Sequenom's Management Presents at Barclays Capital 2012 Global Healthcare Conference (Transcript)

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Sequenom, Inc. (NASDAQ:SQNM) Barclays Capital 2012 Global Healthcare Conference Call March 14, 2012 4:15 PM ET


Ronald M. Lindsay – Executive Vice President, Research & Development


C. Anthony Butler – Barclays Capital

C. Anthony Butler – Barclays Capital

Good afternoon. Thank you for bearing with us in the late afternoon. That it’s being pleasure to introduce Ron Lindsay, who is the EVP of R&D or the Head of R&D at Sequenom; also Paul Maier, who is the CFO with us as well.

Format this afternoon will be, after Lindsay will provide some formal remarks, if there is time toward the end, we’ll open the session to a couple of questions, otherwise we’ll move to the breakout following Dr. Lindsay’s comments. Ron, thanks for coming.

Ronald M. Lindsay

Thank you, Tony, and good afternoon, everyone. I realize this is the last presentation of this session of the meeting at least that I stand between you and the room, the bar, the beach or your flight home. So, I’ll be as brief and concise as possible.

What I would like to do in the next 15 to 20 minutes is run through some slides that I think highlight a snapshot of our overall results for 2011 as a company and we presented this in some detail at our earnings call last week. So you can still refer to that.

Then outline our goals for 2012. This was something, we as a management team, always do, try to always work towards goals that we set out clearly for everybody to see. And then spend the predominant part of our presentation on the progress of our T21 test since we launched in October of last year.

Perhaps prior to that was the risk that some of you do believe I’m go to go slightly off attack for the (struggling) perhaps, so my colleagues and the audience and simply state maybe the take-home message from where Sequenom is today. And that is, we’re no longer arrester company. We’re no longer a turnaround story. We’re no longer a company that’s plotting along doing research to see we can get on track, our most valuable asset that’s our crises of retention.

We’ve done all those things. We’re also no longer a company that’s trying to develop a CLIA lab and commercialized test. We’ve done that already. We’ve laid a lot of track for where we are going to go. So I would like to convince everybody here and who’s listening that we’re now a growth story. So I think, as a management team, we are very pleased with the success we’ve achieved over the last two years.

We’ve laid a very firm foundation in building out our capacity in all aspects of the diagnostic business and putting regulatory signs, reimbursement. We have all these things in place. So, yes, there are issues around IP, [yester] issuers around competition. Yester remains small issues about the FDA. But we are confident that all of these things can be overcome and we’re going to emerge as a major player in this field. So that’s the take-home message.

I knew we should have said the Safe Harbor statement first, but just to remind you all, this is available on our website as a standard thing and we indeed will make forward-looking statements, some of which I perhaps have made already.

Our company has two segments; our traditional genetic analysis business, our research instrumentation reagent business and our growing molecular diagnostic business. In total last year, we were very pleased that compared to some of our competitors we had a significant overall growth in our revenue. We are up 18% year-over-year to $55.9 million.

Our genetic analysis business, which competes in the tools space with many – much severe competitors, we were very pleased in a very tough year with headwinds, saw a 6% said growth whereas some of our competitors indeed because of cutbacks in academic funding NIH, et cetera, saw a significant loss in their business. So we’re very pleased with that.

We have in our two CLIA labs, which come under the rubric of our wholly-owned subsidiary, the Sequenom Center for Molecular Medicine where our LDT tests are performed. We have a site in San Diego and a site in Grand Rapids, Michigan. San Diego does all of our testing involved sequencing today. That’s our T21 test. Grand Rapids currently runs all of our tests that run on our MassARRAY system. We’ll come to those in a moment.

We are very pleased that in total we performed 21,000 diagnostic tests for [gout] last year, including shortly after launch about 1,000 MaterniT21 LDTs were received and processed during the last couple of months of the year.

Continuing that expectation of growth, in push through months of this year in total, we performed 7,500 tests of which 2,500 are newly launched MaterniT21 test and these have already been processed from result ship back. So we see continuation of that growth pretty readily already.

In terms of our total menu of testing, our goal primarily has been the pre-natal space. Our flagship test, at least at the moment, in terms of volume and revenue is our cystic fibrosis carrier screening test. [Listen if your like] has been the test bed for our CLIA lab, for our reimbursement and for our sales force to get there deep into this arena, we’re very pleased that we saw growth to about 20,000 tests last year.

We also run all of these in our MassARRAY system or Fetal RHD Genotyping test and also at the bottom, a newly introduced test last year in the ophthalmology arena our test, genetic test for age-related macular degeneration. Just for the moment, we’ll talk much about that today, but that test was launched in May of last year, based on a publication and we’re seeing significant interest and uptake in the ophthalmology arena with some anticipated growth in the coming years as we position potentially as a companion diagnostic.

