Sequenom's Quality of Life: Cash Versus Burn Rates (SQNM)

August 7, 2009 · Filed Under R&D, daily 

Sequenom Inc. (NASDAQ: SQNM) gave an earnings report that only highlights its cash on hand versus a total expected cash burn rate.  The troubled diagnostics is down over 11% at $5.35 right after the open.  The company posted a loss of $20.2 million or -$0.33 EPS on a 29% drop in revenues to $9.17 million. Thomson Reuters had consensus estimates at -$0.27 EPS and $8.2 million in revenues.

R&D spending rose to $10.2 million from $6.4 million, while its SG&A expenses rose to $8.2 million from $4.3 million a year ago. Those SG&A costs are directly tied to legal expenses and to costs associated with a salesforce.

To add insult to injury, the quarter also included roughly $1 million in restructuring costs.  The company also gave projections saying that it would lose $65 million for all of 2009.

The company’s MassArray sales have continued to take a hit.  We think some is genuinely from the economy and soft sales in medical devices, but we think there is also a cloud over it from the related fallout because of its problems in the Downs Syndrome test data earlier this year.  The company’s legal costs are running much higher and of course the reevaluations needed are driving up its research and development costs.

System-related revenue was essentially halved to $3.3 million, services fell to $677,000 in revenues from $1.2 million.  There was at least a gain in the consumables revenue, as that figure rose to $5.2 million from $4.9 million.

As far as that annual loss projection of -$65 million, it had previously offered a range of -$62 to -$65 million.  The annual target of $32 to $35 million in revenues from genetic analysis was left intact, but we did not get guidance for its molecular diagnostics revenue. This loss expectation for the year is largely in-line with estimates, but it also dashes any quick hopes of a sudden fix after its earlier problems this year.

Sequenom ended the quarter with cash, cash equivalents and short- and long-term marketable securities of $69.3 million and it said accounts receivable were $7.5 million.  Effectively, the company just outlined its cash burn rates versus cash on hand.

The company did note that it is poised to introduce a series of molecular diagnostics tests to the market, including the first of those based on cell free fetal nucleic acids.

The launch of its SEQureDx™ Down syndrome test was delayed because of what appears to be tainted data and that has been the cloud over the company ever since.  Had that not been the case, it is plausible that its other orders might not be soft.  It turns out in life that when companies have tainted or fudged data in one key aspect of their business, it also makes at least a portion of the customer base skeptical of the unrelated products.

Sequenom has traded in a range of $2.86 to $29.14 over the last year.  If the company can demonstrate that its SEQureDx™ Down syndrome test is really the Holy Grail of tests, then the company has a bright future despite the woes.  But if the tests turn out to demonstrate much less in accuracy than thought, then Sequenom may be facing a serious quality of life issue.

JON C. OGG
AUGUST 7, 2009

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