Sequenom Inc. Q2 2008 Earnings Call Transcript

| About: Sequenom, Inc. (SQNM)

Sequenom Inc. (NASDAQ:SQNM)

Q2 2008 Earnings Call

July 30, 2008 4:30 pm ET

Executives

Jody Cain - IR

Harry Stylli - President and CEO

Paul Hawran - CFO

Analysts

Elemer Piros - Rodman

Kevin DeGeeter - Oppenheimer

David Chung - Lehman Brothers

Evan Dose - Lehman Brothers

Pamela Bassett - Cantor Fitzgerald

Richard Rumbaldo - Stark Investments

Operator

Welcome to the Sequenom's second quarter 2008 financial results conference call. At this time all participants are in a listen-only mode. Following management's prepared remarks we’ll hold a Q&A session. (Operator Instructions). As a reminder, this conference is being recorded July 30, 2008.

I would now like to turn the conference over to Miss Jody Cain. Please go ahead, ma'am.

Jody Cain

This is Jody Cain with Lippert/Heilshorn & Associates. Thank you for participating on today's call. Joining me from Sequenom are Dr. Harry Stylli, President and Chief Executive Officer and Paul Hawran, Chief Financial Officer.

Earlier this afternoon, Sequenom released financial results for the 2008 second quarter. If you’ve not received this news release or if you’d like to be added to the company's distribution list, please call Lippert/Heilshorn in Los Angeles at 310-691-7100 and speak with Amy Higgins.

Before we begin, I’d like to inform you that this call will include a discussion of Sequenom's goals, milestones, financial guidance, future plans, timelines and other forward-looking statements including some of the factors that are likely to influence the company's future results. I’d like to emphasize that these statements are based on the information available to Sequenom today and that the company's actual results may differ materially from comments made during today's conference call.

There are a number of risks and uncertainties that may affect the Company’s business and future results including customer acceptance of a demand for new and existing products, applications and services, reliance upon collaborative partners, risks and uncertainties inherent in research, product development, commercialization, regulatory compliance and approval as well as other risks and uncertainties that are set forth in the Company’s SEC filings.

Furthermore, the content of this conference call contains time sensitive information that is accurate, only as of the date of the live broadcast, July 30, 2008. Sequenom undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

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

Harry Stylli

Thank you, Jodi and my thanks to each of you for joining us. This is an exceptional time at Sequenom. We are reporting substantial progress developing on non-invasive prenatal tests for Down syndrome and with the successful completion of our common stock offering, which netted $92 million and we have greatly improved our financial position.

With a strong balance sheet, we can rapidly advance our novel Noninvasive Prenatal Diagnostics tests which are based on our proprietary SEQureDx Technology. This technology detects cell-free fetal nucleic acids from maternal plasma. We continued to execute a strategic development plan with strong results and expect to commercialize the Down syndrome test by June of 2009.

At the beginning of June this year, that's 2008, at the International Society of Prenatal Diagnostics conference in Vancouver, we reported results involving approximately 200 clinical samples collected from both prospective and retrospective studies. The data generated prospectively which came from about a 180 samples indicated that our proprietary Down syndrome test, correctly identified 100% of all Down syndrome samples. And these were confirmed by amniocentesis. This compares very favorable to currently available serum testing options that had detection rates between 70% and 90% and false-positive rates as high as 5%.

In this study, three Down syndrome samples were positively identified prospectively, and seven Down samples were positively identified retrospectively. Further, the new test was reproduced effectively with our collaborators in Hong Kong. We also announced that population coverage for the test without transmits had improved to at least 93% of the US population which was significantly better than expected.

We are continuing to collect study data to further validate our test and intend to release expanded clinical assessment trial results in September as part of our continued development of this test. We also plan in the fourth quarter of this year to initiate a multi-site laboratory developed test for validation study, consisting of up to 10,000 high prevalent samples and to complete collection by the third quarter of 2009.

This validation study will be in addition to the nearly 1000 samples which we expect to analyze before year-end 2008. The primary purpose of the laboratory developed test validation study is to power sensitivity with over 125 Down syndrome positives and ultimately catalyze adoption by publication in a major peer-reviewed journal. We continue to expect to launch our test for our CLIA laboratory and license partners in the first half of 2009.

Strategically, we selected Down syndrome as among our initial targets, as it represents an underserved need and a significant market opportunity for Sequenom. Currently in the US alone, $1 billion to $1.5 billion is spent annually in testing for Down syndrome, with conservatively another $2 billion to $3 billion in the rest the world.

Of the approximately $4.2 million births in the US, 2.8 million screening tests are conducted using procedures or techniques which are unreliable or invasive. Given the recent American College of Obstetricians and Gynecologists, or ACOG recommendation that all pregnancies should be assessed for Down syndrome, this market is likely to grow. We believe the worldwide market for Down syndrome testing, including the US could expand to $6 billion to $8 billion in the future.

