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Executives

Marcy Graham - Senior Director, IR

Harry Hixson - Chairman and CEO

Paul Maier - CFO

Ron Lindsay - Director and EVP

Bill Welch - SVP, Diagnostics

Dirk van den Boom - SVP, Research and Development

Analysts

Nandita Koshal - Barclays Capital

David Ferreiro - Oppenheimer

Brian Weinstein - William Blair

Kevin DeGeeter - Ladenburg Thalmann

David Clair - Piper Jaffray

Jon Wood - Jefferies

Junaid Husain - Dougherty & Company

Elemer Piros - Rodman & Rodman & Renshaw

Zarak Khurshid - Wedbush Securities

Sequenom (SQNM) Q4 2011 Earnings Call March 7, 2012 5:00 PM ET

Operator

Good afternoon, and welcome to the Sequenom fourth quarter and full year 2011 earnings conference call. [Operator instructions.] I would now like to turn the conference over to Marcy Graham, senior director of investor relations. Please go ahead.

Marcy Graham

Thank you operator. Welcome to the Sequenom conference call to discuss operating results for the fourth quarter and full year 2011. Joining me today is Dr. Harry Hixon, chairman and CEO; Paul Maier, CFO; Dr. Ron Lindsay, director and executive vice president of research and development; Bill Welch, senior vice president of diagnostics; and Dr. Dirk van den Boom, senior vice president of research and development, will all three join us later for the Q&A portion of our call.

This is also being broadcast live over the web, and will be available for replay through Thursday, March 15, 2012 on the investor section of our website at www.sequenom.com. Before we begin, please note that this call will include a discussion of Sequenom and Sequenom CMM's current plans and intentions regarding product development and commercialization and other matters, as well as expectations regarding Sequenom's financial resources or future financial performance, statements that are not historical facts but forward-looking statements.

Forward-looking statements are not guarantees of performance, they involve known and unknown risks, uncertainties, and assumptions that may cause actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by any forward-looking statements.

For information about the risks and uncertainties that Sequenom faces, please refer to the risk factors section set forth in our recent filings with the Securities and Exchange Commission. Sequenom assumes no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances after today's call or to reflect the occurrence of unanticipated events.

With that I would like to now turn the call over to Harry Hixson. Harry?

Harry Hixson

Thank you Marcy. Good afternoon and thanks to everyone on the line for joining us on today’s call to discuss Sequenom’s fourth quarter and full year results for 2011. 2011 was an excellent year for Sequenom and the Sequenom Center for Molecular Medicine, or SCMM.

It was marked by the launch of two new laboratory developed tests, one which opened up a new market for CMM in ophthalmology with the laboratory developed test, or LDT for age-related macular degeneration, or AMD. The other, the world’s first noninvasive blood-based test for the prenatal detection of trisomy 21, the MaterniT21 LDT.

We saw continued growth in our genetic analysis business in 2011, despite difficult economic conditions throughout the world. We broadened the content delivered to customers who use our systems for research use only, in the translational medicine marketplace. We also initiated plans to obtain a pre-market 510k clearance for the MassARRAY system, which we expect to submit to the U.S. FDA in late 2012.

In our diagnostic business, we have seen a steady increase in the adoption of the MaterniT21 LDT. Between its commercial launch in mid-October to the end of 2011, we received approximately 1,000 orders for the test. The introduction in late 2011 of a new, simplified blood collection process that enables physicians to draw and ship patient blood samples directly from their offices makes the process of ordering a MaterniT21 LDT even more convenient for patients. It also significantly reduces the operational cost associated with offering the testing service to patients and their physicians nationwide.

Since the start of the year, SCMM has received more than 7,500 patient samples from physicians for all of our currently available laboratory developed tests. This includes approximately 2,500 MaterniT21 patient samples in the first two months of 2012. As of the week ending March 3, SCMM’s run rate for the MaterniT21 PLUS LDT equated to an annualized rate in excess of 20,000 for the year, and this more than doubles the annualized run rate at the close of 2011.

A total of more than 21,000 prenatal and retinal tests were billed in 2011, thanks in large part to the increasing volume of the SensiGen cystic fibrosis carrier screening LDT. The successful commercialization this high volume of CF testing is a testament to our expertise in running a sizable CLIA-certified laboratory with increasing testing sample volumes. We have effectively recruited and trained an experienced nationwide sales force. We have implemented a collection and billing process, thereby gaining additional payer experience that will serve us well as the demand for SCMM’s testing services increase.

So far this year, the weekly test volumes of the MaterniT21 LDT have grown steadily week over week. We are optimistic that this growth will continue as we work toward our goal of building a minimum of 25,000 MaterniT21 tests in 2012.

SCMM is continually seeking methods to improve its product offerings, as exemplified most recently by expanding the application of the MaterniT21 LDT to include the detection of trisomies 18 and 13. As is our policy, this addition followed the publication of a peer reviewed manuscript, which appeared in February in the journal Genetics and Medicine, the second publication stemming from the independently conducted Women’s and Infant’s Study demonstrates the MaterniT21 test can detect trisomies 13 and 18, with high accuracy.

