Sequenom, Inc. Q3 2008 Earnings Call Transcript

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 |  About: Sequenom, Inc. (SQNM)
by: SA Transcripts

Sequenom, Inc. (NASDAQ:SQNM)

Q3 2008 Earnings Call Transcript

October 30, 2008 4:30 pm ET

Executives

Jody Cain – IR, Lippert/Heilshorn & Associates

Harry Stylli – President and CEO

Paul Hawran – CFO

Gary Riordan – VP, Regulatory Affairs and Quality

Analysts

Elemer Piros – Rodman

Kevin DeGeeter – Oppenheimer

Pamela Bassett – Cantor Fitzgerald

Evan Lewis [ph] – Barclays Capital

Scott Gleason – Stephens Inc.

Ram Selvaraju – Rodman

John Sullivan – Leerink Swann

Chris [ph] – Oppenheimer

Operator

Welcome to the Sequenom third quarter 2008 financial results conference call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we’ll hold a Q&A session. (Operator instructions) As a reminder, this conference is being recorded, today, October 30, 2008.

I would now like to turn the conference over to Ms. Jody Cain. Please go ahead, ma’am.

Jody Cain

This is Jody Cain with Lippert/Heilshorn & Associates. Thank you for participating in today’s call.

Joining me from Sequenom are Dr. Harry Stylli, President and Chief Executive Officer; Paul Hawran, Chief Financial Officer; Betty Dragon, Senior Vice President of Research and Development, and Gary Riordan, Vice President of Regulatory Affairs.

Earlier this afternoon, Sequenom released financial results from the 2008 third quarter. If you’ve not received this news release or if you’d like to be added to the company’s distribution list, please call Lippert/Heilshorn in Los Angeles at 310-691-7100 and speak with Amy Higgins.

Before we begin, I’d like to inform you that this call will include a discussion of Sequenom’s goals, milestones, financial guidance, future plans, timelines and other forward-looking statements, including some of the factors that are likely to influence the company’s future results. I’d like to emphasize that these statements are based on the information available to Sequenom today and that the company’s actual results may differ materially from comments made during today’s conference call.

There are a number of risks and uncertainties that may affect the company’s business and future results, including customer acceptance of and demand for new and existing products, applications and services, reliance on collaborative partners, risks and uncertainties inherent in research, product development, commercialization, regulatory compliance and approval, as well as other risks and uncertainties that are set forth in the company’s SEC filings.

Furthermore, the content of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast, October 30, 2008. Sequenom undertakes no obligation to revise or update any statements to reflect the events or circumstances after the date of this call.

With that said, I’d like to turn the call over to Harry Stylli. Harry?

Harry Stylli

Thank you, Jodi, and my thanks to each of you for joining us today. This has been an exceptionally productive and exciting time at Sequenom, and we’ll be covering a number of topics in this call.

We are pleased with our results for what is traditionally our weakest quarter, remain cautiously optimistic for the fourth quarter and are reaffirming our 2008 revenue guidance of about $50 million. Further, we had approximately $2 million in systems sales slip from Q3 and close early in the fourth quarter. There is continued weakness in US capital equipment sales, but strength in system sales in the rest of the world and significant overall growth in consumable sales.

In the last couple of years, we’ve made considerable investments, particularly in R&D for genomic analysis, and we expect to launch significant new MassARRAY products in 2009. We expect that as the cycle from whole genome arrays to whole genome sequencing matures, this may also benefit the company by driving more fine mapping products in 2009 and beyond.

With modest growth and fiscal control, we expect that genomic analysis business segment will reach cash flow breakeven during 2009, while maintaining competitive level of R&D. We continue to experience significant synergies for R&D in both genomic analysis and molecular diagnostics. Based on our current operating plan, we believe that we have sufficient capital to meet our goals, especially as they relate to the development and commercialization of our noninvasive prenatal test, and turn profitable on a consolidated basis in 2010 or 2011 without further financing, equity financing requirements. Sequenom also has considerable optionality in its assay base and tends to exercise this creatively going forward for commercial gain. Later on, Paul Hawran will report our financial results in greater detail.

Now, I’d like to discuss Down syndrome. Our perennial focus is Down syndrome and other aneuploides. We continue to make strong progress towards our objective of commercialization of T1 by June 2009, a major clinical study to corroborate effectiveness and for publication in 2009 and 2010 to help drive adoption. At our Analysts and Investor Day briefing in late September, we announced results from an additional 200 prospective samples from the ongoing R&D studies, making a total of 399 patient samples that we reported from that study to date. Our SEQureDx Trisomy 21 Down syndrome test correctly identified 100% of Down syndrome samples with no false positives and no false negatives, and these observations were confirmed by invasive procedures for the high prevalence groups.

For the specificity metric, which is the most important metric, test performance was greater that 99% specificity at a 95% confidence limit. Thus the specificity of our prototype test is already at the level that compares favorably with current invasive procedures, let alone screening procedures which are inferior. Additionally based on the adjustment of RNA detected in first trimester patient samples at different gestational weeks, and the confirmation of a Down syndrome positive in first trimester of pregnancy, we are encouraged that the test will perform effectively in the first trimester.

Insufficient nucleic acid copy number is the single most significant source of potential false positives and false negatives that is assay related. Our test will quantify RNA copy number for every patient. Those with insufficient copy number will either resubmit a sample or be re-fixed to other screening choices. Further homozygotes which are classified as no cohorts [ph] are also informative and can be reflexed appropriately.

We plan to complete screening of up to an additional 800 high prevalence samples for conclusion of the R&D study and to report these data in parallel during the Society for Maternal-Fetal Medicine Annual Meeting in late January. We are continuing to improve sample preparation to enable testing at gestationary just 10 weeks or earlier, which is the beginning of the last month of the first trimester, and are working to include more markers for Trisomy 21 with potential to expand United States population coverage to 97% to better than 98%. We expect to complete these goals by the end of 2008.