We believe our SEQureDx Technology's ability to provide a direct genetic assessment of Down syndrome will result in improved detection rates, a minimal false-positive rate with fewer invasive procedures.

We also continue to be on track with our Rhesus D test and fetal XY poisoning disorders. We believe general use of fetal XY conservatively represents a greater than $300 million opportunity in the US alone for this test. As SEQureDx Technology has potential applications for a broad range of prenatal genetic disorders using blood plasma serum, we believe for the fetus our approach will prove to be a revolutionary technology.

Today, we also announce an expansion of our global alliance with SensiGen to develop and jointly market advanced molecular diagnostic tests in specific fields to commercial laboratories worldwide. We see this as a strategic relationship as it will enable us to offer a broader menu of products and services especially in the area of women's health and expand the menu of molecular diagnostic tests available on our MassARRAY systems. Our expanded agreement includes SensiGen's newly-developed test for chronic kidney disease and lupus, in addition to SensiGen's advanced tests for human papillomavirus or HPV that we announced in June last year. As part of this agreement, we may become a minority equity holder in SensiGen.

Today, we are reporting strong revenue growth for the second quarter, based on our genomic analysis business. US capital equipment sales, which were soft in Q1, are bouncing back. The rest of the world remains on track and consumable sales worldwide were strong in Q2.

As reported on our first quarter call, we believe that a number of prospective first quarter US system sales were delayed, and our systems sales growth in the second quarter validates this belief. We anticipate the trend of improving sales other than for seasonal third quarter effects to continue in 2008.

We are pleased to report that several of our second quarter MassARRAY systems were sold to prominent institutions for fine mapping and translational research. Among these were the Howard Hughes Medical Institute at the Oregon Health & Science University Cancer Institute; the W.M. Keck Foundation Biotechnology Resource Laboratory at Yale university; and the Translational Technology Core of the Institute for Translational Clinical Research at John Hopkins University School of Medicine.

I would now like to share with you recent additional achievements with our genetic analysis business. In early July we introduced the iSEQ application software. iSEQ is an entirely new MassARRAY comparative sequence analysis application for automated high through point identification of titular microbes and viruses as well as in the future, human disease-related molecular markets. This is an important and new product that we expect will open additional partnering opportunities, and will introduce Sequenom to new markets and customers with multi billion dollar potential.

Also during the second quarter, we entered into an agreement with Invitrogen Corporation, under which Invitrogen became the exclusive distributor for Sequenom's MassARRAY system and consumable products in Central and South America.

With those comments, I'd like to turn the call over to Paul Hawran to review our financial results in greater detail and discuss our 2008 financial guidance. Paul?

Paul Hawran

Thanks, Harry. We reported total revenues for the three months ended June 30, 2008 of $12.8 million, a 25% increase from the second quarter of 2007. Our revenue increase versus the prior year was due to higher MassARRAY system sales, consumable sales, and growth in our contract research services business.

Cost of products and service revenues was $5.5 million with a gross margin of 57% for the quarter compared to $4.2 million or 59% gross margin in 2007 second quarter. The increase in cost is primarily associated with higher sales volume. The gross margin was primarily affected by lower gross margins in the contract services group due to older contracts being completed.

Research and Development expenses increased to $6.4 million from $4.3 million in the prior quarter reflecting increased R&D investment in non-invasive prenatal diagnostic, higher expenses associated with product development, product improvement, and new applications for the MassARRAY platform; and also increased expenses associated with stock-based compensation expense.

SG&A increased to $10.6 million from $7 million as a result of higher headcount-related cost due to expansion on our worldwide sales presence, notably in Japan and India, as well as increased marketing and advertising expense and increased expense associated with stock-based compensation expense.

Total cost expenses for the quarter were $22.5 million, up from $15.4 million for the prior year. Our net loss for the second quarter of 2008 was $9.7 million or $0.21 per share as compared with a net loss of $4.8 million or $0.13 per share for the same quarter in 2007.

Revenues for the first six months of 2008 totaled $23.4 million, an increase of 17% as compared to the first six months of 2007. Cost of product and service revenues was $10.1 million compared to $8.6 million in the comparable period of last year. Total cost and expenses increased to $41.2 million from $29.3 million in the first half of 2007.

We reported a net loss in the first six months of this year of $18.3 million or $0.40 per share as compared with a net loss of $8.6 million or $0.24 a share in the first six months of 2007.

As of June 30, we had cash, cash equivalents and short and long-term marketable securities of $36.2 million and also accounts receivable of $10.1 million. Our cash does not reflect the net proceeds of $92 million from the underwritten public offering of common stock completed in early July 2008.

