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Despite Declining Q4 Revenues, Transgenomic to Develop Assays in 'Key Markets'

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Transgenomic reported a 6 percent decline in fourth-quarter 2008 revenues last week, but company officials sought to reassure investors in a difficult economic climate by highlighting development plans for several new assays in "key markets."

Revenues for the three months ended Dec. 31, 2008, "were slightly lower due to the impact of foreign currency rates on our consumables sales and late start-up of some our planned pharmacogenomics clinical research projects," Transgenomic CEO Craig Tuttle said during a call to discuss the company's fourth-quarter earnings.

Looking forward, Tuttle highlighted several assay development projects that would "drive both short- and long-term growth for our laboratory businesses," including tests for diagnosing Alzheimer's and Parkinson's disease, and for detecting KRAS mutations in colorectal, lung, and pancreatic cancer.

The Omaha, Neb.-based pharmacogenomics assay developer and lab services firm posted revenues of $6.1 million compared to revenues of $6.5 million for the fourth quarter of 2007, while it swung to a $219,000 net loss for the quarter from a $212,000 profit in the fourth quarter of 2007. R&D spending dropped to $649,000 from $763,000, and its SG&A spending fell to $2 million from $2.7 million year over year.

For full-year 2008, Transgenomic's revenues increased slightly to $24 million from $23.2 million. Its net loss declined to $495,000 from $2.1 million for 2007. Its R&D spending decreased to $2.5 million from $3 million, while its SG&A spending fell to $10.8 million from $11.5 million.

Fourth-quarter revenues from Transgenomic's pharmacogenomics services lab declined by 38 percent, or $221,000, but CFO Debra Schneider noted during the call that the division's full-year revenues grew by 33 percent, The company did not break out specific revenue figures for its divisions.

"The pharmacogenomics services are project based, so the revenue is likely to spike" from quarter to quarter, Schneider said.

In addition, revenues from Transgenomic's molecular clinical reference laboratory grew by 114 percent in the fourth quarter and 70 percent for the year. This growth was due to an increased "sales focus, an increased customer base, and an expansion of our test offerings," Schneider said. In the fourth quarter, the lab also gained accreditation by the College of American Pathologists.

"With this growth in our services business, [and] our previous significant effort in cost reduction and investment in our sales organization, we have achieved close to breakeven performance for the year," said Tuttle.

Assay Development Pipeline

Last year, Transgenomic inked an exclusive licensing agreement with the Clayton Foundation for Medical research for its patent on mitochondrial DNA damage. "The Clayton Medical license has allowed us to develop a mitochondrial damage assay, which we hope will serve as a very important assessment tool for a variety of key medical problems, including assays for cardiac disease, neurodegenerative diseases, diabetes and cancer, as well as aging and wellness testing," Tuttle said.

"Equally important [is that] now we can offer this assay to our pharmaceutical partners through our pharmacogenomics lab … for clinical research and trials for drug toxicity testing as well as for validating drug targeting for mitochondrial damage," he added. Transgenomic is beginning clinical validation efforts for the mitochondrial DNA damage test.

Also in 2008, Transgenomic garnered an exclusive license for Power3 Medical's proteomic assay technology for Alzheimer's and Parkinson's disease diagnosis. Although currently there is no drug that will reverse the effects of these diseases, "there are treatments that will slow the development of these diseases…allowing clinicians to definitively diagnose these diseases [for] better treatment opportunities and eventually the option of earlier treatment," Tuttle noted.

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By year end, Transgenomic plans to clinically validate and certify these tests through its CLIA lab. Tuttle also noted that the tests for Alzheimer's and Parkinson's disease could be marketed to pharma partners for use in their targeted drug development efforts.

During the call, Tuttle highlighted the company's plans to develop a kit-based assay for detecting KRAS mutation that will run on Transgenomic's WAVE platform. The WAVE system utilizes denaturing high-performance liquid chromatography in conjunction with its patented separation DNASep Cartridges for mutation detection.

Transgenomic decided to pursue the development of a KRAS test after running several cancer treatment drug studies with pharma partners where the company was able to demonstrate superiority of its assay over sequencing- or qPCR-based KRAS assays, Tuttle noted.

He added that KRAS testing could play a significant role in the colon, lung, and pancreatic cancer markets. Transgenomic plans to complete development of its KRAS kit in the second quarter of this year and begin validating it in clinical trials.

KRAS testing is fast becoming a hot development area for diagnostic companies in the wake of recent studies that have shown that colorectal cancer patients with wild-type KRAS mutations respond better to anti-EGFR monoclonal antibodies, such as Amgen's Vectibix and Imclone/Lilly's Erbitux.

DxS has a worldwide distribution deal with Roche for its KRAS test. The company is submitting its tests for premarket approval to the FDA and announced this week it has received certification to market the test in the European Union [see PGx Reporter 03-04-2009].

Certainly, more diagnostic companies will enter the KRAS testing market if the FDA updates the labels of Erbitux and Vectibix with KRAS testing information. The agency has said it is working with Amgen and Imclone/Lilly to obtain adequate information to update the label of these two drugs [see PGx Reporter 02-04-2009].

"Cancer therapy decisions, particularly for EGFR treatment strategies, will require a thorough and very sensitive mutation assessment of several of these key cancer pathway genes," Tuttle said. "Seeing the impact of our combined services offerings, we're already seeing a pickup of oncology testing volume in our own molecular lab for KRAS testing."

Finally, late last year, Transgenomic began processing Medicare claims and has submitted applications in a number of states for Medicaid approval. Schneider noted that the company's average test price is likely to decrease this year as it accepts insurance form Medicare and Medicaid.

The firm finished 2008 with $4.8 million in cash and cash equivalents, and working capital of $11.4 million. According to Schneider, although the company's working capital was consistent with the previous year, its cash decreased by $1 million from 2007.

Economic Impact Unknown

Tuttle ended the call on a sober noted regarding the impact of the economic downturn on the company going forward.

"Unfortunately, as a company we face a lot of the challenges that others face from the current economic turmoil," he said. "In particular, with a sizeable amount of our revenue coming from Europe, continuing fluctuations in foreign exchange rates could have a sizeable impact on both revenue and ongoing product sales, at least in the short term."

Tuttle said he hoped that the current economic stimulus package going to the NIH will have a "positive impact" on the company.

"We are planning to submit a broad number of grant applications to aid us in expediting the clinical validation activities of our assay targets with key academic partners," Tuttle noted. "We cannot forecast the total impact the economic volatility will have on our business in 2009."

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