The Center for Molecular Medicine; in another significant development, we announced an agreement to acquire a CLIA certified laboratory and are partnering with Spectrum Healthcare and the Van Andel Institute in Grand Rapids, Western Michigan. We expect to close this acquisition soon. Through this acquisition, we will have control over all aspects of our commercialization of SEQureDx tests, including Trisomy 21. CMM will initiate recruitment of a sales force directed at OBGYN as soon as practical.

Historically, clinical validation studies for prenatal screens have focused on identifying 60 to 80 Down syndrome positives in order to define practice changing benefits. Jac Canick and Glenn Palomaki were principal investigators for the FASTER trial which helped validate the use of integrated first trimester screening and the cohort test for second trimester screening for Down syndrome. Jac Canick and Glenn Palomaki are the principal investigators for the Sequenom sponsored RNA study. Plans are underway this quarter to begin the RNA Noninvasive Aneuploidies or RNA study. This Sequenom sponsored 10,000 sample validation study in high prevalence samples, that is 10,000 patients, in high prevalence patients will be completed after the commercial launch of a SEQureDx Trisomy 21 test.

The primary purpose of the RNA study is to pass sensitivity with approximately 250 Down syndrome positives. We will use this data to capitalize adoption of that test through the publication of study results in a major reviewed journal and this will super power our end size for Down syndrome. In addition, our CLIA laboratory will shortly initiate an LDT validation study. This study will include non-clinical performance components as well as running an additional 3,000 to 5,000 high prevalence samples of patients as part of the validation prior to commercial test introduction in June 2009 in the US. The LDT study alone is likely to identify 60 to greater than 100 Down syndrome positives. The LDT study will likely be published in 2009, and is anticipated to have a positive effect on early adoption.

It is important to point that even though we are targeting so called high prevalence patients, and these are high prevalence patients by screening results or age / risk scores, over 97% of our so called high prevalence patients are in fact zero risk or normal pregnancies. All of these normal pregnancies in their normal patient management processes will receive an invasive procedure. In summary, for T21, we continue to make tangible progress in developing and commercializing a primary screening test for Down syndrome using our noninvasive circulating cell free fetal nucleic acid SEQureDx technology. At CMM, that’s the Sequenom Center for Molecular Medicine is on track to launch this test in June of next year.

Now I want to talk about new IP that the company has secured. Sequenom in the last quarter secured an exclusive license from Cytonix to co-patent right to new improvements for the right to practice digital PCR on any platform and for any sample, and that includes fetal cells, urine, plasma, et cetera, and for any application on the MassARRAY. This is very important as there are continuations filed for these patents that could touch upon all kinds of sequencing technologies period. Furthermore, Sequenom secured additional exclusive rights from the Chinese University of Hong Kong to pending patents for applying digital PCR and new generation sequencing techniques to a range of prenatal disorders, the most important enablement of which are for monogenic disorders such as cystic fibrosis, hemoglobinopathy, the Ashkenzi Jewish Panel and many others including caner and cardiac mutations.

We believe the commercial opportunity for monogenetic disorders will in time greatly exceed the dollar value of the entire world wide market for chromosomal disorder testing, including Down syndrome. This market size is estimated to grow to about $6 billion to $8 billion for the chromosomal disorders.

Today Sequenom announced a new worldwide exclusive license to issue patents from Xenomics for the analysis of transrenal nucleic acids in urine for noninvasive prenatal testing. This is a key, very broad and complementary intellectual property that has the potential to enable Sequenom to deliver a range of noninvasive prenatal tests, in particular for the consumer market, which we regard as a major future opportunity. We are excited by the addition of this new intellectual property to our worldwide portfolio of patent coverage for noninvasive prenatal diagnostics and for the opportunity to partner with Xenomics.

Regulatory, I’d now like to welcome Gary Riordan to our management team. Gary joins us as Vice President of Regulatory Affairs and Quality, and brings extensive regulatory experience. This includes seven years at the FDA where he was a reviewer and editor of the original Analyte Specific Reagent Rule, which primarily affects nucleic acid-based tests, as well as for the Center for Biologics, Evaluation and Research and the Center of Devices and Radiological Health, including the original nucleic acid guidance documents. In addition to high internal expertise, it’s important to appreciate that Sequenom relies upon multiple external advisors to shape its regulatory and other functional strategies.

Now let me spend a moment on Sequenom’s regulatory plans. Our strategy is to initially launch tests as LDTs under the CLIA regulations, and where appropriate to in parallel pursue FDA approval. Our SEQureDx based test did not need interpretation by so called and designated black box MIA computer algorithms. Therefore Sequenom tests are defined as laboratory developed tests or LDTs, and fall under CLIA guidelines. That means a CLIA laboratory can develop and commercialize tests based on our SEQureDx technology without requiring prior FDA approval. This is the initial regulatory path we intend to follow in commercializing our Down syndrome test.

With that said, we do plan to pursue FDA approval for selective SEQureDx technology tests. As you’ll know, receiving FDA approval will place a very high bar against competition amongst other things. We have already approached the FDA regarding our Rhesus D genotyping assay which will be reviewed under a PMA submission through an expedited review. This would indicate that the FDA has some level of confidence that this assay is important to the general public and will assist in getting it to market. Consistent with our regulatory strategy, we also intend to engage the FDA with regard to T21 in the very near future.

Some comments about T18 and T13. We are also making progress with the detection of Trisomy 18 and Trisomy 13, and we may incorporate Trisomy 18 in our first generation Trisomy 21 tests. SCMM anticipate developing panel tests that include T21, T18, T13 and Fetal x y disorders in the 12 months following the launch of our first Trisomy 21 tests.