Turning to our financial guidance. We’re reiterating our expectation as full year 2008 revenues will range from $50 to $53 million, representing a 25% to 30% growth over 2007 revenues.

As a reminder third quarter is seasonally our weakest quarter in terms of revenues. We are updating our net loss guidance, we now expect net loss to range from $34 million to $36 million as compared to our previous guidance of $30 million to $33 million. The revision primarily reflects an increased FAS 123 expense due to recent increase in our stock price and employee stock option award as well as higher projected legal expenses. We are also updating our expectations for cash burn for the full year to be approximately $30 million as compared with the previous guidance of $26 million to $28 million.

We are actively reviewing various activities which can accelerate our commercialization efforts. Accordingly the above expenses and burn do not for example include costs associated with purchasing or building out CLIA lab which we believe is strategic to effectively commercializing our various tests.

We are highly focused on development of our non-invasive prenatal diagnostics and as such have designated approximately 75% of our forecasted 2008 cash burn to bring programs to commercialization as soon as possible so that we can begin to participate in a multi-billion dollar worldwide market. While also continuing to develop new applications in our genetic analysis, we expect this segment to break even in the 2009 timeframe.

I’ll now turn this call back to Harry.

Harry Stylli

Thanks, Paul. We are more optimistic about the Genomic Analysis business growth prospects and have major milestones for Down syndrome and commercialization of other prenatal tests in the second half of this year.

Before opening the call to questions, I’d like to review our upcoming milestones starting with our genetic analysis business.

Our plans for the year include introducing a number of new and enhanced products and improving the customer experience. In the current quarter, we are launching a new application for determining Copy Number Variations or CNVs. CNVs represent a large new opportunity that plays to the core strengths of the MassARRAY namely multiplexing, sensitivity and the ability to quantify precisely.

CNV refers to the generic traits of differences in a number of copies of particular gene present in the genome of an individual and this is dynamic and can change overtime.

We also intend to launch our new EpiDesigner application, we believe this new application will aid researchers in identifying those genes that have mutated or have been influenced by environmental or other factors.

In the fourth quarter of this year, we plan to launch our new oncogene mutation panel for identifying genes associated with the development of specific cancers for research application use only. This panel has the potential to be used for genetically typing tumor biopsies to help guide molecular therapy selection by physicians.

We plan to complete the proof of concept of our Optical Nanopore Technology that we licensed from Harvard University. Optical Nanopore Technology is a third-gen nucleic acid analysis technology that we believe may potentially provide whole genome sequencing for less than a $1000.

Looking into the future, we are developing a closed tube assay which is an application intended to simplify the workflow of our MassARRAY system. Workflow simplification will enable Sequenom to enter new segments of the genomic analysis market and will enable the MassARRAY platform to be even more competitive in molecular diagnostics. We expect to introduce this as early as the second half of 2009.

As discussed earlier, we continue to make significant progress with our SEQureDx Technology with an initial focus on non-invasive prenatal diagnostics as an update. In the current quarter, we expect to introduce various laboratories partner’s additional tests using our MassARRAY platform for Rhesus D genotyping by September 2008 and FetalXY for gender determination in families that have a risk of sex-linked disorders by Q4 2008.

We plan to purchase and build out a CLIA-certified lab and to invest in establishing a channel to the (inaudible) community. We expect to hold an analyst meeting on September the 23rd and intend to update our progress in both our genomic analysis and diagnostic businesses with emphasis in the following areas. Determination of the fetal RNA levels at different gestational ages across the first and the second trimester to establish the effectiveness of our T21 tests in the first trimester which is a very important sort of experiments that will establish the utility of the T21 tests in the first trimester.

Prospective studies involving first trimester Down syndrome samples. New second trimester prospective data, some more of the kind of data that you saw at the ISPD. Progress with chromosomes or T18 and T13. Progress with Rhesus D and FetalXY.

Finally, we will begin a multiple clinical center study involving up to 10,000 samples which are from high prevalent patients. This will significantly support commercialization efforts which continues to be expected to begin in June 2009.

So with that overview of our results and our plans, at this time I would like to open the call to questions. Operator?

Questions-and-Answer Session

Operator

(Operator Instructions). One moment please for the first question.

Harry Stylli

While we are waiting for the first question, I want to inform you of some upcoming events in our schedule. We are scheduled to present at the following investment conferences: The Leerink Swann Emerging Products and Applications in Life Sciences Tools: 3rd Annual Roundtable Conference next Thursday, August 7th. The Thomas Weisel Conference held on September 2 and 3. The News Makers in the Biotech Industry Conference on Thursday, September 4 and the UBS Global Life Sciences Conference being held September 22 through September 24. All of these conferences are being held in New York City.

