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A Sigh of Relief in Wisconsin as Third Wave s Molecular Dx Pipeline Starts Gaining Traction


That breeze blowing in from Madison, Wis., is Third Wave sighing with relief.

The company managed to pull itself out of a sizable financial hole, reorganize, change its business model, and, by most accounts, thrive.

In its fourth-quarter and year-end earning report, released earlier this week, Third Wave showed investors and customers that a tool company can metamorphose into a modest molecular diagnostics shop with healthy sales and a growing catalog.

Revenues from product sales in the three-month period ended Dec. 31 surged 67 percent year over year to $9.5 million — $2.3 million of which was from a nascent molecular diagnostics effort. R&D spending in the quarter grew by $500,000 even as many of Third Wave’s peers trimmed their own R&D outlays, and bulging fourth-quarter net loss didn’t stop Third Wave from achieving cash flow-positive operations.

Most important, however, is Third Wave’s promise to release at least five new molecular diagnostic products in 2004. It ‘s already fulfilled a portion of this promise this week, as LabCorp announced that it has become an early provider of Third Wave’s Invader-based cytochrome P450 2D6 assay panel.

As president and COO John Puisis said in his company’s earnings statement, 2003 “was a pivotal year” for Third Wave.

180 Degrees

In many ways, Third Wave is still a company in transition. In the final days of 2002, the firm 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.

One year on, Third Wave is almost unrecognizable. Total revenues for 2003 increased to $36.3 million from around $32.4 million one year ago. The change was due largely to product sales, which jumped to $35 million from almost $29 million year over year.

Receipts from licenses and royalties in 2003 fell to $194,000 from $1.5 million in 2002. Clinical revenue, meantime, represented $2.5 million of the $9.5 million Third Wave posted for fourth-quarter receipts.

However, though R&D spending in 2003 fell to $12 million from almost $14 million one year earlier, R&D in the fourth quarter 2003 increased $500,000 to $3.8 million, Third Wave said.

Net loss in 2003, on the other hand, swelled to $1.6 million, or $.04 per share, from $486,000, or $.01 per share, year over year. Net loss in 2003, however, shrank to $8 million, or $.20 per share, from $40.9 million, or $1.04 per share, in 2002.

Third Wave had around $57.8 million in cash and equivalents as of Dec. 31.

Dx Effects

Ten months ago, Lance Fors, Third Wave’s CEO, said: “Now our focus is on building our clinical molecular diagnostics business.”

In the interim, the company has used its Invader platform to develop 10 ASRs for use in CLIA-registered labs. These include tests for cystic fibrosis, Factor V Leiden, ApoE, Tay-Sachs, and a new product for Connexin 26.

Though Third Wave has been mum on its pipeline, the company has now announced plans to release at least four new molecular diagnostic products [see Third Wave’s pipeline here].

For instance, Third Wave said it plans to release a cystic fibrosis product for large- and medium-volume reference labs before the end of next month; a hepatitis C genotyping assay for certain CLIA-approved labs; a “broad release” of a prenatal chromosomal analysis product in the fourth quarter of this year; and “various” cytochrome P450 products throughout the year.

(Third Wave has already signed on LabCorp as an “early adopter” of its recently released CYP450 2D6 assay panel [see 2/29/04 SNPtech Pharmacogenomics Reporter]. It is Third Wave’s first pharmacogenomics product, and LabCorp is its first customer.)

Third Wave said it expects to generate around $39 million in 2004, and that molecular diagnostics product sales ought to account for $15 million of that.

— KL


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