Obviously, the big driver for our business is the trisomy 21 test. That was launched in October and we’ll go into that in some detail. In addition, as many of you know, while we’re pleased to have this launch as an LDT, we had a parallel track for the last two years and planning eventually to take this test through the regulatory process via PMA and we’re pleased this process with the FDA is ongoing and we continue to do that during 2012 with a potential to complete and file that PMA sometime in 2013.

As I said before, we are goal-driven company and we divide the two segments; first of all the goals for Sequenom Incorporate to extend the utility of our own plat from the MassARRAY system. We have been working on a project to complete the necessary paperwork and testing to file that as a 510(k) for that system and we intent to have that done by the end of this year, which will allow us to deploy that test in clinical labs. Currently it’s a research-use-only instrument. We think this will significantly allow adoption at areas where there is already interest in using the system, particularly in oncology, for example.

To support this additional business in that area, we continue to add RUO panels for the MassARRAY. Last year, for example, we introduced a ADME testing panel, which is used in the pharmaceutical industry in the early stages of drug development.

Clearly supporting our IP position is a big goal for us and I think, as many of you know, a key patent in this arena, which was filed by Dennis Lo, not just to support the underlying patent in the T21 area, which is his so-called 540 patent, the core seminal discovery of fetal DNA in maternal blood or plasma, but a method to analyze that using shotgun sequencing. This patent was filed some years ago and we hope that with the issuance of some of these [claimers] during this year.

Obviously to support our growing business, the successful launch of T21 and the beginning of a significant adoption, we intent to invest in expanding that business and we were required or – so the need to raise capital to do that, the goal for this year. That’s already being achieved with a raise in January.

Anticipated growth of this test for both practical reasons of having at least two sites, and continued growth and expansion of that we don't have the space not necessarily the wish to do that in California which is expensive in labor and so forth. We have already signed a lease and are beginning to fill-out a building in North Carolina, where we’ve eventually have two sites so that's in progress.

And in addition to execution in the U.S. we intent to grow this test globally last year we've signed an agreement with one small company in Germany for the first ex-U.S. development of this test we anticipate they will complete validation and launch of their test in the second half. We wish to augment that with further licensees in Europe, and instead of doing it help to report some of the licensees later in the year. So that’s the goal for Sequenom, Inc.

In terms of our subsidiary the Sequenom Center for Molecular Medicine that carries our LDT tests, with the launch and successful initial adoption of T21, we expanded the sales force, our goal was to complete an expansion of 20 plus additional reps by the end of the first quarter, we had 20 at the end of last year, I'm pleased to say as of today, we have 43 field reps for the T21 or the Maternal Fetal Medicine area as a whole and an additional four regional managers. On top of that we have a small sales force, which was three last year and is now six per AMD test, so we have 50 plus sales force out there selling our tests.

A goal and we will come to that a little bit later, how do we drive that was a minimum goal of 25,000 T21 test performed in 2012, and think we are already well in track to achieve that goal. Clearly, one thing is getting test out, the others to get those reimbursed, ours is a complicated area as many of you know and when you launch a new test, there is a lot of complexity. We are pleased that we are on track as far as we anticipated where we’d be with this. We’ve had a number of tests done, that we’ve already mentioned, we are getting paid for those by major payers and small payers and we’re in the midst of negotiations per contracts with both small and large players. And one of our goals for this year is to sign at least two major contracts with the top six national payers, we believe that will be achievable.

In addition to the launch of T21 test itself, we like to be driven by good science and publications. One of our goals was to then further validate the potential of this test, not only for trisomy 21, but additionally for other trisomies, which can be and typically don’t just get them carrier typing that is additionally trisomy 18 and 13.

We’ve published a paper on our validation in clinical study in February and we have now added that to our menu and to the consequence of that we branded our test MaterniT21 PLUS test because it includes accurate data on three potential trisomies.

In addition to adding content, we want to improve the cost of goods of our test. This is not a short-term goal, but something we will be working on for a quite a long time. In the near-term, one of the achievements we have already made was to transition from our launch test, which was a blood draw and the tube that had to processed at a small site, not typically in a Doctor’s office and shipped on or frozen to us.

By end of December, we completed a validation of easier or convenient and cheaper way to do this, that is the ambient temperature, but that’s now the majority of our tests are being delivered to in that way. So that already knocks about $100 of the cost of goods of our test.