And to remind you, we'd also holding an Analyst Day and investor briefing event in New York on September 23 at the Helmsley Hotel. Our agenda for this event I just reviewed with you, but we'll focus primarily on developments with T21 or Down syndrome and our other non-invasive clinical tests. We expect to have another distinguished group of speakers and plan to send invitations in the coming weeks.

Okay, Operator, we are ready for the first question.

Operator

Our first question is from Elemer Piros with Rodman. Please go ahead with your question. Mr. Piros, your line is open. And sir, we will move on to the next question.

Elemer Piros - Rodman

Can you hear me now? Hello?

Harry Stylli

Hello. Hello, Elemer.

Elemer Piros - Rodman

Can you hear me now?

Harry Stylli

Yes, we can hear you loud and clear now, Elemer.

Elemer Piros - Rodman

Yes, I'm sorry, I was fiddling with the mute button here. Congratulations, it seems like the first quarter shortfall in MassARRAY sales have been made up in the second quarter. Were you able to quantify, Harry, that the postponement of purchases were actually done in the second quarter or do you still have a couple of outstanding items there?

Harry Stylli

Yes, I'd say the majority happened in the second quarter, but there's some still bleeding throughout the quarters.

Elemer Piros - Rodman

Okay.

Harry Stylli

Moving along the purchase process which is always an encouraging sign.

Elemer Piros - Rodman

Sure. Now the service business was in this particular quarter a bit softer than the previous quarter. What sort of visibility do you have of the pipeline there? I mean, it is not a big contributor, but it was growing very nicely in the past.

Harry Stylli

Yes. I think frankly there was one or two very large customers that took a little time to breathe, and we expect them to resume.

Elemer Piros - Rodman

Okay. This 10,000 patient or 10,000 sample trial, when do you hope to initiate it? And what do you have to do in terms of simplifying the process for it to be eventually acceptable for an FDA application?

Harry Stylli

So first of all, this is independent to the FDA. I want to remind folks that the market for Down syndrome in the US is not regulated by the FDA, but it's a hungry market regulated under CLIA. So this study that we are doing next year is really directed towards the hungry market which is where all the action is occurring today.

And we're going to begin, frankly we've begun recruiting this quarter, centers that will be part of the multi-center study that will begin to really accelerate in the coming quarters. We expect to wrap this very substantial study by probably Q3 of next year. I want to remind folks that there is 10,000 high prevalence patients. Now to get to that number upstream to us around 90,000 women would need to be screened as part of their normal management, so Sequenom is basically tapping into that process. And we're looking for 10,000 high prevalence pregnancies. That should drive over 125,000 positives, which should really power the sensitivity aspects of our equation.

Also, this study is likely to be the biggest study of its type done and should really serve, assuming it goes as we expect it to go to really drive adoption once it is published in the peer-reviewed journal.

Elemer Piros - Rodman

I mean, it is a large undertaking, but the question is, are you still considering an FDA route in parallel, and if so, would you have to do another 10,000 sample study for eventual approval or what's the plan there?

Harry Stylli

The strategy is to ultimately take up all the tests that are relevant to be taken to the FDA in due course. For these tests, we would need to do a much smaller study in order to obtain FDA approval, assuming the FDA agrees with what we are doing.

Now, I also want to remind folks, that we've already initiated a FDA-approved clinical trial under the PMA for Rhesus D. So we are already engaged with the FDA and we've already initiated a clinical trial of just 550 patients for Rhesus D, and that's going to be submitted towards a PMA by Q3, Q4 of next year.

Elemer Piros - Rodman

Okay. Okay. Are you waiting for reducing the test into a single tube exercise for you to engage a formal clinical study?

Harry Stylli

No, the test is already in a single tube. I want to remind folks that the MassARRAY has a multiplexing capability. So that's not what we are trying to do here. Between now and the next several months, we are working to basically ensure that the test is going to perform as well as we would like it to and can dream that it would perform for the big clinical study.

Again I want to remind folks that the entire market in the US for classical genetic testing and that includes Down syndrome, Cystic Fibrosis and many other tests, is a home groomed market regulated under CLIA. The FDA at this stage of the game and likely for the foreseeable future there are no regulators, not yet.

Elemer Piros - Rodman

So then what was the particular milestone that you mentioned in by second half of '09 that you would like to achieve proficiency in the single tube. I maybe confused there.

Harry Stylli

Yes, we intend to commercialize Down syndrome test in the US by 2009, June. Now the clinical study that we are doing is not necessarily for commercialization. That’s really important to actually to drive adoption. So see that study as being a major catalyst for adoption.

