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Shares of Sequenom (SQNM) bounced back following the announcement of its Q3 financial results. The firm's Q3 2013 revenues were double those of Q3 2012, which led to lower losses than analysts expected. The stock rallied, recovering most of the 23% dip caused by a stock selloff at the end of October. Investors who hysterically sold SQNM at the time did it following a U.S. District Court overturning Sequenom's patent covering its non-invasive prenatal Down syndrome test.

The increase in the Q3 revenues beyond analysts' expectations was made possible through the firm's struggle towards collecting unpaid bills for MaterniT21test, the firm's prenatal non-invasive pregnant women blood test for Down syndrome in fetuses. As a matter of fact, 2013 total revenues were $44 million, an increase of 92% compared to the third quarter of 2012. Diagnostic revenues were $33.3 million, up 166% from the same period last year and up 36% sequentially. Diagnostic revenues are recorded primarily on a cash basis. The Sequenom's Biosciences business, formerly known as genetic analysis, generated $10.7 million in revenues, UP 3%.

Sequenom worked on five fronts towards increasing the sales of its prenatal test: Collecting unpaid bills, bringing in more third party payers, improving on its tests, reducing its operating expenses and reclaiming its patent that protects its rights to its breakthrough test. The results point to an obvious success. Indeed, Sequenom collected unpaid bills and signed additional contracts with new payers, which brought the number of the covered lives for its diagnostic services to approximately 90 million. In Q3, the firm has run 38,600 MaterniT21 Plus tests and it is continuing active negotiations with third party payers, including Blue Cross and Blue Shield affiliates and others.

Sequenom reduced its operating expenses by approximately $13 million through eliminating 75 positions and reducing further costs through its ongoing restructuring efforts. It launched an enhanced sequencing series that detect certain micro-deletions as well as autosomal trisomies for chromosomes 16 and 22 - bringing to physicians clinically relevant information in addition to the Down syndrome results. The recent introduction of the enhanced series for the MaterniT21 PLUS test is expected to help improve Sequenom's competitive position. Recent preliminary results over the past two weeks have been encouraging.

Sequenom still expects to meet its goal of accessioning 150,000 tests by the end of 2013. The firm now has around 1,800 blood collecting locations under contract throughout all 50 states, a number that is expanding on a monthly basis.

The MaterniT21test Patent: U.S. District Court considered that Lo 540 U.S. Patent No. 6,258,540 is invalid. Sequenom believes that the court's decision is wrong and misapplies or ignores controlling law. Drs. Lo and Wainscoat invented a novel method for detecting paternally inherited fetal DNA in maternal plasma, and their invention is more than just the discovery of unpatented natural phenomenon. Indeed, the disputed patent does not grant exclusive rights on the fetal DNA in maternal blood, but it grants the right on the technique invented to get to that fetal DNA, which nobody was capable of doing before. The technique used is not a natural phenomenon and can be patented.

It is important to note, however, that other country's equivalents of the low 540 patent are not affected by this U.S. court ruling and remain valid in the European Union, Japan, Australia, Canada and Hong Kong, where they are issued. Sequenom intends to appeal the court's order to the United States Court of Appeals for the Federal Circuit.

The Generic analysis business: With the completion of early access program to its ultrasensitive mutation detection methodology, the firm has declared its readiness to add a new application to its MassARRAY platform. This ultrasensitive method has the potential to be best in practice at detecting clinically significant mutations from heterogeneous tissue and liquid biopsies at very high sensitivity levels. The firm expects the launch in the fourth quarter.

Sequenom believes that MassARRAY capabilities is being-- and will continue to be-- further expanded in a way that other technologies cannot meet with the same cost efficiency. With this capability, the firm believes that in combination with liquid biopsies, it can aid in important areas such as minimal residual disease monitoring.

In the conference call, Sequenom confirmed it has engaged Jefferies & Company to review strategic alternatives for the generic analysis business now doing business as Sequenom Bioscience. Sequenom believes its Sequenom Bioscience may be better situated with a larger company that has the global reach and resources to fully capitalize on the technology and commercial synergies.

Prohost Comments: It is hard for anybody involved in the biotech industry not to notice Sequenom's determination to become the leader in the prenatal genetic clinical laboratory diagnostic testing and other genetic testing. The efforts spent by the firm to solve unwarranted external problems are evident and the firm's success in dealing with these nuisances is also evident. Most of the firms' efforts are spent on solving problems of bureaucratic payers, including the insurance firms, Medicare and Medicaid. The biggest loser in this saga is not Sequenom, but the patients' wellbeing, the payers themselves and the healthcare budget. Compared to the invasive prenatal tests, Sequenom's non-invasive tests would enable saving millions of dollars a year that are currently spent on the invasive procedures and on their complications, which might require treatment and sometimes long-term hospitalization, in addition to the invasive test cost.

Bottom line, the firm's laboratory sales are increasing in a market that is large enough to bring in huge revenues into Sequenom's coffers. This is especially true as the firm continues to offer more tests for various diseases that Sequenom Lab can diagnose as early as in the fetus. The cash available in the firm will be definitely help for much more than analysts' suggested time, when added to it the revenue stream from the Down syndrome and other tests. A successful outcome of the firm decision to sell its Genetic Analysis business could also add cash to the firm's coffers. What would also help is winning the battle of the patent. Losing this patent in the U.S. is not the big deal investors perceived when they sold their stock following the court decision. The firm is the leader in the Down syndrome diagnostic market, having currently almost 60% of it. The improvement in its technologies and the addition of more third party payers to Sequenom's list would guarantee huge sales growth that exceed the firm's current market cap several fold.

Disclosure: No positions

Source: Sequenom: Current Status