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Sequenom Inc. (NASDAQ:SQNM)

Q4 2009 Earnings Call

March 15, 2010 4:30 pm ET

Executives

Ian Clements – Senior Director, IR and Corporate Communications

Harry Hixson – Chairman and CEO

Paul Maier – Interim CFO

Analysts

Zarak Khurshid – Wedbush Securities

Evan Lodes – Barclays Capital

Pamela Bassett – Cantor Fitzgerald

Bud Leedom – Global Hunter

Elmer Perez [ph]

Operator

Good day, ladies and gentlemen, and welcome to the fourth quarter and full-year 2009 Sequenom earnings conference call. My name is Melanie, and I’ll be your coordinator today.

At this time, all participants are on a listen-only mode. We will conduct the question-and-answer session at the end of this conference. If you require operator assistance at any time during the call, please press star zero on your touchtone phone to signal the operator.

As a reminder, today’s call is being recorded for replay purposes. I would now like to turn the call over to Mr. Ian Clements, Head of Investor Relations and Corporate Communications. Please proceed.

Ian Clements

Thanks, Melanie. Good afternoon, everybody. Joining me today are Dr. Harry Hixson, Chief Executive Officer and Chairman of the Board; and Mr. Paul Maier, Interim Chief Financial Officer.

Earlier this afternoon Sequenom issued a news release announcing the company results for the fourth quarter and full year of 2009. If you’ve not received this news release or if you would like to be added to the company's distribution list, please call Investor Relations at the company or you can sign up through the IR section of the company's website. Copies of news releases and SEC filings can also be found in the IR section of our website.

Before we begin, I’d like to inform you that this call will include a discussion of Sequenom's current plans and intentions regarding product development and launch expectations regarding – and expectations regarding Sequenom's financial resources and other forward-looking statements.

I’d like to emphasize that these statements are based on the information available to Sequenom today and subject to various risks and uncertainties, including the risks described in the company's SEC filings.

The company's actual results may differ materially from the statements made during today's conference call and the company undertakes no obligation to update any of these statements.

From an investor communications perspective, we will be presenting an overview of the company, two upcoming conferences this month. This week we will be attending the Roth 22nd Annual Growth Conference at Dana Point. Next week, we will be presenting at the Barclays Capital 2010 Global Healthcare Conference in Miami. Webcast of these presentations will be accessible through the Investor Relations section of our website.

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

Harry Hixson

Thanks, Ian. And my thanks to each of you for joining us. It has been almost six months since I stepped into my new role as Interim CEO of Sequenom. I would like to take this opportunity to announce that the Board and I have agreed that we should remove the Interim tag from my title.

I’m excited about the opportunities ahead for Sequenom and frankly, I’ve been very impressed by the dedication of the team, their resilient response to the events of 2009 and their ability to continue to focus on the execution of the long-term strategy.

During today's call, I’d like to spend some time discussing our 2009 achievements and also some of the more recent milestones that we have reached during the first couple of months of 2010. I will also be discussing our goals for the remainder of 2010.

Let's look first at our genetic analysis business. In 2009 this business was impacted by the general economic downturn and a corresponding reduction in capital expenditures by our customers.

During the fourth quarter, we did see some improvements in all the markets that we serve and indications are for continuing improvement as we move through 2010. With revenue of $10.7 million in the fourth quarter we saw strength in both instrumentation and particularly in the higher margin consumable sales. Overall, we were pleased with the performance of this business in 2009.

In the fourth quarter of 2009, we made progress in a number of important areas. We have implemented a number of R&D and disclosure controls as part of the remedial actions described in our September 2009 announcement. Additionally, we elected two new independent directors to our Board.

We moved to actively resolve legal issues including the settle of dispute with shareholders of SensiGene, a company that we acquired in early 2009. In January, we announced the entry into an agreement to settle the consolidated federal securities class action lawsuit. We were pleased to expeditiously reach this agreement, which is still subject to final court approval. We believe that approval of this agreement is in the best interest of the company and its shareholders.

Intellectual property is the foundation upon which our company is built and we’ve continued to safeguard one of our most valuable assets, our IP estate. The 540 patent forms the underpinning of our prenatal diagnostic business. This patent relates to the detection of circulating cell free fetal nucleic acids in maternal plasma, which is the basis of our SEQureDx technology.

