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MDx Coding Changes Impact Sequenom's Dx Revenues; Company May 'Curtail' Some Services

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This story was originally published July 25.

Despite a 91 percent increase in revenues in the second quarter, Sequenom said today that changes to how molecular diagnostic tests are coded and billed are impacting its ability to get reimbursed.

As such, President and CEO Harry Hixson said during a conference call to discuss the company's second quarter earnings that it plans to implement expense reduction initiatives that could include the "curtailment of services for which there is no current reimbursement available."

Hixson declined to provide specifics about which services it would cut back, and which payors were not paying, but said that the curtailment would not be limited to its MaterniT21 Plus test. Additionally, such a cutback of services could impact the company's internal goal of accessioning 150,000 MaterniT21 Plus tests during the year.

"If we curtail the offering of our services to certain payors because they are not paying us, that may have an impact and make it more difficult for us to achieve our internal goal of 150,000 [tests accessioned]," Hixson said.

Following the call, Piper Jaffray analyst Bill Quirk wrote that the curtailing of services "appears to be short-sighted for T21 given the existing guidelines and accelerated pacing of medical necessity certificates."

Additionally, Quirk said that despite missing consensus estimates for revenue and tests accessioned, the investment firm views Sequenom's billing and collection problems as "largely transitory."

Sequenom brought in total revenues of $34.9 million in the quarter, up from $18.3 million in the year ago quarter, but short of the consensus analyst estimate of $46.3 million.

"Though revenues from our diagnostics business continue to grow year over year, these revenues were below our expectations for the quarter, primarily because of coding changes and a transition to an in-house collections process, which was completed in May," CFO Paul Maier said during the call.

Sequenom has also begun to feel pressure from the increased competition in the noninvasive prenatal testing space, Hixson said. Verinata Health, Ariosa, and Natera now all have tests on the market. The competition has "moderated our growth rate, as anticipated," he said.

Additionally, Sequenom's competitors have all inked distribution deals with large reference laboratories that have existing contracted networks, which may be impacting Sequenom.

"Some of the competition has partnered with various reference laboratories, so there are various restrictions in distribution" said COO Bill Welch.

For instance, Natera has agreements with Bio-Reference Laboratories and Quest Diagnostics to offer its Panorama test.

The Laboratory Corporation of America struck a deal with Ariosa Diagnostics to offer its Harmony Prenatal Test, and Verinata Health, which was acquired by Illumina, has a deal with PerkinElmer to market its Verifi test.

Welch indicated that these deals may be impacting Sequenom's ability to secure contracts with insurance companies. For "certain payors, there's a desire not to add new labs to their system," he said.

Nevertheless, the company still accessioned around 38,000 MaterniT21 Plus tests in the second quarter, up from 35,000 in the first quarter and 13,000 in the year ago quarter. Total tests accessioned rose 130 percent in the second quarter to 46,700 patient samples from around 20,000 in the year ago quarter.

On the reimbursement front, the company now has 74 million lives covered and is "on track" to reach its goal of 120 million covered lives by the end of the year, said Hixson. He added that since the company struck a broad agreement with the Blue Cross Blue Shield Association in May (CSN 5/15/2013) to offer its testing services to independent BCBS companies, it has been progressing in entering into contracts with those affiliates and expects to have "most under contract by year end."

Financials

Sequenom's total revenues increased 91 percent from the year ago quarter to $34.9 million from $18.3 million. Revenues from its genetic analysis business increased 2 percent to $10.3 million while diagnostic revenues rose to $24.5 million from $8.1 million. Diagnostic revenues made up 70 percent of total revenues, compared to 76 percent in the first quarter.

Operational expenses were $39.2 million, up from $34.3 in the second quarter of 2012, while selling and marketing expenses were up to $13.5 million from $11.3 million. Research and development held steady at around $13 million. General and administrative expenses were up to $12.7 million from $9.9 million, primarily due to increased legal expenses associated with patent litigation, increased head count, and increased billing costs, Maier said.

Net loss for the quarter was $31 million. It ended the quarter with $106.9 million in cash, cash equivalents, and marketable securities.

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