner rather than later, but there's a lot variables in there.

Okay and then, Gail, I think last quarter you guys had some sales turnover. Kind of where are you in terms of reps and managers now and have you made any adds during the quarter?

No. Everything's the same as when we recently announced the reorganization. So we have approximately 10 people in the field. We have 1 national, sort of national manager that's overseeing that and then, of course, Bill and myself. We're all working on reimbursement and marketing and communications and all those various things.

I think another key thing in that arena, though, is that we've engaged with Lehman Millet. They have a lot of experience. We looked at a lot of different companies over the course of time. It was just too early a year ago to have a firm like that. We didn't have enough information nor enough history, but after 2011 we felt like that we did have that and that a company like that could come in and really help guide us.

So they've been out doing a lot of work. We've seen some preliminary campaigns and we're very anxious to get those launched this year.

Okay. Thanks for that. And then lastly, on PAD, what's the next milestone that we should be looking for there?

Well, this is Donald again. As you know, we completed the Intended Use study, quite a large, ambitious study for a small Company like Vermillion with about 1,000 patients enrolled. We did the data analysis and as we just discussed, we've put together both the submissions for a conference for the results to be presented and for publication of the paper in peer-reviewed clinical journals.

So that's really the next milestones that we're looking to and those will provide the evidence basis for having discussions with the FDA with well qualified clinical data in our possession.

Okay, great. Thanks for taking my questions.

No, thank you.

Kevin DeGeeter, Ladenburg Thalmann Financial Services

Hey. Thanks for taking my question. Good afternoon. I just want to follow-up, actually, on the last question a little bit. If I look at the cash burn guidance for the year, I appreciate you sort of brought in the spending here a little bit. Does the guidance for 2012 envision material spending on additional clinical trials work for VASCLIR? Or yes, how should we think about that in the context of doing some clinical work in OVA1 and plus obviously commercial rollout OVA2 development?

Well, what I can tell is -- its Donald here. We don't anticipate conducting another large scale clinical trial of the nature that we just completed in 2012. We do have a budget to support continued analysis and some small follow-on studies based on the work that we did, as well as putting together the package that we would need in order to have conversations either with the FDA or anybody else that we might collaborate with.

Understood and maybe just splitting hairs a little bit here, but you mentioned the first half for the medical meeting for a presentation of the intended use. Can you just comment as to whether that's first quarter or second quarter?

It won't be the first quarter.

Okay. Yes. Kind of piece a few things together from there. And just kind of back on OVA1. First off, just really two very quick questions. Can you talk to us a little bit about the thought process to come to a decision to really push for conducting some additional clinical trials here? I know that's an issue you've kind of gone back and forth with given the resource constraints of the Company, a decision I actually really like. But can you just talk to us about like what sort of drugs you'd go ahead and make that asset allocation?

Well, first off I would say that we didn't so much make a new asset allocation as we looked at how we could kind of double-purpose or dual-purpose some previous allocations that have been put towards, for example, OVA2.

In the course of doing that, we collect fairly large patient cohorts under a prospective inclusion/exclusion criteria. Really that's an asset that we shouldn't miss an opportunity to take a look at with respect to the product we already have. That's what we've done, so there's really no incremental costs whatsoever and as a matter of fact, we really have pretty much the cohort in the bag at the time that we elected to do the analysis with OVA1.

Okay.

Does that answer your question?

It does. Thank you. And just lastly then and I'll get back in the queue. Can you just help us understand what the right metric that will reaccelerate growth in test volumes is going to be? It looks like from the guidance we're going to be looking at three-to-four quarters of call it kind of flattish, 4,000 or so or maybe a little better test per quarter.

Is it a particular spike up in the number of covered lives under insurance? Is it this next set of data? What's really the one metric we should focus on that you think is going to correlate most strongly with reacceleration of growth?

I have to tell you we don't believe that it's one. We believe that it's multifaceted from everything that we can analyze and everybody that we've had look at the business with us, including all the experts within Quest. So we put together, after looking at everything -- if you think about it, I mean, we are growing the business, because we have hit a plateau.

But as you know, I'm sure -- I know you follow a lot of other companies and a lot of companies in early stage they'll have a good quarter and they'll have a really bad quarter. And I think the great thing about OVA1 is we have enjoyed growth, but we've also enjoyed, even at that plateau, there is still a little growth there.