Though the ability to detect and report trisomies 18 and 13 has been in place since the launch of MaterniT21 LDT, the publication of the results gave SCMM the ability to provide these capabilities more broadly. As a result, SCMM rebranded the test under the name MaterniT21 PLUS, to reflect the significant additional capability.

So far, SCMM has received very positive response to the published results of the T18, T13 paper from the physician community, and believes that this will continue to aid in the adoption of the LDT. We anticipate adding further improvements to this LDT in the future.

The increasing acceptance of the MaterniT21 PLUS LDT in the marketplace has validated our planned first quarter expansion of the SCMM sales force. SCMM has completed the recruitment and training of 23 additional sales representatives and two additional regional directors to manage the increased number of sales territories. SCMM now has 47 prenatal sales representatives, all of whom are now in their territories, working with customers in all 48 continental states, including New York.

We are pleased with the increasing uptake in SCMM’s RetnaGene laboratory developed test for AMD, launched in May of 2011. Due to the growing interest in the test, SCMM will continue with its plans to expand its ophthalmic sales force by adding three new sales representatives during the first quarter of 2012. These new representatives have also been trained and are now working in their territories.

Our plans for expanding the available of prenatal trisomy testing are not limited to growth in the United States. In the summer of 2011, we announced a partnership with LifeCodexx for the commercialization of aneuploidy laboratory testing in the German-speaking countries of Europe.

We continue to collaborate with LifeCodexx in the development and launch of aneuploidy testing in Germany, Austria, and Switzerland through this agreement. We are simultaneously working on additional international licensing partnerships with other groups in Europe and other countries throughout the world.

Our 2011 year end results demonstrate our commitment to delivering on the goals that we announced early in the year. We met the major goals of our strategic and financial plans while establishing the groundwork for continued commercial expansion. We have announced new goals for 2012 that will allow us to focus on accelerating our growth an expansion in a number of important areas.

I will now turn the call over to Paul, who will discuss the details of our performance in the fourth quarter and for the full year of 2011. Paul?

Paul Maier

Thank you Harry. 2011 was a year of great accomplishment for the company, ending with a strong fourth quarter, which contributed to solid year over year results, thanks both to the growth of our diagnostic testing business and the consistent performance of our genetic analysis segment.

For the fourth quarter of 2011, total revenues were $15.5 million as compared to $13.8 million reported for the fourth quarter of 2010. Results from our genetic analysis business in the fourth quarter were on par with results one year ago.

Diagnostic revenues increased more than 130% to $2.8 million for the fourth quarter, up from $1.2 million from the same period in 2010, an increase attributable to continued growth in testing service sales volume, principally the cystic fibrosis LDT.

With respect to the MaterniT21 PLUS LDT, SCMM is currently operating as an out-of-network laboratory provider and is working with payers through the first 90-day billing cycle, primarily on claims filed in the fourth quarter of 2011. We have received payments from a variety of insurers, including the top national insurance plans, and reimbursement is in line with the expected percentage of list price.

It is still early in the process, but the payment ranges mirror those we have received from other SCMM prenatal LDTs for which we are regulatory reimbursed. We continue to work toward further developing our relationship with payers on a national and regional basis, taking the opportunity provided by these engagements to eventually gain in-network status. We expect to announce significant payer contracts as they are finalized throughout the course of this year.

As in 2011, we will continue to account for product revenue from our diagnostic testing services on a cash basis until further experience is gained, and additional controls are established that will allow a reasonable estimate of collectible amounts to be made before moving to the accrual method of accounting.

Additional revenues will be recognized on the accrual basis only after we gain further experience with new payers or enter contractual agreements for diagnostic services. We expect to continue to recognize revenues associated with sales of the MaterniT21 PLUS LDT on a cash basis throughout 2012.

Gross margin for the fourth quarter of 2011 was 46% of revenue, as compared to gross margin of 62% for the fourth quarter of 2010. This difference reflects the increased costs associated with the nationwide launch of the MaterniT21 LDT during the fourth quarter of 2011. Gross margin on diagnostic tests will continue to fluctuate based on test volumes, cash collected during the period, reimbursement levels, and laboratory operational costs.

Total operating expense for the fourth quarter of 2011 was $29 million, as compared to total expense of $30.7 million for the fourth quarter of 2010, essentially flat on a year over year basis. Research and development expense increased by $2.6 million to $13.1 million for the fourth quarter of 2011. This change was associated primarily with higher labor costs and the increase in consumables associated with additional trisomy 21 clinical studies.

Selling and marketing expense increased by $1.1 million for the fourth quarter of 2011, a change primarily due to higher labor expenses relative to the expansion of the Sequenom CMM sales force and the SCMM CLIA laboratory.

Total stock based compensation expense was $2.8 million for the fourth quarter of 2011, which is consistent with the stock based compensation recorded during the fourth quarter of 2010.

