Vermillion: A Journey into—and out of—Chapter 11

On September 11, 2009, the U.S. Food & Drug Administration (FDA) gave clearance to a test by diagnostics company Vermillion (VRML) that can help a physician determine if an ovarian mass is benign or malignant. The test, called OVA1, helps patients and health-care professionals decide what kind of specialist should perform surgery on the patient.

While the approval was good news for women and physicians as well as Vermillion shareholders, it was an especially sweet victory for Chairman and Chief Executive Gail S. Page, who had decided to take the company into bankruptcy in the beginning of 2009—nine months before the FDA gave its approval of OVA1.

Page recently spoke with Management Editor Patricia O'Connell about the decision to enter into Chapter 11. Edited excerpts of their conversation follow:

Patricia O'Connell: Bankruptcy is a scary word. What was going through your mind as you made the decision to take Vermillion into Chapter 11.

Gail Page: It is a scary word. But two things influenced me. One was, I looked at the data and all the interactions we were having with the FDA, and I felt very strongly that we were on the path to FDA clearance and that the one thing keeping us from that was financial.

No. 2 is I am not a quitter. There were people I've worked with for 30 years who asked me, "Do you know what you are doing," and I said, "Not exactly." But if you look at Chapter 11, this was the kind of a situation it was designed for. We knew we were close to having a valuable product, and we didn't want to sacrifice all of the hard work we had already put in or let someone else come along and scoop it up for a song.

So after considering all the alternatives, we proposed a plan to the board that outlined proceeding under the protection of Chapter 11 or simply shutting the company down. With the commitment of the management team and several board members, we decided to proceed with Chapter 11, which we knew would give us the breathing room we needed to complete the FDA clearance process.

How did things change day to day at Vermillion after you went into Chapter 11?

Executives gave up salaried jobs and merely took small consulting fees, usually for one billable day per week, when we were in fact working around the clock to save the business. We reduced our operations to the bare minimum necessary to complete the FDA process and ran a very focused and lean operation. We made it because of the strength of all the people, their willingness potentially to get nothing in return for all of their efforts.

I think everyone would agree it was the hardest thing they had ever done in their careers. I know that's true of me, including my 14 years at LabCorp, where I had responsibility that dwarfed Vermillion but didn't feel nearly the anxiety or pressure I felt trying to raise money to keep our company afloat. For me personally, I had to rely on every fiber of business acumen I had collected in all my years of working in the industry.

How did the company get to the point where Chapter 11 made sense?

Vermillion was a spinout from Ciphergen, whose original business was technology for analyzing proteins. I was brought in as CEO in late 2005 to refocus the company on diagnostics. We were carrying a lot of financial baggage, including a $30 million note, from the prior company that was wearing us down.

Was it your idea to take Vermillion into Chapter 11?

We looked at every avenue available to us. Chapter 11 is not the first thing you would want to do. Most of the things people wanted to work out with us were not in the interest of the company or shareholders. If we had just defaulted on the loan, the note owners would have taken the assets of the company.

Did any stakeholders object when you raised the prospect of Chapter 11?

I can't say they resisted. The board knows me, and they knew I would not have recommended it if I didn't think we had a really good shot with the FDA.

Were you concerned that there would be a stigma to being in Chapter 11?

Those thoughts ran through my mind, but we just embraced it. We explained to people what we were doing and why, and that we believed could weather the storm.

The FDA doesn't care about your financial situation. They just care about your data. Doctors don't care, as long as you're able to produce the test. We knew that if we could get clearance for the test, then we could get financing, and those issues would go away.

What is next for you and Vermillion?

The most important thing I can do as chairman and CEO is surround myself with people who are really, really smart. And I am very good at that.

The most common questions I get about the company are, "Are you going to build it, or are you going to sell it?" A good CEO should be looking at all those things all of the time. This company has every exit strategy available to it.

How has the company fared since exiting Chapter 11?

We paid every creditor in full and all the professionals associated with the process. In February, the board reappointed me as CEO, and Dr. Eric T. Fung was reappointed senior vice-president and chief science officer. We have been very fortunate to reestablish our scientific board as well as recruit several outstanding industry experts to join our board of directors. In March, OVA1 was launched and made available nationally by Quest Diagnostics. A few days later, the product was approved for reimbursement by Medicare. We were relisted on the Nasdaq on July 6.

What advice would you give to other executives—executives in any industry—facing similar circumstances?

If you believe in your product, if you believe in what you're doing, then trust your instincts. Mine have always served me well.

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