We successively secured the extension of the exclusive rights to 540 patents from Isis Innovation in November of last year. Renewing and reinvigorating our relationship with Dr. Dennis Lo was also a high priority for the new management team. We remain committed to the relationship with Dennis and we’re excited about our continued collaboration.

We also made several important additions to our Clinical Advisory Board. The addition of Dr. Yves Ville and Wolfgang Holzgreve, bring an important international element to our Clinical Advisory Board. And further enhances our domain expertise in prenatal diagnostics.

In September, we launched the SensiGene Cystic Fibrosis Carrier Screening test. Our first commercial diagnostic laboratory developed test. We believe our test has some unique advantages over other offerings, such as the expanded mutation panel that we employ in our test, which provides improved detection rates.

During the fourth quarter, we completed a strategic review of our research and development programs and potential opportunities. We decided to focus on funding certain priority projects, including the T21 test and a diagnostic for assessing the progression risk of age-related macular degeneration.

The unfunded programs, which we believe hold promise, were identified for possible partnering. We’ve already initiated exploratory partnering discussions for some of these programs.

The first two months of 2010 have been both business and productive. In February, we announced the commercial availability of our first two diagnostic tests based on our SEQureDx technology. The SensiGene Fetal RHD Genotyping and the SensiGene Fetal (XY) sex determination tests. The market launches of these tests are important for a couple of reasons.

First, their launch proves that we are able to detect circulating cell free fetal nucleic acids in maternal plasma. Second, the market launch of these test shows that we are successfully implementing our integrated molecular diagnostics commercialization strategy. It is still too early to provide a meaningful diagnostics revenue outlook.

We have added an additional five diagnostic sales representatives. The addition of these positions takes the total of our diagnostic business sales force, including sales management to 21 people. We believe that this sales force will allow us to serve OB/GYN and maternal fetal medicine specialists in many of the major metropolitan areas across the U.S.

I’d like to highlight a recent development that illustrates our diagnostic strategy going forward. We are focusing on areas where we think we can establish leadership positions. We are interested in areas where there are significant diagnostic opportunities, where our technology and our expertise gives us an advantage.

For example, in February of 2010, we entered into a license agreement with Optherion, under which we were granted an exclusive, worldwide, royalty bearing license to know-how and a consolidated portfolio of patent rights related to age-related macular degeneration or AMD diagnostics.

The licenses for both research and commercial use in conjunction with any technology platform. These portfolio had been established by Optherion from a number of prominent academic institutions.

The license patent portfolio includes 17 issued or allowed United States and foreign patents and 68 pending United States and foreign patent applications. The license agreement covers extensive intellectual property rights for significant AMD related genetic variance.

AMD is a disease that affects 15 to 20 million people in United States and more than 50 million people worldwide. In North America, there are 2 million people with vision loss and more than 600,000 that are legally blind due to this disease, making AMD one of the leading causes of vision loss among people over the age of 60.

The worldwide instances of disease increases from one in 10 people over the age of 60 to more than one in four people over the age of 75. This opportunity is an excellent fit for Sequenom's technology and expertise. The requirements of the asset that we plan to develop are ideal for our MassARRAY technology.

Indeed, our platform has already been used in several of the key published studies that have firmly validated the link between AMD and the genetic variance that we expect to form the basis of our planned tests.

We anticipate that our tests will involve approximately 20 snips and we hope to deliver this test in the market in 2011. We are looking forward to achieving a number of other key goals in 2010.

Later this year, we anticipate launching the next generation of our MassARRAY platform. We expect this instrument to be less expensive to manufacture, faster, more accurate and more robust than previous versions. Also, the new MassARRAY system will be built under design control specifications, allowing our customers to utilize this instrument in FDA regulated environments.

We have seen the successful adoption of our OncoCarta Panel in our genetic analysis business and we plan to launch additional research use only panels.

Now, I'd like to say a few words about your T21 noninvasive prenatal diagnostic program. The company remains committed to pursuing the development, third party validation and launch of a noninvasive T21 test. Current R&D efforts are focused on DNA based approaches using both our MassARRAY platform and next-generation sequencing platforms. Collectively, the R&D and clinical sample acquisition costs that will be required to enable a pivotal third party T21 test validation study represent the single largest investment the company will make in 2010.