Net loss for the fourth quarter of 2011 was $22.2 million, or $0.22 per share, as compared to a net loss of $22 million, or $0.27 per share for the same quarter in 2010. For the full year 2011, total revenue increased 18% year over year to $55.9 million. Our genetics analysis business was able to grow even in a challenging environment with revenues improving by 6% while the diagnostics segment of the business grew 225% year over year.

Gross margin for the full year of 2011 was 58%, decreasing 2% as compared to gross margin for the full year in 2010, reflecting a change in the mix of product sales from the genetic analysis operating segment and increased proportion of diagnostic revenues with lower margins.

Total operating expense for the full year 2011 was $106.9 million, as compared to total expenses of $149.5 million in 2010. This reduction resulted primarily from the decrease in litigation settlement expense, which is nonrecurring in 2011, but was $55.4 million in 2010.

Net loss for the full year 2011 was $74.2 million, or $0.75 per share, as compared to a net loss of $120.8 million, or $1.69 per share, for the same period of 2010, again reflecting the reduction in litigation expense year over year and the additional cost of IP licensing and collaboration costs.

As of December 31, 2011, total cash, cash equivalents, and current marketable securities were $84.2 million. Net cash used in operating activities was $51.3 million for the full year 2011 while purchases of capital equipment for the same period totaled $16.2 million, funded primarily through utilization of the company’s credit facility.

Earlier this year, in January of 2012, the company completed an offering of 14.95 million shares of common stock, the net proceeds of which contributed to an increase in cash balances of approximately $58.5 million. As a result, we are well-capitalized to implement our expansion plans and fund current operations.

As we look toward the close of our first full quarter of the MaterniT21 PLUS LDT sales, the growing sales of the CF and AMD LDTs, and the continued sales efforts in our existing business, we are committed to expanding our diagnostic testing service business and plan to make the appropriate investments in the process as sales volumes grow.

I’ll now turn the call back over to Harry for his closing remarks.

Harry Hixson

Thanks Paul. 2011 ended on a high note, with the introduction of the Maternity 21 LDT, the world’s first noninvasive, blood-based test for the prenatal detection of trisomy 21. 2012 will be a year dedicated to continued commercial execution as we make SCMM and LDTs available to patients and physicians throughout the U.S. and in other countries.

We are excited by the extremely positive response from the marketplace, and we will continue to build on our brands, specifically MaterniT21 PLUS, the highest quality test of its kind for the detection of trisomy 21, 18, and 13.

We continue to stand behind the strength of our patent portfolio and our legal strategy, and we remain confident in our IP position. We are currently in active litigation and therefore cannot comment on these cases, and we will not speculate on their outcome. We will leave it to the courts to decide.

Going forward, as we report the results of our operations to the investment community and the general public, we will make every effort to communicate clearly and to provide insights our operations. Beginning with the close of the first quarter, we will begin providing the number of MaterniT21 PLUS tests billed during the preceding period, the metric we believe is most indicative of our selling efforts in the prenatal space.

With that summary of our business and financial update, we would now like to open up the call to questions. Operator, please open the line.

Question-and-Answer Session

Operator

[Operator instructions.] And our first question will come from Nandita Koshal of Barclays Capital. Please go ahead.

Nandita Koshal - Barclays Capital

Harry, I think competition is probably the number one incremental concern on everyone’s mind with Verinata launching its test last week. Could you maybe talk about Sequenom’s strategy for remaining competitive in that market. One, from a product standpoint, how do you see yourself positioning versus Verinata, and more importantly with additional competitors in the pipeline that claim lower cost of goods, how does Sequenom see itself remaining competitive over a 12-18 month time horizon?

Harry Hixson

Well, first, we haven’t seen any competitors in the marketplace yet. We’ve only heard rumors. Second, we believe that we have the highest quality test available in the marketplace and we are offering the test at a price that, as we said originally, was very close in performance to amniocentesis, and that we would price accordingly. We believe that our test has full value.

Paul Maier

I think exactly what Harry was saying, that from the competition standpoint, it seems like it’s very early, frankly. I hear more anecdotal things from people outside the industry than I really do from the field itself. But I think from the way we’ve been adopted and accepted, each week it’s a stronger week and as we talk to physicians and begin the conversations with payers, we’re talking about the story about how MaterniT21 we hope is a paradigm-shifting treatment change, and it seems to be going quite well. I can talk about the cost, or I leave it to the person on the team to talk about that if you’d like.

Ron Lindsay

Maybe I’ll touch on that. I think in terms of all of our competitors, we certainly have a fair idea of how they’re doing their testing. I think we find it very hard at this point to understand how their cost of goods could be significantly different than ours, given that at least one competitor is doing exactly the same methodology [unintelligible] some of the reagents. And to the extent that we have already a reasonable volume, we believe that it would be very hard for them to be competitive.

One of the potential competitors certainly has published a methodology that speaks to potentially, in the longer term, a higher [plexing] and potentially, once they were to reach a very high volume, there would be some savings. But we don’t believe that is necessarily a very significant difference.

