27 Jul Transition continues to impact Third Wave financials
Madison, Wis. — Third Wave Technologies, a provider of molecular diagnostics solutions, reported losses in the second quarter in line with market expectations.
Third Wave reported total revenue of $5.8 million and a net loss of $5.5 million, or 13 cents per diluted share, for the quarter ended June 30, 2005, compared to total revenue of $12.6 million and a net loss of $106,000 and zero cents per diluted share for the same period of 2004.
Despite the losses, the company maintained the situation was expected as it goes through a transition from being a pure research company toward becoming a clinical diagnostics solution provider.
“From an historical perspective, our cash balance today is roughly the same as it was three years ago when we began the transition of the company to molecular diagnostics,” explained vice president of finance Jim Herrmann during the company’s quarterly conference call, adding that the company has accomplished building up a sales organization and product line in that transition.
The company reported clinical molecular diagnostic revenue of $4.3 million for the second quarter of 2005. Second-quarter total clinical revenue increased 38% from the prior quarter and 25% from the prior-year period. Research revenue, by contrast, accounted for much of the loss; it declined by $8.0 million during the second quarter of 2005 from the same period of 2004.
The company ended the second quarter of 2005 with cash, cash equivalents, and short-term investments of $61.5 million. Additionally, the company maintained gross margins of about 70% despite the decline in research revenue.
Company president John Puisis further outlined some of the expected barriers to becoming a diagnostics provider, a market known for its long sales cycle and other rigidities.
Puisis said although the company has heard positive feedback about its products, “it takes time to introduce the Invader chemistry platform and our new products to the market. Clinical labs do not switch easily. They conduct long, thorough assessments of new applications. However, once accepted, we believe it is difficult to be displaced.”
Puisis also said he believed there are openings in the current marketplace, especially in the emerging pharmacogenetic field, in which medicine is specifically formulated for a patient’s genetic makeup and needs, as well as pathogen detection devices that can work with lab equipment already in place in the market.
“The potential for success of Third Wave is going to be dependent on a number of things, including specific applications related to particular therapeutic areas [and] the availability of its hardware in clinical laboratory environments,” said Alan Louie, research director for Massachusetts-based analyst firm Life Science Insights.
Overall, Louie agreed that market rigidities were not insurmountable, but it is a matter of finding the opening in the growing nucleic acid diagnostics market and introducing products that carry compelling reasons to buy them.