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Why Sequenom's Sinking in 2012

The first half of 2012 is in the rearview mirror, and investors are gearing up for what looks to be an action-packed ending. There are bound to be some big winners -- and more than a few duds -- no matter what happens in the United States and abroad.

Will your favorite stock have its victory lap as we hit the home stretch, or will it get lapped? First-half performances can hold some clues, so let's look to the recent past to find out whether Sequenom (Nasdaq: SQNM  ) deserves a place in your portfolio going forward.

First-half recap
Sequenom has been on a ride in 2012, but its current location is slightly underwater, as you can see here:

SQNM Total Return Price Chart

SQNM Total Return Price data by YCharts

Here are a few financial snapshots of its recent performance:

Market Cap $448 million
Trailing 12-Month Revenue $57 million
TTM Net Loss ($86 million)
TTM Free Cash Flow ($80 million)
Most Recent Quarterly Revenue $15 million
MRQ Net Loss ($24 million)
MRQ Free Cash Flow ($25 million)
MRQ YOY Change in Revenue / Net Income 7.1% / (84.6%)
Motley Fool CAPS Rating (out of 5) ***

Source: Morningstar.

What the numbers don't tell you
Sequenom's been in a multiyear funk after early enthusiasm over its Down syndrome test prospects evaporated mid-recession. That's old news, though. The past few months have brought more tangible information, but not much. An early progress report on MaterniT21 adoption rates, offered at the end of last year, had no hard numbers regarding either tests ordered or providers offering the tests. That vagueness was soon followed by another dilutive capital raise in January.

Other news had a larger impact on Sequenom's stock movements. An April agreement to offer the MaterniT21 PLUS to health care provider Multiplan's clients sent shares on a rapid ride higher. The stock got a further boost from first-quarter results showing substantial growth in the company's diagnostic services, in spite of missing the Street's expectations.

The market's brief honeymoon with Sequenom ended abruptly in mid-May after Coventry Health Care (NYSE: CVH  ) rescinded coverage of the MaterniT21 PLUS test. That brings us to our current position, down slightly from the start of 2012 after those promising springtime gains evaporated.

Sequenom's reliance on Illumina (Nasdaq: ILMN  ) genome-sequencing machines may also be coming under increased scrutiny. A string of major cost breakthroughs from competitors in the early months of 2012, ranging from established Life Technologies (Nasdaq: LIFE  ) to British genomic start-up Oxford Nanopore, has chipped away at Illumina's aura of superiority. Should Illumina's technology fall behind, Sequenom might need to redesign its test for newer, better machines -- a wasteful diversion for a company that's taken years to make its signature product available.

Where does that leave Sequenom today? MaterniT21 PLUS orders have been ramping up quickly, causing the company to nearly double its guidance for the test this year. That's in spite of rather low insurance coverage for something that costs nearly $2,000 without insurer support. Analysts at Maxim Group thought that there was enough upside to the stock to issue a buy rating last month, which began a rebound that's managed to sustain itself to the present day.

Going forward, the company's two largest levers will be an FDA approval for the MaterniT21 PLUS test, and the acceptance of more large insurers. The latter will be of more immediate concern, as Sequenom has said it would likely wait to try for FDA approval until late this year or early in 2013.

While you're waiting for Sequenom's levers to get pulled, you should be on the hunt for other companies changing the world of health care. The Motley Fool's got one transformative company in mind, and you can find out more in our exclusive free report. Don't wait for this stock to become "The Next Rule-Breaking Multibagger." Get the information you need today before it takes off.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

Motley Fool newsletter services have recommended buying shares of Coventry Health Care and Illumina. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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