To be commercially viable we believe that this T21 assay needs to meet several criteria. It should exceed the sensitivity and specificity of currently screening tests, be applicable during the first and second trimesters, maximize the coverage of global populations, be a direct genetic test and not a surrogate marker and be a fundamentally novel improvement upon currently available screening methods.

We believe that a test that detects T21 aneuploides in a maternal blood sample meets these criteria. For R&D purposes and preparation for third party clinical studies, we are sponsoring four ongoing T21 sample collection programs. Sample collection is proceeding as scheduled. These samples will only be used when we have it tested as ready for such studies. I look forward to being able to provide an update on the specifics of our T21 tests, including final methodology selection and time lines later this year.

With that update on our operation, I will now ask Paul to address our fourth quarter and full year financial results. Paul?

Paul Maier

Thank you, Harry and good afternoon, everyone. First, I'll discuss our fourth quarter numbers. We reported total revenues for the three months ended December 31 of $10.8 million as compared to $12.2 million for the fourth quarter of 2008. The decrease from the prior year was primarily due to the continued softness in capital expenditures within the bioresearch markets.

Revenues for the fourth quarter increase over the third quarter of 2009 by $1.6 million. During 2009, revenues generally were on an upward trend. Cost of product and service revenue for the fourth quarter of 2009 was $5.3 million compared with $4.9 million for the fourth quarter of 2008.

Gross margin was 50.5% for the fourth quarter of 2009 and that's compared with 59.5% in the fourth quarter last year. Gross margin was primarily affected by the inclusion of start-up costs associated with the launch and commercialization of our Cystic Fibrosis Carrier Screening test and changes in the product mix including lower average selling price for systems in the genetic analysis business.

Research and development expenses were $10.0 million for the fourth quarter of 2009, compared with $9.1 million for the same period in the prior year. R&D expenses for the 2009 fourth quarter reflected additional expenses with the company's molecular diagnostic technology, product development and increased clinical study costs.

Selling, general and administration expenses of $12.9 million for the fourth quarter of 2009 increased from $12.3 million for the fourth quarter of the prior year. This is a result of increased legal expense and an increased expense related to the buildup of our diagnostic sales force.

Total costs and expenses for the quarter were $28.4 million compared with $26.3 million for the comparable quarter in 2008. Our net loss for the fourth quarter of 2009 was $18.4 million or $0.30 per share compared with a net loss of $15.4 million or $0.25 per share for the same quarter in 2008.

Turning now to the full year results, revenues totaled $37.9 million compared with $47.1 for 2008. Gross margin for 2009 was 61.5% compared to 58.5% for 2008. The improvement in overall gross margin was attributable to lower system and contract research revenues, which are sold at lower margins and an increase in consumable revenues, which have a better margin.

Total costs and expenses for 2009 were $108.6 million versus $89.8 million for 2008. For the full year 2009, the company recorded $11.8 million compared to $7.3 million in ’08 for stock based compensation expense. We reported a net loss for the year ended December 31, 2009 of $71.0 million or $1.16 per share versus a net loss in 2008 of $44.2 million or $0.83 per share.

As of December 31, 2009, Sequenom had total cash, catch equivalents and short-term marketable securities of $42.7 million. In this quarter's numbers, we break out for the first time our Diagnostics revenue. We recognize diagnostic revenue of $94,000 in the fourth quarter. Diagnostic revenue for the quarter was derived only from our carrier screening tests for cystic fibrosis, which we commercial lies in September of 2009.

Diagnostic revenue is currently recognized upon cash collection, as payments are received. Diagnostic revenue going forward will be unpredictable due to the lack of historic sales trends associated with our recent commercial launches. We anticipate that by the end of 2010, we will have accumulated sufficient historic diagnostic revenue information and secured enough health plan contracts to move from a cash basis of revenue recognition to an accrual basis. And from a reimbursement perspective, it is worth noting the following.

