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With Fors Out and Puisis In, Investors in Third Wave Cheer Progress Into Molecular Dx Space


Third Wave Technologies’ stock soared to within pennies of its 52-week high late last week after a change in top management renewed hope among investors that the company is priming for significant strides in the molecular diagnostics market.

Friday morning, one day after Third Wave announced that CEO Lance Fors will relinquish control of the company to president and COO John Puisis, shares in the pharmacogenomics firm jumped 31 cents to $5.39 on the Nasdaq exchange, 9 cents shy of their 52-week high of $5.48, before leveling out at around $5.30. The shares were trading down at $4.98 late on Wednesday.

The changeover in management, which will go into effect June 22, ahead the annual shareholders’ meeting, will enable Fors “to focus on the identification of novel technologies that could add future value to the company,” the departing CEO said in a statement last week. “I now feel compelled to return to what I love most — identifying breakthrough technologies for the future,” said Fors, who will become executive chairman.

The reins will go to Puisis, 44, who joined Third Wave in September 2001 from Kraft Foods, where he was executive director of finance and strategy. Puisis will also become a Third Wave director.

“Given how well the stock held up in the nasty broad market for the last two or three days, I think that’s a sign that people are liking what [Third Wave] is up to,” said Adam Chazan, who covers Third Wave for Pacific Growth Equities. He was referring to a sharp decline on the broader Nasdaq exchange — the Dow Jones Industrial Average on Monday was down 4 percent since the start of 2004 — that was fueled by anxiety over impending interest rate hikes and the war in Iraq. “I think people understand that the transition at the top is one that is necessary to move to the next phase — which is commercialization and execution versus the scientific development that was going on that Lance was spearheading.”

Space Invader

Third Wave has been in the midst of a sector change for a little more than one and a half years. In the waning days of 2002, as genomics and proteomics technology companies lost their luster on Wall Street, Third Wave, led by Fors, was putting the finishing touches on a massive restructuring that saw headcount shrink by 125 people.

Falling revenue and rising net losses forced the company to shutter its in-house oligo manufacturing (though the company continues making oligos for its clinical products) and sell much of its manufacturing equipment.

Today, Third Wave is almost unrecognizable. Its Invader platform is well respected in the pharmacogenomics community, and the firm has begun making significant strides as a molecular diagnostics player. During the first quarter, which ended March 31, the company released a cystic fibrosis diagnostic and nabbed Kaiser Permanente as its first customer. Third Wave also sold to UCLA an analyte-specific reagent based on the Invader platform for prenatal chromosomal analysis. (A broad launch of this product will occur sometime this year, Third Wave said.) It also sold to LabCorp an Invader-based CYP450 and 2D6 assay panel.

These placements helped Third Wave post stronger-than-expected first-quarter growth. Increased spending from the Japanese government helped receipts for the period ended March 31 jump to $15.3 million from $8.2 million in the year-ago period, as revenue from the clinical molecular diagnostics business increased 63 percent to $3 million.

In the second quarter, Third Wave launched the Invader-based hepatitis C genotyping reagents, which enables clinical reference labs to develop assays that identify all six genotypes of the HCV virus.

The company has also outlined a series of ASRs expected to launch during the remainder of 2004. For instance, Third Wave plans to release a human papilloma virus product sometime in the second half of the year; to “establish a clinical trials program” for an HCV viral load prototype assay during 2004; and to introduce “various” CYP450 products.

“The molecular diagnostics industry is competitive, and people have circled molecular diagnostics and nucleic-acid testing as a hot opportunity in the sense that it’s growing somewhere between 20 and 30 percent annually, and the targets are emerging almost daily,” said Pacific Growth Equities’ Chazan. “There seems to be a lot of promise there, and there’s lots of people that are thinking about getting involved.”

However, Chazan, whose firm has an “overweight” rating on the stock, meaning it considers the shares undervalued and expects them to climb, said Third Wave has its task cut out for it. Namely, he said, the company will be up against “several entrenched, large players” such as Applied Biosystems and Roche, which control the PCR market, and Bayer, which made a name for itself with branch DNA. “But Third Wave is taking a different tack,” he said. “They’re trying to address markets that may not be appealing to the larger companies from the standpoint that they need to address the larger market opportunities to make sense.

“I think Third Wave will ultimately be successful,” Chazan went on. “They’ve got pretty decent products out there right now, and they have an interesting pipeline developing that should attract a lot of attention.”



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