Washington Editor

Molecular diagnostics maker Vermillion Inc., which has filed for Chapter 11 bankruptcy protection, said it is expecting to raise $43.05 million in a private placement stock sale, which would help the Fremont, Calif.-based company pay debtor-in-possession obligations to its partner Quest Diagnostics Inc.

Vermillion, which develops diagnostic products in cardiology, oncology, hematology and other clinical areas, has agreed to sell 2.33 million shares of its common stock at about $18.50 per share, with the transaction expected to close on Jan. 7, 2010 - the same day a Delaware bankruptcy court is holding a confirmation hearing on the company's Chapter 11 reorganization plan.

Shares of Vermillion (Other OTC:VRMLQ) shot up $5.29 Tuesday, or 23.8 percent, to close at $27.53.

Vermillion filed for reorganization relief under Chapter 11 on March 30 in the U.S. Bankruptcy Court for the District of Delaware in Wilmington.

To conserve cash and resources, the CEO, chief financial officer and head of corporate business development resigned, but have been acting as consultants for the firm since sometime in the spring.

The struggling company also reduced its board of directors by four as a cost-saving measure.

Six months after filing its voluntary petition for bankruptcy protection, the FDA cleared Vermillion's OVA1, a biomarker panel intended to assess the likelihood of ovarian cancer in women with a pelvic mass.

The approval breathed new life into Vermillion's shares, which earlier in the year had hit a 52-week trading low of 1 cent. The shares are now up more than 275,000 percent.

"This is a very exciting time for Vermillion," said Gail Page, executive chairwoman of the board of directors.

Vermillion developed OVA1 under a 2005 partnership with Madison, N.J.-based Quest Diagnostics, which has the exclusive rights to offer the test to the clinical reference laboratory market in the U.S. for three years.

Vermillion and Quest also are developing a test for peripheral artery disease under the alliance.

OVA1, an in vitro diagnostic multivariate index test, combines the results of five immunoassays using an algorithm to produce a single numerical score indicating a women's likelihood of malignant ovarian cancer, a disease with nearly 22,000 new diagnoses each year in the U.S. and 14,600 annual deaths.

The test is indicated for women 18 years or older with an ovarian adnexal mass for which surgery is planned, but the patient has not yet been referred to an oncologist.

The Sept. 11 approval of OVA1 was based on a prospective, double-blind clinical trial, which included 27 demographically mixed sites representative of institutions where patients with ovarian tumors undergo a gynecological examination, Vermillion said.

Vermillion said OVA1 provides a "new option" in the preoperative evaluation setting in helping physicians assess whether to refer a woman to a gynecologic oncologist for surgery.

The company in concert with Quest plans to launch OVA1 in early 2010, after coming out of bankruptcy, a spokeswoman told BioWorld Today.

In addition to repaying its debt to Quest, Vermillion plans to use the private placement proceeds to finance, in part, the distributions to be made under its reorganization plan, including administrative fees and expenses, and for working capital and other general corporate purposes.

Vermillion said it expected the transaction to provide the firm with "sufficient capital" to allow it to "accomplish a successful restructuring."

In other financing news:

• NeurAxon Inc., of Waltham, Mass., has raised $8.75 million from a debt placement with new investor CTI Life Sciences Fund and existing investors Delphi Ventures, OrbiMed Advisors LLC, Ventures West Capital Ltd, H.I.G. Ventures, BDC Venture Capital, NeuroVentures Fund and NeurAxon CEO Lawrence Bloch. NeurAxon issued unsecured subordinated 2 percent convertible debentures that can be converted into existing class B preferred shares of the company's stock, according to officials. In conjunction with the financing, Richard Meadows of CTI Life Sciences Fund will join the NeurAxon board. Proceeds are expected to be used to support research and development of the firm's pipeline of selective inhibitors of an enzyme involved in modulating pain and central nervous system neuronal sensitization.

• Vyteris Inc., of Fair Lawn, N.J., announced the sale of $2.3 million of net operating tax losses in a nondilutive capital raise and the conversion of approximately $20 million of debt and preferred shares into common stock through an agreement with Spencer Trask Specialty Group LLC. The moves are part of a financial restructuring.