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William Blair Begins Coverage of Sequenom, Bullish on MaterniT21 Assay

NEW YORK (GenomeWeb News) – William Blair initiated coverage of Sequenom today with an Outperform rating, citing the commercial potential of the San Diego-based company's T21 molecular diagnostics test.

Analyst Brian Weinstein estimated in a research note that Sequenom would have 2011 revenues of $54.8 million and 2012 revenues of $78.8 million.

Weinstein is bullish on Sequenom's MaterniT21 Down syndrome assay and said that interest within the clinical community for the assay is brewing. A survey conducted by William Blair of maternal-fetal medicine specialists, traditional obstetricians-gynecologists, and genetic counselors, suggests there is pent-up demand for the assay. And he said there is little long-term damage from Sequenom's troubles in 2009 resulting from the mishandling of R&D data.

Weinstein estimated the initial addressable market for the test at $800 million in the US, and "[a]s Sequenom's T21 assay gains market acceptance, we believe the test will begin to blur the current age-driven market segmentation, and we would not be surprised if there is some level of adoption by lower-risk women as a primary screen."

Sequenom has said that its clinical lab, the Sequenom Center for Molecular Medicine, expects to launch the assay as a laboratory-developed test after the publication of clinical data, anticipated in late 2011 or early 2012. A manuscript has been submitted to a journal, but as of Aug.5, when Sequenom announced its second-quarter earnings results, it had not yet been accepted.

At an investors conference in June, Chairman and CEO Harry Hixson said Sequenom is talking with the US Food and Drug Administration about a proper design of a clinical study for submission of the test for pre-market approval and hopes to submit an application to the agency by the end of 2012.

Hixson added during Sequenom's most recent earnings conference call that the firm has begun building a commercial infrastructure for launch of MaterniT21 and expects to have 20 prenatal sales representatives in place by the end of this month.

In a his research note, Weinstein noted promising preliminary data from Sequenom's "Locked Assay" study on MaterniT21 and called results of 100 percent sensitivity and 99.8 percent specificity "stellar."

Beyond MaterniT21, he called the work of Dennis Lo, a researcher at the Chinese University of Hong Kong, on genome-wide scanning of circulating cell-free fetal DNA in maternal plasma "intriguing" for its commercial implications. Sequenom has signed a series of licensing deals with the university covering Lo's research.

The company's assay pipeline, Weinstein added, addresses several attractive markets — including age-related macular degeneration, Rhesus D genotyping, and cystic fibrosis adult carrier screening, as well as T21 — that total more than $3 billion annually.

"While we caution investors that there are significant risks that could derail Sequenom's T21 opportunity, including IP and competition concerns, unresolved reimbursement levels, and the actual performance of the test in a large clinical trial, we believe the overall market opportunity and reasonable consensus expectations for initial adoption make this an appealing investment opportunity for investors seeking higher risk," Weinstein said.