Ducks in Order; Now Let's See Some Data

Sequenom (Nasdaq: SQNM  ) is getting all its ducks in a row in preparation for launching its SensiGene Trisomy 21 laboratory-developed test. The company announced yesterday that it had set up a supply agreement to buy sequencing equipment and the reagents to run them from Illumina (Nasdaq: ILMN  ) .

I've been fairly hard on Sequenom -- rightfully so, given its history. Clearly, a test that can detect Down syndrome using maternal blood is a lot safer than an amniocentesis. But to convert doctors, the sensitivity and specificity of the test have to be high enough to justify its use. Unfortunately, we don't have that data yet.

It's safe to assume that Sequenom's executives have seen it, though. The trial was completed a couple of months ago, and they're just waiting for the principal investigators to get the data written up and accepted into a scientific journal.

You can look at the deal with Illumina in one of two ways: Either the company is confident that the data will support sales of the test, or management is going with the if-you-build-it-they-will-come model, which works better for fictional baseball fields than for medical products. The size of the deal might have given some clues as to which one was more likely, but the financial terms of the agreement weren't disclosed.

The two companies plan to move the test toward regulatory approval, which should give investors confidence that the data might be fairly positive. Sequenom can sell the test without FDA approval as long as it's running the test in-house, but if it were to gain in popularity, Sequenom would want diagnostics companies with broader reach, such as Laboratory Corporation of America (NYSE: LH  ) and Quest Diagnostics (NYSE: DGX  ) , to be able to run the test. If you assume Illumina has seen the undisclosed data, there's little reason for the company to spend time helping gain FDA approval if it's unlikely the test will ever move beyond Sequenom, where it already has a supply agreement.

Let's call yesterday's announcement mildly positive for Sequenom, but I'm still taking an if-you-publish-it-I'll-consider-investing attitude.

Interested in keeping track of Sequenom as it launches it develops its Down syndrome test? Add it to My Watchlist, which will help you keep track of all our Foolish analysis on Sequenom.

Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Quest Diagnostics, Laboratory of America Holdings, and Illumina. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On July 12, 2011, at 7:28 PM, JoeyHolland wrote:

    ""but I'm still taking an if-you-publish-it-I'll-consider-investing attitude"" how about ""now that you published it, I can't afford it""

  • Report this Comment On July 13, 2011, at 9:37 AM, prudenttrader7 wrote:

    The checkered past of this company continues to haunt it. Much of the same cast still sits on the board or is involved with the company. Where I believe the T21 test will launch sometime next year it’s obviously going to be a scaled roll out to test the waters and see what the real demand is. There are a tremendous number of shorts who continue to pile on anytime the stock tries to poke its head over 8 dollars. I believe their bet is pretty clear… That despite the roll out of a new product the company still has too many unanswered questions and is pretty far away from turning a profit. Unfortunately for me I got in too early and I am long from some unattractive prices as compared to todays share price. Like many investors I got duped into jumping the gun on this one but I believe by sometime in 2012 we could see 9 or even as high as 11 which in reality is a nice return from current levels and would allow me to sell for a wash or hold more comfortably. Thanks for the positive outlook!

  • Report this Comment On July 13, 2011, at 12:42 PM, Fuma102 wrote:

    Data from one study came out in bmj awhile ago (similar numbers to the data that was called into question... >95% sensitivity and specificity) but they didn't break it down by trimester.

    The scientific risk has been minimized after that publication. Sqnm tends to bounce between 5.50 and 7.50 pretty regularly, you could do fine going long and shorting at those prices pretty easily the last 2 years.

    On more positive publications breaking down into trimesters sqnm jumps over 12 easily. With luck, possibly over 15 by end of 2012. There isn't much positivity baked into current prices. Their nearest competitor just announced they are entering a 400 person trial, which probably wont have enough patients to make an accurate statement of the first trimester.

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