So, good afternoon. I appreciate to all audience this time of the day. So, perseverance we appreciate that. And maybe given the lateness of the hour, do something unusual and start with the take-on message. In 2012, Sequenom had a really great year and finished Q4 with a really spectacular quarter in terms of the launch of our major tests that’s driving our business.
In the next 20 minutes or so I will give an overview of some of the highlights of last year and then I’ll turn over at the end to our CFO, Paul Maier, who will go through some of the financial aspects of that. And I also have with us Bill Welch is our Head of our Marketing and Sales Group. And in the breakout they will be able to answer some of the questions with the reimbursement and all those good things I’m sure many of you are interested in.
So, without further adieu, again thank you. The forward-looking statements, this is on our website so please familiarize with this in detail. I think for those of you who perhaps don’t know the company so well, just a couple of moments on the terms of the structure. The core business since the company was found, these are Sequenom’s Genetic Analysis business that is founded on our finding principle of developing mass spectrometers or mass spectrometry as a method to analyze DNA.
And for the period – about decade or so the company has development instrumentation and we have our own proprietary platform called the MassARRAY. And we have sold that instrument along with services, reagents and tools, mostly to the academic field for a number of years, more recently in the translational field. And as we go forward we find to take our MassARRAY through 510-K and move it into the clinical arena.
This business has produced significant core revenue for the company over its development. About five or six years ago, we decided to move into molecular diagnostics given our experience on the analysis of DNA. And since then we have developed our other part of our business to molecular diagnostics which is currently has tests which are sold as a service our Sequenom center for molecular medicine, our wholly owned subsidiary that runs clinical diagnostic services.
Most of those are run out of two different locations, our initial clear lab that was in Grand Rapids, Michigan. And we currently run tests for Cystic Fibrosis Carrier Screening, a test for Rhesus D and a test for AMD and eye disease, all of those are run on our own platform the MassARRAY.
In San Diego, about 18 months ago we built out and had license separate location which runs all of our prenatal tests that use sequencing as the platform which will come to and particularly our MaterniT21 PLUS test which is the major driver for the company.
In 2012, our total revenues had increased about 60%, and the major driver for that was indeed the growth of our diagnostics business unit, which increased from about $8.3 million in 2011 to $46 million year over year. And as we go forward that indeed is going to be the growth part of the company while we still maintain our core genetic analysis business as well.
And perhaps equally importantly in terms of test volume, I think we did about – just over 20,000 tests in 2011, that increased very significantly to 92,000 tests across all of our tests primarily driven by the launch and adoption of our MaterniT21 tests. So that has been pretty spectacular adoption of a new test by any standard.
Before going into the diagnostic side in a bit more detail, the genetic analysis business as I said has moved primarily into translational space where we provide instrumentation also a lot of panels, particularly in the Oncology arena where we provide a fairly large mutation panel that covers about 400 different genes and that has been doing well over the last several years.
In addition, in the farmer arena, we have recently developed and launched a panel that allows you to do analysis that’s useful in the ADME space being able to measure various citochromes that are important for drug metabolism.
In addition, for quite some time we have had panels in the agricultural arena particularly for genotyping of cattle so together these opportunities still provide some growth for this business. We have a global sales activity and overall, we have our installed base of over 300 instruments.
Going forward, as I mentioned we see the growth of this business probably steering more towards clinical diagnostics. And in view of that for the last 12 months we’ve been working on the project to take MassARRAY and other tests through our 510-K, we plan to have that filed by the middle of this year and hopefully depending on the FDA approved as we enter 2015, giving us a new opportunity for growth.
The business we have in diagnostics we have begun our first test, our Cystic Fibrosis Carrier Screening Test and RHD about three years ago. And with those somewhat Me-2 tests I might say. We laid the track for developing all the services required to run pre-lapse. And also to begin the process of understanding reimbursement and billing and all the internal process to do with that. So, this has laid the track for the launch of what now will be the major driver for the business our MaterniT21 test.