Elemer Piros - Rodman

Okay. And one last question and then I would have to get back into the queue. Your endeavor on the less than a $1000 whole genome analysis; where do you stand with that, and what sort of specific milestones you hope to achieve in that respect?

Harry Stylli

Well, it's still very early stage, and like we've said, it has high technical risk. I think we are coming after doing some definitive proof-of-concept studies that will help demonstrate to us whether this technology is likely to deliver the kind of solution that we would want. And that's really a sub $1,000 genome in the next few years.

Elemer Piros - Rodman

I don’t know if you saw that someone, I forget the name of the private company just raised a $100 million for exactly that.

Harry Stylli

No. I am not prepared to comment about that, but frankly what we have here is what's known as a true Single Molecule Sequencing Technology. And it’s the kind of approach you will need to actually deliver reliable and consistently a sub $1000 human genome.

Elemer Piros - Rodman

Thank you very much, Harry.

Harry Stylli

Thanks very much for your questions. I really appreciate it.

Operator

Our next question is from Kevin DeGeeter with Oppenheimer. Please go ahead with your question.

Kevin DeGeeter - Oppenheimer

Hi, thanks, guys, good afternoon. A couple of quick questions here if I may. On the larger 10,000 patient study, can you give us some parameters to think about with regard to is that either kind of a rough metric for cost per women screened or enrolled just so we can begin to think about?

Harry Stylli

The cost is likely to depend on the center and is in a range of about $400 to $800 per patient.

Kevin DeGeeter - Oppenheimer

For a patient enrolled?

Harry Stylli

Yes.

Kevin DeGeeter - Oppenheimer

Okay. How many MassARRAYs were placed in the second quarter?

Harry Stylli

Around 16.

Kevin DeGeeter - Oppenheimer

Okay. And perhaps you can just talk a little bit more about the macro environment in the US and provide a little bit more granularity. Specifically are you are seeing, you mentioned that some of those orders (inaudible) hasn’t filled , those kind of breakdown by any particular subset or are you seeing just a general rebound pretty much across the board?

Harry Stylli

We are seeing a general rebound, I would say many of the orders that slipped from the Q1 have now been accounted for in the US because if you recall the issue for us was a US capital equipment sales. Another interesting thing that's happened is, we are now hearing that many institutions are getting funded for experiments and we're seeing a real pick up in the consumable sales in the US.

The rest of the world continues to be relatively robust as expected, I would say on target. So we're quite encouraged by the way things are heating up. Now having said that, we can't ignore the broader macro environment and the change of government, and these things could have an impact on this business and it could be [unforeseeable]. But right now, we are just seeing momentum really sort of resume and build up, and sales are looking, likely getting on the kind of track that we expected them to be.

Kevin DeGeeter - Oppenheimer

Two more quick questions, if I may. Just a clarification. I believe you said you are going to have roughly a 1000 samples this year because you can weigh the conditions requiring the 10,000 patients study?

Harry Stylli

Correct.

Elemer Piros - Rodman

Does that exclude the 300 and change we've seen so far is that --?

Harry Stylli

Yes, it would include the 300 and change that you have seen so far.

Elemer Piros - Rodman

Okay. And last question, then I will get back in queue. Can you just give us some thoughts with regard to potential timing? And cash costs associated with the acquisition of a CLIA Lab? Just some metrics so we can appreciate the type of facilities you are looking at?

Harry Stylli

Yes. I think we're looking for, first of all we are going to start our own CLIA Lab here at Sequenom. And that's something we are going to do. But really we are looking to take control of a CLIA Lab business that meets particular requirement. If all goes according to plan, it should happen this year. Our cost will depend on the business that we are looking at, but they could range from $10 million to $30 million.

Elemer Piros - Rodman

And then one last point of clarification, if I may. Does the current binary contemplate the building of the CLIA Lab in house? I know you mentioned it doesn't include the acquisition.

Harry Stylli

It includes a proportion of that but most the cost will hit us in 2009.

Elemer Piros - Rodman

Terrific. Thanks so much, guys.

Harry Stylli

Thank you.

Operator

Our next question is from David Chung with Lehman Brothers. Please go ahead with your question.

David Chung - Lehman Brothers

And thanks very much. It is interesting to hear about your plans for the 10,000 sample trial and as you talk about providing the tremendous impact on adoption. So from that context, I was just wondering if you would kind of talk a little bit about what you kind of see as potential market adoption rates in the US with about a 30% adoption, let’s say, three to five years after launch be unreasonable?

Harry Stylli

You know, it is really interesting, because before we had the data, we had very conservative adoption rates. But now you have the data, you could put in front of folks and you carry out market research, and in fact some of our larger investors have carried out independent research from Sequenom. And it appears to us that the majority of the market would be receptive to adopting the test, once that large clinical trial is published in a peer-reviewed journal. And if this were to happen, we'd expect to see a very significant adoption occurring in the second half of 2010.