Let me now turn to a discussion of our genetic analysis business. Among the system sales in the first quarter were Glaxo SmithKline and Pfizer for DNA methylation studies with our EpiTYPER genotyping applications, and Novartis for our iPLEX Gold and EpiTYPER applications. We are delighted that these new MassARRAY applications are opening new markets and access to new customers within the world’s leading pharmaceutical companies.

We also introduced a number of important products and enhancements that reflect our focus on listening to our customers and addressing their concerns. In early June, we introduced the iSEQ application software. iSEQ is an entirely new MassARRAY comparative sequence analysis application for automated high throughput identification and typing of microbes and viruses. We have achieved several system sales since the launch of this product. This is an important new product that we expect will open additional partnering opportunities and introduce Sequenom to new markets and customers with multi billion dollar potential.

We launched a new application for determining copy number variations of CNV. CNVs represent a large new opportunity that plays to the core strengths of the MassARRAY, namely multiplexing sensitivity and ability to quantify precisely. CNV refers to the genetic traits of differences in the number copies of a particular gene present in the genome of an individual. With this application we are generating among the highest quality CNV data available today. I’d like to remind you today that Down syndrome is essentially a copy number variation. We also launched our new EpiDesigner application. We believe this new application will help researchers in identifying those genes that have mutated or have been influenced by environmental or other factors.

Finally today we filed a patent infringement suit against IBIS Biosciences, a subsidiary of Isis Pharmaceuticals in Carlsbad. IBIS competes with our iSEQ technology. The lawsuit was filed in the United States District Court of the District of Delaware. The lawsuit alleges that the sale and offer for sale of the Ibis T5000 Biosensor System and related technology infringes three Sequenom patents related to nucleic acid analysis by mass spectrometry. We are seeking a permanent injunction and joining defendant from further infringement and monetary damages.

With those comments, I’d like to turn the call over to Paul Hawran to review our financial results in greater detail and discuss our 2008 financial guidance. Paul?

Paul Hawran

Thanks, Harry, and good afternoon, everyone.

We reported total revenue to the three months ended September 30 of $11.6 million, an 18% increase from the third quarter of 2007. During the quarter, we benefited by higher average selling price, increase in sales and higher consumable product sales. Cost of product and services revenue were $4.5 million in the third quarter of 2008 and 2007. Gross margin was 60.9% this year’s third quarter as compared with 54.6% in the third quarter last year. The increase in gross margin was primarily due to strong consumable sales which traditionally sell at higher margin as well as an increase in the equipment price for our systems. Based on our plans to reorganize the San Diego genetic services group mentioned earlier, we expect overall margin increase will improve into the future.

Research and development expenses increased to $7.1 million from $2.8 million in the prior year quarter. R&D expenses for 2008 third quarter reflected additional expenses associated with R&D as well as commercialization activities for the company‘s molecular diagnostic programs as well as approximately $1 million in fees associated with new licensing opportunities.

Selling, general and administrative expenses increased to $10.7 million from $8.4 million as a result of increased head count, higher professional fees including marketing, legal and accounting and other head count related expenses including higher stock based compensation expense. Total costs and expenses for the quarter were 22.3 million, up from $15.7 million in the prior year. Our net loss for the second quarter was $10.4 million or $0.18 as compared with a net loss of $5.5 million or $0.14 per share for the same quarter in 2007.

Revenues for the first nine months of 2008 totaled $35 million, an increase of 17% as compared to the first nine months of 2007. Cost of product and service revenues were $14.7 million compared with $13.1 million for the comparable period last year. Total cost and expenses increased to $53.5 million from $45 million in the first nine months of 2007. We reported a net loss for the first nine months of this year of $28.7 million or $0.57 per share compared with a net loss of $14.1 million or $0.38 in the first nine months of 2007.

As of September 30, Sequenom had total cash, cash equivalents and short term and long term marketable securities of $120.8 million and accounts receivable of $8.7 million. Our cash position reflects net proceeds of $92 million from underwritten public offering of common stock completed in early July 2008. I might also add that approximately $112 million or $113 million of our cash and short term securities is being held in money market funds, strictly holding only US Treasury securities.

Turning to our 2008 financial guidance, we are reaffirming our expectation that full year 2008 total revenues will be approximately $50 million. As Harry mentioned, our third quarter is seasonally our weakest quarter in terms of revenues. We are updating our net loss guidance. We now expect net loss for 2008 to be approximately $39 million as compared with our prior guidance of $36 million. This revisions primarily reflects cost associated with the proposed acquisition of the CLIA certified laboratory.

We are also updating our expectations for cash burn for the full year to be approximately $36 million compared with previous guidance of approximately $30 million. This adjustment was made due to the proposed acquisition of CLIA certified lab, intellectual property and among other expenses. We are actively reviewing various activities that can accelerate our commercialization efforts. We are highly focused on the development of noninvasive prenatal diagnostics, and as such have designated approximately 80% of our forecasted 2008 cash burn to bring programs to commercialization as soon as possible so that we can begin to participate in a multi billion dollar worldwide market. While we are also continuing to develop new applications in genetic analysis business, we expect the business segment to achieve breakeven in the 2009 timeframe.

I’d like to now turn it back over to Harry.

Harry Stylli

Thank you, Paul.

Before turning the call to questions, I’d like to review our upcoming milestones, starting with our genetic analysis business. We expected to introduce a number of new and enhanced products aimed at improving customer experience and to expand our market base in 2009 as well as this year.

During this quarter, we plan to launch our new OncoCarta mutation panel for identifying genes associated with the development of specific cancers for research application use only. This panel has the potential to be used for genetically typing tumor biopsies to help guide molecular therapy selection by physicians and formally signals our long term interest in oncology molecular diagnostics. Our oncogene mutation panel addresses this application with what we consider to be best in class technology.

