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Sequenom Posts 18 Percent Q2 Revenue Drop; Misses Estimates

NEW YORK (GenomeWeb) – Sequenom reported after the close of the market Wednesday that its second quarter revenues fell 18 percent year over year on lower diagnostic services revenue.

The San Diego-based molecular diagnostics firm reported revenues of $32.8 million for the three months ended June 30, down from $39.8 million for the second quarter of 2014. It fell short of the average Wall Street estimate of $36.1 million.

Its diagnostic services revenue declined to $30.9 million from $39.4 million year over year. Sequenom attributed the drop to approximately $6.1 million of incremental "catch-up" payments from payors for services performed in prior periods reported in Q2 2014 that were not repeated in Q2 2015, "as the timeliness of collections has improved with additional payor contracts."

The firm's license revenue climbed to $1.9 million from $402,000, reflecting fees collected under a pooled patent agreement with Illumina signed in December 2014. Sequenom said that there are now 32 participants in the patent pool, and many of the licensees are developing and validating their own noninvasive prenatal tests to be performed in their own laboratories.

Due to the pooled patent agreement and Sequenom's prior NIPT license agreement, the firm is experiencing "a transition to measurable licensing revenues in addition to our diagnostic service revenues for tests performed by our laboratory," Sequenom President and CEO William Welch said on a conference call following the release of the results. "This transition affected our second quarter 2015 results, where we observed a reduction in our diagnostic service revenue and NIPT test volumes, as two referring laboratories converted to licensing agreements."

One of those labs, Quest Diagnostics, launched its own QNatal Advanced NIPT in the second quarter of 2015 and now pays patent pool test fees, Welch noted.

However, the firm's NIPT test volume in Q2 was similar to that of the first quarter, excluding the strategic shift of samples by Quest, said Welch.

Sequenom said that total patient samples accessioned in the quarter decreased 12 percent year over year to 44,400 patient samples.  Approximately 36,400 of patient samples accessioned were for the firm's MaterniT21 Plus laboratory-developed test, a decrease in testing volume of around 11 percent compared to Q2 2014. "This decline primarily reflects the strategic shift of certain business from direct testing to tests performed by a licensee, for which Sequenom receives license revenues," it said in a statement.

"We signed agreements for an additional 10 million commercial lives in the second quarter and now have coverage in place for over 172 million commercial lives in the US," Welch added on the call. "We have agreements with three national payers including Aetna, CIGNA, and a master business agreement with Blue Cross Blue Shield Association."

In addition, he noted that an additional 40 million lives are now covered by Medicaid programs across 19 states that are reimbursing for the firm's tests.

Sequenom launched its VisibiliT test in the first quarter to address the average-risk market. "While still early in the launch, we see steady monthly increases in our global VisibiliT samples, and so far VisibiliT is tracking to our internal goals of over 8,000 tests for 2015," Welch said.

The firm also launched HerediT Universal, a universal carrier screening test, late in the first quarter, he noted, though sample volumes for that test were not material to the firm's results in Q2.

Sequenom posted a net loss of $9 million, or $.08 per share, for Q2 2015, compared to a profit of $4.5 million, or $.04 per share, for the second quarter of 2014. Last year's Q2 included $12.8 million in earnings from discontinued operations. The Q2 2015 loss per share failed to meet analysts' consensus estimate of $.05.

The firm's R&D spending in the quarter fell 20 percent to $5.7 million from $7.1 million, while its SG&A costs declined 25 percent to $16.9 million from $22.5 million.

Among its upcoming test launches are the MaterniT Genome, which will provide information about gains and losses of chromosome material across the genome as well as analyze seven "clinically significant" microdeletions. That test is expected to launch this quarter.

Sequenom also remains on track to release a liquid biopsy test in the second half of 2015 for research use only, said Welch.

Sequenom finished the quarter with $86.8 million in cash, cash equivalents, and marketable securities.

Company officials said they expect to report FY 2015 revenues near the low end of their guidance range of $150 million to $170 million.

In Thursday morning trade on the Nasdaq, shares of Sequenom were down 19 percent at $2.29.