Our fetal sex determination test is a patient paid test. We will not bill or receive insurance reimbursement for this test. Our cystic fibrosis carrier screening and fetal RhD tests are reimbursable from health plans. We have an experienced head of managed care who is spearheading our discussions with payors. We are in the process of engaging with payors across the U.S and in the meantime in geographies where we do in the have an agreement in place our tests are reimbursable through the patient's out of network benefits.

With respect to financial guidance, given the fact that there are still ongoing litigation and governmental investigations, there are uncertainties related to legal expenses, as it is still early in terms of adoption of our recently launched diagnostic test, we will continue the practice of no longer providing detailed financial guidance, at least through the end of 2010.

Before I close, I would like to address the issue of our cash position. With just under $43 million in the bank at the end of the year, it is clear that at some point during 2010, we will require additional financial resources. We are currently in the process after assembling our preliminary plans to address this issue.

With that financial update, I would like to turn the call back over to Harry.

Harry Hixson

Thanks, Paul. With that summary of our business and financial update, I like now to open the call open to any questions. Operator?

Question-and-Answer Session

Operator

Yes, sir. (Operator instructions) And our first question comes from the line of Zarak Khurshid with Wedbush Securities. Go ahead.

Zarak Khurshid – Wedbush Securities

Thanks. Hey, you guys. Good afternoon and thanks for taking my questions.

Harry Hixson

Hey, Zarak.

Zarak Khurshid – Wedbush Securities

So just that we understand things with respect to the RNA base method, is that dead in the water, essentially?

Harry Hixson

No. RNA as a test sample has some disadvantages. It's somewhat unstable and also requires the addition of TRIzol which is potentially carcinogenic and it’s not a light by the clinical labs. So RNA is basically on the back burner at this point and we are focusing on DNA methods.

Zarak Khurshid – Wedbush Securities

Okay. So we understand things, the reason why it's on the back burn more for stability and I guess prep issues rather than the downstream analysis?

Harry Hixson

Well, we had to sort of stage our effort. We don't have – we decided we had taken the RNA method to a certain point and then we were going to go ahead and the investing in several DNA methodologies. From a research allocation point of view so it's on a back burner.

Zarak Khurshid – Wedbush Securities

Okay. Great.

Harry Hixson

We are more optimistic about DNA methods, however.

Zarak Khurshid – Wedbush Securities

Got you. And on that note, can you maybe perhaps describe the rough basis for your DNA-based test? And where do we stand on potential publication?

Harry Hixson

Our DNA methodologies are still being investigated by R&D. We are not going to pressure and put any time pressures on the scientist here, so really can't comment beyond that what we said already.

Zarak Khurshid – Wedbush Securities

Great, thanks.

Operator

Our next question comes from the line of Evan Lodes with Barclay capital. Go ahead.

Evan Lodes – Barclays Capital

Hi. Good afternoon. First I'm curious. The burn rate in this quarter was something like $3 million a month. Is that something that we could expect continued in the beginning of this year?

Harry Hixson

Well, we are not really giving specific guidance on our burn rate. As you looked at last year, the burn rate did come down. But there are so many uncertainties, as I pointed out in the call. It's difficult to predict that.

Evan Lodes – Barclays Capital

Okay. Thanks. And then secondly, could you talk about with the AMD tests, how you are thinking about a go-to-market strategy there with the ophthalmologists sales force needed and also what differentiates your tests from similar other AMD tests that are currently on the market? Thanks.

Harry Hixson

Well, first we think this is a test that would be marketed primarily to retinal specialists as opposed to the broad-based ophthalmologists market. And my understanding is there is something of the order of 2,000 of those in the U.S. So, a rather modest sized sales force could address that market.

Second, I think what differentiates our tests or will, is that we have intellectual property protection for the markers. And we are not sure that the other tests do.

Evan Lodes – Barclays Capital

Okay. Thank you.

Operator

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

Pamela Bassett – Cantor Fitzgerald

Hi. Thanks for taking my questions. Can you talk a little bit about the Fetal (XY) launch and what your sales and marketing plan looks like for that test?

Harry Hixson

Well, first it's very early days. Second, it's a patient pay test, as Paul pointed out. We are using the same sales force that we are using for Cystic Fibrosis and the Fetal RHD test. And this is, there were like 4 million bursts per year and is potentially a very large market. But we think it's probably going to be tests that's used for people of, above a certain income level. So it is a self-pay test.