We will, on a busy working on increasing the capacity per instrument of our tests, using additional plexing and we hope to complete that validation, probably in the third quarter and hopefully implement that, which will on a per instrument basis, allow us to run more tests, and thus saving our both time and costs.

In addition to that there’s a lot of automation currently this test launched and others that we know are competitors is a fairly manageable process. We intend as we go forward, as we’ve been saying that we’d increase the automation both for cost of goods, but also in terms of if you like making it less prone to any errors and sort of kicking out into the manual component, that is well on track to make some additions by the end of this year and next year.

In terms of all of our availability to cell tests across the country, I think as many of you know, the hardest state in terms of scrutiny of CLIA labs is New York State and we’re in the midst of obtaining the licensees for both of our facilities in Grand Rapids and also in San Diego and we hope that’ll be complete by the end of this year.

In addition with our AMD test, while we currently have a test that identifies, if you like to a life-time risk of getting AMD, a more important factor, is to have a progression playing were individuals with early stage disease can be shown to be at risk of progression to later stage disease and that indeed is our goal and we hope to complete that study. We have the samples in-house and hopefully we’ll complete and publish that by the early in the third quarter in terms of the submission of these. So that will add hopefully to the utility of that test.

So these are our overall corporate and SQNM goals. Just as I’ve outlined for those of you who are not quite so familiar, I’ve launched the MaterniT21 test was to very accurately with high sensitivity, specificity be used for the detection of trisomy 21. Our goals in our publication rather the results of our large clinical study showed 99.1% sensitivity and 99.9% specificity.

Perhaps most importantly in terms of these high accuracy is also the ability that you get a result from most samples and are if you like no call or no result rate is less than 1% in a 2,100 patient study and commercially now we run several thousand samples we’re seeing approximately the same rate. So i.e., less than 1 in 100 samples, we don’t get a result for, so that is very good for both docs and patients. The test is now available, so that you can use this early in pregnancy from 10 weeks on so that’s very useful particularly for a women of advanced maternal age or who have some previous decision, so that you can have this test pretty much as soon as they know that they’re pregnant.

In terms, I will go through the all details here. Our initial goal was to have a turnaround time of 8 to 10 business days. I’m pleased as we become more profession of this test. We’re now able to do this unless in seven calendar days, so it’s literally a week. The importance of that really is not so much clinical in terms the physician, but at least for a women who has that test pending, the faster you can do it that better you’re able to reduce anxiety particularly if the result is negative. So that is the profile of the test.

In terms of the market opportunity, I don’t need to go into great detail here because we discuss this before. Our clinical validation study validates this test and so called high risk group of the total 4.3 or so million births in the U.S. every year, that amounts to about 750,000 potential patients.

That’s a pretty large chunk to chew for a starting diagnostic test. So long-term clearly, we would like to see this test how utility for almost any pregnant women in the low risk group, but we’re pretty comfortable for the moment our clinical data, everything we’ve done supports the chiefs in this group and we will later on provide information hopefully that will allow this later use in the low risk group. But 7,500 or 750,000 that’s a pretty good starting point for a diagnostic opportunity.

In terms of the benefits to patients obviously that’s ultimately the key; this is a very safe test. It’s a small blood draw as it’s supposed to a very large amniocentesis needle. It carries no risk of miscarriage, which is some of you know, many of you know it’s about one in 200, from amniocentesis. The removing having – to have that procedure clearly reduces anxiety and a blood draw is very easy to administer in a doctor’s office is supposed to having to go to specialist for amniocentesis. So I think in terms of the value of this test for patients and physicians, is extremely clear in these simple works.

At launch we launched this test on October 17, 2011 the initial target is composed of Maternal Fetal Medicine specialists and high volume OB/GYN’s that’s about a target audience of 7.5000 MD’s there are initial launches with 20 sales force in 20 metropolitan areas. The payer mix that we know well in this area is about 70% private pay, 23 Medicaid and the remainder 8% potentially self paid. Our initial focus obviously is on that the private insure market, and we’re working with them and others to ensure payment.

In terms of expanding the test, we were pretty confident that the MaterniT21 alone just the trisomy 21 test was very valuable. We’re very pleased that the results of our 18 and 13 further addition to this content is also in the very high performance arena with a 100% detection of trisomy 18, which is about one in 3,000 live births in the U.S. and the much rare trisomy 13 about 11 out of 12 cases is very hard to get those cases a 91%, 91.7% specificity.

So in total, we’re very pleased with the performance of this added content and again the importance of our test perhaps compared to published results from others is a very low no result rate of less than 1%. So again the vast majority of samples we get a result per patients with high accuracy. Just for emphasis, we launch tests on the basis of publications. This is not a necessary requirement of the CLIA lab, but we believe it’s important to have the clinical data available for physicians when you are going to introduce such important tests.

