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(650) 320-1884

robertclaassen@paulhastings.com

October 5, 2007

U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Attn: Kate Tillan

    Re:

    SEC Comments of September 24, 2007

Dear Ms. Tillan:

On behalf of Vermillion, Inc. (the Company” or “Vermillion”), set forth below are the responses to
the comments in the letter dated September 24, 2007 from the staff of the Division of Corporation
Finance (the “staff”) of the Securities and Exchange Commission (the “SEC”) relating to the
Company’s Form 10-K for the fiscal year ended December 31, 2006. For ease of reference, we have
repeated the Staff’s comments below with bold face type before each of Vermillion’s responses.

Form 10-K for the Fiscal Year Ended December 31, 2006

Consolidated Financial Statements, page 42

Note 6. Gain on Sale of Instrument Business, page 57

    1.

    We note that you completed the sale of your protein research tools and collaborative services
business to Bio-Rad Laboratories, Inc. on November 13, 2006. Please tell us about your
consideration of paragraphs 41-42 of SFAS 144. Please be sufficiently detailed in your
response.

Sale of Instrument Business

Overview:

On November 13, 2006, Ciphergen completed the sale to Bio-Rad Laboratories, Inc. (“Bio-Rad”) of the
Company’s protein research tools and collaborative services business (the “instrument business”)
through an asset sale transaction (the “Asset Sale”). Pursuant to the terms of the Asset Sale
entered into with Bio-Rad on August 14, 2006, Bio-Rad paid the Company approximately $16 million in
cash at the closing of the transaction. An additional $4.0 million of contingent cash consideration
includes $2.0 million, subject to certain adjustments, to be held in escrow as security for certain
obligations of the

October 5, 2007

Page 2

Company for three years following the closing, and $2.0 million as a holdback amount to be held by
Bio-Rad until the issuance of a re-examination certificate confirming a patent.

Subsequent to the November 13, 2006 completion of the Asset Sale, both Ciphergen and Bio-Rad
recognized business activities on behalf of each party. As of December 31, 2006, Ciphergen owed to
Bio-Rad a total of $1,571,000, which consisted of accounts receivable Ciphergen collected which
belonged to Bio-Rad, operating expense invoices processed by Bio-Rad and reimbursable by Ciphergen
to Bio-Rad, and other unbilled receivables from Bio-Rad. Similarly, Bio-Rad owed to Ciphergen a
total of $619,000, which consisted of operating expense invoices processed by Ciphergen and
reimbursable by Bio-Rad to Ciphergen, sales taxes on the sale of assets, and unbilled receivables
from Bio-Rad.

Applicability of Paragraphs 41-42 of SFAS 144

Paragraphs 41 and 42 of SFAS 144 state that:

    41.

    For purposes of this Statement, a component of an entity comprises operations and cash flows
that can be clearly distinguished, operationally and for financial reporting purposes, from
the rest of the entity. A component of an entity may be a reportable segment or an operating
segment (as those terms are defined in paragraph 10 of Statement 131), a reporting unit (as
that term is defined in Statement 142), a subsidiary, or an asset group (as that term is
defined in paragraph 4 of SFAS 144).

    42.

    The results of operations of a component of an entity that either has been disposed of or is
classified as held for sale shall be reported in discontinued operations in accordance with
paragraph 43 if both of the following conditions are met: (a) the operations and cash flows of
the component have been (or will be) eliminated from the ongoing operations of the entity as a
result of the disposal transaction and (b) the entity will not have any significant continuing
involvement in the operations of the component after the disposal transaction.

The sale by the Company of the instrument business is not classified as discontinued operations
because conditions required by paragraph 42 of SFAS 144 for reporting discontinued operations were
not met. Paragraph 42 of SFAS 144 requires that the operations and cash flows of the disposed
component have been (or will be) eliminated from the ongoing operations of the entity as a result
of the disposal transaction and that the Company not have any significant continuing involvement in
the operations of the component after the disposal transaction. This is not the case. Under a
five-year manufacturing and supply agreement entered into between the Company and Bio-Rad, the
outsourcing of the manufacturing operations of the instruments business will not eliminate the
operations and cash flows from the ongoing operations of the Company. Under a transition service
agreement, Bio-Rad will have shared use of the Company’s server and systems, Bio-Rad and the
Company will provide personnel and staffing services

October 5, 2007

Page 3

and the Company will have access and the right to use certain equipment sold to Bio-Rad. Under a
sublease agreement, through July 2008 Bio-Rad will sub-lease approximately one half of the
manufacturing and office space currently under lease by the Company. Under a five year
cross-license agreement, the Company will have the right to certain
technology to be used in the
diagnostic market. In light of the transition services agreement, sublease, cross-license
agreement, and the manufacturing and supply agreement entered into between the Company and Bio-Rad,
continuing cash flows are expected to be generated by the Company. In addition, the agreements
provide the company with significant continuing involvement in the operations of the instruments
business. Accordingly, the Company continues to report the operations of the instrument business
in continuing operations due to this continuing involvement.

