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ScoliScore/C-GAAP Should Drive Clinical Lab Revs in 2013

Posted: November 11, 2012 at 1:50 am

By Brian Marckx, CFA

Q3 2012 RESULTS

Transgenomic (OTC Markets:TBIO) reported financial results for Q3 ending September 30, 2012 on November 8th. Revenue fell just over 4% yoy and was well below our estimate due to relatively disappointing numbers from the Pharmacogenomics and Instruments/Diagnostics segments. While Clinical Lab revenue was dead-on with our $4.5 million estimate, the 10% yoy growth in this segment was more than offset by a very poor showing in Pharmacogenomics ($220k, -60% yoy) and Instruments ($3.2 million, -12% yoy).

As a reminder, Pharmacogenomics activity can be highly variable q-to-q, largely dependent on customer directives and not in direct control of TBIO which makes forecasting this line difficult on a short-term basis. Nonetheless Pharmacogenomics revenue in aggregate has disappointed over the first nine months of the year – which we think relates at least in part to longer than anticipated timelines (and potentially delays) of TBIO’s phase III clinical trial customer(s). TBIO is still awaiting the green-light from a pharma customer to commence processing for a phase III trial – our model had assumed this work would have already commenced – we are now pushing this assumption and the related revenue back to 2013.

Relative to the Instruments/Diagnostics business, management noted that while they sold more instruments in the quarter compared to the year earlier period, revenue was significantly softer as the majority were sold through Menarini, their European distributor (at a lower average price point relative to the year earlier period which were mostly non-distributor sales). Going forward we continue to expect bioconsumables to be the major revenue driver of the Diagnostics business, particularly with the launch of several cancer marker kits using ICE COLD PCR which should begin to show a meaningful contribution in 2013.

The quarter did have some important positive highlights, namely the ScoliScore acquisition and new collaborations with ICE COLD PCR (with NYU and Univ of Nebraska). Management also noted that C-GAAP, TBIO’s Plavix response test, has seen strong physician interest and was a substantial contributor to the 10% growth in Clinical Lab revenues. ScoliScore, as we noted in our 8/9/12 Investor Note (see below), looks like a very solid addition to TBIO’s Clinical Lab business and one which we think will make a meaningful top and bottom line impact as early as next year.

The collaboration with NYU’s Langone Medical Center involves the use of ICE COLD PCR in the detection of mutations in the blood related to non-small cell lung cancer and response to existing a new therapies. Similar to the collaboration with the MD Anderson Cancer Center (Univ of Texas), the NYU study will focus on circulating tumor cells (CTCs) and use TBIO’s CTC capture ScreenCell devices. The collaboration with the University of Nebraska Medical Center involves the use of ICE COLD PCR in the early detection of pancreatic cancer and is being funded by a $100k NIH grant awarded to TBIO which was announced in August. The project could result in a diagnostic test for early stage pancreatic cancer which is almost always fatal if not caught early.

Revenue

Q3 revenue was $7.9 million, down 4% y-o-y and $1.1 million (13%) less than our $9.0 million estimate. The difference came from a $555k variance ($220k A vs. $775k E) in Pharmacogenomics revenue and a $607k variance ($3.2 million A vs. $3.8 million E) in Instruments/Diagnostics with Clinical Lab revenue in-line with our $4.5 million estimate.

Gross Margin

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ScoliScore/C-GAAP Should Drive Clinical Lab Revs in 2013

Recommendation and review posted by G. Smith