The launch of our test did not escape from the media, I won’t go into this, but we’ve got coverage and also to print media, on television (inaudible) and others and we were in the list of the top 100 discoveries, in Discovery Magazine, which pleased us in terms of this new technology. Importantly, this tests is not direct-to-consumer, this test has to be ordered by a physician. We believe this is important both for the type of the tests, and also for the protection of patients and physicians. So it’s simply the order form and our result form, which are very clear.

In terms, I think I probably covered many of these things already just in passing, so we have added to the contact with our 1813 publication, and we branded the test MaterniT21 PLUS of the consequence of that. We’ve decreased the expectation of turnaround to seven days and we’ve added additional sales force. So we feel very confident that we are positioned to expand this test over the next couple of years for a meaningful benefit to all concerned.

Obviously for those that you’re trying to model whether revenue and other things may look like over the next couple of years. I’d say that’s technically and otherwise fairly hard at the moment for reasons we can’t necessary help you with to begin with. Launching a new test like this certainly, there is a lot of enthusiasm for it, but it’s a little bit of a guess work as to what initial adoption may look like, what reimbursement may look like, and what the cost of goods or eventually the margin may look like.

In December, we presented the scenario just as what we thought was a reasonable starting point with our sales force, with the lower end of 25,000 units this year and a high end of 60,000 units. I’m glad to say that our initial experience of the last two months of 2011, and the first two months of this year we’ve seen incremental growth every week. And as we announced the first week of March, our run rate then was already like 20,000 if you annualize that and since then we have seen week-over-week growth. So I think the 25,000 is very doable, a little bit hard to predict high, how far of the curve were going to be, but we’re very pleased with adoption and the interest from physicians.

As I said, we’ve just send our new 23 sales reps into the field, so I think in the next couple of months we should see an inflection point as they get out there and do their business. This talks we can discuss in the breakout session, but clearly from a revenue perspective, when you launch a test like this, it’s cash accounting and it will probably take us about a year before we transition through accrual accounting at which point we will hopefully signed up several payers and also we have sufficient experience to convince our accountants that the average sales price is stable enough to make that transition, perhaps Paul can go into that a bit more detail later.

In terms of cost of goods, as I said earlier, this is a complicated test and if you want to compare this to our competitors, they are doing things very similar, it’s a complicated test for them as well. We don’t believe there is any significant reason why anybody out there today is reporting to commercialize this test is doing significantly cheaper than us.

So what we are focusing on, when we started this system of quality control measures build into the test. And then as we then launched that we would make improvements in that test and I’m glad to say that the first introduction was a blood draw method that we have introduced already using a more convenient and a cheaper method to do that in terms of shipping. So, we will continue over the course of the year to do that.

Unlike some of our competitors that we have kind of faced up and publicly declared what our cost of goods is, so you can study this. We understand all of the parts of this in terms of reagents, labor, logistics et cetera. And our goal, by mid-year, this test we believe, we’ll be running about $500, $600 per test.

Our objective in the next 12 to 18 months is to reduce that cost with a fixed royalty, obviously because we have royalties to pay like 30% to 40%. So we know where we can save costs and we’re working hard to reduce that over the next 12 to 18 months. And, then as we get to that stage, we anticipate there will be different ways to do this test, then we eventually five years to underwritten be even cheaper still. So a near-term focus on reducing what we have, a longer term focus on doing this in a different way that maybe more deployable potentially as an IVD and also much cheaper overall. Some of these we’ve achieved already.

Clearly, there is a lot of issues about litigation out there. We have a very strong IP folio. While there’s a lot of bubbling of litigation in the last month or two, for us as the management team, this is not something new. This is something we anticipated two years ago. We believe we have the core IP in this field. That is the underlying low 540 patent. That was discovery of fetal nucleic acids circulating maternal plasma or serum. We believe several of the folks out there are infringing this IP, which is a precipitated litigation.

We continue to exploit and define IP on methods. To do this, as I said earlier, we anticipate the issuance of claims (inaudible) to low on the sequencing itself during the course of this year. So the message here is we will strongly defend the IP we have against infringers.

In terms of financial highlights, revenue for last year was $55.9 million. We ended the year with $84.2 million in cash. During January we raised an additional, I think, it’s $58.4 million. So the bottom-line there is that we’re well financed to carry us through in to 2013 in terms of executing on our current portfolio and potentially expanding it.

And that ends the presentation. Just like to reiterate what I said at the beginning. We believed we’re now a company that is poised for growth. Thank you.

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