Sequenom will likely not be purchased by Siemens or any of the company's other investor organizations as it struggles to stay afloat, according to CEO Harry Stylli.
"We did have discussions about potential strategic acquisitions, but not with these investors," Stylli told Pharmacogenomics Reporter last week.
He was referring to Sequenom's recently disclosed plan to sell $33 million in shares in a private placement. Because of Siemens' interest in Sequenom's MassArray platform the companies have an ongoing R&D alliance and in its own place in the molecular diagnostics market, the German industrial conglomerate could reasonably be expected to be planning to acquire Sequenom. However, Stylli said the firm will try to soldier on alone.
The investors involved in the company's current stock-placement efforts are: ComVest Investment Partners II; LB I Group, Pequot Private Equity Fund IV; and Siemens Venture Capital. The transaction is expected to close by May 31, and net proceeds will be used for general working capital needs, the company said.
"I know technically a change of control will occur."
Should stockholders approve of the placement, Sequenom will sell 60 percent of its common stock outstanding on Mar. 31. ComVest has agreed to purchase 19,090,909 shares of common stock, along with warrants to purchase 11,454,545 shares; LBIG has agreed to purchase 13,636,363 shares and warrants to purchase 8,181,817; Pequot plans to purchase 20,000,000 shares and warrants for 12,000,000; Siemens has agreed to purchase 7,272,728 shares and warrants for 4,363,638. If all four investors exercise their warrants right away, they will together own approximately 70 percent of common stock.
"I know technically a change of control will occur," said Stylli. "However, you have four very different investors who don't always work together," and at least two of them have never worked together, he said. The main difference between these investors and a typical investor group, he said, is that Sequenom is taking on a larger investment in order to fund its activities until 2008, instead of taking on more than one small investment with the potential for greater stock dilutions.
In an SEC filing last week, Sequenom said it had $3 million in cash as of March 31, which is enough money to keep it afloat until June. Sequenom hopes to become cash-flow positive in 2008.
In addition to funding its core business activities, the stock placement will finance the development of Sequenom's noninvasive prenatal DNA diagnostics business. The service agreements Sequenom has in its pipeline vary from "very small" to "transformational," according to Stylli. He declined to elaborate on the size or number of contracts.
Stylli blames Sequenom's sunken stock price which triggered Nasdaq de-listing procedures in September, and nearly did so on two earlier occasions in 2004 largely on its poor financial situation, in addition to its history and its changes in focus.
Stylli said he had very little indication of the shareholders' inclination toward the stock placement other than the company's current stock price. "If you use the stock price as a reference, it's actually gone up since the deal was announced and usually, if they're unhappy, they'd vote with their feet," he said.
Sequenom's share price closed at $.68 on March 28, the day the company urged shareholders to support the stock-placement plan. The stock was trading at $.79 on Wednesday at mid-day.
Should the stock placement fail, "it gets more painful from there, frankly," Stylli said. The company's back-up strategies would be "more egregious" than its current financing plan, he 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.
In the SEC filing, Sequenom said it has been granted an April 12 hearing with Nasdaq to appeal its most-recent delisting notice, which it received in March due to its noncompliance with the exchange's $1 minimum closing bid price requirement.
Sequenom's board of directors is also proposing a reverse split of the company's stock, according to the SEC filing, which it expects to "increase the market price of our common stock so that we are able to regain compliance with the Nasdaq minimum bid price listing requirement."
The proposed reverse split, "when implemented at an exchange ratio between 1-for-2 and 1-for-6, will result in the market price of our common stock rising to the level necessary to satisfy the $1 minimum bid price requirement," the company said.
The next step in Sequenom's collaboration with Siemens involves a study in HIV, after which the two companies may decide to work together "in a very broad way," said Stylli.
Chris Womack ([email protected])