I think unlike our competitors, we have certainly made available to the investor community our cost of goods currently and the reductions we anticipate to see over the next 12-18 months. So you can benchmark it against that.

Nandita Koshal - Barclays Capital

Understood. And Harry, this is something that I get asked frequently, so I wanted to put the question to you. Do you think Sequenom is defending its superior IP position aggressively enough? You know, one competitor has at least press released the fact that they’re now out in the market selling the test commercially. There are two others that very much have plans to launch in the market. Is there something that you could do to step up in terms of asserting your superior position from a legal standpoint?

Harry Hixson

I think we’re aggressively pursuing our IP position as much as makes good business sense at this point, and as you know, we’re in litigation with three other companies in the prenatal space, and as we said, we’re not going to comment because of the ongoing litigation.

Paul Maier

And I would just say, in terms of outside the IP, from a competitive standpoint, we continue to add, to grow, and to communicate, and we want to be the high medical content provider in this space. We feel we’re along for this space, and as you know, early on we went to maternal fetal medicine specialists and have a good relationship there, and we’re just starting to spread out the word from that group. So I think, from a competitive standpoint, we’re trying to stay tall with the clinical data we have.

Nandita Koshal - Barclays Capital

And on that note, maybe Ron or Bill, could you talk about the FDA timeline? Are you still engaging with the FDA on what sort of clinical studies you’d need to conduct for a submission at some point this year or early next?

Ron Lindsay

Just in general terms—obviously any discussions with the FDA are proprietary to an extent, particularly in design of a clinical trial—but I can say that we are having a continuing dialog, both on the requirements for clinical study and also perhaps the harder part, or the longer part is actually all the components of the test itself, from software, hardware, etc. So these are ongoing, and we are pretty confident that we’re having a very good discussion with the FDA and we’ll update you as we go.

Harry Hixson

Our most recent discussion with them is within the last month. So it’s a continuing, active discussion.

Operator

Our next question comes from David Ferreiro of Oppenheimer. Please go ahead.

David Ferreiro - Oppenheimer

At the beginning of January, you announced preliminary revenue growth of 23%. Can you explain the difference from that number and what you reported today?

Paul Maier

Yes, when we made that estimate earlier in the year, obviously it was unaudited, and we hadn’t closed our books yet and gone through the audit process. We assumed that we would be converting to accrual accounting. Subsequently, as we went through the process, we determined that we would not convert and until we had sufficient historic data and the necessary controls internally and within our third party biller in order to do that. So that will come in the future.

David Ferreiro - Oppenheimer

And then you mentioned on the call that you have received reimbursement from payers and the percentage of the list was in line with what you were expecting. Do you mind commenting on what that percent was? Or is?

Paul Maier

We’re not, at this point, going to discuss specific percentages. As you might imagine, at this phase of the market acceptance, there’s quite a range of payments and I think that we’ll not be giving guidance on that. We’ll wait until we have a larger body of experience. But as we also said, it’s within the range of what we expected in our own internal planning and so there really haven’t been any surprises.

David Ferreiro - Oppenheimer

And then finally, obviously the sequencing market is moving pretty fast in terms of technology. I was wondering if maybe you can comment on what you see as the opportunity there with the upcoming technologies for maybe the future cost reductions for your tests. And then does that have any impact on your thinking for an FDA filing?

Ron Lindsay

We really have a two or three pronged strategy. What are the near-term things, with the test we have in the market, that we can add content with our existing technology and it’s very favorable to do that compared to some technologies out there having additional content. And then we’re certainly taking a look at where this market might be three to five years down the road in terms of things that might be transformed in terms of either cost or potentially deployability vis-à-vis something that might look more like a kit. So we’re looking into all of the available technologies and we have some of the instrumentation to asses this in house.

David Ferreiro - Oppenheimer

And that doesn’t change your thinking on FDA filing?

Ron Lindsay

Not for the moment. I think we’re looking down the road at how these things might play into it. We’re certainly enthused, excited, but conversely we believe that some of the technologies and recent announcements of new instruments are somewhat premature. Some companies tend to launch the instruments somewhat in a beta phase. So they’re not immediately deployable into a clinical setting. But certainly we evaluate them as they appear on the market.

Operator

Our next question comes from Brian Weinstein from William Blair. Please go ahead.

Brian Weinstein - William Blair

Given the nature of the competitors that are talking about coming in at a lower potential price, just wondering how price-sensitive you expect each of patients, clinicians, and payers to be. How relevant to the discussion is price?

Harry Hixson

The way we priced ours is high risk to obviate, hopefully, amniocentesis and provide high-value content. So we’re in those discussions now with payers, and I think they’re asking more in terms of change. Will the treatment change, and how does this technology play out?

From a doctor standpoint, they don’t actually bear the price of technologies. They’re more sensitive to what patients are doing, and we’ve tried to be pretty open and unrestricted as best we can, given the confines of the various insurance plans across the country, to be patient for getting samples in. So I don’t think that’s going to change much on competition.

