Why Sequenom Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Sequenom (Nasdaq: SQNM  ) sank as low as 10% on Friday after health insurer Coventry Health Care (NYSE: CVH  ) changed its mind about providing coverage for the company's prenatal Down syndrome test.

So what: Coventry was going to provide coverage to its 2.2 million members for Sequenom's MaterniT21 PLUS testing service, so the termination is naturally forcing investors to lower their revenue expectations. Of course, given that Coventry is one of the smaller companies in the health-insurance space, the loss shouldn't be too devastating to Sequenom's top line.

Now what: Aggressive bargain hunters might want to take a closer look. As William Blair analyst Brian Weinstein pointed out in a note to investors, Sequenom still expects to gain coverage for MaterniT21 PLUS from two of the six largest health insurers by the end of the year, making today's pullback a potentially profitable entry point for enterprising investors. Of course, given the company's consistent money-losing history, risk-averse conservative-types might want to maintain their distance.

Interested in more info on Sequenom? Add it to your Watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Coventry. 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 Fool's disclosure policy always gets a perfect score.


Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

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  • Report this Comment On May 18, 2012, at 4:11 PM, megastockmaster wrote:

    Someone can go in to a doctor's office, a woman, and request the test. That should make some money. My mother did not have this test available to her for me or my brother. I haven't spoken to my family doctor, but I bet this is better than amnio. The insurer who backed out might have been having an internal conflict and did not talk to the doctor who the woman can request a test from. This is called due diligence. I don't always do it before I invest. Disclosure: I own a lot of shares at $5.8.

  • Report this Comment On May 18, 2012, at 6:32 PM, unkownuser wrote:

    This is just one of those unforseen "blips" that can and do occur in the normal course of business, especially with developmental stage companies.

    The analysts (and not just William Blair, there are a few others also), who chimed in after the Coventry reversal with similar comments: this is a non-event in the grander scheme of things, Sequenom has continued to successfully execute their business plan AND exceed expectations.

    MaterniT21 PLUS fills a much-needed void in the market for a SAFE, PAINLESS, LOWER COST, and LOWER RISK alternative to the archaic and BRUTAL practice of amniocentesis and chorionic villus sampling.

    Comparing MaterniT21 PLUS to amniocentesis would be analogous to the comparison between modern-day anesthesia, and a pint of whiskey for a limb amputation.

    As a Sequenom investor, I know what the increasing sales numbers mean; Coventry will be back, this is guaranteed. If I were a member of the Sequenom management team, I would change the terms of the original agreement [when they return] to require advance payment of the full retail price for Coventry members. Surely they would scoff, but ultimately this is a demand item and they will have no choice. Coventry has burned a bridge that they will have to cross sooner or later.

    MaterniT21 PLUS is a GODSEND for the high risk population (and low-risk too) who have to decide, "Do we want to risk losing a healthy pregnancy with amniocentesis in order to determine if our fetus has genetic defects?"

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