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Marty Chilberg
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Marty Chilberg is a seasoned financial professional with over 30 years of executive leadership, board, consulting and advisory experience.  He began his career as a certified public accountant (CPA). He moved to Silicon Valley in 1981 to begin his career in the software industry, working for... More
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  • Sequenom: Piper Jaffray Presentation Recap

    Sequenom (NASDAQ:SQNM) provided updates and incremental clarity on their NIPT and Oncology plans at the Piper Jaffray conference this morning. The fireside chat format with analyst Bill Quirk provided an opportunity to focus on several topics of interest. The responses were on-point and coherent with more transparency than has previously been seen by Sequenom management.

    High Risk NIPT

    • Sequenom has historically focused on the high risk market. They have an average sales price of $900 with 70% of tests being reimbursed. The current channel mix is approximately 50% specialist "MFM" and 50% OB/GYN. 98% of the September 2015 volume was high risk.
    • This market segment is considered mature. Of the estimated 750k domestic high risk pregnancies, the company estimates the total addressable market is 500k-600k.
    • The company has lost some market share to competition due to their prior strategies of 1) a focus on MFM and 2) not offering an average risk NIPT. Both of these are now being addressed and the company believes they will recover this lost share.
    • Despite the recent market share erosion the company believes they remain the market leader in high risk and that they have a dominant share in the MFM channel.
    • MaterniT Genome was launched primarily because it provides the breadth of content that is consistent with invasive procedures. Patients and specialists have been requesting this incremental content and the early reception for this test has been positive. There is some discussion of providing even more content which Sequenom is well-positioned to deliver based upon demand.

    Low Risk NIPT

    • Sequenom believes this market is now poised for growth and reimbursements.
    • The insignificant volume seen by Sequenom to date has been the result of their decision to only accept self-pay customers and a lack of attention on the OB/GYN channel by their 80 field sales employees. They have reorganized the field sales organization to address this channel. Expansion of the field sales channel is not currently needed but will be re-evaluated as volume and reimbursement ramps. Education about the NIPT product portfolio is key with Sequenom the only company offering multiple tests.
    • There are 60 million lives covered by a handful of providers. Negotiations on average risk with coverage providers have begun for MaterniT21 Plus and VisibiliT.
    • Sequenom is now ready to begin accepting tests that are billed. Provider interest exists but it will take time.
    • Sequenom expects average risk average sales prices to be approximately $450 excluding microdeletions. They are working on their cost structure to address this expected price point regardless of the VisibiliT and MaterniT21 mix.

    IP Pool

    • No update to the 36 licensees to the IP pool previously disclosed.
    • Most of the revenue impact caused by the transition to the IP pool is now behind them.
    • It's unclear when Quest or other licensees will pursue average risk but the royalty structure provides the benefit to Sequenom once they do.
    • The pool has no downside for any adverse patent litigation rulings. Any positive patent rulings will provide upside in the form of increased demand for licensing and reimbursement for prior infringement.


    • The commercial market for Liquid Biopsy is expected to be slow to develop requiring data to drive endorsement and reimbursement decisions.
    • The company will focus initially on areas of expertise including circulating DNA analysis, structural variances and mutations.
    • The Sequenom RUO Liquid Biopsy is the focus of the recent collaborations announced and is believed to be the broadest screen currently available.
    • Ovarian cancer represents an internal core competency. Lung cancer is also expected to be an early market opportunity.
    • 2016 will be a year for data generation. Commercialization is not expected in 1H 2016.
    • Commercialization strategy will be data driven. Key Opinion Leaders will be utilized to determine whether the company will partner or go alone. They will look at both broad screening and more focused opportunities.
    • Early detection and recurrence monitoring are exciting opportunities that the company is working on, but the market is not expected to be addressable in the short term.


    • Carolyn Beaver stated she feels good about the cash balance of the company. She does not believe they will need to raise additional capital.


    This conversation was refreshing. The transparency and insights provided were substantial improvements from prior company presentation. My key takeaways included:

    1. Eliminating the concern of a potential capital raise is key to improving the share price. This will happen only with improved performance, but it's helpful to hear the company respond to the issue directly.
    2. Revenue performance has been hurt by numerous factors including channel, competition and licensee conversion. All of these issues were openly addressed by management with plans to address them going forward.
    3. The low risk market is likely to be the primary revenue growth opportunity for 2016.
    4. Oncology will provide potential catalysts in 2016 but primarily related to publications and commercial strategy updates. Liquid Biopsy revenue will become much more compelling in 2017 and beyond.
    Dec 01 12:25 PM | Link | Comment!
  • Natera: What Will It Take To Achieve Revenue Guidance?

    Now that the Natera (NASDAQ:NTRA) earnings for the September 2015 quarter have been digested (see analysis here and here), here's a look at the analyst revenue targets for the next quarter and year.

    The analyst forecasts for revenue in Q4 2015 are as follows (Yahoo link):

    • High $46.4m
    • Low $44.3m
    • Consensus $45.5m

    These forecasts all fit within the updated company guidance for 2015 of between $180m-185m. Based upon the analyst forecasts it appears most are forgetting the company commentary from the August 15th Q2 earnings conference call. CFO Herman Rosenman stated: "We believe revenues may be adversely affected by entering in-network contracts with certain payers, which has long-term strategic benefits and which we expect to occur in the second half of the third quarter or in the fourth quarter of 2015." In light of now three quarterly sequential revenue declines and noting this cautionary guidance, it would appear that some uptick in unreimbursed tests to close out the year is needed to achieve above the low end of the range. This could very well happen, but after years of watching other molecular diagnostic companies with similar recognition difficulties it's clear that cash reimbursements are highly unpredictable.

