Sequenom (NASDAQ:SQNM) is no longer perfect, but that doesn't seem to have bothered investors too much. The stock eventually ended up yesterday after the company reported a larger sample size including one false positive for its revolutionary blood test for Down syndrome.
The company was bound to eventually have a false positive (saying Down syndrome is present when it isn't) and according to CEO Harry Stylli one out of 858 is statistically better than zero out of 399, which was the old record by the test.
Stylli wants Sequenom to become the Google (NASDAQ:GOOG) of molecular diagnostics. Because Google is a current Rule Breakers newsletter recommendation, it seems fitting to look at the six signs that David Gardner and his team looks for when picking stocks for the newsletter:
- Top dog and first mover in an important, emerging industry. The development of personalized medicine -- like testing for the K-ras mutation to see if Amgen's (NASDAQ:AMGN) Vectibix or Bristol-Myers Squibb (NYSE:BMY) and Eli Lilly's (NYSE:LLY) Erbitux will work -- is putting diagnostic tests on the upswing.
- Sustainable advantage gained through business momentum, patent protection, visionary leadership, or inept competitors. I don't know if its competitors are inept, but other tests give a 5% false positive rate, and no one has come close to the 0.1% that Sequenom has.
- Strong past price appreciation. The stock has more than quadrupled since last March. I think that qualifies.
- Good management and smart backing. I'm not sure I understood management's reason for its unsolicited bid for EXACT Sciences earlier this month, but using its own stock to pay for it was a good move and terminating the offer when EXACT licensed out its technology to Genzyme (NASDAQ:GENZ) was the right thing to do.
- Strong consumer appeal. Without a test on the market, we'll have to wait and see, but the potential appeal looks good.
- Documented proof that it is overvalued according to the financial media. Got this covered, too.
Of course, we'll have to see how well the test does when it launches in June, but Sequenom is clearly a Rule Breaker in the making. Buying now comes with added risks, but it looks like there's plenty of upside in the stock left.
More Foolishness:
- Sequenom was one of last year's top stocks.
- Diagnostic testers are fairly recession resistant.
- High priced stocks can still result in high rewards.