Pamela Bassett – Cantor Fitzgerald

What will you do differently to market that test than you might do for some of the other prenatal diagnostics?

Harry Hixson

At this time nothing, we are promoting the tests to the same position audience.

Pamela Bassett – Cantor Fitzgerald

Okay. There won't be any direct consumer type advertising campaigns?

Harry Hixson

Not at this time. Although we certainly have, we are aware of the possibilities of that. Some other people have pointed out are there chat rooms and such ways to make people more aware of the test of their availability. We have not initiated anything in those directions, however.

Pamela Bassett – Cantor Fitzgerald

Okay. And can you tell us a little bit about your partnering strategy? What's more specifically in the pipeline might you partner? Is it only diagnostics that you are not front and center part of the core of franchise that you intend to build at Sequenom, or might the partnering strategy include currently launched diagnostics or those in the pipeline for prenatal and oncology, perhaps?

Harry Hixson

Well, I think this partnering comes as a result of the fact that we decided we could only afford to do certain things that we needed to focus on those. Our partnering thoughts relate to the unfunded programs, things in the prenatal space certainly are funded and would not normally be on our partnering list. We are interested in HPV, for instance.

So we in licensed, we acquired SensiGene and some technology and IP there. And in order to participate, that market requires the acquisition of very expensive clinical samples that we are not prepared to invest in at this time. So that is a good example, I think, of kind of a partnering opportunity we have been looking for.

Pamela Bassett – Cantor Fitzgerald

Okay. And any progress with what you might develop in oncology? Or is that much further off?

Harry Hixson

We have the OncoCarta Panel. That is an area of interest to us. It potentially would be on our partnering list for actual clinical development. It's expensive to develop those tests to the point where you have FDA approval.

Pamela Bassett – Cantor Fitzgerald

Are you having dialog with the agency on currently launched diagnostics?

Harry Hixson

We are not, no. Not at this time.

Pamela Bassett – Cantor Fitzgerald

And remind me what the regulatory strategy is with respect to potentially FDA filing?

Harry Hixson

Well, I think T21 is a good example of what our strategy is. And that is to introduce if we are successful in developing a test to introduce it as a laboratory developed test. And on the same time line, to do the appropriate sort of studies by third party investigators and filed with the FDA for and probably have PMA and have the test approved. Fetal (XY) sex determination would never be an FDA regulated test.

Pamela Bassett – Cantor Fitzgerald

What about RHD, or Cystic Fibrosis?

Harry Hixson

That is possible but we are not actively pursuing it at this time.

Pamela Bassett – Cantor Fitzgerald

Okay. Great. Thanks very much.

Harry Hixson

Thank you.

Operator

Our next question comes from the line of Bud Leedom with Global Hunter. Go ahead.

Bud Leedom – Global Hunter

Hi. Thanks for taking my questions. Paul, I was wondering if we might be able to dig in a little deeper into the gross margins for the quarter. Maybe provide some type of apples to apples comparison with the fourth quarter of last year, i.e. can you back outs or quantify the start up costs and launch costs of the CF tests? Or provide any greater detail there?

Paul Maier

When the 10-K is filed, which will be within the next 24 hours, you'll find there is a little more detail on that. I would just say that the diagnostic start up cost was very modest. And the primary driver was the lower margins in the systems that were sold in the fourth quarter of last year.

Bud Leedom – Global Hunter

Okay. And with the new MassARRAY coming out, might we see those margins start to tick back in the GA specific business based on the manufacturing cost there?

Paul Maier

Well, one of the objectives behind launching later this year, a next generation MassARRAY platform was not only the performance specifications of the instrument, but also the improved cost profile of that. So at such point as we are on the market, we do expect that will help that would be one of the factors that will be a positive factor in improving gross margins. A product mix and a lot of other factors go into it as well. But we certainly expect that that will be a driver in the right direction.

Bud Leedom – Global Hunter

Okay. And you mentioned you added five new sales reps in the diagnostics business for a total of 21. Can you articulate your plans for adding new reps throughout the remainder of 2010?

Harry Hixson

Right now, we don't have any plans to add any additional sales reps and diagnostic sales force. We will watch how the sales progress and how our dealings with various third party payers develop and add accordingly.