We are developing a closed tube assay which is an application intended to amplify the work flow of our MassARRAY to simplify the work flow of our MassARRAY system. We are certain this application will enable us to enter new segments of the genomic analysis market and improve our competitive position in molecular diagnostics. We expect to introduce this as early as the second half of 2009.

We also plan this quarter to complete the proof of concept of our Opti-Nanopore genotyping technology that we licensed from Harvard University. Opti-Nanopore genotyping is a true third gen nucleic acid analysis technology that offers a cost effective approach of repetition in nucleic acids compared with second gen methods that use sequencing by synthesis. We believe our Opti-Nanopore may potentially provide whole genome sequencing for far less than $1,000.

On the molecular diagnostic side of our business, let me recap some of the points made earlier. We expect to transfer our Rhesus D genotyping test technology and our fetal screen for XY inherited disorders on the MassARRAY system this quarter. We believe general use of Fetal x y conservatively represents a new opportunity in excess of $300 million in the US alone. Both of these test will be developed and launched through our CLIA certified laboratory.

In Q4, we will initiate a dialog with the FDA regarding T21. Also later this year we expect enrolment will begin in our RNA study which is the Sequenom sponsored Trisomy 21 multi-center study involving up to 10,000 samples that will significantly support our commercialization efforts. As mentioned we will make presentation coincidently with the SMFM annual meeting in late January where we will provide an update on noninvasive prenatal screen tests for Trisomy 21. Data presented will include the results of 800 to 1,000 first and second trimester samples on the conclusion of the R&D study.

Sequenom also will have an oral presentation at SMFM regarding a promising new technology for testing for aneuploidies based on methylation markers. This technology has the potential to be universal. In the first half of 2009, we plan to complete LDT validation studies from our SEQureDx Trisomy tests, and in June 2009, we plan to launch our SEQureDx Trisomy 21 tests through SCMM.

Our SEQureDx technology has potential applications for a broad range of prenatal genetic disorders and has proven to be a revolutionary technology. We are focused in our molecular diagnostics initiative on realizing the full potential of our Down syndrome tests. We are also looking to our future pipeline with other world class tests in development to leverage the trail being blazed with Down syndrome. Given our strong balance sheet and company asset base, we are well positioned to rapidly advance our development and commercialization of molecular diagnostics tests based on our proprietary technology.

So with that overview of our results and our plan, at this time I’d like to open the call to questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions)

Harry Stylli

While we are waiting for the first question I want to inform you that we will be presenting at three investment conferences in November. We will be at the Oppenheimer 19th Annual Healthcare Conference on Tuesday, November the 4th; we will be at the Rodman and Renshaw 10th Annual Healthcare Conference on Tuesday, November the 11th; and we will be at the Lazard Capital Markets Healthcare Conference on Tuesday, November the 18th. Should you be attending any of these conferences, we look forward to seeing you in person. We will also be webcasting our presentation at each conference and the web cast will be available at www.sequenom.com.

Okay, operator, we are ready for the first question.

Operator

Our first question comes from the line of Elemer Piros with Rodman.

Elemer Piros – Rodman

Good afternoon, gentlemen. Can you hear me?

Harry Stylli

Loud and clear, Ele.

Elemer Piros – Rodman

Okay. First of all, did you have anything to do with the fact that the SMFM conference will be held in San Diego?

Harry Stylli

Absolutely not. That’s a happy coincidence.

Elemer Piros – Rodman

I’d like to just very briefly discuss the cohort business which may not be a cohort business for too long. What sort of growth do you envision for 2009 in order to achieve cash flow positive status?

Harry Stylli

I think if we grow at the current rate, we should be able to comfortably do it. But you’re going to have to wait until we give our ’09 guidance I believe in January or early February to see exactly what we are looking for. And Paul, you want to answer that?

Paul Hawran

Elemer, I think that we’ve spoken in the past that if we take a look at breakeven for the genomic analysis business, we’d look for revenue somewhere in the mid 50s and at that point we are breakeven. So as Harry mentioned, we feel pretty comfortable that we can probably get into that breakeven range in 2009.

Elemer Piros – Rodman

Okay. And moving on to prenatal diagnostics, what I’d like to understand is so the Michigan center would be up and running and doing your samples once the acquisition is formally consummated or are they already working on those 800 to a 1,000 samples?

Harry Stylli

I would say right now we are in transition and things really heat up once we close the center. But they are not doing anything right now in terms of running patient samples for T21 or any of our other tests.

Elemer Piros – Rodman

So the 800 to a 1,000 samples that will be analyzed at Sequenom?

Harry Stylli

Yes, they are going to be still run at Sequenom. The R&D patient set is really the – let’s call it the developmental – clinical developmental training set that we are using to establish the assay, okay? Then what SCMM will do is they will clearly run their own tests and ultimately they will perform the LDT study which is 3,000 to 5,000 high prevalence patients.

Elemer Piros – Rodman

And what about the 10,000 patient RNA study…

Harry Stylli

The 10,000 patient RNA study will be managed completely separately from Sequenom and will involve sites that are not SCMM or Sequenom and are accomplished users of the MassARRAY.

Elemer Piros – Rodman

Okay. So that wouldn’t entail new instrument placements, they are already…

Harry Stylli

Either they have them or we will provide the technology as part of the study.

Elemer Piros – Rodman

Okay. And from the regulatory perspective, this wouldn’t – this would be completely acceptable?

Harry Stylli

Yes.

Elemer Piros – Rodman

Okay. Do you plan to seek an SPA to clear the regulatory path here, Harry?

Harry Stylli

I am going to ask Gary to answer that since he is in the room with us.