David Chung - Lehman Brothers

Excellent. So it'd be fair to say that you would see some good adoption in the earlier year?

Harry Stylli

Yes. I would say if recalled, the test is not going to be launched until 2009. I think it will begin to go up, early adopters will begin to use the test for the benefits that it provides. But really for the majority of the markets to move, the majority of prescribers to move, that large clinical trial would need to be published. And then the sort of feedback we’re getting, we keep going back and asking the question in lots of different ways, is that there should be a step function in adoption once that trial is published, or once that date is published.

David Chung - Lehman Brothers

Thanks very much. That's very helpful. And then just one more point. I was just wondering if you could just kind of give us your latest thoughts and thinking around reimbursement, whether some of the activities that you're doing, planning to do…

Harry Stylli

Okay. Well, it's a multi-year process, but where we begin we begin very simply. The nuts and bolts of our test, PCI is a common step and so forth. So we could take advantage of existing CPT codes and that's the path of least resistance through the system today. And by doing so, we believe reimbursement could be somewhere between $560 to $800 per test, we would bill much higher.

Going out a little bit into the future, into the 2010-2011 timeframe, we would at that point have the clinical trial or the clinical study behind us. We would then revisit the CMS for example and negotiate a proprietary CPT code for the Sequenom T21 test as well as other relevant tests. And that's how we expect to move forward.

David Chung - Lehman Brothers

Thanks very much.

Harry Stylli

Thank you, David.

Operator

(Operator Instructions). Our next question is from [Evan Dose] with Lehman Brothers. Please go ahead with your question.

Evan Dose - Lehman Brothers

Hi, good afternoon, Harry. I have a quick follow up. Given up the importance that you talked about of the head-to-head trial, could you talk a little bit more about trial design, have you finalized that yet or how are you thinking about comparing your technology against current tests? Are you planning to also do screening tests on the stand?

Harry Stylli

So, let me make a point here. We are not comparing ourselves to screening, the current screening paradigm. We are a direct genetic measurement, okay? So the way this trial's going to be structured is, we anticipate a first trimester and second trimester component to the trial. Patients would be managed as per normal by their physicians. They would be subjected to the current paradigm, serum testing or integrated testing depending where they are in the country.

That will be one of the factors that we're going to use in order to identify high prevalence patients, the other, of course, being the age of the mother. We will then take patients that meet our selection criteria for either trimester, and then we would run our tests. If the patients are we then would expect a confirmation in the first trimester by using CVS and in the second trimester by amniocentesis.

Evan Dose - Lehman Brothers

And you’ll have that data?

Harry Stylli

We would have that data.

Evan Dose - Lehman Brothers

All right. Thank you very much. I have one last question. I guess it was two months ago now at ISPD, you talked about the test being [tenplex] with theoretical population coverage in the United States was 93%. Is there any update on that, have you found more snips or more --?

Harry Stylli

Yes. The test now might have additional constituents to it. So for example we are building in to the test a method for actually quantifying the amount of fetal RNA in each patient sample. So that's going to increase the number of constituents or plexus in the tests. That's very important for us, because we want to know whether or not the patient has sufficient fetal RNA that can lead to us identifying those patients that don't imagine them differently, for example. We are looking for additional Down syndrome markers and those studies are ongoing.

Evan Dose - Lehman Brothers

So as of now, the number remains 93%.

Harry Stylli

No. We are actually really happy with 93% to 95%.

Evan Dose - Lehman Brothers

Of course, yes.

Harry Stylli

Yes, so we are real happy with that. That's our goal as far as we are concerned. But clearly we are looking for additional markers. But also I want to remind folks about the small percentage of patients that the test does not work for us so called homozygotes. Homozygotes have a very distinct pattern on our system and we are able to identify them and then frankly we will be able to help the doc manage those patients specifically without leaving anyone hanging loose.

Evan Dose - Lehman Brothers

All right. Thank you very much, Harry.

Operator

Our next question comes from Pamela Bassett with Cantor Fitzgerald. Please go ahead with your question.

Pamela Bassett - Cantor Fitzgerald

Hi. Congratulations on another product. Can you hear me okay?

Harry Stylli

Yes. I can Pamela.

Pamela Bassett - Cantor Fitzgerald

Can you talk a little bit more about the CNV tests that you are planning to launch and the oncogene mutation panel? Is that all launching this year?

Harry Stylli

Yes.

Pamela Bassett - Cantor Fitzgerald

And do I understand correctly, it will be sold into research labs and can also be used by physicians.