Bud Leedom – Global Hunter

Great. Thank you.

Operator

Our next question comes from the line of Zarak Khurshid with Wedbush. Go ahead.

Zarak Khurshid

Hi. Thanks for taking the follow-up question. Relating to the recent 540 contract negotiation, can you describe the time line on this? So is it contingent on commercialization by a certain year? What is that year? And then, what happens to this contract at that time? In other words –

Harry Hixson

I think I understand the question. But I don't think there is anything in the contract that has those kinds of terms.

Bud Leedom – Global Hunter

So the original contract had that type of provision. And now this one goes out indefinitely. Is that how we should read into it?

Harry Hixson

I believe that the launch of Rhesus D test, which utilizes, determines it's based on detection of circling self fetal nucleic acids satisfies the launch requirements of 540 license.

Bud Leedom – Global Hunter

Okay. Thanks.

Operator

Our next question comes from the line of Elmer Perez [ph], private investor. Go ahead.

Elmer Perez

Yes. Harry, congratulations on the removal of the interim tag.

Harry Hixson

Thank you.

Elmer Perez

What I would like to know is – if you could describe generic or it may be in a specific manner. What level of validation would you like to see on the T21 test in-house, before it goes into the third party large clinical study?

Harry Hixson

I don't have those numbers in mind. But I think we'd have to see the same criteria that I described earlier in my written remarks or prepared remarks. I'd like to see those being met by the R&D study before we would go to outside third party validation.

Elmer Perez

And how many samples, do you envision testing for that, in order of magnitude? Is it hundreds? Thousands?

Harry Hixson

The in-house my recollection in-house would be hundreds. And then the third party is clearly in the thousands.

Elmer Perez

Okay. Now, what I'd like to better understand in the core business and maybe, Paul, if you could please help us out. You had a very healthy fourth quarter of unit placements. Would you please disclose how many units have been placed?

Paul Maier

I would. We placed 13 units in the fourth quarter.

Elmer Perez

As opposed to how many in the third quarter, for example?

Paul Maier

All I'll say is it was fewer than that. And that Depends on how you want to count them.

Elmer Perez

Sure.

Paul Maier

But for the year, we had 38 units.

Elmer Perez

38 all together?

Paul Maier

Yes.

Elmer Perez

So we have an installed base of probably over 100, if not more. And what seems to be challenging for me to understand is the consumable revenue has been fairly stagnant. Now, would you describe the volume/price relationship there and what would set it on fire? So the razor, razor blade concept would truly be manifest here?

Paul Maier

Well, certainly the objective is to broaden the installed base worldwide of our instruments. And we have approximately 300 units now worldwide. And some of the same economic factors that influence in the 2009 timeframe, the falloff and the purchase of instruments also affects the use of the consumables. The consumables did grow. But we would expect, as the research funding is enhanced or increased in the future that some of that would translate to consumables. And it's just a question of the timing of that and how people manage their budgets.

Elmer Perez

Did you have to lower prices to increase volume?

Paul Maier

I would say that, with respect not so much with consumables. I think the market is very price sensitive from time-to-time with instrumentation. And so obviously, we take that into consideration. And of course, in that's another reason for us to look to developing a next generation machine that we could launch. And we – in any event, expect to improve the margins across all of our business whenever possible.

Elmer Perez

Now, one last question, if I may, related to margins. So is it backed out – a nominal amount from your cost of product and service revenue line item and call it 4.5, $5 million. And if you look at the revenue line associated with it shall we assume, at least until you launch and you gain some traction with the advanced version of MassARRAY. That this is going to be there sort of gross margin, going forward?

Paul Maier

And I wouldn't jump to that conclusion. And as we said earlier, we aren't going to give guidance on that. Each quarter, we have had a unique set of issues that affected it. So but I wouldn't necessarily extrapolate our fourth quarter experience.

Elmer Perez

Okay. So it would be more like if you like at it in a percentage basis, would be more like an average of the year that you would take forward? And I'm not asking through some specific guidance but there is a huge difference between $2.6 million and $2.7 million in the third quarter and $5 million, $4.5, $5, in the fourth quarter.

Paul Maier

Well, I wish I could be more helpful to you. And I really don't want to go down that path.