And not knowing what the competition is, technologies tend to be different. We can only talk about how our technology plays a role and talk about that with payers, since they would look at us individually and decide if they want to adopt.

Brian Weinstein - William Blair

Have you had much pushback at all given that you guys did not have a Medicaid license in all states? I remember that that was a problem early on. Have you guys solved that? And do you have a license now from Medicaid in all states to do billing there?

Harry Hixson

It’s not necessarily a license, but it’s the ID that goes with the laboratory, for various states. And we’ve applied for and have, I’d say, two thirds of those applications in. We can do [prior os] and work in those states, but you can’t get paid until they give you that ID. And so we’re working through that process. You know, our emphasis, while we’re working with Medicaid folks, and we’ve got [prior os] and such, our emphasis has been the other plans, HMOs, PPOs, and such. And that’ seems to be working quite well.

Brian Weinstein - William Blair

And my last question is you have hired a decent amount of additional reps. How long until they’re at full capability in the field, and are there any thoughts about signing up a partner as well to get even more coverage, even though, of course, you’d give up something on the margin?

Harry Hixson

The first round was terrific, and this last round was just even more spectacular. I think people are flocking to the vision they see of where we’re going. So we’ve got very good, seasoned, experienced reps that are in the space so they have access to the OB/GYNs and MFMs. So I’m real excited about that. I think they are going to adopt even faster than the last crew.

And then I’d say the message is starting to resonate. As you go forward, doctors are trying to understand, what do you mean. I think when they ask that, they know what you mean and they’re trying to know how do I adopt this in my practice? And so these reps have the benefit of the last three months of people working this through their own mindset. So I do think it’s going to go pretty well.

In terms of a distributor, those are getting harder and harder, I would say. For labs, since we’re a provider, it’s hard to have another group. You can’t have contract service organizations, so to speak, as you start to run into various legal issues about paying for getting tests. And so there also were changes in the payer landscape, where many states, and maybe now private plans, don’t allow any markup for various labs during pass throughs. It just doesn’t seem like that model is as vibrant as maybe it was five years ago.

Operator

Our next question comes from Kevin DeGeeter of Ladenburg Thalmann. Please go ahead.

Kevin DeGeeter - Ladenburg Thalmann

On the FDA topic, how do we think about trisomy 13 and 18 given the relatively small number of patient samples for anyone looking to work in the space? Should we think of an ultimate FDA intended use being focused strictly on T21? Or do you see a path for other aneuploidies and potentially other disorders as well?

Ron Lindsay

I think that’s very much still is an interesting question. It’s under discussion. For those who don’t know, to collect enough samples for 18 and 13 to have a statistically powered study would be a humungous effort for anybody. You would need probably on the order of 80,000 to 100,000 for 18 alone. So I don’t think that’s necessarily the way to go. So I think it’s a matter of the FDA, as you probably know, have never approved a technology such as this. They’ve never had a sequencing test of any kind in front of them, so I think it’s fair to say we’re educating them as much as they’re educating us as we go. So I think that’s a topic that will come up later in the process.

Harry Hixson

There’s the advantage of our publication and additional accumulated information. We are, as you might expect, with all of the tests that we have run thus far, we are seeing T21s, 18s, and 13s. The interesting thing is they’re almost exactly in the proportion that you would expect based on the incidence. And I think when we discuss that with the FDA that sort of information is going to bring some weight to bear. Certainly we will get a claim for T21 and how the FDA would like us to phrase comments about 13 and 18, that probably will be something that’s negotiated.

Kevin DeGeeter - Ladenburg Thalmann

It seems like frankly none of the competitors are well-positioned to differentiate a claim on 13 and 18, but perhaps we’ll come back to that another time. But my other question was simply I wanted to jump off on the previous answer with regard to helping doctors understand how to use the test in their practice. In initial adoption, how are they using the test? Where are they really using it? Are they using it truly as a reflex [unintelligible] or are doctors, when they’re using it in all women at high risk? What’s their experience?

Harry Hixson

Our test request form mirrors what we did in the study, and I think it’s really given us good stead with a number of physicians, especially OB/GYNs and such, where they think, gee, aren’t you really testing everybody here? And we’ve been very consistent. They have to be AMA, a positive blood screening, ultrasound, and a family history. And now we’ve been in the market a number of months, we’re starting to see a distribution and that distribution mirrors, really, what the market looks like from each one of those categories. AMA being the first, and ultrasound and blood test coming in second, and family history a distant fourth. So I think that’s fine.

It doesn’t really allow you to do anything besides that, so what we think is what we tell folks to do, and what you start to see from certain ISP-type guidelines, which is starting to say for people who have these criteria - high risk individuals. And we would see at 10 weeks if you knew you were AMA, if you want to do it, go early at 10 weeks, and same with the family history. And the blood tests and ultrasounds would come back and you would have that information. It normally takes place around, say, week 13 or so.

Operator

Your next question comes from Bill Quirk of Piper Jaffray. Please go ahead.

