Friday, December 19, 2008
(Cont'd from above)...

Jim (cont'd):   

Sequenom is developing a noninvasive test for chromosomal abnormalities like Down's syndrome and other genetic disorders that can completely change the way we test unborn babies for these conditions. If you don't have kids... if you've never had them... this is going to make it so that you... you're probably not going to get the story, okay... but I don't care... I'm going to try it anyway...

The current tests in the market like amniocentesis and CVS... they're invasive... They also pose life-threatening risks to babies still in the womb... The risk of amniocentesis related miscarriage is one in 1600... CVS is believed to be one in 100...

Okay, look... I've had two kids alright... and no potential parent should like those odds. I have to tell you that I found the whole process daunting and scary... So does every prospective parent in the country. And I wasn't the one on the business end of the needle... If I was concerned, you should be concerned.

Unlike amniocentesis, where the doctor has to poke a needle into the woman take a direct tissue sample from the amniotic fluid, around the fetus... Sequenom's test, called the SecureDX, test the fetus by capturing the cells that are laminated in the mothers blood during gestation.

Down syndrome detection is going to be the first big market opportunity for Sequenom's technology. The Down's syndrome detection study data that the company released in September showed no false positives and a 99.1% detection rate. It's a little less accurate than amniocentesis... that's 99.7%... but, unlike amniocentesis, it's not at all dangerous to the baby... That makes the risk/reward better...

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In January of 2007, the American College of obstetricians and gynecologists recommended that all expectant mothers should be offered screening for Down's syndrome. The previous recommendation was only for women 35 or older... so there should be more women being tested no matter what. The recommendation was also two-stage process... in which pregnant women first considered less invasive screening options. But the current less invasive test provides a risk/reward that can result in false positives and negatives. That's not the case with Sequenom. Their test provides a definitive yes or no answer, and it's detection rate is almost as good as amniocentesis. Plus, it can be done earlier in the pregnancy. This is really important for amniocentesis...

Sequenom's test can detect Down's syndrome as early as 12 weeks... the end of the first trimester... while amniocentesis is done in the second trimester. I'm not a political guy here... I'm just telling you the reality of when... which means a lot to some people.

Even if Sequenom's test doesn't replace amniocentesis as the gold standard, I can definitely see it becoming the widely adopted first-line test.

Now, when is he going to launch?...

June 2009 as a Down's syndrome test only... it intends to add more prenatal test options as it goes along. How about baby gender?... That's going to be within a year of the original product launch.

How big is the market for Sequenom's test?...

2.8 million serum screening tests annually, 450,000 amniocentesis tests performed annually just in the US... so Sequenom thinks that this could be a $1.2 billion opportunity in the US, $3.5 billion opportunity worldwide... It thinks gender testing could represent a $300 million to $450 million opportunity in addition...

These are big numbers... come on, this is only a $1.2 billion company...

Alright, should we worry about the FDA?... No.

How crazy is that?...

Sequenom's test has been developed as a laboratory development test, or also known as a homeproved test and, under government regulation, these tests aren't subject to premarket review by the FDA. Hallelujah... we've got a revolutionary diagnostic test, and the FDA shouldn't be able to shoot down... it's unbelievable.

This is serious! I remember when people didn't think that over-the-counter pregnancy tests would ever happen, same as this one... and boy, were the doubters wrong about that... a big market.

Now this product launches in June of 2009. Sequenom's main business should be its proprietary molecular diagnostic system. That's called Mass Array... it helps identify biomarkers, primarily in cancer... a big business. New sales of this platform could come to eventually to more than $600 million a year. The market's got a compound annual growth at 20%...

The catalyst... this is what is important... because remember, when you speculate, we have to have a reason to buy and a reason to sell...

Sequenom has a big pile of data coming out on January 31 at the Society for Maternal Medicine meeting in San Diego. If the results are as good as the last study... no false positives and no false negatives in both the first trimester samples... well, the stock I think could really roar, so you've got your data point, alright...

Now it doesn't report its fourth-quarter until February. It expects the company's cash burn to be around $36 million, and also expects to see some costs associated, obviously, with the launch of the Down's syndrome test in 2009. If the company is burning through more cash than $36 million, we're going to be a little bit more circumspect...

The Street expects this company to turn a profit in 2010. If you want to figure out the valuation, I say Hologic Inc. (HOLX) -- a former Cramer fave -- paid for Third Wave this past June... for its HPV test. If Sequenom were to get bought at a similar level, its takeover value would be 27%... 33% higher than today...

I can definitely see this company getting a takeover bid...

Here's the bottom line for this Speculation Friday...

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The Bottom Line!:     Sequenom Inc. (SQNM), the company, could revolutionize the way we test babies in the womb for Down's syndrome and potentially for a lot of other conditions. If that happens Sequenom, the stock, could go wild... But you don't have to pay up for it... you've got more than a month before the next Down's syndrome data point comes out. So you've got time to do this speculation homework... in other words, Monday this one is not going to fly... unless you move it... and that would be wrong.

[verbatim recap]

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