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Sequenom Q2 Revenues Rise Sharply, but Miss Analyst Estimates; Lashes Out at MDx Code Changes

NEW YORK (GenomeWeb News) – Sequenom reported after the close of the market on Wednesday that its revenues in the second quarter jumped 91 percent year over year, but missed the consensus Wall Street estimate as changes in molecular diagnostic billing and payment codes delayed receipt of payments.

For the three months ended June 30, the San Diego-based company pulled in $34.9 million in total revenues, compared to $18.3 million a year ago, but was well short of the consensus analyst estimate of $46.3 million.

Diagnostic services increased three-fold to $24.5 million from $8.1 million a year ago, while genetic analysis product sales and services inched up to $10.3 million from $10.1 million.

Sequenom said that it, along with other diagnostic firms, saw delays in receipt of payments as the Centers for Medicare and Medicaid Services, Medicaid, and third-party payors adopted new molecular diagnostic codes, which included the elimination and replacement of certain molecular diagnostic billing codes.

As Pharmacogenomics Reporter reported in May, many labs and diagnostic test developers are unhappy about the new changes.

On a conference call after the release of the earnings results, Sequenom Chairman and CEO Harry Hixson said, "Several payors are requesting additional information to process claims for services, and certain payors, including most state and Medicaid plans, have not implemented the new codes or in some cases are no longer providing coverage for certain tests.

"We knew that these coding changes were scheduled to be implemented at the beginning of 2013, but didn't expect these changes to slow or reduce payments to the degree we experienced in the second quarter, especially with government payors," he said. "We are taking actions to reduce costs and improve our overall financial performance, including the curtailment of services for which there is no current reimbursement available."

Hixson did not specify which tests the company would curtail or to which payors, but said that it would not be limited to its MaterniT21 Plus test. No test has been discontinued entirely. Additionally, he said that the company has not yet curtailed its services, but if it did because certain payors aren't paying for them, "that may have an impact and make it more difficult for us to achieve our internal goal of 150,000."

Additionally, the Sequenom Center for Molecular Medicine, which provides Sequenom's diagnostic services, transitioned to an in-house billing system from an outsourced billing provider in the second quarter, and collections by the external billing provider were less than anticipated, contributing to less than expected diagnostic revenues.

In the second quarter, diagnostic revenues comprised 70 percent of total revenues, compared to 76 percent in the first quarter, Sequenom said.

Total tests accessioned rose almost 130 percent in the second quarter to 46,700 patient samples, the company said. About 38,000 of the patient samples tested during the quarter were MaterniT21 Plus test samples, up from 35,000 during the first quarter, it added.

The annualized run rate for the non-invasive prenatal diagnostic test at the end of the quarter surpassed 150,000 samples, the company said.

On the reimbursement front, Sequenom said that negotiations with payors continue and as of the end of the second quarter, more than 74 million lives were covered for the MaterniT21 Plus test. During its first-quarter earnings call, Hixson said that the firm had inked a five-year deal with the Blue Cross Blue Shield Association to offer independent Blue Cross Blue Shield companies access to Sequenom's laboratory testing services on a voluntary basis.

Sequenom continues in its efforts to sign up additional BCBS affiliates, and "[b]ased on recent projections, we are on track to reach our stated internal goal of 120 million lives covered by the end of this year," the company said.

In June, Sequenom CMM completed the build out and validation of an additional laboratory location in Raleigh-Durham, NC. The new facility is processing patient samples commercially.

Internationally, the company in May announced a deal with Laboratoire Cerba in France bringing its MaterniT21 plus test to parts of Europe, the Middle East, and Africa.

Sequenom's net loss increased to $31.0 million, or $.27 per share, compared to a net loss of $29.6 million, or $.26 per share, a year ago, and missed the average Wall Street estimate of a loss of $.22 per share.

R&D spending was flat at $13.0 million, but SG&A costs increased 24 percent to $26.2 million from $21.2 million a year ago. The increase resulted from high labor costs associated with the expansion of the Sequenom CMM sales force and increased headcount to support commercial operations. Also, legal expenses associated with patent litigation increased, the company said.

It ended the quarter with $106.9 million in cash, cash equivalents, and marketable securities.

"We have seen remarkable growth in the last year, but we have also identified opportunities for renewed efficiencies with regard to our spending plans in the last half of this year," Sequenom CFO Paul Maier said in a statement. "Going forward, we plan to implement expense reduction initiatives to reduce our net operating loss as we work to improve reimbursement."

He provided no details about the initiatives, saying on the conference call only that "We are looking broadly, in a broad range of categories."