Harry Stylli

Ultimately, so what we are doing today is we are putting our technology into research labs

Pamela Bassett - Cantor Fitzgerald

Okay.

Harry Stylli

And the onco mutation panel is also being sold into research labs for research use only. However the onco mutation panel as I indicated during the script if you like. We've got a serious eye on that as a potential test for effectively genotyping tumor biopsies and helping physicians triage their patients with regard to molecular therapy. And in fact that test originally came together because a large number of oncologists made it happen for that specific purpose. So we are working on accommodating that need that the market has presented to us.

Now Copy Number Variations takes advantage of a number of strengths of our platform. I want to remind folks that T21 is effectively a large-scale Copy Number Variation because you have a whole extra chromosome with extra copies of gene. So CNVs is where a certain numbers of genes in your body could actually, you can get increased number of copies and if those copies produce too much of a good thing. Well it is a good thing if there is a single copy, we have five copies of that thing. It could become toxic. It could lead to many diseases.

So it's only in the last couple of years that the community has really delved into this and we are going to be offering this application on our platform initially for the research market. But like I said, with many things that we do in the research business, given where we are in that segment, it has future diagnostics potential.

Harry Stylli

So this and if I understand correctly, the oncogene mutation panel could end up migrating into clinical use?

Harry Stylli

Absolutely, that's the intent.

Pamela Bassett - Cantor Fitzgerald

Would it be a serum based test?

Harry Stylli

No. It would actually be based on biopsies in this case. A future version of the test might be on plasma or serum, but initial version of the test will be based on analyzing biopsy samples.

Pamela Bassett - Cantor Fitzgerald

Can you use existing tissue samples that have been stored for years and do studies in that way or would --?

Harry Stylli

Yes. Yes, absolutely. You could use existing tissue samples, but also more importantly you could use fresh samples to help patients in the future.

Pamela Bassett - Cantor Fitzgerald

So I was thinking in terms of like validating the test and then sort of.

Harry Stylli

Absolutely and that's exactly what we are doing and we've got already many of the original instigators for the test, who will be willing partners with Sequenom. And they are all oncologists and all present major institutions frankly around the world.

Pamela Bassett - Cantor Fitzgerald

Do you have the timeline around the oncogene panel?

Harry Stylli

The oncogene panel for research use should be launched at the end of this year. In terms of testing in humans, I don't want to give a timeline yet.

Pamela Bassett - Cantor Fitzgerald

Okay. Okay, fair enough. Thank you very much.

Harry Stylli

Thank you, Pamela.

Operator

Our next question is from Elemer Piros with Rodman. Please go ahead with your question.

Elemer Piros - Rodman

A follow up, Harry. Do you have scientific conferences mapped out for the remainder of the year where you might present data?

Harry Stylli

We do, and what we’ll do is if they are not clear we’ll put them on the website, so folks will be able to see where we are going to present, or where we are going to have a present. I could say this that we are hoping to have a significant presence at the Maternal-Fetal Society in January. We are going to be at AMP and ASHG and like I said, we’re going to make sure that this appears on the website for those folks who are interested.

Elemer Piros - Rodman

Sure and let me just reiterate something, you went fairly quickly there, you plan to introduce the Rhesus D test on the MassARRAY platform in the third quarter, September, where you that specific, September of '08 for the gender test.

Harry Stylli

Yes, we believe it’s September. Absolutely.

Elemer Piros - Rodman

Okay. Same for the gender test?

Harry Stylli

It is the first body in both, so we believe it’s September.

Elemer Piros - Rodman

The gender test is the same, right?

Harry Stylli

Yes, the gender test will be more likely in Q4 due to a slight, will be in Q4.

Elemer Piros - Rodman

Q4. And lastly and most importantly, Down syndrome in June of 09.

Harry Stylli

Yes.

Elemer Piros - Rodman

Okay got it, thank you very much.

Harry Stylli

Thank you.

Operator

Our next question comes from [Richard Rumbaldo] with Stark Investments. Please go ahead with your question.

Richard Rumbaldo - Stark Investments

Yes. Good afternoon.

Harry Stylli

Hello, Richard.

Richard Rumbaldo - Stark Investments

Just one point of clarification. On the large clinical trial you’re planning to run, if that yields positive results, since you are doing it in a high risk population, would that be sufficient to go ahead and commercialize into the broader population of pregnant women or would you need additional studies to move it beyond the high-risk population.

Harry Stylli

No, categorically that would be sufficient.

Richard Rumbaldo - Stark Investments

Okay. And the reason for that being?

Harry Stylli

Being that, Down’s positive is a Down’s positive irrespective of whether you are high risk or low risk.

Richard Rumbaldo - Stark Investments

But wouldn't you need to establish what the false positive rate might be in a general population?

