Transgenomic third quarter total revenue increases 87% to $8.3 million

Transgenomic, Inc. (OTCBB: TBIO) today reported financial results for the three and nine months ended September 30, 2011 and provided a business update.

"We delivered a very strong third quarter with total revenue reaching $8.3 million. This represents growth of 87 percent above the same quarter in 2010 and our third consecutive quarter with increasing sales this year. We think these are great results, and they are due to revenue increases across all three of our operating business units: representing the successful integration of the FAMILION cardiac genetic testing franchise into our reference lab business, strong instrument sales, and increasing demand for our advanced and highly sensitive mutation detection technologies, which are driving increases in our pharmacogenomics business," said Craig Tuttle, President and Chief Executive Officer. "We believe that Transgenomic has built a strong commercial platform across all three of its business segments and will continue its growth both through our existing menu of products and through the launch of cutting-edge new products with significant commercial value."

Mr. Tuttle continued: "We continue to work diligently to bring our highly sensitive DNA mutation testing technology to the marketplace, with the goal of building one of the strongest foundations in cancer research and diagnostics, as well as other disease areas. One example of this is our recently announced collaboration with A. Menarini Diagnostics. Menarini Diagnostics is one of the largest medical diagnostics companies in Europe and will be selling our WAVE® MCE system and SURVEYOR® Scan mutation detection kits to their entire European customer base. In addition, we continue to further our portfolio of ICE COLD-PCR assays for assessing key cancer mutations in both tumors and circulating DNA in blood. To that end, our just-announced agreement with ScreenCell combines ICE COLD-PCR with their innovative circulating tumor cell isolation technology, an exciting opportunity with potentially broad application in cancer detection and monitoring."

Recent Corporate and Business Events

• Distribution Agreement with A. Menarini Diagnostics: On November 7, 2011 Transgenomic and A. Menarini Diagnostics announced an exclusive distribution agreement for Transgenomic's SURVEYOR® Scan and WAVE® MCE (Micro-Capillary Electrophoresis) Mutation Detection system to Menarini's network of over 2,000 pathologists throughout Europe. The agreement opens up a broad new channel for Transgenomic's newest instrument system and key cancer gene mutation testing kits targeted to pathologists throughout Europe.
• Collaboration and Distribution Agreement with ScreenCell: Transgenomic, Inc. and ScreenCell, a privately-held company, signed a perpetual, worldwide collaboration and distribution agreement for ScreenCell's Isolation Devices and Dilution Buffers, designed for the collection of Circulating Tumor Cells (CTCs) in peripheral blood. The agreement makes Transgenomic the exclusive distributor of ScreenCell technologies used in combination with Transgenomic's industry leading high-sensitivity mutation detection products, including its ICE COLD-PCR assays, BLOCker-Sequencing cancer mutation assays, SURVEYOR Scan cancer mutation kits and WAVE instrument systems. The Company expects to begin selling ScreenCell products immediately, in combination with Transgenomic technology, as part of its pharmacogenomic services and for other, non-exclusive broad research applications to drug developers and academic centers.
• Next-Generation Cancer Pathway Gene Mutation Kits: Transgenomic made considerable progress in developing more assays based on the Company's ICE COLD-PCR technology, which it offers to pharma partners, and just completed development of its first kit product employing ICE COLD-PCR for detecting drug resistance mutations in K-RAS. This kit will undergo clinical testing in the fourth quarter and then will be offered for sale shortly thereafter. The Company will continue to develop new assays using ICE COLD-PCR for critical gene mutations involved in cancer as well as develop assays as requested by its pharmaceutical partners for testing mutations in blood that will enable patients to be tested by a simple blood draw rather than a biopsy.
• Amendment of Preferred Convertible Stock Agreement with Third Security: On November 8, 2011, Transgenomic entered into an agreement with the holders of its Series A Convertible Preferred Stock to amend certain terms of the Preferred Stock. The amendment will eliminate certain provisions relating to the conversion rate and redemption feature, thereby eliminating liability accounting treatment, which drives the significant non-cash expense that results from an increase in the company's stock price, and changing the presentation location of the preferred stock and warrant from their current classifications to Shareholders' Equity. This modification will have a significant positive impact on the company's balance sheet and future financial results.
  
  The proforma effect of this amendment as of September 30, 2011 is to increase Shareholders' Equity by $12,996,000 from a reported deficit of $1,505,000 to a positive $11,491,000.

Third Quarter and Nine Month Financial Results

Total revenue for the third quarter 2011 was $8.3 million, an increase of 87 percent compared with $4.4 million for the same period of 2010. Revenues for the third quarter of 2011 included $4.1 million in sales related to the Clinical Laboratory Services business, $552,000 in revenue related to the Pharmacogenomics Services unit and $3.6 million in revenue related to the Diagnostic Tools unit.

For the nine months ended September 30, 2011, revenues were $23.4 million, an increase of 56 percent compared with $15.0 million for the same period of 2010. This included $11.4 million in net sales related to the Clinical Laboratory Services business, $1.8 million in Pharmacogenomics Services revenues and $10.1 million in revenues related to the Diagnostic Tools unit.

Gross profit was $4.4 million, or 54 percent of net sales during the third quarter of 2011, compared with gross profit of $2.0 million, or 46 percent of net sales during the comparable period of 2010. Gross profit was $13.2 million, or 56 percent of net sales for the first nine months of 2011, compared with gross profit of $7.4 million, or 49 percent of net sales for the 2010 period

Operating expenses were $4.9 million during the third quarter of 2011, compared to $2.8 million during the same period of 2010. Operating expenses increased primarily due to the acquisition of the FAMILION business, including non-cash charges totaling $300,000 related to the amortization of the acquired intangibles. Operating expenses for the nine months ended September 30, 2011 were $16.0 million, compared with $9.6 million during the comparable period of 2010. Operating expenses increased primarily due to the acquisition of the FAMILION business, including non-cash charges for amortization related to the acquired intangibles of $873,000, and non-cash charges for stock option expenses of $734,000.

The net loss for the third quarter of 2011 was $1.5 million, or $0.03 per share, compared with a net loss of $898,000, or $0.02 per share, for the third quarter of 2010. The Company reported a net loss for the nine months ended September 30, 2011 of $10.9 million, or $0.22 per share, compared with a net loss of $2.4 million, or $0.05 per share, during the comparable period of 2010. The increase in net loss for the first nine months of 2011 compared to 2010 is attributable primarily to interest expense of $0.7 million and non-cash charges for preferred stock valuation of $6.9 million, amortization related to the acquired intangibles and stock option expenses.

Modified EBITDA, which is a non-GAAP measure that Transgenomic views as an appropriate and sound measure of the Company's results, improved to $29,000 in the third quarter of 2011 from a loss of $1.4 million in the third quarter of 2010. A reconciliation of Net Loss to Modified EBITDA is presented below.

Cash and cash equivalents were $1.4 million as of September 30, 2011, compared with $3.5 million as of December 31, 2010.