And just for background, the whole goal of this development of this test was the opportunity to develop a non-invasive way of doing Karyotyping. And this is based on disseminal work of Dennis Lo in Hong Kong, our long term collaborator who discovered a number of years ago that during pregnancy, fetal DNA as particles seeps into mum’s blood and you can potentially use that circulating cell-free DNA as an analyte to do fetal genetic testing.
We’ve been developing this test for some years and began to look at sequencing about three years ago, and long story short, we were able to show very conclusively in a large clinical study that was published in October of 2011, that indeed this is a very sensitive way to do this testing.
So, this is a description of the MaterniT21 PLUS laboratory developed tests. When we initially launched this test in October of ’11 it was focused on detection of Trisomy 21, the underlying cause of Down Syndrome, and since then we’ve been able to add additional content that now allows the detection also of Trisomy 18, Trisomy 13, these are somewhat rare but important Trisomy. In addition the fetal sex chromosome XY as some of you may know there are several genetic diseases associated particularly with having the X-chromosome so it will be a warning sign. We do not sell this as a gender test as such.
Most importantly, to launch that test we felt it was very important to do a large clinical study. This was conducted independently by Brian University’s Women Infants Group. And this was blindly study where we would run the samples, and after unwinding the results to respond. So, the detection rate for Trisomy 21 is over 99% and similarly for other chromosomes in the same kind of range. So, for those of you who know Karyotyping this is very close through the invasive procedure, so essence we have a really excellent test that can potentially obfuscate the need for amniocentesis or CVS the other procedure used.
Very importantly in terms of the scale of the study, this is the biggest study that’s been done in terms of a number of the cases of these chromosome abnormalities. The sensitivity, specificity really gives you a lot of confidence that of non-invasive test is in essence replacing amniocentesis.
In addition, a very important fact for us, compared to some of the competitors, no result rate or the percentage of time we were unable to get a result was a very low, less than 1%. And for most diagnostic tests that’s a pretty low rate by any standard.
The test as we market today is focused entirely on the so called high risk women. These are primarily women over 35, or women who had serum test is positive or some of the indications for potential risk of Fetal Aneuploidy, I’ll talk to those in a moment.
The test is now available and can be used anytime after 10 weeks of gestation. It’s a simple blood draw, we get two 10 mls of blood. The analyte I mentioned which is key to this on which we hold an exclusive patent is circulating cell-free DNA. And very importantly we have a turnaround time of seven business days which we believe is significantly superior to any of our recent competitors who have entered the market. So this is well within the timeframe of amniocentesis. And obviously the urgency here is to avoid the anxiety of waiting for a test result.
So, we launched this test on October of 2011, and I think it’s fair to say over the course of the full first – full year of 2012. And we initially gave an estimate or a scenario JP Morgan I think in the beginning of the year, an estimate of maybe 25,000, an optimistic 40,000 and potentially a very optimistic 50,000 tests.
We’re happy to say the adoption rate exceeded that and by the end of about full year we have accession of over 60,000 samples. And by the end of the year our run rate for the test was approximately 120,000 samples per year when annualized.
Based on that, I think by any standard, very rapid adoption. We have expanded our capacity in San Diego to deal with up to 200,000 tests in addition for a variety of logistical reasons, we also have built out and are currently licensing a facility in North Carolina where we will increase capacity probably by the second half of this year to total of $300,000 between these two locations. I think this will give us plenty of scope to deal with the growing market.
So I think this slide simply shows you, the number of tests which have been carried out weakly since inception, since the beginning of ’12 rather until the end of the year so, a very steady growth, week on week.
Importantly for tests like this in terms of both adoption and also potentially reimbursement of course getting into guidelines for the appropriate societies, we were very pleased that ACOV, the American College of Obstetricians and Gynecologists had recommended that this test be used for high risk women particularly for chromosomes 21 and 18 at the end of the last year. I think by any standards getting into guidelines in less than a year in itself is quite a milestone.
And similarly since then, and Paul and Bill, may have touched on this, we’ve had recommendations from other important groups and also a consequence of that we’re going to see coverage decisions by a number of a large insurance companies in addition to our own efforts for some of the smaller players.
