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Lawsuit Could Threaten SQNM’s Growth Potential

|Includes: Sequenom, Inc. (SQNM)

Sequenom (NASDAQ: SQNM) announced yesterday that it had been named in a complaint filed by Aria Diagnostics seeking a judicial declaration that its pre-natal test does not infringe on a patent licensed by SQNM from Isis Innovation. The patent, entitled Non-Invasive Prenatal Diagnosis, protects the technology used in developing MaterniT21 LDT, a test commercialized by SQNM in Oct-11 for the prenatal detection of Down syndrome.

Aria, a private biotechnology firm, is currently conducting clinical studies to validate its blood test in detecting fetal chromosomal conditions in pregnant women. It appears as though such a test would directly compete with MaterniT21, which is designed to detect an overabundance of chromosome 21. SQNM has indicated that it will vigorously defend against the judicial declaration sought in Aria’s complaint.

SQNM has not yet released any data regarding revenue generated from its sales of MaterniT21. However, the company has indicated that its target market is approximately 750,000 women each year and that the projected price of the test is $1,900. That equates to a total market opportunity of $1.43 billion, more than 30 times the company’s annualized 3Q11 revenue.

Given the size of SQNM’s target market, the MaterniT21 test has the potential to be SQNM’s most significant revenue source. Any competition from Aria could limit that potential and, in turn, SQNM’s growth potential.

The Aria complaint is not the first set of issues SQNM has dealt with regarding its Down syndrome test. The company was subject to a recently completed SEC investigation into allegations that it and its representatives made false and misleading statements about the test while it was under development. The matter was closed in Sep-11 following SQNM’s entrance into a cease-and-desist order. The U.S. Attorney for Southern California and the FBI were also involved in the investigation.

Here is the 8-K disclosing the lawsuit.