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Patent Pool Provides Sequenom Second Revenue Stream, Frees it to Focus on New Products


NEW YORK (GenomeWeb) – Sequenom this week provided additional details about the agreement with Illumina to settle its intellectual property dispute that resulted in pooling their respective patents, saying that the agreement would provide a second revenue stream and enable the firm to focus on new test development.

During a conference call discussing Sequenom's 2014 fourth quarter and full-year performance, CEO Bill Welch said that in 2015, licensing fees from third parties developing their own tests as well as royalties from those tests would bring in between $6 million and $14 million in revenue.

Welch also said that the company's average-risk test, VisibiliT, is now available in the US and reiterated the company's intention to develop a universal carrier screening test, a noninvasive whole-genome karyotyping test, and a liquid biopsy test.

Regarding the patent pool with Illumina, Welch said that there are 21 licensees, including Quest Diagnostics and the Mayo Clinic, as well as both Sequenom and Illumina. In addition, he noted two recent labs in Japan that have licensed NIPT technology from Sequenom: SRL and GeneTech. Both labs have completed internal validation to run tests from their own labs.

The patent pool "helps clarify any confusion over IP rights," Welch said during the conference call. It "provides a single point of contact for those wishing to license for NIPT testing."

Also, as part of the settlement, Sequenom is transferring its in vitro diagnostic technology, study protocols, and samples to Illumina for the development of an IVD. Once launched, Sequenom will receive royalties from the test. The firm recognized $22.9 million from Illumina and expects to receive another $21 million once the remaining protocols and samples are transferred, which Sequenom anticipates will happen in the third quarter.

Welch said that the settlement with Illumina would provide "long-term value" to Sequenom, but at least one analyst was less optimistic about the patent pool's value. William Quirk, an analyst with Piper Jaffray, wrote in a note following the call, that he "remain[s] cautious regarding the pool and expect[s] lower [MaterniT21 Plus] test revenue to offset the operating profit benefit gained from royalties."

In addition, one of Sequenom's key patents, known as the '540 patent, is under review for its patentability.

Sequenom purchased that patent in October from Isis Innovations, and it is the patent that it asserted in its previous lawsuit with Illumina as well as in ongoing lawsuits with Ariosa Diagnostics and Natera. However, last September, a US Patent and Trademark Office board ruled that certain claims of the patent were unpatentable. Sequenom has appealed the decision, and Welch said that a ruling from the court of appeals could come as early as April. "If Sequenom prevails," Welch said, "we'll look to pursue an award for damages by companies we believe are infringing."


In January a new CPT code specific to noninvasive prenatal tests was rolled out. Welch said that unlike changes to the coding system in 2013, which had a negative impact on reimbursement, many payors have already loaded the NIPT-specific code into their systems. The code "will ultimately improve our ability to obtain reimbursement," Welch said.

As of the end of last year, it had 162 million lives under covered contract. In addition, it has made significant progress with state Medicaid programs, and Medicaid programs in 15 states are now reimbursing for MaterniT21 Plus, Welch said. Revenues from Medicaid in the fourth quarter of 2014 were up significantly to $9.8 million from $3 million in the third quarter. However, Medicaid typically reimburses at a lower rate, and the average reimbursement per test fell to $1,000 in 2014 from $1,200 in 2013.

In addition, Welch said that he does not expect significant reimbursement for VisibiliT, its average-risk NIPT, until 2016. Sequenom launched VisibilT outside of the US in Q4 2014, and Welch said during the call that the test is now available in the US.

VisibiliT aims to be comparable to serum screening, providing a risk score for only trisomies 21 and 18. Welch said that patients would likely have to pay the $795 list price out of pocket. He anticipated that the test would probably be self-pay until 2016, although he said that a few payors may start covering it by the end of this year.

New products

In January, Sequenom announced that it would launch new products this year, including VisibiliT; a universal carrier screening test, HerediT Universal; a noninvasive whole-genome karyotyping test; and a research-use-only liquid biopsy test based on sequencing circulating tumor DNA. 

Consistent with comments it made in January, Sequenom said the HerediT Universal will screen for over 1,000 mutations involved in 250 disorders and plans to launch that test in the first quarter this year.

It will also launch an NGS-based noninvasive whole-genome karyotyping test in the second half of the year that aims to be competitive with array-based invasive tests. Dirk van den Boom, chief scientific and strategy officer, said that "there are significant microdeletions and duplications that are very large and detected by karyotyping" that can have a "severe clinical impact." Based on feedback the company has received, he said that it determined that a test that could provide that information noninvasively would be valuable, adding that the company would provide more details about the test later this year.

With regards to its liquid biopsy test, Welch said that the strategy is to develop it for research-use only to be used in the context of clinical trials. The firm decided to pursue this direction after its MaterniT21 Plus test uncovered a number of incidental findings of maternal cancer. The findings "highlight the power of our technology and its applications for circulating tumor DNA," Welch said. In addition, he said the company is preparing a manuscript for publication describing its incidental findings of maternal cancer.

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