23 Feb Third Wave boosts numbers in latest report
Madison, Wis. — Third Wave Technologies this week reported the best annual financial results in the company’s short history, wrapping up a year in which it met or exceeded all of its stated fiscal expectations.
Third Wave reported total revenues of $46.5 million and a net loss of $1.9 million for the year ended December 31, compared to total revenues of $36.3 million and a net loss of $8.1 million for 2003.
The company reported total revenues of $8.1 million and a net loss of $4.7 million for the fourth quarter 2004, compared to total revenue of $9.7 million and a net loss of $1.6 million for the same period in 2003. The loss for the fourth quarter and for 2004 was due primarily to severance-related charges, non-recurring litigation and Sarbanes-Oxley compliance expenses.
“Third Wave is very pleased to report the best results in the company’s history, another year of outstanding overall performance and strong growth in U.S. clinical molecular diagnostic revenue, which is our primary focus,” President and CEO John Puisis said in a release. “We will continue to focus on the growth of our molecular diagnostic business in 2005.”
“We believe the expanded molecular diagnostic product pipeline and enhanced product capabilities announced late last year, along with that ongoing growth, will further establish our leadership in this emerging, valuable market,” he said. “We also plan to continue our relationships with key thought leaders in Japan and anticipate transitioning into new projects in 2005 that should continue through 2007.”
Among Third Wave’s key 2004 goals was the development of a pipeline of products and capabilities for a variety of conditions – cystic fibrosis transmembrane conductance regulator (CFTR), hepatitis C virus (HCV) and human papillomavirus (HPV), among others. “We met those milestones,” Puisis said during a company conference call on Wednesday. “The combination of our commitment to building strong relationships and releasing superior solutions was a powerful one during 2004.”
Transition time
Third Wave VP of Finance Jim Herrmann noted that the company “will maintain a conservative position and guide to a lower amount in 2005.” Company execs said Wednesday that Third Wave is in the middle of a transition, and that 2005 will bring more of the same. Amidst that, Herrmann noted, the company’s gross margins improved from 65 percent to 73 percent, evidence of the strength of the company’s new operating model, which “is focused on high-value, recurring clinical product sales.”
Coming off a year in which its clinical molecular diagnostic revenues grew by 59 percent to $14.9 million, the company will be focusing hard on that market this year while it looks to weather a harsh revenue decline in a once-lucrative revenue area, genomics research. The company is looking for a clinical revenue jump of 70 percent to somewhere between $23 million and $26 million, Puisis said Wednesday.
Puisis said the single most important thing happening to the company in 2005 is the coupling of its Invader chemistry to basic polymerase chain reaction (PCR), which has a patent expiring in March.
“When coupled with the Invader chemistry, it provides Third Wave with what we believe is the most robust molecular chemistry in the industry,” Puisis said. “This combination will allow us to provide virtually any molecular solution to an emerging market with numerous unmet needs. The next two years will be exciting for the company.
With that and other product strategies, despite the hit to its genomics research revenue, Third Wave’s strategy should put the company in a solid position going forward, according to one Wisconsin-based analyst.
“The company is very well positioned in the diagnostics market,” said analyst Aaron Geist of Robert W. Baird in Milwaukee, who owns no stock in the company. “Unfortunately they’re faced with a falloff in their genomics and research sales. The company has historically played in that area, and that business for them has been very successful; unfortunately, that business is winding down. It’s an area the company is no longer aggressively going after, and 2005 for them is going to see a precipitous fall in revenues. I think the issue for company and the stock over the next little while is the fact that they’re going to lose $15 to $20 million in estimated genomic and research sales that they had last year.
“I think it’s an area where they can be successful,” Geist added. “It’s an area they’ve invested heavily in over the last couple of years, [and they] have introduced many new products. The problem you have is this revenue gap as some products begin to fall off associated with those genomics research products and other products, albeit growing, are not able to offset the decline that they’re seeing from this other area.”
Third Wave reported that it will release its CFTR ASRs this year in a new format that will extend its Invader chemistry’s performance, simplicity and ease of use, help labs develop CFTR tests and allow those labs to improve lab efficiency and time to results, the company said. The company anticipates that market penetration of this new format to grow from 20 accounts to 40 to 60 accounts and for revenue from these ASRs to grow form $2.2 million last year to at least $6 million in the United States.
Not only is that projection realistic, but it’s a good area for the company to focus on, according to Geist.
“That’s where they’ve been talking about going,” Geist said. “They have a product they’ve been looking to sell over the last couple of years; they’ve reconfigured that product in a more user-friendly format, and I think the market is more receptive to their products now.”