Sequenom Still Seeks Down’s Syndrome Grail (SQNM)
Sequenom, Inc. (NASDAQ: SQNM) is trading lower in the after-hours session after the troubled diagnostics company reported its year-end earnings. Because of its recent woes of 2009, the earnings and revenue reports are a true side-show compared to what the company is updating over its pipeline and over its products.
We would note that actual trading could whip around significantly during the company’s conference call due to very speculative nature of the company and due to its trading history in 2009 and so far in 2010.
The company gave a T21 (Down syndrome) update, and it does not sound like the company is throwing in the towel here nor anything at all like it is backing off… This is the biggest issue, or has been, for the company. At least that is our take. Sequenom said that it “remains committed to the development, third party validation and launch of a noninvasive T21 test. R&D efforts focus on DNA based approaches using our MassARRAY platform and next-generation sequencing platforms. Collectively, the R&D and clinical sample collection costs that will be required to enable a pivotal third party T21 test validation study represent the single largest investment the company will make in 2010.”
More specifically, Paul V. Maier, interim chief financial officer, was quoted as saying, “With the completion of a strategic review in late 2009, we are now focused on funding priority projects in 2010, which includes continuing to make a major investment in T21 development and clinical studies. An additional project which will receive priority funding for 2010 includes development of the next generation of MassARRAY instrumentation.”
Sequenom Close To Getting Off, Maybe Scott-Free (SQNM)
Sequenom, Inc. (NASDAQ: SQNM) may be pulling the oldest hat trick in the book. It is settling a class action suit. This always sounds good on the surface, except for the notion that these class action settlements can sometimes exonerate a company from future liabilities. The good news here is that there is an opt-out provision. The bad news is that it might not matter.
The SEC filing stated:
On January 15, 2010, Sequenom, Inc. announced entry into a stipulation of settlement which will resolve the class action securities lawsuits consolidated under the caption In re Sequenom, Inc. Securities Litigation, S.D. Cal. Case No. 09-CV-0921 LAB (WMc), pending in the U.S. District Court for the Southern District of California. Attorneys for Harry Stylli, Paul Hawran, Allan T. Bombard, Charles R. Cantor, Steven Owings, Harry F. Hixson, Jr., and Elizabeth Dragon, all of whom were named as defendants in the consolidated lawsuits, have also entered into the stipulation of settlement. The stipulation of settlement, a copy of which is filed as Exhibit 99.1 hereto, remains subject to preliminary and final approval by the U.S. District Court.
Subject to final approval of the stipulation of settlement by the U.S. District Court, in exchange for a release of all claims by the class members and a dismissal of the consolidated lawsuits, we have agreed (i) to pay the class members and their attorneys a total of $14 million which will be funded from insurance proceeds, (ii) to issue to the class members and their attorneys shares of our common stock, and (iii) to adopt certain corporate governance measures, including an amendment to our Bylaws to provide that at all times a majority of our directors must be independent. The number of shares of our common stock to be issued will be determined on a date to be established after final approval of the settlement by the U.S. District Court and will constitute 9.95% of the shares of our common stock outstanding post-issuance, provided that certain shares issued after entry into the stipulation of settlement, including any shares issued in a bona fide financing, in connection with a licensing, collaboration or acquisition transaction or pursuant to our currently existing equity incentive plans, will be excluded from the shares outstanding calculation. As of December 23, 2009, we had 61,693,241 shares of common stock outstanding, and if the share number had been determined as of that date, we would have been obligated to issue 6,816,743 shares of common stock pursuant to the terms of the settlement.
In connection with the approval of the stipulation of settlement, our board of directors implemented the agreed upon corporate governance measures and approved the amendment to our Bylaws.
If the settlement is approved preliminarily by the U.S. District Court, potential class members will be notified of the proposed settlement and the procedure by which they can request to be excluded from the class. The settlement will then be subject to final approval by the U.S. District Court.
Many shareholders are likely at odds over whether they should be in settlements or not. The company further noted, “The settlement agreement contains no admission of liability, but the company is settling the lawsuit to avoid potentially lengthy, costly, distracting and time-consuming litigation.” Shareholders here were duped and have been crucified and probably deserve more than what they can or will get from the company if all the fraud allegations are anywhere close to the truth. Unfortunately, there may only be a limited amount to get back now that the company has limited prospects and has seen its cash dwindle.
It is worth noting that the new management team is not the team involved in the old scandal. That is at least something that needs to be a reminder when it comes to the pitchfork riots that could have been seen here in this instance.
Shares are up over 5% at $4.39 this morning before the market opens on the news.
