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William Blair Downgrades Sequenom, Citing Coding Issues and Increased Competition; Shares Down Sharply

NEW YORK (GenomeWeb News) — William Blair today downgraded Sequenom after the San Diego-based company firm missed Wall Street estimates on the top and bottom lines in its second quarter.

After the earnings release shares of Sequenom were down as much as 56 percent today amid heavy trading.

Analyst Brian Weinstein downgraded Sequenom to Market Perform from Outperform and lowered his revenue estimate for full-year 2013 to $166.4 million from $200.4 million. He also lowered adjusted net loss estimates to $.87 per share from an earlier estimate of $.72 per share.

The downgrade follows earnings results from Sequenom on Wednesday. While total revenues spiked 91 percent year over year, the company noted issues surrounding changes to billing and payment codes for molecular diagnostics, resulting in some payments not being received in the quarter.

In response, Sequenom said that it would be curtailing some of its testing services to certain payors where payments are not being made.

In a research note, Weinstein said that he believes the biggest issue may be non-payment from state Medicaid programs, which may not yet have entered the new codes into their systems. Limiting services to the program, he said, may not be a viable option for Sequenom, however.

“With 25 percent to 30 percent of births coming from the Medicaid population, it seems clear that cutting off even some of the payments in certain states will be an additional source of pressure on volumes in the back half of the year, and likely calls the 150,000 internal target into question,” he said.

The company has set a goal of 150,000 MaterniT21 Plus test samples to be run for 2013. On Wednesday, Sequenom said that the annualized run rate at the end of the second quarter surpassed 150,000 samples.

While the reimbursement situation will eventually be resolved, it is unclear when it will happen, and "this will remain an additional source of pressure on volumes," Weinstein said.

He noted that the company's sequential growth rate for the non-invasive prenatal diagnostic test of 9 percent missed targets as a result of increased competition from other NIPD firms. Other firms offering such services include Ariosa Diagnostics, Illumina's Verinata Health, and Natera.

In the second quarter, Sequenom accessioned 38,000 tests, below Weinstein's target of 40,300, marking the "first time that volume has nto well outpaced our estimate and overall" analyst estimates.

Sequenom said that it is looking for ways to reduce spending in light of the reimbursement problem, but Weinstein said there is limited room for any cuts. R&D must continue to be funded in order to advance the company's products and to develop other technology platforms. Eliminating sales positions also would be inadvisable in the wake of increased competition.

"So while reducing costs is a solid idea in most cases, we are just not sure there is enough to cut without causing larger issues down the road," Weinstein said.

Shares of Sequenom today were down 31 percent at $3.24 in afternoon trading on the Nasdaq. During the day it was down as low as $3.00.

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