    Looking forward to 2016, the analyst revenue forecasts are:

    • High $242m
    • Low $200m
    • Consensus $223m

    Company guidance on the recent conference call included this statement from Mr. Rosenman: "We have no change to our 2016 guidance, which I will reiterate here. We expect to achieve revenues of $220 million to $240 million in 2016, assuming robust adoption and reimbursement of the Panorama test within the average risk population in 2016." During the Q&A session management was asked whether they are tracking the 2016 guidance given the reiteration. Mr Rosenman's response: "I think you can assume that in our model, which also, in turn, assumes robust adoption, that the adoption we assume for 2016 is greater than we have seen." Based upon these comments it would appear the following are needed for the guidance and consensus targets to be met:

    1. NIPT is endorsed as Medically Necessary for average risk pregnancies in the first half of 2016.
    2. This declaration of medical necessity in average risk needs to prompt a robust adoption of Panorama.
    3. Any resulting increase in billings will be recognized in 2016.

    Trying to gauge the probability of each of these variables is challenging. My reactions are:

    1. Seems highly likely (90%) that this will occur sometime in 2016 and perhaps more likely than not (60%) that it would occur in the first half. Illumina (NASDAQ:ILMN) CEO Jay Flatley mentioned on their last earnings conference call that he thought average risk would be endorsed in the second or third quarter of 2016.
    2. Panorama is currently best positioned to take advantage of the average risk market based upon their field sales relationship to the OB/GYN community and their acceptance of tests regardless of reimbursement probability. Given that I would target this probability around 80% for volume acceleration unless the company alters it's policy of disregarding coverage and reimbursement probability when accepting orders.
    3. This achievement appears the most daunting for the company. I would put the probability at around 20%. This lower likelihood is based upon the following data points:
    • Currently only about 25% of Natera revenues are recorded on an accrual basis.
    • Approximately 25% of the quarterly NIPT accessions are being recognized in the quarter processed.
    • For the remaining 75%, trends indicate that roughly half will result in some recognition in the future and the other half will not. I've seen no disclosure about the average age of billings that are recognized from prior periods.

    As has been seen with other diagnostic companies, one way to accelerate recognition is to alter the billing relationship. This could occur in a couple of ways:

    1. Eliminate any billings to coverage providers until coverage contracts are negotiated. This could be done by accepting a much lower average price from patients up front with an agreement not to submit a bill to providers for reimbursement. This has been seen with some sequencing companies with marginal success. This option might generate sufficient revenue to achieve the company guidance while potentially decreasing short term margins and long term cash flows.
    2. Achieve in-network status for average risk quickly for a meaningful percentage of the test mix. The hurdle here is the price determination and resolution of past disputed billings. Natera will need to decide how much of a discount to accept if it wants to go this route. Additionally, Natera screens for microdeletions when requested at an additional cost. If standard average risk NIPT incorporates this screening at a lower price it will likely add to the reimbursement negotiation challenge.

    Finally to recognize any billings, revenue recognition rules need to be applied. Conversion to accrual basis recognition can't occur until there is 1) a definitive agreement, 2) a price that is fixed and determinable and 3) some collection history to prove billings are collectible. Overall I credit the company for qualifying their guidance relative to these contingencies. Let the investor gauge whether or not they will occur as part of their own investment thesis.

    Nov 27 1:55 PM | Link | 1 Comment
  • SunEdison: Is The Bottom In?

    SuneEdison (NYSE:SUNE) has seen a massive selloff over the past few weeks/months caused by growing liquidity concerns. This fear has been stoked by a very convoluted structure and strategy. Just 2 weeks ago Deutsche Bank analyst Vishal Shah defended the stock by reiterating his buy and $28 price target, taking on career risk in doing so. After a brief rally, the stock continued on it's downward trajectory, selling off another 50% to under $3 per share. In the past few days a number of changes have been announced by the company to ease investor concerns and they appear to have finally put in a bottom. Today the stock is up 40% but is still well below the $6 price it was trading at on the day Vishal Shah provided his views.

    This one is still a very high risk stock but the risk/reward seems to tilt to the buy side. The upside potential is very high noting the recent price history over $30 and the price target support at $28. The downside risk is real. Layered risk needs to be deleveraged to reduce debt default risk or bondholders could squeeze equity out. There appears to be at least a year before that could occur. Analysts seems just as confused as investors as indicated by the price target range of $3 to $42.

    It' also worth noting that investors should take care to read the 8K filings associated with any company press releases. There are material disclosures that are included in the SEC filings that are being excluded from press releases. For instance the recent $231m drop down to their Yieldco included a notable $150m current cash infusion which was the focus of the company press release. In the 8k they disclosed that this would be refunded should they be unable to reach agreement on some issues still being negotiated.

    Tags: SUNE, Solar
    Nov 24 3:50 PM | Link | Comment!
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