Sequenom and the Small Cap Biotech Bipolar Experience

| About: Sequenom, Inc. (SQNM)

Still keeping my eye on the Sequenom (NASDAQ:SQNM), but the whole idea with this name was to avoid the small cap "biotech" bipolar experience (either a huge win or a huge loss). Unfortunately, this is what this has now turned to, a coin flip. Probably the most bizarre disclosure I've ever been associated with, and I've seen many off the wall things in my years in the market.

Per CBSMarketwatch

  • Shares of beleaguered biotech Sequenom Inc. got a much-needed boost last week in the form of a somewhat favorable report issued by Lazard Capital Markets, but is the stock really that seaworthy?
  • Sequenom jumped nearly 15% on May 27, after Lazard analyst Sean Lavin upgraded the stock, now trading in the $3 range, to hold from sell, saying he believes it had more potential upside than downside.
  • While cautioning that the shares remain a highly risky play, Lavin asserted that if the company actually produced data to support the accuracy of its new Down syndrome screening test, Sequenom could soar past the $20 mark. (well yes of course! that's the whole premise of the stock; tell us something we don't know) If the test ended up being a flop, the shares could crumble to around $1. (and that's known as a lottery ticket, not an 'investment')
  • "The problem with the stock is you don't know if there's life there. It's just a huge black hole right now," said Leerink Swann analyst Bruce Cranna, who also tracks Sequenom, in a recent interview.

If you are not familiar with the saga, here are the Cliff Notes

  • Sequenom shares have soared -- and plunged -- over the past year on the market prospects of SEQureDX, its prenatal blood-screening test for Down syndrome that is not only less invasive that those out on the market but possibly more accurate. The rollercoaster ride began a year ago, when Sequenom announced that studies had shown the SEQureDx test was extremely effective in detecting the syndrome. The company added that it expected to be able to launch the test in the U.S. during the first half of 2009. Sequenom shares swiftly gained momentum after that announcement, reaching a peak at around $29 late last September. But then in late April, Sequenom dropped a bomb: Certain unnamed employees had apparently "mishandled" data used to support the test's accuracy, calling into question whether the test was valid at all.
  • Even in the long-shot game of biotech, the development bordered on bizarre. Sequenom management has since said it's been re diligently reexamining the data and moving ahead with additional planned studies. But under the best-case scenario, the earliest Sequenom would be able to produce a data-validated test would be by the fourth quarter.
  • Although analysts say Sequenom doesn't need FDA approval to market the product, it does need a body of credible data to win over obstetricians. Despite the embarrassing setback, Sequenom officials have said they still believe the science supporting the test is sound. Analysts are inclined to agree, albeit with varying degrees of reservation.
  • "The essential components of the test, in my mind, are still valid," Cantor Fitzgerald analyst Pamela Bassett told MarketWatch recently. Bassett said that before the April announcement, she had forecast a stock price target of $42 for Sequenom share's, with a buy rating. She has since lowered her rating to hold, with a target of $4. "I don't have grave doubts about the technology, it seems feasible," said Cranna. "But it's back to being sort of a 'blackboard,' early-stage technology."
  • Analysts have estimated test's market opportunity could be as high as $2 billion. "If thing had gone swimmingly, it would've been a sizable opportunity for them," said Cranna.
  • The biggest catalyst on the horizon for the shares should be the release of data from a large-scale Brown University study, which analysts say is still moving ahead. Analysts speculate data from this study will likely be released during the first half of 2010. If the data look sound, analysts say the SEQureDX product could be launched late next year or early in 2011.
  • On the other hand, if the data fail to pass muster, Sequenom could be facing a serious cash crunch. The company has said it plans to end 2009 with about $50 million in cash. Analysts say that the company might, however, need to start raising cash in the first half of 2010.
  • "There are really more negative catalysts on the horizon than positive," said Cranna. "It's like Watergate: Who knew what, where, when and how high up does it go?"
  • And how much would Sequenom be worth without the test? Lazard analyst Lavin said in his May 27 note that he sees the company's shares worth at least $3, even if it has spent all its cash. Lavin's valuation analysts assigns a worth of about $1 a share for the company's genetic mapping business, and its intellectual property assets is worth $1 to $2 a share.
  • "The stock has always been a high-risk, high-reward play, even at 20 bucks," said Cranna. "The risk now is the technology is just not there and they'll be a fire sale of some sort."

[Apr 29, 2009: Sequenom Bombshell]

[Mar 19, - Sequenom Mulls Change to Down Syndrome Test]

[Feb 12, 2009: Sequenom Misses [Again] on Earnings]

[Feb 10, 2009: Sequenom on Front Page of Toronto Globe & Mail]

[Feb 4, 2009: Sequenom Restates Results]

[Jan 29, 2009: Sequenom Results Good]

[Jan 14, 2009: Some Muss and Fuss over at Sequenom]

[Dec 31, 2008: Sequenom Continues to Pick up Recognition]

[Dec 18, 2008: Sequenom in Investors Business Daily]

[Oct 30, 2008: Sequenom Misses But We Don't Really Care]

[Oct 7, 2008: Sequenom Down 8% on "Competition" Threat]

[Sep 23, 2008: Sequenom - All Systems Go on Down Syndrome's Test]

[Aug 13, 2008: Beginning Stake in Sequenom]

Disclosure: No position