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Sequenom Future Testing Service = Low Cost NIPT?

Per 8k filing today

On June 13, 2014, Sequenom, Inc. ("Sequenom"), through its wholly-owned subsidiary Sequenom Center for Molecular Medicine, LLC ("SCMM"), entered into an Agreement for Services (the "Services Agreement") with Quest Diagnostics Incorporated ("Quest"), pursuant to which SCMM will provide its MaterniT21 PLUS laboratory-developed test service to Quest, and has agreed to provide a related laboratory-developed test service to Quest in the future following its commercialization (such related future test service, the "Future Testing Service", and together with the MaterniT21 PLUS laboratory-developed test service, the "Testing Services"). After an initial period following the execution of the Services Agreement through the term of the Services Agreement, Quest has agreed not to order from or contract with any other laboratory, other than SCMM, for the provision of non-invasive prenatal testing services for or on behalf of Quest's physician customers and their patients (the "Quest Exclusivity") and SCMM has agreed not to provide or contract with any third party laboratory that has securities that are traded on a public stock exchange with annual revenues greater than one billion dollars for the Testing Services. Notwithstanding the foregoing, in the event that the Future Testing Service is not commercialized by SCMM by a date sometime in the fourth quarter of 2014, then the Quest Exclusivity shall immediately terminate. Pursuant to the Services Agreement, Quest has agreed to pay SCMM a fixed fee for each Testing Service performed by SCMM on Quest's behalf.

The Services Agreement has a term of two years, but shall automatically renew for additional terms of one year each unless either party provides at least 60 days prior written notice to the other party; provided, however, that the Services Agreement can be earlier terminated (i) by the mutual agreement of the parties, (ii) by a party upon an uncured material breach of the Services Agreement by the other party, (iii) by Quest if any action is taken against SCMM to revoke, suspend or terminate any license to operate a clinical laboratory or to revoke, suspend or terminate SCMM's participation in Medicaid, Medicare or other federally funded programs, and such action is not resolved within 90 days, or (iv) by Quest if the Testing Services are determined by a court to infringe the intellectual property of a third party and SCMM has not obtained the rights necessary to enable Quest to continue to use the Testing Services or an alternative and comparable testing service.

Concurrently with the execution of the Services Agreement, Sequenom and Quest entered into a License Agreement (the "License Agreement") pursuant to which Sequenom granted Quest a royalty-bearing, non-exclusive license (without the right to sublicense) to rights held by Sequenom related to patents and patent applications filed in the United States, Canada, Mexico, and India (the "Territory") for the use of cell-free fetal nucleic acids from biological samples obtained from pregnant women for prenatal diagnostic testing by whole genome massively parallel sequencing (the "Licensed Rights"), for use by Quest solely to develop, perform and sell laboratory-developed tests for non-invasive detection and diagnosis of prenatal aneuploidy and fetal abnormalities in the Territory. Pursuant to the License Agreement, during such time that a claim of a patent or patent application included in the Licensed Rights remains in effect, Quest has agreed to pay Sequenom a royalty each time results of a laboratory-developed test utilizing the Licensed Rights is generated on behalf of a single patient and such results are provided to the patient and are intended to become part of the medical records of such patient (each, a "Reportable Result"). This royalty is the greater of (i) a specified percentage of the net sales of each Reportable Result or (ii) a specified dollar amount for each Reportable Result, which such dollar amount shall, following the five-year anniversary of the License Agreement, be increased on an annual basis to adjust for inflation.

The License Agreement shall remain in effect until the last to expire of the Licensed Rights; provided, however, that the License Agreement can be earlier terminated (i) by a party upon an uncured material breach of the License Agreement by the other party, (ii) by Sequenom if Quest challenges the validity of the Licensed Rights and such challenge is not withdrawn within 30 days, or
(iii) by Quest, in its sole discretion, upon 90 days prior written notice to Sequenom.

The foregoing descriptions of the terms of the Services Agreement and the License Agreement are qualified in their entirety by reference to the Services Agreement and the License Agreement, which will be filed by the Company as exhibits to its Quarterly Report on Form 10-Q for the quarter ending June 30, 2014.

Disclosure: The author is long SQNM.