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Sequenom Inc. Message Board

  • marty.chilberg marty.chilberg Apr 2, 2013 7:30 PM Flag

    Amazing lack of substance these days

    Probably not surprising based upon the void in new information after the prelim release of C12 info, but still seems like all the energy is out of the board. Too many posts of inaccurate info from BTomm and Hippity Hop I guess. Thought I'd share some thoughts on the 10k in hopes others with substance would like to jump in.

    Cystic Fibrosis test is doing quite well despite claims to the contrary:
    The 10k disclosed C12 revenues increased $4.5m. While they don't disclose actual numbers, there is enough information since release to estimate that this test generated around $10.9m in C12, up 70% over C11. The average recognized revenue per test processed is around $500 despite the fact that this is still on a cash basis. The COGS on this tests appears to be around $300 so it is nicely profitable on a gross margin basis. The 10K also states that approximately 1.1m tests are processed in US each year. Sequenom did approximately 21k or around 2%. The new test claims to analyze 6x the mutations and variants of other methods/tests. Even if we look at this with some scepticism, the test appears to be doing quite well for a "me too" test when launched.

    RetnaGene AMD is contributing modestly.
    The 10k disclosed that this test grew by $2.4m in C12. It was launched last year and is cash based so I'm assuming the revenue is only $2.85m up from $450k last year. Based upon numerous disclosures, it appears the test is growing most only modestly. The cash collection process likely drove higher revenues late in C12 so revenue is likely ramping more than the test is. My belief is that this test generates about $850-950 in revenue. No idea what the cost is, but wouldn't be surprised to see it just about break even given the test complexity. Personally don't think this will take off unless there is some better treatment options found to encourage earlier diagnosis.

    RhD. Estimated at $2.1m for CY up from $1.4m past year. Estimate this contributed around $300k GM.

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    • Marty, Thanks for the very detailed, pro bono, break-down of the 10-K. I don't post often and frankly don't check this board very often any more but your posts are always well-informed and appreciated. I posted quite some time ago that I thought they should give up on trying to defend 540 and that they should sell off MassArray and I was jumped on like chopped meat in the Lion's den by the board regulars. The truth is MassArray has been trending downwards and I think they are still looking for the killer app for that tool, notwithstanding some outstanding research endeavors.
      As I have opined here many times, I think 540 is crusty and old and not worth investing a lot of money in. This is a trend in IP where one doesn't have an utterly dominant position. Look at Kodak's recent patent auction where Microsoft, Apple, Google, Samsung and Intellectual Ventures got together to bid down the patents to $500 mm instead of the 2.5 bln Kodak had been estimating they were worth. Most of the rationale for that bidding was not to grab the licensing revs but to avoid future litigation over these patents (Samsung had already paid Kodak $500 mm for licensing of one patent). Apple recently settled with HTC. Siemens and GE don't even bother litigating IP in medical imaging but meet once a year to work out cross-licensing deals because it is MUCH cheaper than litigating. SQNM and ILMN should do the same and get on with gobbling up this HUGE market. SQNM should also get on with patenting every improvement in the test.

      What is your best guesstimate as to when they report positive earnings since your guess would be more edumacated than mine?

      • 1 Reply to incrediblefredible
      • Wish I had a crystal ball....It's all dependent upon getting contracts and converting to accrual for a large chunk of their tests. Based upon the company statements, it would appear they believe this will be in 2H of this year, likely Q4. I take that with a grain of salt though. They have missed their expecations for so long that I can't rely on their guidance with respect to billings/contracts. I've put a placeholder conversion in my model for Q4 but wont' call it a forecast or estimate.

        The trend is quite telling, but we need to see another quarter or two of growth in ASP and lives under contract. The increases in Q3-Q4 could have been boosted by the CTAF and ACOG statements. With the providers going to medically necessary that should also result in acceleration of cash reimbursements. I track revenue reported per accession as a metric. It is based upon reported numbers so it's accurate. It has been increasing nicely in the context of the test ramp staying reasonably constant. The sequential growth in ASP for all LDT's was:
        Q1 5%
        Q2 5%
        Q3 23%
        Q4 32%
        This seems to clearly indicate an acceleration of cash reimbursements, and that the ramp itself increased upward in 2H of C12. I suspect that's why the stock started rallying just prior to the ILMN acquisition derailed it. I'll be better able to answer the profitability Q once we see Q1 results for ASP and covered lives.

