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Sequenom Runs More Than 13K T21 Tests in Q2; Plans to Expand Capacity in US and Overseas

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This article was originally published July 30.

Sequenom is planning to expand its prenatal testing capacity in both the US and overseas as strong sales of its flagship MaterniT21 fetal aneuploidy test drove a 38 percent revenue boost for the company in the second quarter.

The company processed more than 13,000 MaterniT21 tests in the second quarter — more than double the number of tests that were run in the first quarter (CSN 5/9/2012). The sequencing-based test, which launched last October, is now the largest contributor to the company's diagnostic revenue, CEO Harry Hixson said during a conference call discussing the company's second-quarter 2012 earnings.

As such, the company plans to increase its testing capacity in both the US and overseas. Hixson said that during the third quarter, the company will hire an additional 25 sales representatives and managers, bringing its total sales team to 75. Additionally, it is doubling the capacity of its San Diego facility to 200,000 tests per year from 100,000 tests per year.

It is accomplishing this in part by increasing the level of plexing on MaterniT21 from four samples to 12 samples and by using improved sequencing reagents from Illumina.

Additionally, as the company has previously stated, it is planning "process enhancements," such as automation, improved bioinformatics, and additional efficiencies to reduce its cost of goods per test. This quarter, it added the ability to determine fetal sex to the assay.

Sequenom is also working to expand its international presence and has recently signed agreements to make MaterniT21 available to physicians in Northern and Eastern Europe, the Middle East, and Japan, Hixson said.

Sequenom has two different strategies for expanding overseas, said Ron Lindsay, Sequenom's executive vice president of research and development.

Within the larger European countries, it is working to license its technology to local firms, similar to its agreement with Konstanz, Germany-based LifeCodexx, which is developing a test to be launched in Germany and other German-speaking countries. Lindsay said that Sequenom is currently "in discussions with two players" for such an agreement, but did not elaborate.

For smaller European countries, as well as some Asian and Middle Eastern countries, Lindsay said the company now has arrangements in place where samples will be collected locally, shipped to Sequenom, and then returned to the patients' physicians. Those tests will be paid for in advance, he said.

The company has increased its internal goal for tests billed in 2012 to 50,000 from 40,000 — double a goal set in January of billing 25,000 tests in 2012.

Higher Revenue, but Higher Expenses

MaterniT21 sales spurred a 38 percent increase in total second-quarter revenues to $18.3 million from $13.3 million in the year-ago quarter, but the company missed analyst consensus revenue forecasts of $19.2 million.

Paul Maier, chief financial officer, said that MaterniT21 made the largest contribution to the company's diagnostic services revenue, which soared to $8.1 million from $1.6 million in the second quarter of 2011.

Meantime, revenues from the company's genetic analysis business decreased 14 percent year over year to $10.1 million from $11.7 million, due to reduced systems sales and "softening" consumables sales, Maier said.

The company decreased its R&D spending to $13.9 million, from $17.1 million, but general and administrative expenses increased 68 percent to $21.3 million from $12.7 million.

This increase reflects both an increase in labor costs due to the expansion of its diagnostic services, as well as an increase in legal expenses primarily related to patent disputes surrounding the MaterniT21 test. During the second quarter, Sequenom spent about $3.5 million in patent litigation.

Sequenom is currently embroiled in lawsuits with Verinata Health, Ariosa Diagnostics, and Natera over prenatal aneuploidy tests these companies are developing.

Most recently, Sequenom appealed a decision by a federal court to deny a preliminary injunction it had sought against Ariosa (GWDN 7/17/2012).

Hixson declined to provide further comments about the ongoing litigation.

Sequenom finished the quarter with a net loss of $29.6 million, compared to a net loss of $20.9 million in the year-ago quarter. Again, the company attributed the widening net loss to increased costs associated primarily with the growth of MaterniT21.

The company finished the quarter with $98.6 million in cash, cash equivalents, and marketable securities.

It used $12.4 million of cash in operating expenses, and $11.6 million in purchases of capital equipment and intellectual property. Maier said those expenditures included the expansion of the San Diego and North Carolina laboratories.

Company officials reiterated previous statements that reimbursement is in line with expectations, although would not disclose its average per-test reimbursement. Currently, 26 million lives are covered under contract, said Hixson, adding that Sequenom is still "working to achieve in-network status" with national, regional, and local payors.