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Caliper, Third Wave Share Plans for Growth Via Molecular Dx at Thomas Weisel Conference

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Last week at the Thomas Weisel Healthcare Conference in Boston, officials from Caliper Life Sciences and Third Wave Technologies said the molecular diagnostics market represents significant opportunities for their respective firms.
 
While Third Wave is banking on the US Food and Drug Administration clearing its human papillomavirus test and an expanding menu of assays to drive revenue growth, Caliper believes it will benefit greatly from the upcoming launch of Agilent Technologies’ cholesterol test and other molecular diagnostic alliances.
 
Caliper President and CEO Kevin Hrusovsky also provided some more detail on a new chip developed by the company that can do sample prep on the chip itself.
 
Third Wave
 
Even though Third Wave is among the smallest firms in the BCW Index and one of the smaller players in the molecular diagnostics industry, President and CEO Kevin Conroy told analysts and investors at the conference that he believes the firm can be the fastest-growing molecular diagnostics company in the world over the next five years.
 
“We believe that for two reasons. First, we believe that our HPV product is the best in class,” said Conroy during a webcast of his presentation. The firm is very close to submitting the test for FDA clearance, he said, with a possible submission in the fourth quarter of this year. He noted that Third Wave has spent $15 million on clinical studies for the HPV test.
 
“Secondly, our current base of products continues to grow at 25 percent,” he said.
 
If Third Wave does get approval for its HPV test, it will compete directly with Digene’s PCR-based test, which is currently the only FDA-cleared molecular diagnostic for HPV. The firms sued each other earlier this year over HPV testing patents exclusively licensed to Digene (see BioCommerce Week 4/11/2007).
 
“Our first priority — and it’s where we put 80 percent of our effort — is in our HPV clinical trials and commercialization efforts,” said Conroy.
 
He said the HPV testing market is growing rapidly and currently stands at roughly $250 million. The firm currently sells an HPV ASR.
 
Conroy anticipates that Third Wave, Roche, and Digene, which is now owned by Qiagen, will be the only firms to compete in the near future in the HPV testing market, as the barriers to entry are high. He also reiterated his belief that Third Wave will win over customers with a more reliable test that is easier to use.
 
Cepheid officials also said at the conference last week that they intend to develop an HPV test (see related article).
 
“Labs won’t run both our test and Digene’s test,” said Conroy. “We plan to go to customers with a very valuable, easy to use, high-quality test, and we believe there is a significant opportunity to talk with the customers.”
 
He added, “It’s very tough for newcomers to come into molecular diagnostics. There’s just not enough bench space left in clinical labs, so you’re fighting against other platforms. We’ve been able to focus attention on small- and medium-volume labs that haven’t had a lot of attention focused on them,” he said.
 
Conroy said the firm’s other priorities are to focus on growing its customer base and its product base, and expanding its service offerings.
 
The firm has submitted its cystic fibrosis InPlex test to the FDA for market clearance. He said the firm finished last year with about 10 percent market share for CF testing and expects to finish this year with 17 percent market share.
 
Conroy also expects to see greater sales of the firm’s warfarin assay following the FDA’s label update for the drug. It currently sells an ASR version but will soon announce plans for an FDA submission of a clinical diagnostic test.
 
Last month, Third Wave reported that its second-quarter revenues grew 9 percent year over year to $7.4 million.
 
Caliper Likes MDx, Too
 
While Caliper Life Sciences is probably best known for its imaging and liquid-handling products used for drug research, company officials have increasingly talked about opportunities for the firm in the molecular diagnostics field.
 
Hrusovsky said the firm has brought in more than $25 million in revenue from licenses over the past three years related to molecular diagnostics, and he expects revenue from this sector to continue growing for the firm.
 
Caliper has alliances with both Affymetrix and Agilent, among others, for its chips for liquid-handling applications. The alliance with Agilent, as well as another deal with Canon Life Sciences, is specifically focused on molecular diagnostics.
 
“Where the chip opportunity is greatest is molecular diagnostics,” said Hrusovsky. He said the margins on chips for those applications is much higher than for other applications, and it is the primary reason why the company is looking forward to Agilent launching its cholesterol test chip, which utilizes Caliper’s technology, in the near future.
 
Hrusovsky also gave a little more detail on a chip the firm has developed that can run sample preparation without a separate instrument. He initially mentioned the chip at an investment conference earlier this year (see BioCommerce Week 2/14/2007).
 

“It’s very tough for newcomers to come into molecular diagnostics. There’s just not enough bench space left in clinical labs, so you’re fighting against other platforms.”

“We’ve invented a PCR chip, where you can actually do in-line PCR in our chip just by thermocycling the temperature of the chip,” he explained last week.
 
“That sample preparation capability, and the ability to integrate all of the steps together can decentralize molecular diagnostic testing,” said Hrusovsky, noting a goal also mentioned last week by Cepheid CEO John Bishop. “Today, many of those big DNA tests are run in centralized labs, like LabCorp or Quest. We think our chip has the ability to integrate the entire experiment on the chip and move it by the patient, and I think that’s the biggest opportunity our type of chip would have,” he said.
 
Not So Bullish on M&A Market
 
Hrusovsky had previously called 2006 a “transformative year” for Caliper, as the firm made acquisitions that furthered its goal of providing customers with an in vitro-in vivo bridge in the preclinical drug research field.
 
It acquired NovaScreen Biosciences in October 2005 and Xenogen in August 2006. Earlier this year, Caliper combined those firms into a single drug-discovery service division called Caliper Discovery Alliances and Services.
 
While those acquisitions are driving revenue growth for Caliper, Hrusovsky does not see a lot of opportunities for Caliper in the current M&A market, as the firm targets smaller, tuck-in deals.
 
“There’s not a lot of what we’re looking for,” said Hrusovsky. “Some of the things we’re looking for are, number one, great science … It would also be great to have patents that go along with that.
 
“We’re [also] looking for a company that has probably outgrown itself,” he said. In particular, Caliper would look for a science-based company that may not know how to properly commercialize its products and may not have all of the necessary relationships with pharma and biotech, which Caliper can provide.
 
Hrusovsky said accretiveness to earnings also is a key measure the firm considers as it screens the market for M&A opportunities.
 
“We have found, though, a few,” he said. “Some of them we think have a lot of potential. But it has taken us some time to really sort through them.”
 
He said that because the integration of Xenogen went smoothly, the firm can now direct its attention to the next potential acquisition.
 
Hrusovsky also was asked by an analyst after his presentation at the conference if Caliper expects to see any revenue this year from its alliance with Affymetrix. “It would be nice,” he replied. “We’ve [received] $7 million of revenue from Affymetrix since 2005.
 
“We probably got somewhere around $1 million from them in 2006, and we’ve really not seen much since then — that was early 2006 — and that’s when they ran into a lot of challenges. They had redirected a lot of resources toward chip scale-up,” said Hrusovsky.
 

“We’ve been able to preserve our relationship [with Affymetrix], and we’ve predicted in our model less than … $500,000 in Q4, but more importantly we do believe we’re going to start seeing some revenue in 2008,” he said.

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