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Transgenomic’s Q4 Sales Rise 12 Percent as PGx Research Demand Contributes to Profit

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Transgenomic last week said that pharmaceutical companies’ growing need for its pharmacogenomic research services helped lift the firm’s fourth-quarter revenue and profit. Moving forward, the company plans to expand these collaborations to extend the applications of its Wave instruments and to access biomarkers that it can eventually develop into diagnostics.
 
For the fourth quarter, Transgenomic reported that net sales from continuing operations increased 12 percent to $6.5 million from $5.8 million during the same period in 2006. For full-year 2007, net sales remained flat at $23.2 million compared to $23.4 million in the previous year.
 
In the fourth quarter, Transgenomic reported a $212,000 net profit compared to a $1.0 million loss during the same period in 2006. For the full year, Transgenomic reported a net loss of $2.1 million compared to a loss of $3.4 million in 2006. The 2007 net loss comprised a loss from continuing operations of $2.2 million and income from discontinued operations of $67,000, the company reported
 
Gross profit from continuing operations, meantime, rose 60 percent to $3.9 million from $3.0 million quarter over quarter. In 2007, gross profit swelled 55 percent to $12.7 million from $11.4 million in 2006.
 
According to Transgenomic Chief Financial Officer Debra Schneider, the company’s discovery services, which include its Pharmacogenomics Research Services and the Molecular Clinical Reference Laboratory, contributed significantly to sales and profit growth.
 
In the fourth quarter, net sales in its discovery services unit ballooned 142 percent to $1 million as sales from the PGx research services division grew 161 percent. Discovery services were also a “major contributor” to gross profits, according to Schneider, adding $440,000, or 40 percent, to the company’s bottom line, compared to a 4-percent negative gross margin from the business in the fourth quarter of 2006.
 
“These results reflect strong core business sales in our instrument product line, and significant growth in our Pharmacogenomics Research Services revenue, while maintaining our Molecular Clinical Reference Laboratory revenue level during a seasonably slow quarter,” Transgenomic CEO Craig Tuttle said in a statement.
 
Transgenomic’s PGx business completed 13 projects for five pharma partners that together brought in $527,000 in contract revenue for the quarter, and conducted 12 academic research projects totaling $61,000 for the same period. The company’s contracts with pharma partners are confidential, officials noted.
 
However, Transgenomic has “completed some incremental projects with current customers and recently signed contracts for new projects, which should allow us to maintain a solid level of revenue from these partners going forward,” Tuttle told investors during an earnings call last week.
 
However, the company reported that bio-instrument sales for the three months ended Dec. 31, 2007, declined 4 percent to $3.2 million. Although Transgenomic said it sold 12 Wave DHPLC instruments in the fourth quarter — on par with the year-ago period — Schneider attributed the sales decline to “fewer upgrade sales to existing Wave machines approximating to $100,000.”
 
Additionally, the company’s bio-consumables net sales for the quarter were $2.3 million, a $261,000 boost over the same period in 2006, due to increased chromatography column sales.
 
PGx Focus
 
Tuttle attributed the growth of its PGx research services business to the “increased focus on pharmaceutical companies [Transgenomic] initiated at the beginning of the year.”
 
In the fourth quarter, Transgenomic completed a mutation-discovery project for a Phase II drug for an undisclosed pharma partner and contracted for a second Phase II project with the same company. The second Phase II trial is slated to end by the second quarter.
 
In 2008, Transgenomic aims to continue this momentum in its discovery services business by aggressively partnering with pharmaceutical companies to grow its PGx capabilities. Indeed, according to the CEO, several new project commitments are slated to wrap up in “the next few quarters” of 2008. 
 
On the PGx side, the fact that Transgenomic is working with multiple pharmaceutical partners on several projects has bolstered the company’s credibility among pharmas and is fueling more collaborations, Tuttle said.
 

Transgenomic must now “meet the pharma companies and the CROs that we’ve not partnered with and help them understand our capabilities.”

He added that the company now must “meet the pharma companies and the CROs that we’ve not partnered with and help them understand our capabilities.”
 
To help its PGx services business expand, Transgenomic recently hired two new senior officials — Eric Kaldjian as chief scientific officer and David Pauluzzi as a director —  and added three new sales reps to the molecular reference laboratory “to further drive growth in this business [and] … aggressively carry on the selling activities to more potential pharma and clinical research organization customers.”
 
Currently, pharmaceutical customers use Transgenomic’s PGx research service mainly for mutation detection or for generating PGx data for ongoing clinical trials.
 
Eventually, Transgenomic said it hopes that some of these relationships with pharma will give the company access to biomarkers that it can develop into new diagnostics. “Some of these pharmas will actually share that data with us now so that we can begin to see where you really have an impact and where you might be able to test for them to select both for clinical trials, as well as select the drugs for the appropriate patients,” Tuttle said. “We … hope to have some important biomarkers discovered during that process.”
 
Currently, the company is looking for potential collaborators from whom it can secure IP rights to biomarkers for diagnostic development. In addition to pursuing collaborations with industry, the company is submitting applications for several grants worth “millions of dollars,” according to Tuttle.
 
“We are in the process of developing several key collaborations in the areas of mitochondrial diseases, mitochondrial assessments and cancer, and we will soon be initiating some pivotal studies with key academic institutions that should contribute strong long-term potential to our mutation detection and discovery businesses,” Tuttle said in a statement.
 
Expanding Wave Use
 
Although Transgenomic’s bio-instrument sales were slightly down from 2006, Tuttle noted that the company would focus on growing that aspect of the business by expanding the uses for its Wave instruments.
 
“The instrument still has great utility in the market, and what we’re seeing from our service business is that the awareness is increasing, at least with our current pharmaceutical customers, that you can’t find these mutations by sequencing,” he said. “Even with the next-generation sequencers … you really need the Wave to capture them. So we expect an ongoing continued sales volume or pipeline of that whole platform.”
 
Tuttle noted that the company will pursue deals that will go after more deals that will expand the Wave instrument’s uses. “We’re really going to go after the pharmas to get those capabilities, get projects for the PGx lab and then try to capture some biomarker link that we can have some IP around or share some IP around, and have diagnostic rights.”
 
The company has initiated clinical trials for certain biomarkers “important to cancer pathway genes” and to compare the performance of the Wave against sequencing in detecting mutations. However, Tuttle said he could not discuss these projects in greater detail.
 
Tuttle assured investors during the call that Transgenomic “is well positioned for future growth in [its] instrument product line, particularly [its] cytogenetic product line.”
 
In the fourth quarter, operating expenses from continuing operations were $3.7 million compared to $3.9 million during the same period of 2006. Operating expenses for the year amounted to $16.0 million compared to $14.5 million for the previous year.
 
As of Dec. 31, 2007, the company had cash and cash equivalents totaling $5.7 million compared to $5.9 million at December 31, 2006.

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