What's Up With the Back-Slapping, Sequenom?

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The future of Sequenom (Nasdaq: SQNM  ) rests in the hands of the company's MaterniT21 LDT, which offers mothers a way to test for Down syndrome with a simple blood test. An update on the progress of the launch that started in October sure would be nice.

Investors got their update yesterday, but there were no sales numbers in the release. There was nothing beyond a qualitative announcement that "numerous leading health-care providers across the United States" have begun ordering the test. The thing reads more like an advertisement for MaterniT21 LDT than anything else. Although I'm not sure that peer pressure -- "look, your colleagues are ordering it, so you should, too" -- is the best advertising message for doctors.

It's not the number of sites prescribing the test that's important, but the number of tests ordered. They could be correlated, but they don't necessarily have to be. Sometimes persuading doctors to try a product out on one patient is the easy part and getting them to continue using it regularly is substantially harder. Shares spiked as high as 9% yesterday, although investors seem to have come to their senses, with shares ending up just 2.7%. I'm not sure the news is worth even that much.

Back-slapping should always be treated as suspect because biotechs are eternally in need of cash. BioSante Pharmaceuticals' (Nasdaq: BPAX  ) chief executive officer hinted that multiple companies were interested in its female libido drug, LibiGel, and then followed up the rise in stock price with a secondary offering. Good move, too, since the drug failed. And last week, Cell Therapeutics (Nasdaq: CTIC  ) used the jump in share price after announcing that it had resubmitted its marketing application for pixantrone to the Food and Drug Administration to raise some additional capital needed to retire debt. Geron (Nasdaq: GERN  ) has been another serial good-news capital raiser. Not that I blame the companies; just as investors should hit the sell button if valuations get out of whack with reality, companies should, too.

Is a capital raise by Sequenom coming? Absolutely. The company's CFO said as much during the company's analyst and investor day last month. The company ended the third quarter with just over $100 million in the bank, which should last the company into early 2013. But no company wants to be sitting on that little cash, so Sequenom plans to raise cash "sometime during 2012."

If the launch of MaterniT21 LDT goes well, I'd expect the share price to rise from here, and I suspect management thinks the same thing. So if management decides to raise capital now, before providing sales figures for the launch, I'd take that as a bad sign.

I'm not saying that's going to happen for sure -- perhaps the company's press-relations department was just on a candy cane-induced sugar high and decided it needed something to do during a notoriously slow week -- but it's certainly something investors should look out for.

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Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. 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 Motley Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 20, 2011, at 5:54 PM, unkownuser wrote:

    Hi Brian,

    I find your comments interesting. Do you have the guts to take your negative opinion all the way to opening a short position in SQNM? Or are you just blowing smoke?

    I suspect there's a lot of smoke around here.

  • Report this Comment On December 20, 2011, at 6:03 PM, unkownuser wrote:

    Also, you neglected to mention the horde of insiders who bought shares in the past month (including the CEO), and not just chump-change token purchases.

    Do you think these insiders would have thrown their own personal money away if sales were BAD, and share price would be eroded further by a dilutional secondary?

    I think you need to do a little more homework on a company and find out what is really going on, before you take a negative spin on an isolated event like a press release.

  • Report this Comment On December 21, 2011, at 9:54 AM, bubchek wrote:

    We might be overlooking the effect of the T21 LDT as a cultural lightning rod. SQNM's CEO would do jst as well by not trumpeting their achievements too loudly. It's already caused quite a stir in some circles. Some groups could conceivably work against SQNM. Better to just sell tests than fret about the pps.

  • Report this Comment On December 22, 2011, at 12:24 PM, 12MM wrote:

    It's time to get behind this company and research the flip side as well. I believe any research into high performers that were in the same situation as SQNM in the not too distant past would reveal some positive insight and will be welcomed. This company is at a equinox of a break-through vs. Bust, all it's customers need now is an Aha moment to increase the sales, unfortunately the shorters are trying their best to cover up the guiding light and are getting away with it for now.

  • Report this Comment On December 22, 2011, at 3:09 PM, noargos wrote:

    Without having anything solid to base your assumption on (of poor acceptance for SQNM's prenatal T21 test), I find it somewhat arrogant to take such a negative tone during what is probably an excellent time to start building a position IMO. The new product has global significance and should not be under estimated. As with all new entries into the biopharma space, T21 will take some amount of time to ramp up, but the accuracy is unrivaled and the price can only come down as economies of scale take effect. It's a disservice to readers to advocate anything other than industrywide, nationwide acceptance. Please revisit this column in 2 quarters. Your perspective might be a bit more restrained if not outright apologetic.

  • Report this Comment On January 11, 2012, at 7:48 PM, unkownuser wrote:

    Hey Brian,

    How about an update on how SQNM stock has faired since your attack-piece? Oh, silent now are we?

    Does your silence have anything to do with the stock running from $3.93 on 12/20 (the day this article was posted), to where it currently stands at $4.55 today (1/11/12)?

    Gee, what other stocks are you negative on?, I'd love to bet against your picks again if I could make 16% in 20 days! (which is exactly what happened here).

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