Exact Sciences Plays Hard to Get with Sequenom

I've asked mother market to drop Sequenom (SQNM) to $21 so I can reload the position - a bevy of limit orders waiting. Missed it by THAT much....

Remember this will be a news event driven stock - end of January test results will cause a quite substantial knee jerk reaction one way or the other.

Sequenom made a buyout offer for a small cancer test firm Friday- 68% premium to closing price

• Sequenom Inc., which makes genetic analysis products, said Friday it is offering Exact Sciences Corp. (EXAS) $41 million in a move that would expand its testing products. The all-stock deal for $1.50 in Sequenom shares represents a 68.5 percent premium to Exact's closing price of 89 cents on Thursday.
• Sequenom said the offer would be subject to a floating exchange rate within a 15 percent collar, in which the price of Sequenom's common stock is between $20.74 and $28.06 per share.

....but looks like said firm - which apparently has 6 months of cash in the till - is playing hardball. I can only assume they have a pundit advising them, much like Yahoo (YHOO) or Sandisk (SNDK) who after rejecting offers of buyouts in 2008, turned into death spirals.

• Cancer test maker Exact Sciences Corp. on Monday rebuffed a buyout bid of $41 million or $1.50 per share from genetic analysis product maker Sequenom Inc., and analysts said the purchase isn't necessary for Sequenom -- meaning the company may choose to walk away. Exact Sciences said it was pursuing an alternative that is more valuable. Earlier in the day, however, analysts appeared to doubt that idea.
• Oppenheimer analyst Kevin DeGeeter said the company is reporting minimal sales -- it reported negative $700,000 in revenue during the third quarter -- and has less than six months of cash left. That made other offers unlikely in his view.
• DeGeeter said Sequenom's offer presented a "great deal" for Exact Sciences, but he said Sequenom does not need to complete the deal and will probably not chase Exact Sciences.
• In announcing its offer Friday afternoon, Sequenom said cancer screening is an important field for the company. It believes Exact Sciences' cancer tests fit well with Sequenom's own MassArray genetic research systems and other DNA tests.
• In a client note, Lazard Capital Markets analyst Sean Lavin said the deal would help Sequenom fulfill its goal of developing noninvasive cancer diagnostic tests. He wrote that "Exact Sciences is one of the leading colon cancer diagnostic companies, and holds valuable patents. It also has relationships with key doctors, which could help sell its products."
• Lavin, who rates Sequenom at "Buy," believes that Sequenom would gain additional patent protection on its own products if it buys Exact Sciences' intellectual property. But he said the patents on SEQureDx should hold up even if no deal is made.

"Contrary to some market chatter, Exact Sciences does not seem to have any IP that would prevent Sequenom from launching its Down test even if this acquisition does not go through," he wrote.

Comments

[Mike Havrilla:]

With SQNM affirming their $1.50 per share exchange offer earlier this week; it creates a new support level for EXAS following the Board's rejection on Monday while it pursues a better deal for shareholders.

The other deal being pursued while likely involve a substantial (e.g. $20M-$30M) upfront payment for licensing EXACT's prenatal diagnostic patent portfolio, and the Company also holds the rights for the development of an automated, FDA version of their sDNA colorectal cancer screening test since LabCorp (LH) only holds the right to the homebrew version, marketed since last July as ColoSure.

A NY Times report summarizes the results of a study published in the medical journal, Annals of Internal Medicine, which concluded that colonoscopies may actually prevent 60%-70% of colorectal cancers [CRC] rather than previously believed rate of 90% for the test. While colonoscopies are still effective at preventing CRC and will continue to be widely recommended and used; the study highlights limitations of the procedure – especially in the detection of right-sided lesions, which account for about 40% of all cases of CRC.

Sensitivity results of 82% were already published last summer for EXACT's V2 sDNA technology, while the next-generation sDNA test (V3) boasts 92% sensitivity and has shown the potential to detect 86% of precancerous adenomas. Currently, only 24% of the 90M eligible patients in the U.S. are compliant with CRC screening recommendations and there is clearly an unmet medical need for an effective, non-invasive CRC screening test for the average-risk population which people will actually use.

If LH was willing to pay $30M upfront for rights to the homebrew sDNA CRC screening test; the prenatal diagnostic patents + the FDA version of the sDNA test should each be able to command a similar figure. Since EXAS has been pursuing strategic alternatives for a long time already, the SQNM offer is likely to expedite any pending deal(s) being considered by the Board while drawing attention to EXAS and creating a new support level at $1.50 per share.

Jan 16 08:08 PM

[Ulysses Ben...:]

I'm not sure about this all. The Oppenheimer guy and Lazard guy sure seem to have credentials. Let's check them out.

Lazard Small-Mid -34%
Oppenheimer wow, a lot of funds that got crushed, down 30-40%.

Hmmm, to listen to mutual fund analysts or not. That's not really a tough one is it?

Havrilla seems to sort of have it here imo.

One other thing to consider is that SQNM is very heavily shorted. There might just be a good reason.

Jan 17 12:59 PM

[Mike Havrilla:]

Not to mention the CNBC Pumping of SQNM over the past month:

Insight on the biopharma sector, with Peter Kolchinsky, RA Capital Management partner and CNBC's Mike Huckman - of course RA Capital already has about one-half of its entire portfolio invested in SQNM!

For a warm-up, first get SQNM recommended on Mad Money last month:
www.cnbc.com/id/158402...

Then follow up about a month later with a SQNM - CNBC Pumping 101 Video on 1/13/09:
www.cnbc.com/id/158402...

I guess we will find out shortly if the end of month results for SQNM are a sell on the news event or not, but the market cap exceeding $1.5B does not leave much margin for error.

Jan 17 03:48 PM