The precise indications for testing is maternal age of 35 over delivery and the one who has an ultrasound that has potentially some problems for the fetes. Any prior history of pregnancy with a Trisomy and perhaps the most common after age is any blood test done at all ages where there is a serum screen that suggests some potential Trisomy.
I think moving on to the next slide, so that gives you the guidelines that we stick to in terms of the marketing of our tests, so this is a test requisition form and just highlights that the physician has to check one of those boxes to ensure in need if there is a high risk patient, either age, serum screen being positive and ultrasound finding are personal history.
We think all the clinical data supports they use from the high risk group, some of our competitors are actually working in the low risk patients. We don’t believe there is adequate data as yet to move into that group. So we abide by the guidelines that have been recommended by various societies.
Just, by itself the high risk group is a pretty large opportunity. There are about 750,000 patients who would fall into this group annually in the US of which age is by far the biggest about 600,000 plus. So, this is our target market for the moment. And I think if you – the rate we achieved at the end of the last year of 120,000 annualized tests at the end of the year, we’ve already begun to penetrate somewhere north of 15% of this market and we continue to expect this growth as we go forward.
Perhaps just a little bit of background in terms of ensuring indeed this is being used in the high risk market. This is the data from 60,000 patients as to why the decision takes to the appropriate box for them so as you can see on the slide, about 69% of the samples that we received were from patients of advanced maternal age. And then, next to that was an ultrasound finding of about 20%, of those and serum by chemical screening accounting for about 21%. And then, somewhat smaller segment for those who had some personal or family history of an Aneuploidy.
For those of you who do a quick math, this adds up to more than 100% because sometimes the patient will fall actually into two boxes, being over 35 for example and having a positive serum screen. This gives us comfort that the samples we’re getting are indeed from the right group of patients where we believe the clinical data supports it.
Perhaps the most important result from all of this samples we have processed are that 97% of the results are clearly negative. And I think for the patients who might have opted for amniocentesis we believe this is probably the best outcome of being able to use a test like this. So, a lot of people, who have used amnio after getting a negative test, probably don’t opt to do that.
And if we look at the number of either T21s, 18 or 13s, the numbers are given here. These pretty much represented what we would expect from the known incidents of these in the population. So we’re very confident the test is getting what results as one would expect in terms of a ratio of cases versus negative results.
And then, at this time, I’ll hand it over to Paul who’ll talk about reimbursement and our financial status. Thank you.
Paul Maier – CFO
Thank you Ron. In 2012 and even subsequent to year end we’ve made excellent strides in the reimbursement environment. The marketplace for the high risk birth are shown in this pie-chart, so about 70% of the market has private insurance and a Medicaid represents about just less than 25% of the market. And that differs from the market for low risk or about 50% of the patients for low risk births are covered by Medicaid.
With the positive technology assessment from the medical society with ACOG and SMFM, that helped fuel the major payer discussions. Since then we’ve seen national coverage decisions from Anthem, WellPoint and Edna, United Health and Blue Cross Blue Shield, all of those are very favorable trends for us, because it means that the last hurdles to contract negotiation have now been removed.
And at the end of the year, we had 56 million lives under contract. And we have goals which I’ll talk about shortly for expanding that this year. So we are very pleased with that progress.
The beginning of each year of our Sequenom management team is characterized by us establishing and communicating externally what our goals are. And with respect to Sequenom, as was mentioned earlier, we’re investing in the genetic analysis business so our goal is to have a 510-K filed for our MassARRAY instrument in the second half of this year. And we also are developing continuing to develop and invest in new panels for new content to work on that platform.
For our Sequenom Center for Molecular Medicine, we have a goal of accessioning 150,000 MaterniT21 PLUS tests this year. We also have achieved two goals thus far, one that we achieved in the first quarter was extending the content of the MaterniT21 PLUS test to include sex chromosome (inaudible). The other goal that we established was to expand the diagnostic sales force. By the end of the first quarter we expect to have more than 85 reps in the field which gives us excellent coverage and more importantly allows us to call on the key positions in this marketplace on a monthly basis.
We also have a goal of reimbursement contracts for at least three national payers. And that would equate to more than doubling the lives under contract to 120 million by the end of this year.
