This is a follow-up to my article titled "How to Lose 75% of Your Company's Value Overnight," written after Sequenom (Nasdaq: SQNM ) crashed following employee mishandling of data. Two and a half years later, the company finally announced the launch of its Down syndrome test, MaterniT21 LDT.
The accuracy of the test, which uses maternal blood rather than the more-dangerous amniocentesis, actually looks pretty good. In a peer reviewed article published in Genetics in Medicine, independent researchers peg the accuracy of the non-invasive test at 99.1%. Seems there was no need for the Dragon lady to allegedly fudge data.
But the shares aren't even close to where they were before the initial uncertainty of the drug. Shares were nearly $15 the day before the bad news, and they're sitting at about a third of that price today.
Part of the problem is that Sequenom had to raise money -- unfortunately at depressed prices -- to stay alive long enough to get the study completed; the share count has ballooned more than 60% in the past two and a half years. That's just the cost of doing business for biotechs, especially when things don't go as planned, as Dendreon's (Nasdaq: DNDN ) and Human Genome Sciences' (Nasdaq: HGSI ) investors can attest.
But the increased share count doesn't account for all of the share-price change; Sequenom's market cap is still almost half of what it was two and a half years ago. The rest of the decreased value can be ascribed to a combination of overzealous investors in 2009 -- the fudged data was good, but it wasn't that good -- and cautious investors in 2011. Like other companies that haven't lived up to expectations -- Boston Scientific (NYSE: BSX ) , for instance -- Sequenom remains a "show-me" company.
At a market cap of $500 million, Sequenom is clearly undervalued if the company can capture many of the 750,000 high-risk pregnancies each year. The company currently has the capacity to run 100,000 samples on an annual basis, with plans to open a second next year. Even assuming just 100,000 tests at $1,900 each, that works out to $190 million in sales, which would value the company at close to $1 billion assuming a reasonable price-to-sales ratio of 5. And that doesn't include Sequenom's other products.
A 75% increase in price certainly seems possible -- albeit not overnight -- but not until investors are convinced that Sequenom can execute on its sales plan the way it has on its clinical plan.