    • New molecular diagnostic CPT codes went into effect for CF testing on January 1st and the Medicaid contractors for CMS have recently released their gap-fill reimbursement amounts for the new codes...which apply to the SQNM test....and those reimbursement rates are over 50% lower than hey we're in 2012.

      Just thought you would want to know that truth, not just the BS management tell you to post.

      Sentiment: Strong Sell

      • 1 Reply to n_s_sherlock
      • How you conclude 50% of what was seen in 2012 is unclear. The company has already said that Medicaid is extremely lagged and inconsistent so hard to see how anyone could determine how much of our reported revenue in C12 was Medicaid. However you make good points. New CPT codes will impact cash reimbursement rates for medicaid. If you assume that around 20% of the tests are Medicaid and that they have paid in roughly 9 months in C12, that could mean that the revenue ramp will slow by perhaps 5%. If so we could see the ASP drop from $500 to $475 per accession, before any new growth caused by the launch of the new test. Time will tell.

    • Costs this quarter were clearly disappointing, which is what led to the missed earnings:
      -The company had noncash charges for stock compensation in Q4 of $4.1m, up $1m from Q3.
      -G&A spending was up a whopping $3.5m from Q3. The 10k states they had an increase of $11.3m this year in legal costs, primarily for patent litigation.
      -R&D was up $1.1m in Q4 from Q3. Appears costs were related to the N.Car lab certification process.
      -S&M was projected to be higher in Q4 due to hiring. However, the increase was higher than expected growing by $2.1m.
      - Other income included a charge of $1.1m for cumulative translation expenses that were realized do to the shut down of the UK subsidiary. Noncash this quarter and should be nonrecurring.

      Much of this is consistent with the reduced cash burn in quarter as both translation and stock comp are noncash. However, they saw a big increase in liabilities this quarter so some of this is window dressing.

      • 1 Reply to marty.chilberg
      • This disclosure shows up in the 10K with respect to stock based compensation charges:
        During the fourth quarter of 2012, we completed a review of the performance metrics under which certain performance based stock units vest, as well as the forecasted amount for those performance metrics. Based on this review, we have determined that it is probable that the performance milestones will be met in 2013. In accordance with the authoritative guidance, this change in accounting estimate was made effective October 1, 2012 with a catch-up adjustment of the related stock-based compensation expense in the fourth quarter of 2012 totaling $1.1 million representing the amount of compensation earned as if the expense had been recorded on a straight-line basis since the issuance of the units.

        This appears to say that the $1.1m jump in stock comp expense recorded in Q4 is a nonrecurring catch-up charge.

    • Marty, I stated they are money losers and they are. Where is accrual accounting for CF test as hoped for By HH in 2010. Where are the inaccuracies. Every cash raise by HH is underwater. That is a fact. Please show me the error of my ways. Thx.

      • 1 Reply to btommasino
      • My point exactly. You believe what you ramble on about despite the facts that are at your disposal. The company reports the diagnostic segement separately every quarter. That segment gross margin trended as follows this year:
        Q1 (44%)
        Q2 (16%)
        Q3 (11%)
        Q4 19%

        They also provide test processed for MaterniT21 and the other LDT's. They also provided revenue growth Y/Y for CF and AMD this year. Add that to all the data points over the past 2 years and you can clearly see that the points you keep promoting as truth are in fact not.

    • MaterniT21 recognized revenues have also been trending pretty well considering the lack of overall progress signing national payors. The ramp in recognized revenue per test processed this year is estimated as:
      Q1 $272
      Q2 $336 (up 24% )
      Q3 $486 (up 45%)
      Q4 $693 (up 43%)
      So with ASP increasing and the test ramping, the recognized revenues are on a very solid trend line. I estimate that they recorded $30.6m in MaterniT21 revenue this year vs approx $ 160k last year. They appear to have generated gross profit of about 16% on this LDT for Q4.

      MassARRAY sales are not doing well. They significantly reduced the disclosure for the operating income generated from this segment for C12. System sales, consummable sales and contract research revenues were all down Y/Y. The active installed base is also pretty static. They disclosed over 335 at CYE compared with over 300 that was disclosed in Q2-2011. Not much activity.

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