It's not an uncommon situation. While investors are scouring the news (or lack thereof) from a company, they're not paying much attention to the stock itself. Big mistake, as stocks can and do have a life of their own, sometimes independently of the company. Vermillion, Inc. (NASDAQ:VRML) is the most recent example of this alarming disconnect. While news from the company of late has been fairly benign and a little non-existent, shares of VRML has been inching towards a key technical line in the sand that if crossed under could spark a fairly rapid selloff.
First things first. For those not familiar with the company, VRML is a medical diagnostic stock. Specifically, Vermillion is best known for its ovarian cancer test OVA1, which can determine if on ovarian mass is malignant. It's not the only test the company has on the market, however - it's just the flagship product. Also in Vermillion's product library is the OVA2 test, which is currently in development as a tool that could pinpoint other ovarian-cancer-related problems that OVA1 can't, and the VASCLIR test, which is also currently in development as a means of determining and individual's risk of peripheral artery disease.
Though VASCLIR and OVA2 aren't making a big impact on the stock yet, since neither are on the market, VRML does get traction from time to time with news on the OVA1 front. Makes sense. The product's been approved since September of 2009, and has had plenty of time to develop sales momentum as well as draw out any issues or problems. So far, there are no major snafus, and Vermillion, Inc. sold $330,000 worth of the ovarian cancer test last quarter... a fairly typical quarter. That's not great for a $53 million company, but in the world of biopharma, future potential is the name of the game... or is it?
With nearly three full years of an approved OVA1 test's sales under its belt, it's safe to assume the revenue the company has generated has been something of a disappointment. The best year we've seen from Vermillion was 2012's $2.09 million in sales, and that was more than one full year after the test was approved and began being sold. Since then, sales have actually been waning. Indeed, things have been so disappointing that the company is now being scrutinized by law firms nosing around for a possible "breach of fiduciary duties" case to be brought against the board of directors.
It's not hard to understand why. The company was talking a big game three years ago, but it's been talking the same game the whole time, without ever actually getting to that promised land. Three years is enough time to get there. The only good news we've gotten recently was positive reviews of the diagnostic test in the American Journal of Obstetrics. But, that wasn't exactly news - the FDA's approval was confirmation enough that the test itself worked.
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It's unlikely the case will actually go anywhere or be successful, mind you; failing to live up to expectations isn't a crime, and it's near impossible to prove that any member of the Vermillion's leadership team knowingly and willingly overstated the potential of OVA1. Still, it doesn't make the marketing of OVA1 any easier when you also have to deal with a lawsuit.
None of that, however, is the part of the story Vermillion, Inc. shareholders have to worry about now. Right now the biggest concern is the fact that VRML shares - unaided by any encouraging new news and dogged by the occasional bad news - are on the verge of breaking under a huge support level at $2.23. That's where the 200-day moving average line is now, and that level's been a significant horizontal support level in the recent past. Meanwhile (since June), VRML has left behind a string of lower highs that will likely, eventually drive the stock under its support level. Once under that mark, the selling floodgates could open and there's nothing to stop the bleeding.
It's admittedly tough to bet against a stock before a breakdown actually materializes. In the case of Vermillion though, it's not like there are any real revenue catalysts in the pipeline. The main product has been on shelves for three years now - if it was going to happen (and if the market was going to reward the company), it would have happened by now. Speculators may want to go ahead and make their bets, as one more stumble could rapidly accelerate the selling process for VRML.
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