Sequenom Starts to Show It

Sequenom (Nasdaq: SQNM  ) has been a show-me stock since the company plummeted on word that its employees had allegedly faked data to show that its Down syndrome test worked better than it really did.

The company got back up, brushed itself off, and eventually launched the MaterniT21 after independent researchers pegged the accuracy of the non-invasive test at 99.1%. Yet given the history, it remained a show-me stock. A launch is nice, but sales are what counts. It ran only 2,500 samples for the test during the first two months of the year, which is a good start, but nothing to get excited about.

The test was rebranded as MaterniT21 PLUS since it can recognize an extra chromosome 13 or 18 in addition to 21, which causes Down syndrome, and sales continue to grow. Earlier this month, Sequenom said it ran more than 4,900 MaterniT21 PLUS tests during the first quarter, so that's 2,400 in the last month of the quarter, a pretty impressive increase.

Based on the volume during the last week of the quarter, it's at a run rate of more than 30,000 tests per year. So the company is raising its guidance -- Sequenom calls it an "internal goal," but if it's announced publicly, I say it's guidance -- to 40,000 MaterniT21 PLUS tests billed this year, up from the original guidance of 25,000.

Sequenom looks a lot more investable now than it did a year ago, for sure, and it trades at a 25% discount to where it did this time last year. It seems that investors are still worried that the solid launch might not come to fruition as happened with Dendreon's (Nasdaq: DNDN  ) Provenge and GlaxoSmithKline (NYSE: GSK  ) and Human Genome Sciences's (Nasdaq: HGSI  ) Benlysta. Guidance is, after all, just an educated guess.

In addition to getting doctors to order the test, the other critical step is to get insurance companies to pay for it. The company has moved in the right direction there, too. Earlier this month, Sequenom announced a deal to include the MaterniT21 Plus test in the network run by MultiPlan, a health-care cost-management provider for insurance companies.

Sequenom is set to release earning on Thursday. While the cat is out of the bag on the number of tests it performed in the first quarter, there's still more Sequenom can show investors like how gross margins on the tests are doing and when it expects to be cash flow-positive.

Sequenom's technology has Rule Breaker potential if the company can continue righting the ship. To find out more about the criteria for being a Rule Breaker, grab the Fool's new free report, "Discover the Next Rule-Breaking Multibagger."

Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Dendreon. Motley Fool newsletter services have recommended buying shares of GlaxoSmithKline. The Motley Fool has a disclosure policy. We Fools don't 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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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 April 30, 2012, at 10:57 PM, unkownuser wrote:

    I usually get angry when I see some of these Motley Fool articles, because the writers seem to know little about the company they are writing about.

    A great big thanks to you Brian for taking the time to dig under the hood of Sequenom and find out about the positive events that have been propelling Sequenom higher over the last few weeks.

    This stock is still incredibly undervalued when you consider the size of the market and that genomic test costs are falling. The already STRONG DEMAND that Sequenom is seeing for its initial launch will EXPLODE as test costs come down, and our oversees licensees launch in the next couple of months.

    Huge short interest also means Sequenom be a candidate for a substantial SQUEEZE!

    And as a final note: given what has been occuring in the genomics space as of late, Sequenom is RIPE FOR A BUYOUT from one of the big pharmas. It is well known that Roche wants in this space badly, and just walked away from Ilumina after being repeatedly rebuffed; are they looking at Sequenom? who knows?... this is an exciting time to be long Sequenom!

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