Gary Riordan

The study that we are doing is a observational study. We wouldn’t require a ID for that to be able to conduct a study. We will confirm with FDA if the study design is acceptable to make sure that we can get approval on the product.

Elemer Piros – Rodman

But you wouldn’t necessarily seek special protocol assessment?

Gary Riordan

No.

Elemer Piros – Rodman

Okay. I think that was all, and let me get back to the queue, and congratulations on these achievements.

Harry Stylli

Thank you, Ele.

Operator

Our next question comes from Kevin DeGeeter with Oppenheimer. Please go ahead with your question.

Harry Stylli

Hi there, Kevin.

Kevin DeGeeter – Oppenheimer

How are you doing, Harry? Thanks, guys. Congratulations on the quarter. Couple of quick questions here, housekeeping at the top. How many MassARRAYs were placed in the quarter ?

Paul Hawran

About 12 right now, 12 during the quarter.

Kevin DeGeeter – Oppenheimer

Okay. And in January, will we see some data that incorporates either 13 or 18 or is it likely to be solely Trisomy 21?

Harry Stylli

In January, you will see actually data presented on chromosome 18 and possibly 13.

Kevin DeGeeter – Oppenheimer

Okay. And just integrated into the same test or is this standalone tests?

Harry Stylli

No, this would be in parallel. However, we are seriously contemplating integrating 18 into T21.

Kevin DeGeeter – Oppenheimer

Okay, terrific. And…

Harry Stylli

It’s fair to say that we are also presenting 18 at the Society of Maternal Fetal Medicine and we are embargoed until then.

Kevin DeGeeter – Oppenheimer

Okay, I understand. And with regard to real time analysis of copy numbers, once again in the data set in January, do you anticipate that will be analyzed where in fact those samples were evaluated for copy number in real time or kind of where does that optimization stand now?

Harry Stylli

We’d expect the copy number determination aspect to be integrated into the test.

Kevin DeGeeter – Oppenheimer

Okay, terrific. And then maybe just one last one from me, then I’ll get back into queue as well. Are we going to see any of the data sets from the development stage of the program for Trisomy 21 published in any journals, either prior to the launch or at the time of …

Harry Stylli

Absolutely. I think you will start seeing a succession of publications next year. Beginning with the current study, you’d also see publications on the basic technology and we are really hoping that we can get the LDT study published in 2009 as well.

Kevin DeGeeter – Oppenheimer

Okay. Congratulations, Harry.

Harry Stylli

Which is a 3,000 to 5,000 patient study. Thank you, Kevin.

Operator

Our next question comes from the line of Pamela Bassett with Cantor Fitzgerald.

Pamela Bassett – Cantor Fitzgerald

Hi, everybody. Congratulations on all the progress. Harry, can you talk a little bit about what is involved in getting to the point where you can integrate T13 and T18, and possibly XY into the current T21 test?

Harry Stylli

Okay. So, this is more in formation of a panel. It won’t actually truly be integrated into the same one as T21. We are at the stage where we’ve identified markers for 18, 13. We have X and Y already accomplished on chromosomal disorders but sex linked disorders and we are in the process of validating those markers. Once we achieve validation, it’s then pretty straight forward to do the assay development, and it would go – the processes are already being established for Down syndrome. So, we’d really follow that process and it could happen very rapidly now that we know what we are doing with Down syndrome.

Pamela Bassett – Cantor Fitzgerald

So, this is a condensed timeline then?

Harry Stylli

This should be a more rapid timeline than we’ve taken assuming that we have validated markers. This should be a more rapid timeline than what we’ve experienced to date with Down syndrome because we’ve got more experience than we’ve got critical mass teams at this stage of the game.

Pamela Bassett – Cantor Fitzgerald

And would you expect physicians ordering test, order the entire panel rather than just one test?

Harry Stylli

I think they will treat you like a menu. I think you will see probably the majority ordering just T21, but you will see a significant percentage ordering some of the other markers as well.

Pamela Bassett – Cantor Fitzgerald

Okay. And the IPs that you’ve announced today, the licensing of the methods for detection of nucleic acid sequences in urine patent, this patent also discusses the potential use of these methods in cancer detection. Is that relevant, did you license that as well or just the prenatal application?

Harry Stylli

What we did was we licensed the prenatal application specifically, but we have an option of first refusal, I suppose, on any new cancer tests that are developed for urine. So this is a partnership, not just a licensing arrangement.

Pamela Bassett – Cantor Fitzgerald

Okay. And can you talk a little bit more about the research, the oncology panel that you are planning to launch in the research market?

Harry Stylli

This was a groundbreaking work that was done by Roman Thomas and published in early 2007, okay. We’ve spent the last 18 months developing a product for research use only, and this product is about to be commercialized. I believe there are over 160, maybe 170 genes, that we have on that panel. And initially it is going to be used to screen various tumors in a research mode of basically search, but we have an eye to developing this panel or an improved version of this panel for molecular diagnostic use to guide ultimately therapy for a variety of molecular therapies.

Pamela Bassett – Cantor Fitzgerald

And did I hear you say that this is going to launch in the beginning of ’09?

Harry Stylli

This is going to launch imminently for research use, for basic research, R&D by translational centers, for example.

Pamela Bassett – Cantor Fitzgerald

So more like Q4?

Harry Stylli

In the next month or so.

Pamela Bassett – Cantor Fitzgerald

Okay. So this will sell through existing channels?

Harry Stylli

yes. This will sell through existing, mostly Sequenom channels. And it will sell directly to researchers who want to use this technology to analyze initially their tumor biopsy samples. But it won’t be used to make any determination at this stage. This is purely a research tool at this stage. However, the intent is to develop it ultimately for the molecular diagnostics market.

Pamela Bassett – Cantor Fitzgerald

Okay, great. And finally can you talk just a little bit more detail on how methylation might be – methylation technology might be used to expand and extend the T21 test?

