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Third Wave s New Management Team Takes Reins as Investors Eye Transition

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Last week Third Wave Technologies announced that it had replaced three of its upper management in a move tied to the recent replacement of John Puisis by Kevin Conroy as CEO.

Maneesh Arora, Gregory Hamilton, and John Bellano, all in their 30s, were recently promoted to CFO, vice president of finance, and vice president of sales, respectively. The new team comes to power as the company's switch from research tools to molecular diagnostics is nearly complete, and they inherit some of the challenges associated with that transition.

The new management team has been in place for about six weeks. "Obviously, not everything has been concluded yet, but by and large, this isn't a dramatic shift in strategy [or] a dramatic change for the company in terms of the direction that we're going," CFO Arora told Pharmacogenomics Reporter this week. Additional management changes are "not something we're anticipating," he said.

Third Wave's stock has fallen 64 percent since this time last year [see accompanying chart], a fall-off that can be traced to disappointing quarterly earnings reports and the company's role in several lawsuits.

Over the past year, Third Wave has attributed its quarterly drops in total revenue to the switchover to molecular diagnostics Each quarter, the company reported lower quarterly revenue in non-recurring research and higher revenue in diagnostics , compared to the year-ago quarters, and investors seem to have reacted with caution.


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"We did see a decline in total revenue, but almost all of that … was really due to the drop-off in research business, which was planned," Arora said.

Since then, the company's molecular diagnostics revenues, which account for the vast majority of recurring revenues, have risen "so much so that through three quarters of [2005], in excess of 50 percent of the company's revenues were driven by recurring revenue," said Arora. Third Wave's research business is not going to go away completely, but 2006 "is going to provide a decent model for the future, as far as growth of revenues" are concerned, he said.

The company doesn't have a goal for the proportion of revenues stemming from each side of the business. "What we're chasing is a fundamental business with recurring revenues in both research and molecular diagnostics," Arora added.

Arora said investors should not expect any further shifts in the company's direction in the year ahead. He added that Third Wave has been justified in its aggressive legal defense of its intellectual property when asked whether investors might feel that the company could be exposing itself to unnecessary risk. In a situation similar to its lawsuit against EraGen, in which Third Wave "shut them down," the company's successful suit against Stratagene, in which the United States District Court for the Western District of Wisconsin ruled in September that Stratagene infringed two of the company's patents, has proved the importance of its actions to investors, he said.

Stratagene is appealing the Wisconsin court's ruling.

"We feel very good about our defense of the core chemistry [of the Invader platform], and we think that's absolutely critical to shareholder value," said Arora. "We're going to continue to evaluate [lawsuits], and where it makes sense, we are going to continue, and where it doesn't make sense, we're not — and you see an example of that with our settlement with Digene."


"We're going to continue to evaluate [legal options], and where it makes sense, we are going to continue, and where it doesn't make sense, we're not — and you see an example of that with our settlement with Digene."

The settlement between Digene and Third Wave was made "amicably" and "without the grant of any license or freedom-to-operate under the patents-in-suit and without any effect on the patents-in-suit," the companies said in a statement. The companies also agreed not to sue each other over HPV patents for one year. The firms stressed that the settlement does not include any license or payment by either company.

Asked whether Third Wave plans to seek further distribution deals similar to its agreement with Genzyme, which markets the company's Camptosar-related test, Arora said only that the firm would "do what makes sense." The company also plans to submit for FDA approval a diagnostic for preventing adverse events related to the blood-thinning drug warfarin this year.

Arora replaces James Herrmann, who will remain with the company through its quarterly earnings filing with the US Securities and Exchange Commission on Feb. 28.

— Chris Womack ([email protected])

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