And the last one I’ll mention is the goal of having the clear license and the cap accreditation for our North Carolina location, by the third quarter of this year when we can become operational.
We are showing a range of adopting scenarios for 2013. Our goal is the lower curve, the 150,000 units. We’re showing what the possibilities might be if the growth rate continues to grow at a very nice pace of 150,000 or 200,000 units. To be prepared to deal with that, we will have in place a capacity after the North Carolina facility comes online, to annually run up to 300,000 tests. So we’ve always felt that was important to have plenty of capacity in place to meet the market demand.
One of the anomalies of a new test is the accounting for the results. In our case, we are using the cash method of accounting for our revenue, for our diagnostic test. And as a result what you see is the cost being incurred upfront when we run the test, the revenue cycle particularly in the first year of launch may lag 120 even up to 180 days after the test is performed. So as a result it’s very difficult to predict so we use the cash basis. And ultimately our goal is to move to accrual accounting and only then we’ll – you have a better idea of matching the revenues and the expenses to do that, we need to put a billing process in-house, in-place. And our goal is to do that this year.
We can put the necessary accounting controls along with managing our own billing. And then, secondly we need to have several quarters of experience with each of our contracts to be able to demonstrate to our outside accountants, a payment cycle that is able to be estimated. So that’s one of the nuances.
In the meantime, the fact that there are coverage decisions that have been made and we have the medical society guidelines that does help the payers improve their payment terms and cycle. So we do expect we’ll see our revenue continue to ramp up both as a result of the increasing test that we run as well as the reimbursement catching up with the tests that we ran in the past.
Our financial highlights for the year, we presented last week in our earnings press release and earnings call. Our revenue increased by 60% so we had $89.7 million in revenue. And for the first time, last year the diagnostic segment was the largest segment surpassing the genetic analysis business. So, about $46 million of that revenue came from the diagnostic segment.
The cash position that we ended the year with was just under $176 million that was facilitated by financing we did in September. And we believe that that financing should take the company through to cash flow breakeven. Our cash burn, which increased last year primarily because of our investments and the capacity to expand and to serve this ever growing diagnostic business, it was increasing as the reimbursement lag. However, in the fourth quarter, we were very pleased that we had the lowest quarter of burn, our burn rate came down to $17 million and that was a good indication that we were gaining traction on reimbursement in our revenue in the diagnostic segment was growing nicely.
So we ended last year and we began this year with very strong market leadership advantage for our key asset, the MaterniT21 PLUS test. We were the first to market with this major innovation back in October 2011. We now have dramatic experience in running and fine tuning the laboratory services with more than 60,000 commercial test run last year. We have a very strong balance sheet with almost $176 million in cash that I mentioned as of the year end. We now have the largest sales force in the non-invasive space with more than 85 reps by the end of the first quarter.
Our instrument capacity as I mentioned will be about 300,000 or more after the North Carolina facility is in place and operational in the third quarter. We now have a very rich content that allows our test to meter exceed any other tests on the market with the content of T21, T18, T13, Twins, Y-chromosome and then (inaudible).
We have consistently had very short turnaround time. We invested in two shifts, six days a week to make sure that we would be the market leader. And we on a regular basis achieve less than seven business days to turnaround the results of the test. The clinical study data that’s out there is the broadest with the number of patients in our published results which we published prior to launch.
And one of the other assets that differentiates us is the lowest published in our commercial experience subsequently with no result or no call rate. And it was less than 1% in our clinical studies and it’s been in that range now that we’ve been commercially out there for more than a year.
Our market penetration particularly in the maternal fetal medicine specialist is over 35% who reorder on a regular basis and that has helped thrive the adoption curve that we’ve seen and the expansion into the OB/GYN community at large.
And finally we made the significant investments in the infrastructure since we have multiple tests there. And indicate that we are really making a long-term investment to be a leader in molecular diagnostics with the customer service, the sales force medical affairs, all of the other things that allow us to maintain our leadership position.
With that, that’s the end of the formal presentation. And I believe we will move right into the breakout session.
[No Q&A session for this event]
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