Note 11. Long-term Debt and Capital Leases, page 62

    2.

    We note that you issued 7.0% convertible senior notes due 2011 on November 15, 2006. Please
tell us about your assessment of the embedded features within the convertible debt under SFAS
133. Please be sufficiently detailed in your response.

Terms of Convertible Notes

Overview:

On November 15, 2006, the Company closed the sale of $16,500,000 of Convertible Senior Notes due
September 1, 2011 (the “Notes”). The Notes are unsecured senior indebtedness of the Company and
bear interest at the rate of 7.00% per annum, which may be reduced to 4.00% per annum if the
Company receives approval or clearance for commercial sale of any of its ovarian cancer tests by
the U.S. Food and Drug Administration. Interest is payable on March 1 and September 1 of each year,
commencing March 1, 2007. The Notes are convertible at the option of each Holder, at any time on or
prior to the close of business on the business day immediately preceding September 1, 2011, into
shares of the Company’s common stock at a conversion price of $2.00 per share, equivalent to a
conversion rate equal to 500 shares of common stock per $1,000 principal of the New Notes, subject
to adjustment in certain circumstances. If a Holder converts all or any portion of its Notes prior
to October 31, 2008, upon such conversion, in addition to the Common Stock such Holder would
receive, the Holder will be entitled to receive with respect to each Note so converted an amount in
cash equal to the difference of (i) the amount of all interest that the Company would be required
to pay on such Note from the date of the indenture through October 31, 2008 and (ii) the amount of
interest actually paid on such Note by the Company prior to the time of conversion.

Holders of the Notes have the option to require the Company to repurchase the Notes upon a change
of control as that term is defined in the indenture and at any time after

October 5, 2007

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September 1, 2009, if the Company has not received approval or clearance for commercial sale of any
of its ovarian cancer tests by the FDA. The Company may redeem the notes at its option, in whole or
in part, at any time on or after September 1, 2009 at specified redemption prices plus accrued and
unpaid interest, provided that the notes will be redeemable only if the closing price of the stock
equals or exceeds 200% of the conversion price then in effect for at least 20 trading days within a
period of 30 consecutive trading days ending on the trading day before the date of the notice of
the optional redemption. Upon a change of control, each holder of the notes may require the Company
to repurchase some or all of the notes at specified redemption prices, plus accrued and unpaid
interest. The debenture contains a put option that entitles the holder to require the Company to
redeem the debenture at a price equal to 105.0% of the principal balance upon a change in control
of the Company.

The notes and common stock issuable upon conversion of the notes were registered with the U.S.
Securities and Exchange Commission on Form S-3 on December 15, 2006, and at December 31, 2006 all
notes remained issued and outstanding.

Applicability of SFAS 133

The Company used the following technical guidance related to the assessment:

    •

    EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock

    •

    FAS 133, Accounting for Derivative Instruments and Hedging Activities, as Amended and
Interpreted (February 2004), paragraphs 11a, 12, 13, 61(d)

    •

    FAS 5, Accounting for Contingencies

    •

    EITF 05-2, The Meaning of “Conventional Convertible Debt Instrument” in EITF Issue No.
00-19

    •

    EITF 01-6, The Meaning of “Indexed to a Company’s Own Stock”

    •

    FASB Staff Position EITF00-19-2: Accounting for Registration Payment Arrangements

    •

    DIG Issue B15, Embedded Derivatives: Separate Accounting for Multiple Derivative Features
Embedded in a Single Hybrid Instrument

    •

    DIG Issue B16: Embedded Derivatives: Calls and Puts in Debt Instruments

    •

    DIG Issue B38: Evaluation of Net Settlement with Respect to the Settlement of a Debt
Instrument through Exercise of an Embedded Put Option or Call Option

    •

    DIG Issue B39: Application of Paragraph 13(b) to Call Options That Are Exercisable Only by
the Debtor

Company’s analysis and detailed explanations related to the derivative features of the convertible
notes are as follows:

October 5, 2007

Page 5

    1.