JON C. OGG
Friday’s Top BioHealth Movers (ACOR, AVNR, CXM, LXRX, SVNT, SQNM, SPPI)
This has been a quiet trading day, but not in the land of biotech and medical technologies that comprise the BioHealth sector. These are this morning’s top movers in the group:
Acorda Therapeutics, Inc. (NASDAQ: ACOR) is down over 15% after the FDA made public the background material over Acorda’s Fampridine. Full data can be found at:
AVANIR Pharmaceuticals, Inc. (NASDAQ: AVNR) is up 6.5% at $2.45 and it was one of the top gainers this morning, but has since come off of highs of $2.68. The company announced additional detailed results from the confirmatory double-blind Phase III STAR trial evaluating two doses of the investigational drug Zenvia™ in the treatment of pseudobulbar affect among patients with underlying multiple sclerosis (MS) or amyotrophic lateral sclerosis (ALS). Zenvia met the primary efficacy endpoint by reducing PBA episode rates by an incremental 11.9% beyond placebo. The lower dose Zenvia group did not achieve a statistically significant reduction in PBA episode rates compared to placebo.
Cardium Therapeutics Inc. (AMEX: CXM) is one of the top winners of all stocks today with a 19% gain to $1.82. This one is set to make a presentation soon, but the move today appears to be based upon a positive recommendation from a boutique firm called Skymark Research.
Lexicon Pharmaceuticals, Inc. (NASDAQ: LXRX) is getting tooled after a secondary offering. The company sold some 33,333,333 shares of common stock at $1.50 per share after a $1.77 close yesterday. We have shares down about 13% at $1.53. It turns out that 19,894,076 shares are being offered through the underwriters and 13,439,257 shares are being offered to Invus, L.P., Lexicon’s largest stockholder.
Savient Pharmaceuticals, Inc. (NASDAQ: SVNT) is seeing a surprise 7% gain to $14.28 this morning. This is surprising considering that its secondary offering of 4.3 million shares priced at $13.29. One item helping more is that this stock was also Raised to Outperform over at Oppenheimer.
Sequenom Inc. (NASDAQ: SQNM) is running again on no news and is up another 9.8% at $3.67 today. Traders keep touting that there may be no intentional wrongdoing from management and the recently fired staffers. This is still very much an at-risk company, although making any predictions at this point would be based entirely upon incomplete data that still has many unknowns.
Spectrum Pharmaceuticals, Inc. (NASDAQ: SPPI) is down some 17% at $5.12 after it received a complete response letter from FDA for FUSILEV in advanced metastatic colorectal cancer noting that it did not demonstrate that FUSILEV is non-inferior to leucovorin. The response also recommended that it meet with them to discuss options for continuing to seek approval of FUSILEV in advanced metastatic colorectal cancer.
JON C. OGG
Sequenom (SQNM) Stock Crushed On Disclosures
SEQUENOM (SQNM) is off 45% to $3.18 on news that the company’s board of directors have concluded that as a result of the company’s attempted transition from researching potential molecular diagnostic tests to developing and commercializing those tests, the company failed to put in place adequate protocols and controls for the conduct of studies in the Trisomy 21 program at the company. Certain of the company’s employees also failed to provide adequate supervision. In the absence of such protocols, controls and supervision, the test data and results in the company’s Trisomy 21 program included inadequately substantiated claims, inconsistencies and errors. Due to deficiencies in the company’s disclosure controls and procedures, in a number of instances such test data and results were reported to the public in the company’s press releases and other public statements.
The company has terminated the employment of its president and chief executive officer, Harry Stylli, Ph.D., and its senior vice president of research and development, Elizabeth Dragon, Ph.D., effective immediately.
Douglas A. McIntyre
Rumors Abound in SEQUENOM (SQNM)
Sequenom, Inc. (NASDAQ: SQNM) is trading much higher and on active volume this morning, although not on official news. Traders are attributing this to rumors of positive developments in the company’s troubled Down’s Syndrome test, SEQureDx. It is hard to trust the company because it has avoided being specific in just what was mishandled as well as what the remedies, if any, are going to be. All we have so far is a hope of a launch date in 2010, and that is going to be heavily dependent upon the data.
We originally expected a summer 2009 launch on this before the company came out disclosing inconsistencies, and that took out almost three-quarters of the value of the company’s stock overnight.
The trading in call options has been significant on the hopes of this. Here is the SEPT-2009 CALL OPTIONS trading alone after just over 1 hour since the open:
STRIKE Volume OpInt
$5.00. 1,439 14,976
$6.00. 7,771 10,405
$7.50. 4,742 16,525
$9.00. 1,915 5,011
$10.00 1,341 3,555
Shares are up about 11% at $5.90 this morning on 11 million shares as of 10:38 AM EST and the 52-week trading is $2.86 to $29.14.
Be advised that the average volume here is about 10.4 million shares. This is not the first round of rumors that has been out on this one, and it probably won’t be the last round of rumors on it.
This stock is a true coin toss. The company is on a cash burn rate rather than on an income rate, and it may have to raise cash to keep operations running normal too far beyond the end of this year and to fund much higher legal costs as a result of its Down’s test issues. If it turns out that the test results were not mishandled or that this is the next holy grail in detecting Down’s, then this stock will be back significantly higher.
Conversely, if this turns out to be all hype and not the next major test for Down’s then this stock will be a much smaller fraction of today’s prices… regardless of its old highs above $20.00.
JON C. OGG
Sequenom's Quality of Life: Cash Versus Burn Rates (SQNM)
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.
