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Low on Cash, Sequenom Asks Shareholders for Stock Placement, Struggles With Course Changes

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Sequenom is holding on for its very life.

The company said this week in documents filed with the US Securities and Exchange Commission that its cash holdings stood at $3 million as of March 31 — savings that it's likely to run out in June if it fails to raise more cash. The company has few other options.

In a preliminary proxy statement filed with the SEC, the company urged stockholders to approve a private stock placement that it proposed in late March and increased by $3 million to $33 million early this month thanks to commitments by partner Siemens.

"If we were unable to secure adequate alternative funding quickly, we could be forced to wind down and cease operations or sell or merge the company at a distressed valuation," the company said in the filing. "Without additional capital, meeting our working capital needs under a continuation of the current business model would prove difficult beyond June 2006," the filing said.

As of March 31, the company had unrestricted cash, cash equivalents, and investments of approximately $3 million. As of Dec. 31, 2005, it had $8.7 million in cash, cash equivalents, short-term investments, and restricted cash.

Last week, Ernst & Young, Sequenom's independent registered public accounting firm, issued a "going concern qualification" on the company's financial statements for the year 2005, filed on March 31, because of the company's significant operating losses and insufficient cash and investments to fund operations past the second quarter of 2006.

If Sequenom is unable to raise additional cash and decides to put itself on the block, it could find a suitor in Siemens, which has been carefully evaluating its MassArray platform for more than a year. The companies reported favorable results from those investigations as recently as last month.

The two companies began collaborating in October 2004 when the German conglomerate, which plays in the medical imaging field, decided it might follow rival GE Healthcare into molecular diagnostics [see 10/28/2004 PGx Reporter].

To be sure, Sequenom officials disavowed at the time that Siemens had been interested in acquiring any of its assets. But the company's dire financial straights, together with the partners' positive study results, could influence Siemens' decision to acquire some or all of Sequenom. Siemens has already taken a small step in that direction by pledging to invest $3 million in Sequenom's most-recent stock placement.

About two weeks ago, Siemens finished preliminary testing of the MassArray Compact platform's diagnostics capabilities at two CLIA testing sites in the United States and Europe, a step toward producing assays to run on that system.

Siemens has been testing the MassArray Compact against the platforms of four undisclosed Sequenom competitors, Harry Stylli, the company's CEO, said in a September conference call with investors. Siemens planned to "evaluate a range of platforms, because the link between molecular medicine, molecular imaging, and current imaging modalities is becoming more apparent," Murali Prahalad, vice president of business development at Sequenom, told Pharmacogenomics Reporter in October 2004.

The German conglomerate's medical division was interested in evaluating MassArray's genotyping, epigenetic analysis, and gene-expression analysis in diagnostics, said Prahalad.

Neither Siemens nor Sequenom returned calls seeking comment in time for this publication.

A part of Sequenom's current woes includes the delisting notice it received in late March for its failure to keep its share price above $1 for at least 10 consecutive trading days over the previous six months.

The company requested a hearing with Nasdaq, and was granted an April 12 date to appeal the delisting notice. Its shares will remain listed on the exchange until the hearing issues a result. Sequenom's shares were trading up 2.5 percent, or $.02, at $.82 in mid-afternoon trade on Wednesday.

Sequenom has changed its focus many times to regain its former status. In September, after a stint as a drug and diagnostics developer, the company fired CEO Toni Schuh in February, 2005, and tapped Stylli to replace him. After a round of layoffs and cost cuts in September, Sequenom reset its sights on its core research market. Simultaneously, the firm planned to look for partners for research and diagnostic development, with a special focus on cancer.

"It's an extension of the technology that we have in the research business that seems to be creating a market pull for us," said Stylli during a September conference call with investors.

Most recently, the company licensed patents from Isis Innovation, the technology transfer company of the University of Oxford, covering prenatal genetic diagnostic testing on fetal nucleic acids derived from plasma or serum in October.

Sequenom planned to provide homebrew information on tests produced from the patents to CLIA labs for their own in-house testing within approximately two years, and use the labs' experiences to accrue clinical data to support an application for US Food and Drug Administration 510(k) clearance "in maybe five years, plus or minus a year or two," Stylli said in October. Sequenom planned to use this route for all of its tests on fetal DNA, applying for FDA premarket approval for those tests without a predecessor, he said.

The patents apply in the United States and the United Kingdom, as well as in other countries in Europe, and they specifically protect fetal nucleic acid analysis "on any platform including mass spectrometry and real time polymerase chain reaction amplification platforms," Sequenom said in a statement.

The patents cover tests for cystic fibrosis, hemoglobinopathies (such as sickle cell anemia), chromosomal aneuploidies (such as Down's syndrome), and Rhesus D incompatibility.

— Chris Womack ([email protected])

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