After shutting down its pharmaceuticals business last week, Sequenom has decided to focus its resources wholly on its MassArray product line — particularly the mid-throughput Compact system — and on licensing out the diagnostic and therapeutic markers the technology helped to identify.
The move means that Sequenom, which has traditionally been a dominant player in the high-throughout SNP-genotyping space, will redouble its efforts to sell its flagship system worldwide.
The decision, which will be accompanied by 50 lay-offs by the end of the year and save Sequenom around $10 million a year in expenses, will also increase the velocity at which the company tries to enter the molecular diagnostics marketplace. To that end, Sequenom said it will begin marketing analyte-specific reagents in 2005.
Investor reaction since the announcement late last week caused shares in the San Diego pharmacogenomics tool company to slide significantly: Sequenom stock was down 9.09 percent, or $.10, at $1 late Wednesday afternoon. The stock closed at $1.08 July 29, the day Sequenom announced the restructuring.
“At this point in time, financial markets do not value early-stage drug discovery,” President and CEO Toni Schuh told Pharmacogenomics Reporter in an interview this week. “They value technologies to the extent that they generate revenues and, ideally, profits.” Moreover, the “current financial environment” and the resources the company has “do not allow us to continue to invest” in the pharmaceutical business, Schuh said during a conference call with investors last week, when Sequenom released its second-quarter earnings. “We simply cannot afford to support” it.
In a statement, Schuh said Sequenom will continue trying to license its genetic targets, though the company’s “main focus” will be building the systems business unit and “achieving profitability.” Asked in the call when he expects the company to reach break-even, Schuh replied it is currently “unclear.”
In the statement, he said that revenue from the company’s MassArray platform — which has been suffering from lackluster sales in recent quarters — “gives reason for optimism” looking ahead. CFO Steve Zaniboni added in the statement that sales of the newly launched desktop MassArray platform — which has had its own difficulties getting up to speed during the first three months of the year — have picked up during the second quarter.
The company will be ending all its internal drug-discovery research this quarter, though it will continue to seek licensing partners for the genetic assets it currently owns. These assets include disease-associated genes and mutations that span 11 diseases, including breast cancer, melanoma, lung cancer, prostate cancer, osteoarthritis, osteoporosis, schizophrenia, high-density lipoprotein, obesity, type II diabetes, and hypertension.
Sequenom had originally planned to use 10 percent of these assets for internal research and 90 percent for external collaborations. Schuh said this 10 percent represents the $10 million in annual costs that Sequenom will save when the pharma business shuts down.
To date, Sequenom has penned one “significant” collaboration, with Procter & Gamble. This deal, which focused on Sequenom’s osteoporosis targets, will not change following the restructuring, Schuh said.
“We feel that [these assets] are of very high strategic [diagnostic and therapeutic] value for organizations that are considering to make investments in these disease fields,” Schuh said in the interview. However, during the call, Schuh conceded that “the market for target deals is not very attractive.”
Schuh also said Sequenom plans to use some of its gene and mutation data to commercialize an ASR sometime in 2005. “The initial phase of ASR assays that we want to develop are not for our own discoveries,” he said. “They are standard tests that people are doing where for various reasons they are not happy with the technologies they have.”
He said Sequenom will develop “a range” of conventional analytical assays for established genetic markers that are used in clinical diagnostic service labs today. “In parallel,” he said, the company will partner with “entities” that will enable Sequenom to further validate its predisposition genes with existing clinical outcomes with the goal of identifying markers that relate to, for example, breast cancer predisposition and disease outcome prediction, Schuh said.
He said an initial product would focus on prenatal diagnostic panels for amniocenteses and chorionic villi sampling procedures — a market that Schuh said was worth $200 million in 2000 in the United States. He said this figure is based on 200,000 amniocenteses and chorionic villi sampling procedures performed in the United States that year, and stressed that newer market data show that as many as 400,000 of these procedures were performed in the country in 2003.
Schuh said Sequenom’s ASRs will initially be sold through large reference labs or university hospitals.
Schuh also denied that his company had recently been in talks to be acquired by Samsung, the Korean conglomerate, as Pharmacogenomics Reporter reported last week [see 7/2904 PGX Reporter].
It’s the Systems, Stupid
Zaniboni, the CFO, said Sequenom started the year with 20 sales staffers for the MassArray system. He said this number will increase by “at least two or three and more if capacity is required based on results.”
“We have revamped our sales organization to approach these new markets that we’re heading into now,” Zaniboni told Pharmacogenomics Reporter. The company is “expanding from the high-throughput genotyping that served us well, and moving into the medium-throughout market segment, and the general lab market.”
Zaniboni also said that sales of the desktop MassArray platform will “drive a significant portion of top-line growth,” reiterating a comment he made in May when first-quarter sales of the new unit were “longer than planned.”
He said he has “started to see the trends” for a stronger market for the Compact system during the second quarter. In fact, the desktop unit represented four of the seven MassArray sales Sequenom recorded during the three months ended June 30. Zaniboni declined to say how many of the full-size MassArrays were sold during the second quarter last year, but said the company sold 20 during the entire year. (The desktop platform was launched during the third quarter of 2003, and Sequenom began shipping them during the first three months of the year, Schuh said.)
Sequenom’s decision to scuttle the pharma unit comes after two consecutive year-over-year quarters of declining revenue, and a dramatic slide in share price that began in February [see chart].
Last week, Sequenom reported that total receipts for the three months ended June 30 fell to $6 million from $7.7 million year over year. Sales recorded on the systems side decreased to $5.8 million from $7.3 million for the second quarter last year, while receipts from the pharma business slid to $200,000 from $300,000 year over year.
Losses for the quarter widened to $9.9 million, or $.25 per share, from $9.3 million, or $.24 per share, year over year. Operating loss for the systems business increased by $1.3 million to $4.9 million in the quarter, while the operating loss for the pharma side fell by $1.1 million to $5.5 million, Sequenom said.
Second-quarter R&D spending, meantime, shrank to $6.1 million from $6.5 million year over year.
Sequenom said it had around $50. 7 million cash, equivalents, short-term investments, and restricted cash as of June 30.