Harry Stylli

We may have markers or a collection of markers that seem to be unique for chromosome 21 or 18 or 13, and those – unfortunately, it’s embargoed by MFM and I can’t say much more than what I’ve said or said in the release. It’s actually quite an exciting approach because these markers are universal, okay, and very simple and very straight forward, and that’s all I can say. Clearly, they require little bit more work, but we’re very, very encouraged and you will see the early fruits of that work at the MFM, and expect to see more about this technology in the future. So I want to remind folks that the current RNA test is our first gen test based on our first gen technology is likely to be the product for the next few years, but Sequenom is looking and is developing future technology that offer different advantages perhaps for different markets.

Pamela Bassett – Cantor Fitzgerald

Did any of this methylation marker work come out of the oncology work that you guys have been doing?

Harry Stylli

The core technology came from the oncology work that we’ve been doing, but the actual specific work as it relates to Down’s came from Dennis Lo’s activity and our own research initiatives.

Pamela Bassett – Cantor Fitzgerald

Okay, great. Thanks very much.

Harry Stylli

Actually we have patents in this area as well.

Pamela Bassett – Cantor Fitzgerald

Okay. Thanks very much.

Harry Stylli

Thank you, Pam. I appreciate the questions.

Pamela Bassett – Cantor Fitzgerald

Thanks.

Operator

Our next question comes from the line of Evan Lewis [ph] with Barclays Capital.

Evan Lewis – Barclays Capital

Hi, Harry. How are you?

Harry Stylli

Hi, there. How are you?

Evan Lewis – Barclays Capital

Not too bad. Just had a couple quick questions for you. First the genomics – how do you pronounce that – collaboration that you announced this morning, would you describe this as being somewhat defensive in continuing to bulk up your IP portfolio or is this – do you intent to actually use this technology and develop some kind of sample collection from maternal urine?

Harry Stylli

Actually both. As I said during the script, in a sense, is that the biggest potential competitive threat source, if you like, is another body fluid for fetal cells. Fetal cells have failed to deliver a viable strategy for the last two or three decades. So, urine presents as a very viable medium. It’s completely noninvasive, it has certain strength and weaknesses, and the patents we licensed from Xenomics are extremely broad, okay, for urine. So, in that regard, yes, there is a defensive element. However, the real reason for us licensing this is that we see urine as being complementary to our blood based strategies. We could leverage a lot of the technology we’ve already developed for blood in terms of the ability to detect trace nucleic acids in a body fluid, and like I said, there’s different strengths and weaknesses between urine and blood. And ultimately we truly want a noninvasive method for effecting prenatal tests, particularly for what will be a very large consumer market, then urine could be absolutely the preferred way to go.

Evan Lewis – Barclays Capital

Great.

Harry Stylli

We intend to resource it, and then approach it quite aggressively.

Evan Lewis – Barclays Capital

Okay, that’s great. One of the issues that has always been with nucleic acid from urine, the genomic concentration rate, so comparing this technology with the current blood based tests, do you think this could be used to detect T21 RNA at an acceptable level earlier in pregnancy or how does that look at this point?

Harry Stylli

I think it is too soon to say for T21, but there’s a whole range of tests where we believe they will be very tractable. One of the advantages of urine is the fact that you can handle slightly larger volumes without consequence to the patient, okay. And those are the things we’re going to explore. But certainly for tests like gender and Rhesus D and very many other test, urine is absolutely a viable medium.

Evan Lewis – Barclays Capital

Great, thanks. And my last question is what is – could you update us on progress of doing more research in Asia, for expanding the population coverage among ethnic Asians? Thank you very much.

Harry Stylli

Good question. Thank you very much. So, I am pleased to report that we’ve already found several new markers, that we are in the process of incorporating into the test design for T21. And we’ve also – and leave the SNPs within plat four [ph] and other known genes. We’ve also discovered a completely new gene that we are mining currently, and that’s why we anticipate our US coverage to go up to potentially 98%, if not more, just with these markers. We’ve initiated studies in the Far East and there are multiple of these studies to identify further markers, and we expect those to mature hopefully for the second gen tests what we’ll develop for the Far Eastern markets. Now having said that as well, we’ve also – have also indicated that we’ve identified methylation markers and other markers in a completely unrelated technology that’s also protected by a patent, and we are exploring this approach also for the Far Eastern markets. It’s a long answer, hope it answers the question.

Evan Lewis – Barclays Capital

Yes, thanks you very much.

Harry Stylli

Thank you, and I appreciate it.

Operator

Our next question comes from the line of Scott Gleason, Stephens Inc.

Scott Gleason – Stephens Inc.

Hey, Harry and Paul, thanks for taking my questions. First question, can you maybe, Harry, can you talk a little bit about the launch timelines for Rhesus D and Fetal XY now that you guys have to complete the acquisition of the lab and then the validation work for those tests?

Harry Stylli

We anticipate most likely Q1 of – late Q1 next year for both of those first two tests.

Scott Gleason – Stephens Inc.

What kind of validation timelines would be reasonable once the acquisitions closes?

Harry Stylli

Let’s assume we transfer the technology, the MassARRAY technology that is, in the next few weeks and people get trained up very quickly, and these are very sophisticated folks by the way that are used to learning quite complex technology. Then it should be very, very quick for them to get up and going, run their own validation studies, develop a test, run their own validation studies, and then offer the test for sale through our distribution channel. So I would say within a quarter, by the end of the Q1, we should be in a position to launch these tests in the US market.

Scott Gleason – Stephens Inc.

And Harry, can you talk directionally about the sales force ramp in 2009 and what we can kind of expect in terms of rep count as we progress throughout the year?