But we did acknowledge on the last quarter and we really spent a lot of time trying to understand the doctors that may not be ordering. Is it because they didn't feel the test helped them? Was it because of reimbursement, because we needed more data? That's what we've been trying to assimilate and we did do that. And now, that's why we put all these things in place from the extra publications, the data, the CPT Code, helping docs with the claims.

Because we had no choice but to use a miscellaneous code. And all new companies that come out with a test, for those of you who don't know on the call, you cannot apply for a CPT Code until you have FDA and you're on the market. So the system is really an old system that's been out there for many, many years and it's really not geared for these new types of molecular tests.

So, I think you know it has to be a multifaceted approach. I think we all agreed on that among ourselves and also with our counterparts at Quest, so we're working on the CPT Codes, on the publications and I think it seems like that that we see culminating that really pushed things like the DOD and obviously there's other things in the works.

Okay and then maybe just one more, if I can sneak it in. Can you just comment -- I know it's very early, but what you're seeing from Roma and the recent launch of that product and just sort of how that plays into the discussion with the docs? Thanks so much.

Sure. Well, we all know that Roma was approved back in I believe it was September and then I believe that they announced their loss of Lab Corp. maybe in the January timeframe. So I think there's two pieces candidates of good news. One is that for a company to come out with a competitive test to me validates that this is a very important unmet clinical need and it validates the market opportunity that's out there.

But to date, what I can tell you is that obviously the two have not gone in a head-to-head study, but we are very convinced that OVA1 has great performance and it addressed the real need in this intended use by really going after identifying the malignancies. So we would have to say that we are very focused on what's going to take OVA1 to success right now.

Great. Thank you.

Laura McGuigan, B. Riley & Company

Good afternoon, guys. Just a couple of questions here with respect to the guidance tests 4,000 to 4,300. Does that include any volumes attributable to the recent increase in covered lives, specifically the Defense decision that you mentioned? Or would it be fair to assume that that number should grow sequentially as that patient population starts to come onboard?

Yes, I would say that our guidance did not include any incremental from that. That was just implemented and we've got a lot of work to do to work with Quest to go out and educate that audience and introduce the test. So, no, I would say that we did not take that into consideration.

Okay and then just to clarify, with respect to R&D spend, year-over-year, relative to your OpEx guidance and the OVA1 studies that you're undertaking, how should we view R&D spend then going forward? Will it be flat? Should we assume that it'll be flat year-over-year or will it increase and with sales and marketing and G&A coming down?

Well, the R&D budget, are you talking about the R&D budget for this year?

Yes.

Yes. Our R&D budget for the year is going to be, obviously, less than it was last year because we spent money, we put resources into the intended use study, but we have sufficiently, we think, organized our budget in a way to do exactly what I talked about in the call.

The key focus is making sure that we commercialize OVA1 and we do all the things and frankly, there's a lot of R&D activity that needs to be ongoing that supports that commercialization of OVA1. The second thing is to bring our pipeline along, but at a pace and a clip that's be a perfect spend for this Company in the stage of development we are.

It's Donald here. You know I feel quite comfortable with the somewhat reduced pace of R&D spending. I think that we have the right focus here in terms of driving the products we have and positioning for the future. And one thing you can do with R&D is a little creative financing, for example, by working with a number of collaborators and supporting, at a very low cost, some of their research. It's likely to bring into view new opportunities and options for designing OVA2, for example, going forward.

That's helpful and speaking to that, you had mentioned in the 8-K that you filed beginning of January that you were exploring potential partnerships for the advancement of your pipeline. Do you have any additional color that you could provide at this time or give you any idea of how those endeavors are going and what they might look like?

Unfortunately, we can't at this time, Laura, but what we can say is that the Company has always been open and continues to be open to exploring various business development activity. We always maintain that those need to create shareholder value and enhance the value proposition of Vermillion overall. So we are open to those, but we really can't comment at this time.

Okay. Thanks, guys.

No, thank you.

Ms. Page, there are no further questions at this time. I'll turn the call back to you.

Okay. We really appreciate everybody joining us today. I know there was a lot of information that was given out today and we look forward to speaking to those that may have any other questions. As always, we will try to make ourselves available and we suggest that you contact Liolios.

But the management team would like to thank you for joining us today. We appreciate your interest in Vermillion and look forward to updating you on progress on our next quarterly call.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and kindly ask that you please disconnect your lines. Have a great evening, everyone.