David Clair - Piper Jaffray

Hi. Actually it’s Dave Clair here for Bill. The first question from me, I was just hoping to get some color on the pacing of the 2,500 tests you’ve received during the first two months for MaterniT21. And given the sample volume so far in the year, it appears the 25,000 target for the year might be conservative. Any thoughts there would be great too.

Harry Hixson

Well, as we said in the script, we’ve seen steady growth week over week, and we expect that to continue. You’re correct in doing some mathematical extrapolation that if we continue to grow at this rate, that internal goal, which was a minimum of 25,000 tests, the potential exists to do much better than that. So I think we will keep an eye on it, and if we begin to think that goal is too conservative, then we’ll move up the goal.

David Clair - Piper Jaffray

And just hoping to get a little bit more color on the reimbursement discussion that you’re having. Any near-term milestones we should look at and any kind of pushback? What’s the focus of the discussions right now?

Harry Hixson

We’re having many reimbursement discussions. We have field folks and we have our billing group, and otherwise. So we touch them at many different levels. And as I said, we are getting paid through the adjudication process, primarily the fourth quarter type of samples that have gone through. What do I expect? I expect us, as we’re going forward, as we announced, to make some announcements on coverage decisions, on payers. We have a goal to try to get two national ones this year, and I think we’d like to get those two national decisions. But there are many different payers outside of the big 6, and I would expect us to make announcements on some of those as they go on. I’m not sure we’d make an announcement for every single payer, because there’s many out there. But each one is an important milestone for us.

Who you talk to at payer groups? It depends on the plans, but normally a medical director, and we’ve been fortunate for most of the folks to actually have medical directors that are knowledgeable or are in the OB/GYN space. And so, as you might imagine, they’re pretty interested in this area. So I haven’t really had any overt negative. I think it’s more about gee, what do I do? And so some of the bigger ones are trying to understand how far do they go forward, and that’s the conversation we’ve had. I haven’t heard anything that would cause me pause, actually. It seems like it’s just going through, unfortunately, how laboratory developed tests roll out. But it’s right in the same process as I’m used to.

Operator

Our next question comes from Jon Wood of Jefferies. Please go ahead.

Jon Wood - Jefferies

So, Paul, just looking at the COGS profile in the fourth quarter, trying to parse out t21. Is it accurate to say t21 is about $2 million of COGS in the fourth quarter?

Paul Maier

We wouldn’t disclose that level of detail because there are a number of variables that are operating there. So when you get the 10-K, you’ll get about as much extra color as available. But suffice it to say that the CLIA lab here in San Diego, when it became a commercial operation in the fourth quarter, those costs kicked in that are part of cost of goods. And so every quarter, at least in this year, as we go forward, there’s going to be a very different component. And so it’s really difficult. And, of course, the revenues that we recognized in 2011 relating to t21 would be cash receipts. We had a very modest level of cash receipts, so there’s really not going to be any meaningful way for t21, for those outside the company to determine what is the COGS and how do you match up the revenues and those expenses. Until such time as we adopt accrual accounting. And we just have to build a body of data before we can do that. I know that’s probably not too helpful, but that’s the reality.

Harry Hixson

It’s not a useful calculation, I think, at this stage.

Paul Maier

I do think it will get better as we get more payers. It will start to improve, but this kind of picket fence thing you see…

Jon Wood - Jefferies

So definitely lumpy, but safe to say when you blend 2012 as a year you will be in that 500-600 range all in, and that includes equipment, depreciation, and everything else fixed that’s allocated per test. Is that an accurate comment?

Paul Maier

I wouldn’t speculate on what that number will be. There’s a lot of uncharted water here in front of us, and there are so many variables that affect that. The volume, the ramp up rate, when we convert to the next generation of reagents and flow cells. So there’s just too many moving parts. And I think you should not get hung up on that.

And I know everyone wants to build a model that’s precise, but the reality is with the adoption of such a major test like this, what’s probably the most important metric is how many tests, samples, do we receive, how many do we bill, what’s the direction of the adoption. Those are things that are more meaningful.

We, of course, will try to adopt some of the other cost-saving initiatives we mentioned when we converted to the ambient shipping tubes in December of last year. That changed the cost profile nicely. As the R&D folks implement some of the other automation and improvements in our processes, that will change the cost of goods on a unit basis and of course it’s very sensitive to volume. So there are a lot of different moving parts on this. I think we’ll try to give you the indicators of the health of the business as we go forward, and the accounting won’t catch up to us until after the year is over.

Jon Wood - Jefferies

Are you willing to comment on the number of physicians that have ordered, or are ordering, at this point? And is there an initial view on reorder rates at this point? Or is it too early to say?

Harry Hixson

In view of the potential competitive environment, we’re not going to share that kind of information. We consider that proprietary.

Operator

Our next question comes from Junaid Husain from Dougherty & Company. Please go ahead.

Junaid Husain - Dougherty & Company

In terms of your new sales force adds in the quarter, what kind of ramp up time do you typically expect for new salesmen? Is the learning curve 3-6 months before they ramp up? Or how do you think through the learning curve for your salesmen?

