What: Shares of Sequenom (NASDAQ:SQNM) were down more than 10% today before rebounding to an 8% decline at the time of this writing. Before the bell, the genetic-test company provided investors its revenue outlook for the second half of 2015. It wasn't pretty.
So what: Revenue in the second half of the year is expected to be in the range of $57 million to $61 million. That's a decline compared to the first half of the year when Sequenom brought in $70 million.
Management blamed increased competition and lower prices -- they often go hand in hand -- in the noninvasive prenatal testing market. Sequenom sells a blood test for pregnant women called the MaterniT21 Plus test that can identify extra copies of many chromosomes that the fetus might have. It can also tell whether the mother is going to have multiple babies -- twins, triplets, etc -- and the sex of the child as early as 10 weeks into the pregnancy.
The test is certainly revolutionary, allowing mothers to avoid an amniocentesis, which carries a greater risk since they require a needle to go into the amniotic fluid near the fetus. Unfortunately Sequenom isn't the only company that's developed a blood test to detect small amounts of fetal DNA in the mother's blood.
Now what: On Monday, president and CEO, William Welch, resigned to "pursue other interests." It seems likely the two events are related, but it isn't clear if Welch was pushed out because of the lack of execution, meaning there's a chance that the company could turnaround under new leadership. The other possibility is that Welch doesn't think there's anything Sequenom can do about the competition and jumped ship before things got a lot worse.
The third quarter revenue number -- not scheduled to be released until November 4 -- could be less than half of the $57 million to $61 million guidance because starting October 1, UnitedHealth agreed to cover four of Sequenom's tests including the MaterniT21 Plus.
If management sees a reacceleration of revenue from the increased insurance coverage, the third quarter could be a blip on the chart. Unfortunately, there's a real possibility that Sequenom had to discount its tests substantially to get UnitedHealth to sign on, lowering potential revenue and profit from the new deal.
Until investors can get some more clarity, there's little reason to buy, even at these depressed prices.
Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth. 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.