    The Company assessed the conversion option under the guidance in FAS 133,
Accounting for Derivative Instruments and Hedging Activities (“FAS 133”), specifically
paragraph 12 and 13, to determine if the conversion option met the definition of a
derivative and whether the derivative should be separated from the host contract (the
“Note”) and accounted for as a derivative instrument. The Company concluded that the
conversion option met the definition of a derivative as defined in FAS 133 and that it
was not clearly and closely related to the Note. The Company then assessed whether
the conversion option met the paragraph 11(a) scope exception to FAS 133. The Company
concluded that the conversion option was indexed to its own stock by applying the
guidance set forth in EITF 01-6, “The Meaning of ‘Indexed to a Company’s Own Stock.’”
The Company also determined that the conversion option would be classified as
stockholders’ equity if it were freestanding by applying the guidance set forth in
EITF Issue No. 00-19 (“EITF 00-19”), Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock. In applying EITF 00-19,
the Company considered all aspects of EITF 00-19 (i.e. paragraphs 12-32), to determine
the appropriate classification (i.e. debt or equity) for the conversion option as the
Company had concluded that the Note is not considered conventional debt due to
a “make-whole” premium the Note Holders could be provided upon a change of control
whereby the conversion price is adjusted based on the timing of the change of control.
The Company analysis included determining that the contract permits the company to
settle in unregistered shares, that the company has sufficient authorized and unissued
shares available to settle the contract after considering all other commitments that
may require the issuance of stock during the maximum period the derivative contract
could remain outstanding, that the contract contains an explicit limit on the number
of shares to be delivered in a share settlement, along with the other provisions in
paragraphs 12-32. The Company determined that they met the criteria noted in 00-19
for considering the conversion feature as equity if it were free-standing. Based on
the analysis, the Company concluded that the conversion option does not need to be
bifurcated from the debt instrument as it meets the FAS 133 paragraph 11(a) scope
exception and should be accounted for in accordance with the guidance in APB 14,
Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants.

    2.

    The Company assessed the following features of the Note under the guidance in
FAS 133, Accounting for Derivative Instruments and Hedging Activities (“FAS 133”),
paragraphs 12 and 13, to determine if the features met the definition of a derivative
and, if so, whether the derivative should be separated from the Note and accounted for
as a derivative instrument:

October 5, 2007

Page 6

    •

    The Note Holders contingent put option: If the FDA Approval Event (as described in
the Note Offering) does not occur by September 1, 2009, the Note Holders have the
option after September 1, 2009 to put the debt to the Company for payment at the par
value of the Note plus any accrued and unpaid interests. The Company determined that
this put option which permits the holder to put the debt at par plus accrued and
unpaid interest is clearly and closely related to the host debt instrument as defined
in paragraph 61(d) of FAS 133 and the application of DIG Issue B16. As such, the
holder’s option to put the Notes at par does not meet the requirements for bifurcation
under FAS 133 paragraphs 12 (a).

    •

    The Company’s call option to call the debt at par plus accrued and unpaid interest
(on or after September 1, 2009): The Company concluded that the redemption feature
permitting the Company to call the debt at par plus accrued and unpaid interest, on or
after September 1, 2009, is clearly and closely related to the host debt instrument
based on reference to DIG Issue B39 as it can be only exercised by the debtor, and the
index is the fixed premium, which is considered a “plain vanilla” call. Accordingly,
the requirements for bifurcation under FAS 133 paragraph 12(a), 13 and 61(d) do not
apply.

    •

    The contingent interest rate reduction from 7% to 4% upon an FDA Approval Event:
The Company concluded that the interest rate reduction from 7% to 4% upon an FDA
Approval Event is clearly and closely related to the host debt instrument based on
reference to DIG Issue B16. In determining the appropriate rate for the debt
agreement, the Company considered that the FDA Approval Event was included in the Note
as a barometer of the Company’s credit risk. The Company’s credit risk would decrease
upon the FDA Approval Event; accordingly, the decrease in the credit risk would result
in an adjustment to the interest rate. Part of the Company’s determination was based
on the parties to the transaction agreeing that the occurrence or nonoccurrence of an
FDA Approval Event would be an effective way to measure the change in the Company’s
credit risk. Therefore, the interest rate reduction is related to the perceived credit
rating and credit risk of the Company (as the Company’s credit rating will be
positively impacted by the FDA approval) and is not indexed to another underlying and
the guidance in paragraph 61(h) of FAS 133 and DIG Issue B36 applies. Accordingly, the
interest rate reduction doe