Harry Stylli

Okay. So what I’ll say at this stage is we’ve actually begun or SCMM has begun recruiting sales people and you’ll have to wait until January/February for us to give you full guidance as to how we expect the ramp, but we will be investing in our channel.

Scott Gleason – Stephens Inc.

Okay, fair enough. And then, Harry, can you talk about pricing on the Down syndrome test, reimbursement on the Down syndrome test with the addition of the additional markers for larger population coverage?

Harry Stylli

I think it’s most likely to be closer to $800 once you do the revenue stack, the FCPC [ph] code stack, and we’ve incorporated all these new markers.

Scott Gleason – Stephens Inc.

And then, Harry, if you added T18 to that, where could the pricing go?

Harry Stylli

Well, that could be a whole other test, so conceivably that could be another $800 or $600 or $500. However markers we end up finally using that test and what the final test design proves to be. Now, of course, you could even consider combining these two and offering a bundle package.

Scott Gleason – Stephens Inc.

Okay, great. And then, Harry, just talk a little bit about the fourth quarter. You guys maintained your full year top line guidance, can you maybe talk a little bit about the pipeline as you guys see it, just kind of given the headwinds, the pharma budgets coming down, and what kind of gives you confidence as far as the numbers are concerned?

Harry Stylli

I think two things. We had about $2 million worth of system business was actually closed in the first few days of Q4. That doesn’t happen; only this year has that happened, okay. It doesn’t typically happen for us. The other thing, our pipeline is very broad. Our convergence rates in the US are not where we would like. Consumables are growing very strongly, and Europe and Asia seem to be growing very strongly for us. And if we look at those events occurring plus the $2 million worth of systems business that spilled over, we’re still – I think the word is cautiously optimistic that we should be able to hit now our revenue guidance.

Scott Gleason – Stephens Inc.

Okay, great. And then just one last real quick question, you guys mentioned some litigation with IBIS, could you maybe talk a little bit about – is that – or could that add any incremental legal expenses?

Harry Stylli

Those expenses are already incorporated in our SG&A, okay, and that’s all I would have to say in terms of additional expenses.

Scott Gleason – Stephens Inc.

Harry, could you maybe just talk about the magnitude of that?

Harry Stylli

Well, it’s not going to be very much in the next 12 months. And frankly we are hoping that we’ll work out some kind of business solution.

Scott Gleason – Stephens Inc.

Okay, thank you very much.

Harry Stylli

Okay, thank you.

Operator

(Operator instructions) Our next question comes from the line of Ram Selvaraju with Rodman.

Ram Selvaraju – Rodman

Hi, thanks very much. Can you hear me?

Harry Stylli

Yes, loud and clear, Ram.

Ram Selvaraju – Rodman

Okay. Three quick questions. Firstly, with respect to the launch of the Down syndrome test and the other Trisomy detection tests, could you give us a little bit more color on what the process is and what the timing is likely to be given where you expect data to appear from the 5,000 patient study that Sequenom is doing itself in support of the Down syndrome test, when do you expect the data to be and how long will it take you to incorporate that into your filing with the FDA?

Harry Stylli

The FDA is not related to that work, so I want to make it clear to you. This is for LDT, homebrew in other words. So the 3,000 to 5,000 patient study, so called the LDT study that SCMM is going to prosecute, that study is way overkill for what a CLIA lab requires to commercialize a test under CLIA regulations. The reason why we are using such a big study is really to have a material effect on adoption, okay. And I don’t anticipate it having a tremendous effect on adoption until after launch, and especially when that study is published. That’s when the sales force could be armed and maybe just ahead of time to go out and use the data and promote it within the rules and regs to the obstetrician/gynecology community. So we expect to be commercial with our T21 certainly by June of 2009 in the US and then we expect this test to be published, and leading up to that publication, we will be promoting the data as we said. And then once it is published, then everyone will get to sort of stab it and look at it and kick it and so forth. And then that’s the strategy, right, that we intend to follow. In addition to that, we’ll be launching the RNA study. Actually it is being launched now. We expect it to conclude by the end of ’04 and we expect that to publish 10,000 patient samples by first half of 2010. And we expect that’s going to have also very large driver on adoption, effect on adoption.

Ram Selvaraju – Rodman

And when would this factor into your discussions with reimbursement agencies and payers, and when do you expect this data to have a significant impact on their decisions?

Harry Stylli

I’d say we’ve already engaged payers and that’s going to ramp up. Now, with this data, as we warm them up, okay, we’ll be able to revisit and hopefully with this data as it publishes, we will be able to secure agreements in the next six, 12, 18 months.

Ram Selvaraju – Rodman

Okay. And then the last question I had was just with respect to the IBIS litigation that is currently ongoing, what would you expect to be magnitude of any settlement if it were resolved in Sequenom’s favor? Would this be significantly material in any way? What sort of damages are you seeking?

Harry Stylli

I can’t really discuss that with you at all, okay. So we’ll be hoping to find a business solution ahead of litigating in a formal sense.

Ram Selvaraju – Rodman

Okay, thank you.

Harry Stylli

Okay.

Operator

Your next question comes from the line of John Sullivan with Leerink Swann.

John Sullivan – Leerink Swann

Good afternoon.

Harry Stylli

Hello there, John.

John Sullivan – Leerink Swann

Hi. Congratulations on continued progress. Can you – I just want to make sure that I do understand the studies and what they are geared towards. So the 3,000 to 5,000 patient study is being conducted by the company and part of that data is that 800 to 1,000 first and second trimester…

Harry Stylli

No.

John Sullivan – Leerink Swann

No, that’s not true. Okay.

Harry Stylli

So the 800 to 1,000 are the RNA study, which is separate to the 3,000 to 5,000 LDT study.

John Sullivan – Leerink Swann

Okay. And the 3,000 to 5,000 sample study is underway now?