Sequenom at least has something positive to talk about (SQNM)
Sequenom (Nasdaq: SQNM) announced University of Michigan study results Monday night that demonstrated its experimental AttoSense test detected the human pampillomavirus in 15 percent of women that previously tested negative for it.
The test has not even been submitted to the FDA for approval, so it has many hurdles before it could ever become an approved standard of care. That said, the study results may ignite speculation that it may become an important future market for the company, eventually leading to significant HPV re-testing.
The test also shows the value of a recent acquisition. Sequenom acquired the technology from SensiGen in January of this year. It previously was developed under an agreement with Sequenom.
Sequenom remains a potentially radioactive stock. The company has made only a few announcements since the end of April, after it last provided earnings and announced a delay in its SEQureDx Trisomy 21 test due to employee mishandling of R&D data. The data mishandling has sparked investigations, and still poses questions about the value of the company’s intellectual property.
The company is scheduled to report quarterly results on July 29, where its executives may be grilled. But it appears that after the UofM AttoSense test, analysts may have something potentially positive to talk about on the conference call, as well – Mike Tarsala.
SEQUENOM's Share Gains: News or Noise? (SQNM)
SEQUENOM, Inc. (NASDAQ: SQNM) was the stock star of the day. We won’t bother telling you about the past problems in recent weeks from the company. The company has not released any new news since the end of April after it gave earnings and announced a delay in the launch of SEQureDx Trisomy 21 test due to employee mishandling of R&D data. The exponential volume surge today was due to rumors that the company was close to some remedies of the woes from that employee mishandling of R&D data.
Based upon the company’s potential Holy Grail test for detecting Downs Syndrome in early pregnancy and because of the key needs in detecting other pre-birth abnormalities in babies, we personally have hopes that there is at least some truth to these rumors out there. But rumors are rumors, and we are skeptical of all unfounded reports. So we put in a call into the company’s investor relations department, and placed calls into the outside investor relations firm and the outside media relations firm.
We also have the company listed as one of the corporate sponsors of the Genomic Tools & Technologies Summit taking place currently in San Francisco. So far no data has been seen from the company out of that conference and we have also not heard back from the sponsors about any imminent data or buzz.
Did SEQUENOM Commit Corporate & Investor Suicide? (SQNM)
SEQUENOM, Inc. (NASDAQ: SQNM) looks like the newest implosion of a hopeful company that was supposed to have the Holy Grail for detection of Downs Syndrome. After yesterday’s close the company announced that its expected launch of its SEQureDx™ Down syndrome test was delayed. This stock had more than 30% of its float listed in the short interest, and the news is so bad that you now know why.
We do not want to make accusations here over fraud, but it is very hard not to under the circumstances. Whether or not fraud is the issue, the company has done much worse than merely damage its credibility. The reason was explained as being “due to the discovery by company officials of employee mishandling of R&D test data and results. Accordingly the company is no longer relying on the previously announced R&D test data and results.” This is essentially the kiss of death for any speculative or emerging company in the Bio-space.
The company claimed that it has not changed plans to develop in parallel its RNA- and DNA-based methods for the Down syndrome test, and it said that it will “endeavor to have a validated test in the fourth quarter of 2009.” It now intends to launch the Down syndrome test upon publication in a peer-reviewed journal of the results from the on-going large, independent clinical studies.
SEQUENOM’s board of directors has formed a special committee of independent directors to oversee an independent investigation of the employees’ activity related to the test data and results; and the committee engaged independent counsel to assist the committee in the conduct of the investigation.
Although the company is not aware of any potentially inappropriate activity related to the reported results of its other tests under development, the company is currently reviewing the data for all tests. As a result of this ongoing review the Rhesus D, Cystic Fibrosis and Fetalxy tests are now anticipated to begin launching in the third quarter of this year. Unfortunately, this throws questions endlessly and is a total game and sentiment changing development.
The explanation here is odd, or maybe more than odd. The company said it “believes that its Down syndrome program has suffered a temporary setback but that the SEQureDx technology is scientifically and technically sound… and believes that it has the financial resources to commercialize its test for Down syndrome and other prenatal disorders.”
Read more
Sequenom Scores on Down Syndrome Detection
Sequenom, Inc. (NASDAQ: SQNM) is having a major trading response to its Down Syndrome testing news. The genetic-analysis and molecular diagnostic solutions provider gave additional positive results from screening studies on its noninvasive circulating cell-free fetal nucleic acid SEQureDx™ Technology.
This is to enable the detection of fetal aneuploidy, including Down syndrome from maternal blood. The presentation is from its Sequenom’s analyst briefing in New York City.
Sequenom’s test demonstrated no false positives and no false negatives in both first and second trimester samples. Over 200 samples were announced today and this is now in excess of 400 prospective samples to-date. Sequenom executives were joined by a panel of leading scientists and clinicians to discuss these study results and updates in the development of noninvasive prenatal diagnostics.
With the abundance of women having children later and later in life, Down Syndrome testing is going to be more important than ever. In fact, it could be front and center after the election as VP-candidate Palin’s family is affected by this.
Jon Ogg
September 24, 2008
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