SQNM Jumps as Investors Gain Confidence with New Patent

Shares of Sequenom (SQNM) climbed 6% on Friday morning as investors took confidence in the announcement of a new patent issuance covering Sequenom’s methods for detecting fetal aneuploidy, which investors hope will help strengthen the company’s case in ongoing patent infringement litigation with competitors. The company posted solid revenue growth in the third quarter and anticipates demand for its MaterniT21 test to increase, implying a 90,000 annualized run rate for accessioned MaterniT21 tests. The maternal blood test can detect a genetic anomaly indicating fetal Down Syndrome without the necessity of invasive amniocentesis procedures; it is the first of its kind on the market. Sequenom claims that competitors like Ariosa Diagnostics and Natera infringe on the company’s non-invasive prenatal diagnostic patent, and initially requested that the court grant an injunction barring competitors from manufacturing or selling products using similar technology. Competitors have retaliated with their own suits, claiming that Sequenom’s US Patent 6,258,540 (‘540) does not exclude them from the development of similar analyses, and that the company is overly aggressive in enforcing the patent. The new patent announcement, announced after hours on Thursday, states that the USPTO will issue Patent No. 8,340,916 this month, titled Diagnosing Fetal Chromosomal Aneuploidy Using Massively Parallel Genomic Sequencing. While investors take heart in the strength of this and the ‘540 patent, litigation may not be settled for some time.

Sequenom firmed up the balance sheet in September with $130M in convertible  unsecured, senior notes, and plans to utilize the capital in further commercialization and development efforts. The company’s continuing cash burn, despite improving revenue, will no doubt prove the necessity of the financing deal, which should last the company into 2014, future income aside. The MaterniT21 test, the company’s lead product, has received considerable praise from the American OB/GYN community, and reimbursement for the product is improving. Additionally, the company announced in min-November that its genetic diagnostic for age-related macular degeneration (AMD) was able to accurately predict the risk for disease progression. The stock has risen 50% since its exciting third quarter earnings release on November 8th, but was just beginning to pull-back before yesterday’s announcement, suggesting that the stock may again retrace slightly without any major value-driving events until 4Q financials. In fact, before noon shares had traded off of earlier highs. Considering the company’s solid financial position, increased demand for the MaterniT21 diagnostic, and consistent revenue growth, SQNM remains attractive in the long-term, particularly if the company can secure its litigation claims and keep competition out of the market for a little longer. We do, however, remain interested in fellow genetic sequencing company, Illumina, Inc. (ILMN), which you can read more about in our previous report.