Harry Stylli

Let me explain what’s happening, so let me correct myself because I made an error. The 800 to 1,000 R&D study, okay, is separate from the 3,000 to 5,000 patient LDT study. The clinical network we are putting in place to fuel patient samples for the R&D study will roll over and is rolling over into the LDT study, okay.

John Sullivan – Leerink Swann

Okay.

Harry Stylli

But it is two separate studies. The 1,000 patients in the R&D study don’t count towards the 3,000 to 5,000 patients for the LDT study. But it is the same and expanded clinical network that will service both studies.

John Sullivan – Leerink Swann

I understand. And then when you get to the point where you are publishing on the 3,000 to 5,000 sample study, will that data include the 800 to 1,000 or not?

Harry Stylli

No, that would be a separate publication.

John Sullivan – Leerink Swann

Okay, that’s fine. Okay, that was my first area. And then my other area is, could you just describe the panel for the Trisomy 21 test as it now stands, how many markers are you currently using and what – are those markers all platform markers, or where does it stand?

Harry Stylli

Yes. Currently the markers look like 10 SNPs, but we believe we are going to add another probably four to eight SNPs to the panel.

John Sullivan – Leerink Swann

Okay. And as of now are they all contemplated to be off of the same gene?

Harry Stylli

No, there is additional SNPs, there’s additional SNPs from new genes.

John Sullivan – Leerink Swann

Okay. And how would you characterize coverage of the US population today?

Harry Stylli

With the current, it’s 93% or better. But with the addition of these new SNPs, we should be approaching about 98%, if not better than 98% of the US population.

John Sullivan – Leerink Swann

Okay. So SNPs that you’ve already identified would get you toward that 98% area?

Harry Stylli

Correct. SNPs that we’ve already identified would take us towards the 98% area.

John Sullivan – Leerink Swann

Okay. Thanks very much.

Harry Stylli

Thank you.

Operator

Okay. Gentlemen, we do have time for one more question, and that is a follow up question from Kevin DeGeeter with Oppenheimer. Please go ahead with your question.

Chris – Oppenheimer

Hey. Good afternoon, guys. This is certainly Chris [ph] in for Kevin. Just a quick question on the Rhesus D program, could you talk about maybe commercial positioning of that program relative to the standard of care that exists today?

Harry Stylli

The Rhesus D initiative, did you say Rhesus D?

Chris – Oppenheimer

Yes, that’s right. The Rhesus D program.

Harry Stylli

So the way the system works today is that to confirm a Rhesus D positive, one needs to carry out an amniocentesis. And frankly the risk of an amnio outweighs the risk of receiving prophylactic RhoGAM at week 27 of pregnancy. So only about 10,000, maybe 20,000 patients a year actually receive amnio, and that’s the high risk market for that particular area. However with the advent of a molecular diagnostic test which poses no risk to mother or baby effectively, we could see how the test could then be applied to the low risk market and that’s why we’ve gone to the FDA to get an FDA approved study for Rhesus D. And in fact, we are about to initiate, in the next few months, a Rhesus D FDA approved trial. We expect that successful clearance of submission to the FDA will enable us to address the low risk market which is 420,000 patients a year. I also want to make here another point that RhoGAM is administered prophylactically to all women, okay, whether or not they have a Rhesus D positive fetus or not. So it turns out that 40% of the women that receive RhoGAM actually do not need to take RhoGAM, and that’s the market we’ve really got our eyes on, and that’s the low risk market of about 420,000 patients a year in the US. We estimate that market to be in the region of about $100 million to $150 million. So, this isn’t a huge market, but it is clinically a very important market, and in this instance we believe getting FDA approval will actually help us exploit the low risk opportunity, which is the large commercial opportunity in that market.

Chris – Oppenheimer

Great. Thanks a lot for letting us get a follow up in here.

Harry Stylli

No, not at all. Any other questions?

Operator

We actually do have one more follow up question right now from Elemer Piros with Rodman.

Elemer Piros – Rodman

Hello?

Harry Stylli

Hi there, Ele.

Elemer Piros – Rodman

Yes. So this is just to further clarify the three different studies. For the RNA study which is about to get underway, will you have the final, final set of markers?

Harry Stylli

Yes.

Elemer Piros – Rodman

Okay. So you won’t initiate that study until you have 12 or 14 to 18 markers?

Harry Stylli

The first part of that study, now we have our private investigators fully on board, is for them to recruit the 30 or 40 – formally recruit the 30 or 40 centers that we require. The process was informally going, and that’s the first thing that needs to happen, and these centers are internationally located, okay. The second part is we are going to transfer our MassARRAY technology to three parties, including to the labs of the principal investigators, and that will get up to speed with the technology, and then most likely in Q3 they will begin testing. The actual testing part is the most rapid aspect of this process, and we don’t expect that to take very long and the data analysis just takes a matter of weeks. What will take time is basically recruiting and processing the 10,000 patients.

Elemer Piros – Rodman

I see. And you packed this time period from the time when you issued the press release 16 months?

Harry Stylli

Yes. This is the principal investigators timeline. They proposed that it would take them 16 months to conclude this study and submit it for publication.

Elemer Piros – Rodman

From the time of your press release.

Harry Stylli

From the time of the press release.

Elemer Piros – Rodman

Okay, thank you very much.

Harry Stylli

Thank you. Any other questions?

Well, if there aren’t any other questions, in closing, thank you for joining us on today’s call and for your interest in Sequenom. We are excited about our substantial progress in bringing our SEQureDx Trisomy 21 test to the market, the significant prospects for our noninvasive prenatal diagnostics and advancements in our genomic analysis business. We look forward to keeping your appraised of our progress. Good day, and thank you for making time for us today.

Operator

Ladies and gentlemen, that does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines at this time.

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