Harry Stylli

Alright, so we’ve already have in an inkling of that okay, just for the 200 samples that we run, which I agree is a small number, we are over 98% specific, out of 95% confidence limit already and as we test hundreds and thousands more samples we expect to have a specificity in the order of better than 99% and that will rival the invasive procedures. And this is something we are doing right now.

Richard Rumbaldo - Stark Investments

Okay so this study, once it yields positive results hopefully and gets published would be all that you’d need for…

Harry Stylli

Yes, we’re taking advice from folks who actually designed the faster trial and have been involved in all the major serum testing trials and we understand that the trial, the study that we are planning next year is going to be more powerful than anything that’s happened before, okay and should firmly establish the benefits and the risk profile of the test and of course from our perspective, would be a potent catalyst for adoption.

Richard Rumbaldo - Stark Investments

Very good, thank you.

Harry Stylli

Thank you.

Operator

Our next question comes from Pamela Basset with Cantor Fitzgerald. Please go ahead with your question.

Pamela Basset - Cantor Fitzgerald

Hi, thanks for the follow up. Can you talk a little bit more about the expanded partnership and what some of the products might look like that would launch from that partnership including the HPV test and timing right now?

Harry Stylli

Absolutely, so the HPV test is going to be submitted to the FDA, if all goes well, it should be cleared in a couple of years, okay. It’s a HPV test that does genotyping, so quantification as well as identification in a multiplex, in a single tube, which again is unprecedented and our technology enables a couple to the technology of SensiGen. So we are excited about this test, not least of which it’s another woman’s health test that we could sell through our channel in the future. SensiGen is taking the majority of risk of developing this. Then there is a test for chronic kidney failure based on (inaudible), which is also very exciting and seems to be innovative and full of promise, that’s also two to three years away. Then there’s a test for lupus which as you may know lupus affects woman primarily and the SensiGen is taking the risk of developing these tests, what these do for us ultimately is expands the menu for the MassARRAY and also creates opportunities for us to offer a richer menu of innovative tests to the obstetrician/gynecologist.

Pamela Basset - Cantor Fitzgerald

Okay, so everything is serum based.

Harry Stylli

No, this is actually based in conventional modes there’s no serum testing here or plasma testing here at all, however future generations of the test, certainly the HPV test maybe carried out in blood, so they will be non-invasive and that will be a dramatic step forward, but that’s something that SensiGen and Sequenom will be shooting for in the future. As it is now, these are just more informative, more efficient tests and in the case of lupus and chronic kidney failure actually innovative and enabling and unique kind of test.

Pamela Basset - Cantor Fitzgerald

And those would be completely new and would they be predicted?

Harry Stylli

This will be, for instance, if we look at HPV it's 98% sensitivity plus with greater than 99% specificity. So it really has a very strong performance. And it's based on SensiGen’s AttoSense technology.

Pamela Basset - Cantor Fitzgerald

Okay, great. Thank you very much.

Harry Stylli

Okay. Thank you.

Operator

Our next question comes from Elemer Piros with Rodman. Please go ahead with your question.

Elemer Piros - Rodman

Sorry, Harry this is the fourteenth follow-up.

Harry Stylli

Okay, that's cool.

Elemer Piros - Rodman

This is the last one I promise.

Harry Stylli

Fire away as many as you wish Ele.

Elemer Piros - Rodman

You mentioned that your place, the Rhesus D test and the gender test in the third and fourth quarter into the hands of partner laboratories, do you envision the placement of these test to ramp or produce additional MassARRAY sales or do those partner laboratories have enough already.

Harry Stylli

No, Ele. I mean this is less about the MassARRAY sales and more about revenues generated from very high margin tests. Whilst they may well be incremental MassARRAY sales, we are really looking forward to revenues from and royalties frankly in the case of partner labs from these high value very enabling out tests.

Elemer Piros - Rodman

But at one point, once you have the CLIA labs established and up and running, you would be the primary source for these tests. And you've sold them to the market.

Harry Stylli

Yes. For the obstetrician/gynecology market, we would be the primary source. In fact our lab will probably be the only source, for the hospital market, we are likely to have three or four partners that address the hospital market. So that 15% of the market as we see is hospital driven and about 80% to 85% of the market is prescribed by the obstetrician/gynecologists and that's the segment we want to target.

Elemer Piros - Rodman

Thank you very much again.

Harry Stylli

Thank you.

Operator

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Harry Stylli

In closing, thank you for joining us in today's call and for your interest in Sequenom. We are excited about our progress and the continued opportunity for our core business and the substantial prospects for our non-invasive prenatal diagnostics. We look forward to keeping you apprised of our progress. Good day, and thank you for listening.

Operator

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation, and ask that you please disconnect your line.

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