Bill Welch

It all depends on the message they have. These folks are in a better position than the last 20, right, because they now have the benefit of all the now message we have, and the things we have in place, and the story, and it’s seeded and things of that nature. The last one had a cold start, so to speak. Gosh, I don’t know. I would think a couple months is normal to get them into a place, and they’re always going to lag behind the existing ones, because they have an existing base in their territories. But within a couple months, they should come up pretty well. And again, each one of them comes from this area, so I would expect them to have some business soon. The question is how the volumes kick in. But a couple months versus six would be my statement.

Junaid Husain - Dougherty & Company

And can you guys tell me, in your CLIA lab, how many shifts are you running right now? It is one or more than one?

Bill Welch

I’d just say that’s another one of the competitive things we’ve talked about. The most important thing we found out there was turnaround time, and part of that is volume, and part of it’s how we work this. But it’s a lesson learned. We came out with 10 business days, which is great, but we’ve moved from 10 business days down to 7-8 days, and so it’s been a great opportunity for us.

Junaid Husain - Dougherty & Company

And then Paul, I’m not sure if you’ve done this math, but all things being equal, which also incorporates your thinking on expenses for 2012, what kind of t21 unit volumes do you think we need to see in order to get you guys to breakeven on the earnings line?

Paul Maier

I don’t think we would speculate or provide any guidance on that basis. And our focus is on growing the business and the adoption curve and we’re making our investments accordingly.

Harry Hixson

I’d like to just amplify a little bit on the turnaround time. We’re averaging less than 7 days’ turnaround time.

Operator

Our next question comes from Elmer Piros of Rodman. Please go ahead.

Elemer Piros - Rodman & Rodman & Renshaw

What I’d like to ask is if the - and I know the list price for the t21 test - and I know that the payment amounts are variable at this stage - but at steady state, or they’re beginning to steady state, how would that number compare to how much you receive for the cystic fibrosis test and for the AMD test, just in terms of order of magnitude and some ranges if you could provide, so we can at least have a sense of that?

Harry Hixson

Percentage of list price? Is that what you mean?

Elemer Piros - Rodman & Rodman & Renshaw

Well, the actual revenue that you receive.

Harry Hixson

The CF test is priced much lower, and we’re receiving far greater than that amount for the t21.

Paul Maier

I think conceptually, if I understand your question, it will settle in once we get to equilibrium and once we have a contract in place at some percent of list price. And that we’ve seen with the CF test and the Rhesus-D test and the AMD test. And it really is very early to even estimate what that’s going to be. We have our own internal forecast, but I don’t think we’re going to be talking about that until we finally have the contracts in place, and then that will really dictate where we come out. But what we’ve said up until now, there haven’t really been any surprises. There is a range of reimbursement, and it falls in as a percentage on average of the list price, and that’s about as definitive as we can get at this point.

Elemer Piros - Rodman & Rodman & Renshaw

And if you compare the AMD test with the t21 test, is there a big difference between those two?

Paul Maier

It’s really too early to make that comparison. And the AMD test is still early on. You might know, we don’t have contracts yet, other than the Medicare reimbursement rate for the AMD test. And we expect, as soon as those contracts are in place, that will change the metric and that will give us a better feel. So it’s not helpful to give you a number, because it won’t be meaningful for you at this point.

Elemer Piros - Rodman & Rodman & Renshaw

How about the list price for the AMD test please?

Paul Maier

I believe the list price for AMD is a little over $2,200.

Elemer Piros - Rodman & Rodman & Renshaw

And the question regarding that now you have rebranded MaterniT21 including 13 and 18, is this an option that a physician can mark that I’d like to receive the 13 and 18 related information as well? And if they can choose that and decide to do so, would it be a different price?

Paul Maier

Actually it’s interesting. We said we could detect that the original launch, October 17, on 13 and 18. We didn’t launch that until the publication came out. We launched based on publication and the clinical validation we referenced in the report accordingly. But we thought ethically we needed to tell folks if we saw an 18 and 13 and let them do the medically conservative thing. Another workup, ultrasound, or amnio and such. And that was well-received. And so we did make phone calls, and we saw positives. We were sensitive to say if we don’t call it doesn’t mean it’s negative. Now that we’ve gone forward, we do say, now, positive and negative for 13, 18, and 21. And the answer is no, it’s part of the same product. MaterniT21 PLUS includes all of those. I think not including that would be kind of an ethical situation, excluding the 18s and 13s if you saw them.

Elemer Piros - Rodman & Rodman & Renshaw

Yes. And a question related to the R&D expenses, Paul. If you look at the fourth quarter, would it be informative as how you plan the year 2012, or do we expect maybe some increase in the R&D expenditures?