Elmer Perez

Okay. Okay. Well, only in all thank you very much for taking my questions.

Harry Hixson

Thank you.

Operator

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

Pamela Bassett – Cantor Fitzgerald

Hi, thanks for the follow-up. With the next generation MassARRAY, did I hear correctly that you have plans to launch that at the end of 2010?

Paul Maier

Just sometime in 2010, that’s why we are going do that.

Pamela Bassett – Cantor Fitzgerald

Okay. So if I understand correctly. You going to be able to increase the potential size of your market, because now you will be go after more clinical installments, which may include other laboratories perhaps or certainly pharma and/our clinical trial organization is that true?

Paul Maier

I think that’s correct.

Pamela Bassett – Cantor Fitzgerald

Okay. And then in addition to that will you – are you expecting that the installed base or a portion of the installed base may convert?

Paul Maier

We don't have any plans for conversion. Our installed base in many ways is academic and translation of medicine. And would not necessarily need the design control our criteria.

Pamela Bassett – Cantor Fitzgerald

So there is no additional benefit for conversion that might, that the installed base might see?

Paul Maier

Well, I think there is on a one for one basis. It's an improved instrument from a number of points of view that we've already discussed. But other than that, nothing that would really we think, drive a full scale conversion.

Pamela Bassett – Cantor Fitzgerald

Will you continue selling the old version?

Paul Maier

No. I think we will, we will not. No.

Pamela Bassett – Cantor Fitzgerald

So once it's launched, all new sales will be next gene?

Paul Maier

Yes. There might be like one or two overlaps.

Pamela Bassett – Cantor Fitzgerald

Right. Right. But general?

Paul Maier

Yes.

Pamela Bassett – Cantor Fitzgerald

On a percentage basis, what's the cost savings now to new doctors of the MassARRAY, the next gene MassARRAY versus the first generation?

Harry Hixson

Well, I'm not sure that our pricing strategy is going to change all that much. But I don't think that the customer will necessarily see a change in the cost of the instrument.

Pamela Bassett – Cantor Fitzgerald

No.

Harry Hixson

If the performance a better. However, the effective productivity of that instrument will improve, compared to what it would have been with an older generation instrument.

Pamela Bassett – Cantor Fitzgerald

So will there be changes in the annual consumable pricing as well? Higher yield, like higher consumables and maybe more per unit installed?

Harry Hixson

I don't think we are giving any, any aspect setting any expectation on that issue at this point in time.

Pamela Bassett – Cantor Fitzgerald

Okay. Great. Thank you.

Paul Maier

You’re welcome.

Operator

Our next question comes from the line of Evan Lotus with Barclays Capital. Go ahead.

Evan Lodes – Barclays Capital

Hi, thank you for the follow-up. Could you talk about next steps necessary before you are comfortable raising capital again?

Paul Maier

Well, I think we have stated all along that the major obstacle or thing they had to get behind us is the settlement of the federal class action litigation suit. That is scheduled for final approval on May 3. And that's whether it gets approved will be dependent upon how the shareholders respond to the – they were mailed out by the attorney for the lead plaintiff for approval, offers the option for them to opt out of the settlement if they want. But other than that, we hope that on May 3, we obtain final approval.

Evan Lodes – Barclays Capital

And then after that, do you plan on waiting until you have T21 data or at least a – or at least a methodology, or do you plan to raise capital shortly thereafter?

Paul Maier

We don't see them as linked. Ideally, if we had – if we could, it would be beneficial to have such data. But we need to go additional financing in this year. And we don't want to run the gas tank too low.

Evan Lodes – Barclays Capital

Understood. Thank you.

Operator

Ladies and gentlemen, that does conclude the time we have available for questions. I would like to turn the call back over to management for any closing remarks. Please proceed.

Harry Hixson

In closing, I would like to thank everyone for joining us today and for your continued interest in Sequenom. I look forward to continue to update you on the progress we are making here at Sequenom and our upcoming conferences and on future calls. Thank you again. Goodbye.

Operator

Ladies and gentlemen, thank you for participation in today’s conference. That does conclude the presentation. You may now disconnect. Have a wonderful day.

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Source: Sequenom Inc. Q4 2009 Earnings Call Transcript
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