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Sequenom: First Catalyst Is EU Patent

Jan. 08, 2014 7:57 PM ETSQNM, CBMX, DGX1 Comment
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Marty Chilberg is a seasoned financial professional with over 30 years of C-Suite, 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 Atari, Daisy Systems, Symantec and Visio. He took Symantec and Visio through their initial public offerings as their Chief Accounting Officer and Chief Financial Officer, respectively. The past ten years have been focused on emerging macro investing themes including Cloud and Genomic Medicines.

After the market closed today, Sequenom announced that the European Patent Office issued a new patent on January 1, 2014 (EP2183693 B1). This patent, entitled "Diagnosing Fetal Chromosomal Aneuploidy Using Genomic Sequencing", invented by Drs Dennis Lo, Rossa Chiu and Kwan Chee Chan of the Chinese University of Hong Kong. This patent is exclusively licensed to Sequenom and covers the European Union, and also includes Liechtenstein, Monaco, Norway and Switzerland.

This announcement should provide a catalyst over the next few days as the market absorbs the importance of this patent in the European market. I expect several additional catalysts in the upcoming weeks that combined could have a significant impact on the share price.

In the past two years, Sequenom has preannounced earnings on the Sunday leading into the JP Morgan Health Conference. Sequenom presents this year on January 16th, which could mean they will preannounce earnings sometime in the next week. They also use this conference to review their progress over the past year and to disclose their goals for the upcoming year. This potential catalyst is likely a positive, though dependent upon their performance over the past quarter.

On October 2, 2013, Sequenom submitted Premarket 510(k) Notifications to the FDA for its IMPACT Dx System, its IMPACT Dx Factor V Leiden and Factor II Genotyping Test. FDA approval would expand the market for this rebranded massARRAY platform, which has previously been research use only (RUO). FDA approval for this type of submission is typically targeted at 90 days, which means an announcement could come any day.

Sequenom has also announced that they have retained Jefferies to evaluate strategic partners or acquirers for their bioscience segment. This market opportunity is substantial once the FDA approval is received and Sequenom has announced that they do not believe they have sufficient capital to invest in this segment in addition to their prenatal diagnostic market opportunity. This strategic review has been ongoing now for four months with possible suitors potentially waiting for the FDA review.

A new marketing brochure has been found on the internet indicating some potential new tests: sequenom.uberflip.com/i/212031/15

This brochure has a couple of new carrier tests that have been branded under the Sequenom "HerediT" brand. HerediTSMA was developed by Quest Diagnostics and the others developed by Mt Sinai Genetic Testing Laboratory. See back cover of brochure for details. What makes this intriguing is that the FDA rules for LDTs require that only the lab that develops the test can process them. Both Mt Sinai and Quest have been using massARRAY for RUO for quite some time and it appears they are now ready to buy the IMPACT Dx platforms to process patient carrier screens for Spinal Muscular Atrophy, Fragile X and Ashkenazi Jewish panel. These 3 carrier screens have not been publicly announced which likely means they are awaiting FDA approval.

The brochure also references a new product branded NextView. This appears to be an amniotic fluid analysis for positive outcomes of the MaterniT21 Plus diagnostic screen. This test name has been trademarked by Sequenom though the test would be done by CombiMatrix. This is also likely going to be announced soon as the company will likely want to include it in their presentation next week. This could provide a significant increase in microarray tests done by CombiMatrix. In their last 10Q they disclose around 1,100 tests done. Sequenom has disclosed that a little over 2% of their MaterniT21 tests come back positive. On a base of 35,000 quarterly tests, that would result in roughly 700 tests for CombiMatrix. Nice uptick and likely to be announced in the next few weeks.

Disclosure: I am long SQNM, CBMX.

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