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Dusting Itself Off From Restructuring, Sequenom Hopes New Service Will Help Revenue Growth

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After an aborted flirtation with drug discovery and a brush with the specter of downgraded stock, Sequenom is looking for a way up and out.

Two days after CEO Toni Schuh reiterated to investors his plan to set the company on track to profitability — a move that scuttled the company’s nascent pharmaceuticals business and will cost 50 staffers their jobs by the end of the year — the San Diego-based company this week introduced what it hopes will become a new source of revenue: an assay design service.

The service, called Assays by Sequenom, is “a custom design and validated assay product offering for the MassArray system that encompasses all three of our major applications, including SNP genotyping, gene expression, and SNP discovery,” said Mike Terry, Sequenom executive vice president of sales and marketing.

Based on current pricing and customer projections provided by a company spokesperson, the new service may generate between $1.2 million and $2.5 million in annual revenue from existing MassArray customers.

Sequenom’s broader restructuring plan, announced July 29, is expected to save the company $10 million a year, Schuh said this week in a presentation at the Merriman, Curhan, Ford, and Company Investor Summit in San Francisco. “We will dramatically reduce cash burn,” he added, estimating 2004 cash burn will be $32 million. He said the company would likely end the year with $35 million in cash.

Sequenom is banking that its new assays business, and increasing sales of its bench top MassArray platform, will help drive these savings by increasing top-line growth.

“We are reasonably comfortable that we can sustain growth” similar to the kind Sequenom experienced in the second quarter of 2004, said Schuh. Revenue grew by 118 percent between the first and second quarters of this year — from $5.1 million to $6 million. However, in absolute numbers receipts lagged behind the $7.7 million in revenues generated during the same period in 2003.

Assays by Sequenom, also known as AbS, would initially sell mostly to the company’s customer base, which is “roughly 120 customers worldwide,” said Terry. The assays will cost $175 per unit, he added. A company spokesperson estimated that a typical customer will buy 100 assays per quarter, and that perhaps 15 to 30 percent of existing customers would purchase the service.

Sequenom’s database has allele frequencies on 200,000 SNPs across four ethnic populations, spokesperson Nate Purpura wrote in an e-mail. The majority of the 6 million SNPs available through AbS products are part of the public database, while about 10 to 20 percent are owned by Sequenom, Terry said.

The bulk of the SNPs available to AbS customers are also available through other assay design services. But the assays have the advantage that they reach “almost 100 percent reliability in terms of that assay working the first time,” because the they are validated on a minimum of 46 samples, according to Terry.

Sequenom will deliver the assays within 12 days, the company said in a statement. AbS products are guaranteed to a minimum call rate, and will produce gene expression data that are up to 80 percent valid when used with Sequenom’s QGE application, the company added.

Back to the Future?

AbS appears to be at once part of a return to the genotyping sector in which Sequenom had been a dominant player, and a step toward fulfilling a promise to broaden its customer base beyond the high-throughput labs. This latter component has already begun to contribute to revenues as the compact MassArray instrument gains traction in the marketplace. AbS will be another rung in Sequenom’s goal of reaching the midlevel market.

“As [our] customer base shifts from the high-end genetic institutes to the more mid-tier of the market, the assay design ability and getting initial success with experimental design is key to [the] mid-tier of the market,” Terry told Pharmacogenomics Reporter this week.

If the market is getting warm to MassArray, and the Compact version, it has still been a long wait for Sequenom. “MassArray system placements in the first quarter were below our expectations,” Zaniboni said in a statement April 29. “We see the number of new account opportunities for high-throughput genotyping reaching saturation.

“In addition, the sales cycle for our new MassArray gene-expression application and MassArray compact system are longer than planned,” he continued. Zaniboni said that product sales in the first-quarter of 2004, like sales in 2003 — which fell below expectations — caught Sequenom off guard. “I think that’s partially true,” he told Pharmacogenomics Reporter.

However, he said sales of the bench-top system “will drive a significant portion” of top-line growth during the remainder of 2004. In the statement, Zaniboni stressed that Sequenom “remain[s] encouraged by the level of new leads being generated for these products in the clinical market. We continue to develop our market for clinical genetics and molecular medicine. …” [see 5/6/04 PGx Reporter]

In fact, Sequenom CFO Steve Zaniboni said in August that he had “started to see the trends” for a stronger market for the compact MassArray, which is intended for mid-throughput users, in the second quarter. These “trends” drove the rise in the period’s revenue: The compact unit represented four of the seven MassArray second-period sales Sequenom made.

After the compact MassArray platform allowed Sequenom to enter the under-$300,000 market — the platform costs around $280,000 — the company’s “new customer set” included researchers involved in “applied genetics or clinical-type research,” such as “medicals schools trying to find a solution for a particular kind of disease, like cancer or diabetes,” said Terry.

The main competitors for Sequenom in this field are instrument and assay design companies like Applied Biosystems and Illumina, but none compares directly, said Terry. “With ABI’s exit from the [validated assay] market, we’re the only company that will not only design, but also validate the assays.”

Terry said there had not yet been commercial orders of the AbS.

— CW

 

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