Sequenom Is a Rule Breaker

Sequenom (Nasdaq: SQNM  ) is no longer perfect, but that doesn't seem to have bothered investors too much. The stock eventually ended up yesterday after the company reported a larger sample size including one false positive for its revolutionary blood test for Down syndrome.

The company was bound to eventually have a false positive (saying Down syndrome is present when it isn't) and according to CEO Harry Stylli one out of 858 is statistically better than zero out of 399, which was the old record by the test.

Stylli wants Sequenom to become the Google (Nasdaq: GOOG  ) of molecular diagnostics. Because Google is a current Rule Breakers newsletter recommendation, it seems fitting to look at the six signs that David Gardner and his team looks for when picking stocks for the newsletter:

  1. Top dog and first mover in an important, emerging industry. The development of personalized medicine -- like testing for the K-ras mutation to see if Amgen's (Nasdaq: AMGN  ) Vectibix or Bristol-Myers Squibb (NYSE: BMY  ) and Eli Lilly's (NYSE: LLY  ) Erbitux will work -- is putting diagnostic tests on the upswing.
  2. Sustainable advantage gained through business momentum, patent protection, visionary leadership, or inept competitors. I don't know if its competitors are inept, but other tests give a 5% false positive rate, and no one has come close to the 0.1% that Sequenom has.
  3. Strong past price appreciation. The stock has more than quadrupled since last March. I think that qualifies.
  4. Good management and smart backing. I'm not sure I understood management's reason for its unsolicited bid for EXACT Sciences earlier this month, but using its own stock to pay for it was a good move and terminating the offer when EXACT licensed out its technology to Genzyme (Nasdaq: GENZ  ) was the right thing to do.
  5. Strong consumer appeal. Without a test on the market, we'll have to wait and see, but the potential appeal looks good.
  6. Documented proof that it is overvalued according to the financial media. Got this covered, too.

Of course, we'll have to see how well the test does when it launches in June, but Sequenom is clearly a Rule Breaker in the making. Buying now comes with added risks, but it looks like there's plenty of upside in the stock left.

More Foolishness:

Find out why Google was recommended by the Rule Breakers newsletter. Click here to grab a free 30-day trial subscription and get the latest issue as well as access to the archives.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (16)

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  • Report this Comment On January 30, 2009, at 3:35 PM, theonlypro4U wrote:

    The reason that SQNM tried to buy EXAS is because the patents owned that will allow GENZ to compete in the neonatal space. This stock is way overvalued because it will take much longer than expected to earn money from a test that is NOT FDA approved nor is it recommended by the guideline and standard for practice Docs in the OBGYN community. Continuing to PUMP this stock at this crazy valuation will cost new investors to LOSE in a big way.

  • Report this Comment On January 30, 2009, at 5:45 PM, sdturbo wrote:

    In my view if some testing is not 100% and not yet

    approved for commercial use by FDA should not

    be allowed. This is unsafe and can be fatal is allowed.

    FDA should be more cautious and penalize the company or people who break the law and put them behind the bars so as others can learn. This way this

    world will stay in tact. Thanks

  • Report this Comment On January 30, 2009, at 6:04 PM, rseads1 wrote:

    The T21 test that SQNM is going to market is far superior to what is being used now. The American College of Obstetrics and Gynecology recommend that all pregnant women be offered testing for Downs. The SQNM test can be done earlier than any other and is much more accurate. It will be the only screening test for trisomy 21 used. The current nuchal translucency test and AFP Quad test won't be used in 2010. Long SQNM.

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