Ladenburg Thalmann Comments on Vermillion's 10-K Filing

Ladenburg Thalmann has published a research report on Vermillion

commenting on the company's 17% decline in OVA1. In the report, Ladenburg writes, "On 3/27/12, VRML filed a 10-K including 4Q11 revenues and “true up” payments from partner Quest Diagnostics (DGX, $60.62, Not Rated). We believe the results suggest significant reimbursement headwinds continue to weigh on revenue with y-o-y decline of 17% in the “true up” payment from $56.50 per resolved test in 2010 to $46.89 per test in 2011. As a reminder, VRML receives $50 when each test is processed and a 33% royalty “true up” payment once a year equal to 33% of DGX's gross profit. Given that operating gross profit per test would have been expected to increase with higher test volumes in 2011, the 17% decline in true up per test suggests DGX received a greater than 17% decline in net revenue per test reimbursed by payers, in our view. Additionally, “unresolved” tests (tests DGX is still in negotiation with payers regarding reimbursement) remains high (45% or 32% of total tests depending in methodology). While we expect a unique CPT code scheduled to take effect January 2013 to reduce the number of unresolved tests, we believe the 2011 true up suggests significant risk to the rate of reimbursement. The list price for OVA1 is $650 and VRML has guided investors to Medicare reimbursement rate of about $500 as a fair baseline." Ladenburg Thalmann maintains its Sell rating on Vermillion, which closed yesterday at $1.77.