Paul Maier

Well, we don’t really give guidance on that, but I think on the basis of the work that we’re doing, the fact that we have a plan in the future to submit a PMA, so there’s clinical activity around that. As Ron mentioned earlier, we’re exploring some other technologies. All of those things I think are indicative that we will continue to invest in being a technology leader in clinical work. So I don’t think it would be reasonable to assume that our R&D expenses would go down. But we’re not otherwise giving any specific guidance.

Harry Hixson

I’d like to also point out that we’re continuing to look for other test opportunities that fit our criteria of excellent intellectual property protection, and unique application in new markets, and also ones that can be promoted as laboratory developed tests to reasonably sized physician audiences. So we continue to look for new opportunities similar to the AMD opportunity.

Elemer Piros - Rodman & Rodman & Renshaw

I see. One last question please. What percentage of your calls go to genetic counselors at the moment? And do you plan to change that mix or increase the exposure toward them?

Bill Welch

We have a medical affairs group that has a genetic specialist, but that’s just working as a consultant. We do have a third-party group that does genetic counseling for patients that have a doctor essentially order. We don’t do a full workup. We just give them basic work. And that’s what the third party group does. I think that would go with volume. As our volume continues to go, we’ll have more people wanting to have that information.

Ron Lindsay

I think maybe you would add many of the large practices have their own genetic counselor built in. So a lot of people have that information and access to it.

Bill Welch

Right, and doctor [unintelligible]. If they don’t have it in their practice then they would ask us can you assist in that area?

Operator

Our next question comes from Zarak Khurshid with Wedbush Securities. Please go ahead.

Zarak Khurshid - Wedbush Securities

Could you talk about the ongoing studies in prenatal? What do those involve exactly, and how will the results of those change the look and feel of the test and the competitive advantages?

Ron Lindsay

There are obvious things one could think of in terms of adding to the content of such a test, and as we have done in the past, we would like to launch those when we have a publication. And I think at this point we have, from the very large study we did with women and infants, there’s still some good data coming out of that. Some of that has been submitted, and we will update you on those publications. But obvious things are things like twins, deletions, [unintelligible] and so forth. We’re still working on some of those studies.

Zarak Khurshid - Wedbush Securities

And then just as a follow up, how does your order volume from, say OB/GYNs compare to the volume you’re seeing from MFMs? And how many of the MFMs in the country were you touching in the fourth quarter and how many are you in front of currently?

Bill Welch

Maybe circle back, just to let you know, on the genetic counseling, there is a conference coming up in a month or so in North Carolina and it’s interesting, we had a conference here in San Diego. I think it was the week we launched. And we were down there and had a presentation and then at the booth it was five rows back and at our event we talked about, it was standing room only for genetic counselors. And we were told at the conference coming up, American Society of Medical Genetics, that we have another seminar at 7:30 in the morning and they had us in the room and they let us know that they had to move it to the grand ballroom, the bigger room.

This is one of those times where you have this conversation anywhere, and people will come. They’re very thirsty. And genetic counselors are over 500-plus in the ballroom. So I think that we’re synergistic with, and want to work collaboratively with, the genetic counselors, because they are a voice and a management group for the OB/GYNs and the MFMs in the space.

In terms of our touch points, there’s about 2,500 MFMs in the U.S. Certainly now with the sales force expansion, we can get to them more frequently with the ones where we had reps in broad states. We have more reps, and so the more touch points. And also that we’ll be able to get to the ones we weren’t seeing at all, because we were in those locations. There’s about 5,000 or more or so of the OB/GYNs who do the high number of births, and those are also the target market. So collectively, about 78,000 physicians.

Our focus initially had been in the MFMs, because they’re the thought leaders, the KOLs, and we want to make sure that they’re aligned with our messaging. And that, I think, has really proved us well coming out on the [unintelligible] where people were very comfortable and now we may have 13 and 18. They were waiting for that data, which kind of surprised me how much they saw that. But we are seeing orders now across all different doctors, probably still a higher percentage of MFMs and starting to build out to the obstetricians group.

Zarak Khurshid - Wedbush Securities

Just a follow up on that. How has the addition of 13 and 18 been instrumental in driving or converting customers and driving additional adoption?

Bill Welch

We all talked about this early on, even before we launched it, how important were 13 and 18, and they actually occur fairly infrequently. We have, now, with our volume, seen some. So I guess they’re there. And physicians, to maybe, that’s their, gee, if you had 13 and 18, kind of the acid test. Even though 21 is the primary reason you would do these kind of technologies. And so while we had good interest with 21, and we talked about 13 and 18, I think the confidence in seeing the paper, the knowing where it came from from the Brown University and the folks that did that, and that we were actually the third part of that and this is a rolling process, my sense, and Dirk, others, can chime in, I walked away from the meeting that they said, good job, you’re there. So while it may not have changed things too much, I think it raises our credibility and confidence in the space.

Operator

This concludes our question and answer session. Now I’d like to turn the conference back over to Ms. Graham for any closing remarks.

Marcy Graham

Thank you for joining us on today’s call, and for your continued interest in Sequenom. If you have any further questions about today’s results or need additional information, please feel free to contact me at our investor relations department at 858-202-9028. Thanks.

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