The Right Time to Raise Capital

We've seen a lot of creative financing deals by health-care companies in recent months. From Exelixis (Nasdaq: EXEL  ) getting a line of credit that it can pay back with stock, to CV Therapeutics (Nasdaq: CVTX  ) selling off half of the royalties it's due for its newly approved drug Lexiscan, managers have been thinking outside the box for sure.

Call me old-fashioned, but I'm fond of a nice traditional secondary offering, like the one Sequenom (Nasdaq: SQNM  ) did this week. After seeing its stock double in less than a month, thanks to some stellar preliminary results from its prenatal Down syndrome test, the diagnostic-test maker figured now was a perfect time to get some money into the coffers.

It wasn't a small offering, either. Sequenom sold an additional 5.5 million shares, with another 825,000 available if the underwriters need them. That'll increase the total shares outstanding by about 14% if the overallotment is used, but it'll also add nearly $100 million to Sequenom's balance sheet. Considering that it had just $36 million in cash and short-term investments at the end of the first quarter, and an expected burn rate of $26 million to $28 million for the year, the jump in stock price couldn't have come at a better time.

Sequenom currently sells tools for genomic researchers, but like competitors Affymetrix (Nasdaq: AFFX  ) and Illumina (Nasdaq: ILMN  ) , the company is moving into selling diagnostic tests, too. The launch of two fetal tests this year, and hopefully the aforementioned Down syndrome test next year, seems to be Sequenom's best chance at getting into the black. With a lot of extra cash in the bank, Sequenom should have some flexibility to develop additional diagnostic genomic tests to launch in the future. Diagnostic tests are the new black, you know.

Exelixis, CV Therapeutics, and Affymetrix are all Motley Fool Rule Breakers picks. The newsletter is always on the hunt for hot cutting-edge picks. Click here to see all of our latest discoveries with a free 30-day trial subscription.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of Exelixis. The Fool's disclosure policy is never dilutive.

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  • Report this Comment On June 28, 2008, at 4:45 PM, KathyR21 wrote:

    You do understand that due to the negative and outdated information that many medical professionals present at the time of diagnosis, 90% of babies diagnosed prenatally with Down syndrome are aborted, right? People with Down syndrome can and do live very happy and useful lives. Their families, many of whom would have aborted their child if they had received a prenatal diagnosis, are very glad that they did not know ahead of time, because their child has added so much to their families that they cannot imagine how their lives would be without that child.

    The only responsible way to use this test is to include accurate, current information about Ds to every expectant parent so that they will not be making decisions out of fear and ignorance of what life is like for and with people with Down syndrome.

    people who buy this stock and look for more opportunities to buy stock in other genetic screening prenatal tests should be ashamed of themselves...the tests are generally nothing more than search and destroy missions. Is money really so important that you are willing to make a profit based on the likelihood that the tests will result in eugenics?

  • Report this Comment On June 28, 2008, at 8:33 PM, dsrocks wrote:

    IF prenatal testing was used to plan a pregnancy's interventions, or to plan the delivery location and to have safeguards in place that would be a great purpose. But sadly medical professionals are not educated in what it means to have Down syndrome, and that studies show that over 85% of parents of kids with Down syndrome are 'happy'. I'd love to find 85% of 'typical' parents who are happy with their children!

    Sadly the medical profession doesn't know, assumes the same as in the 50's that parents wouldn't want THAT kid and instead of the advice given in the 50's to 'put it into an institution and tell your friends the baby died' today it's, 'abort and tell your friends you had a miscarriage'.

    In 1959, Jérôme Lejeune, a French Geneticist, discovered that Down syndrome resulted from an extra 21st chromosome. Lejeune’s hope was to HELP people with Down syndrome. But near the time of his passing in 1994 he lamented that his discovery had created the means to which people with Down syndrome would be detected and eliminated pre-natally which was not the way his research was directed at all. He was the chairman of a French anti-abortion movement called "Let Them Live" in an attempt to right the wrong way his discovery of the 21st Chromosome’s presence was being used.

    Action T4 (German: Aktion T4) was a program in Nazi Germany officially between 1939 and 1941, during which the regime of Adolf Hitler systematically killed between 200,000 to 250,000[1] people with intellectual or physical disabilities. Performed unofficially after 1941, the killing became less systematic. The codename T4 was an abbreviation of "Tiergartenstra DFe 4", the address of a villa in the Berlin borough of Tiergarten which was the headquarters of the General Foundation for Welfare and Institutional Care. This body operated under the direction of Philipp Bouhler, the head of Hitler's private chancellery, and Dr Karl Brandt, Hitler's personal physician

    Ah Hitler would be so proud of our Eugenics Program.

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