Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Sequenom (NASDAQ:SQNM), a developer of genetic analysis solutions and molecular diagnostic tests, skyrocketed by as much as 37% after announcing that it had ended a long-standing patent dispute with Illumina (NASDAQ:ILMN).
So what: The patent dispute arose about the use of intellectual property pertaining to the development of noninvasive prenatal diagnostic tests, or NIPTs. Under the terms of the agreement, Illumina gets the exclusive global rights to "utilize the pooled intellectual property to develop and sell in-vitro diagnostic kits for NIPT and to license third-party laboratories wishing to develop and sell their own laboratory-developed NIPT tests under the collection of pooled patents." Both companies also are free to utilize the pooled patents to develop their own NIPT tests.
In addition to these terms, both companies will share revenue derived from the patent pool, with Illumina paying Sequenom a royalty on sales of its in-vitro diagnostic kits for NIPT through 2020, as well as making an upfront payment of $50 million to Sequenom.
Now what: This is really great news for both companies, as it keeps them out of an even longer and expensive legal battle in court, provides Sequenom with some much desired upfront capital to continue its research and development, and gives Illumina access to NIPT patents for a relatively cheap cost.
The big test for Sequenom now is if it can put these legal battles in the rearview mirror, and push forward to breakeven results in fiscal 2015. Wall Street isn't liable to take Sequenom seriously unless the company can deliver profits. For Sequenom, that's going to start with its Down Syndrome test, MaterniT21, as well as growing insurance coverage vis-a-vis the Affordable Care Act, which makes access to its tests all the easier.
I, for one, am excited about Sequenom's future prospects, but I'm not apt to chase its shares here until it can show better top- and bottom-line consistency.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool recommends Illumina. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.