Vermillion CEO accused of deceiving shareholders
Actively concealed extremely high (over 80%) Medicare denial rate for OVA1
Dear Fellow Shareholders,I am writing to inform you of some shocking and very disturbing information I have learned regardingthe wilful failure of Vermillion Inc.
CEO to disclose to its investors material informationregarding Medicare reimbursement denials of OVA1 test and related issues.Specifically, in the Vermillion earning releases and the earnings calls in 2011, the company hasreported the number of tests performed by Quest Diagnostics Inc.
to itsinvestors. However, I have learned from persons with knowledge that these figures and descriptionsare highly misleading with regard to the revenue that Vermillion can ever hope to realize from itsOVA1 sales for 2011.
Specifically, Gail Page, the CEO of the company (“Page”), and other
members of the Board of
Directors (“Board”) colluded to conc
eal material information from us. Indeed, Page and the Boardwere aware no later than December 2010 that Medicare had been denying over 80% of OVA1 claims(in comparison I understand the average denial rate for by Medicare on general claims is only6%). This left the company with absolutely no practical recourse, and I presently believe that thethousands of denied claims will never likely be paid by anyone. This denial rate continued through2011.It is outrageous that this information has never been disclosed to the shareholders. Page and theBoard knew or should have known that Medicare is their single largest payer, responsible forreimbursement as to approximately 50% of all OVA1 sales. Therefore, simple math dictates thataround 40% of total reported OVA1 sales will never get any reimbursement, with the result being thatVermillion management has purported to disclose sales that will never be reimbursed. To thecontrary, despite having been aware of this extremely high denial rate, Vermillion management hascontinued to report the number of performed tests as though Medicare will reimburse them, creatingexpectations for 2011 that are not couched in reality.Even more troubling is that I have learned that Page was encouraged to disclose this information toshareholders, and she simply refused, apparently preferring to leave her shareholders in the darkregarding this inconvenient truth.
Perhaps Page’s reluctance to disclose this fact was motivated by her desire to raise more cash. In
February of 2011, Vermillion proceeded with a secondary offering, selling shares for $21.8 million toinvestors who had no idea that claims on OVA1 tests performed by Quest Diagnostics were beingdenied and/or grossly reduced. While the company was bleeding cash and badly needed the influx
of new capital, such demands cannot excuse Page’s silence
--- she owed us more candor.In light of the above, which I learned after relatively perfunctory research, one begins to wonder whatelse we do not know. As a concerned shareholder since 2010, I have decided to take various actionsin order to preserve the remaining assets of the company:
Expect to engage the law firm Novak Druce + Quigg regarding the issues presentedabove and expect them to investigate all of the matters raised and to determineappropriate legal action