Going forward the strategy I employ on a stock like this will be to repeat what I did above: sell the "edge" part of the position in the lower $21s (which was the recent high) and if the stock bursts through that recent high, this should signal a new leg higher so we'll rebuy (somewhere near $22). If it fails at that level (lower $21s), we'll keep repeating what we just did (rebuy the edge position lower and keep trading it) So far so good.
A couple of these stocks have simply been amazing trading vehicles as we sit and churn, churn, churn in the market. I keep repeating, what used to take weeks or months to play out, now happens in hours or days. So you can book a lot of "round trips" and lock in gains - and repeat over and over. Eventually it will be wrong to trade them and the stocks will make sustained moves up, but until the pattern breaks - keep playing the pattern. When the pattern does break, we will have to pay "up" once to get our position back. Specific to SQNM the real growth story is late 2009 to 2011, so valuation today is tricky - much like Obama, it's a lot of potential and hope with a somewhat limited track record but promising beginnings. While I like to hit a lot of doubles and singles, and not strike out much - I also like to have a few potential home runs in the portfolio - this is one of those.
The latest good press is via Justin Ferayorni at Realmoney.com (published in Yahoo Finance so I can reproduce) who specializes in healthcare stocks. If you've been following along the website much of this content is repeated from what I have posted in the past, but I am a "generalist" (I know a bit about every sector) so I like when people who focus on just 1 sector have the same bullishness I do.
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Sequenom
The Down's Opportunity
There may be no single event more joyful and miraculous than the birth of one's child. And while the nine months of anticipation brings all sorts of emotions, anxiety is one of them as expecting parents pray for their child's good health.
Anxiety, science and our wealthy health care system has driven demand for the triple test, which screens for several development abnormalities, the most common of which is Down's syndrome. The triple test is purely a screening tool -- women whose hormone levels are out of the appropriate range are referred to follow up, usually amniocentesis. The advantage of the triple test is its noninvasiveness -- it is merely a blood draw. Its lack of predictive value remains its disadvantage. Yet nearly 3 million triple tests at $600 each are performed in the U.S. each year according to Sequenom, nearly a $2 billion market.
Women deemed high-risk typically receive amniocentesis or CVS (chorionic villus sampling), and together are performed nearly 500,000 times each year in the U.S. Both procedures are invasive -- amnio collects the amniotic fluid, while CVS involves collecting placental tissue. Both procedures carry a risk of miscarriage and infection. These procedures are time-consuming and 2 to 3 times as costly as the triple test. CVS can be performed earlier in the pregnancy but can lead to false positives. Amnio is the most accurate test available today to determine Down's syndrome.
In total, these tests cost the U.S. health care system between $3 billion and $4 billion yearly (roughly $1,000 per baby) to determine whether a fetus has Down's syndrome. Given the drawbacks, the opportunity exists for a less invasive, more accurate test to help expecting parents through their pregnancy.
The Technology
Sequenom's SEQureDx test uses an elegant approach to fetal genetic screening. As it turns out, fetal DNA can be found circulating in the mother's blood. By using a standard blood draw, Sequenom can extract the fetal DNA and use its MassArray technology to determine whether the fetus has Down's syndrome or not. So far, the test has been 100% accurate. To be clear, the test does report "no calls," which as the name suggests do not determine a "yes" or a "no." These tend to be samples without enough genetic material to quantify an answer with high confidence.
This same genetic screening technology used on the same sample will eventually be expanded to test for other genetic disorders such as cystic fibrosis, thalassemia and sickle cell anemia, among many others. Each of these represents a new market opportunity for the SEQureDx platform.
The Stock
The company will unveil data of a larger study in Down's syndrome on Jan. 31, 2009. Not surprisingly, the data are highly anticipated by the investment community. Many investors are waiting on the sidelines to see what the data hold (if there are false negatives or false positives, or other confounding factors). Other investors expect that no matter the data, the stock will exhibit a sell-on-the-news reaction. This conclusion seems reasonable with a priori logic: If the company already reported 100% accuracy, how can it get any better? That is, the news will necessarily be as expected or worse than expected.
From my perch, I cannot blame any investor for waiting to see more data. Let's face it -- the data we have so far are from a relatively small set of patients. The question in my mind is, are more investors with more capital waiting for the data point to get a chance at an entry point (barring an outcome that puts the test at a disadvantage to currently available tests), or are there more "flippers" waiting for some great news to get out?
I tend to believe the former (of course with that large caveat on the data standing on their own), and I have put my money where my mouth is. But let's look beyond this data point and view the opportunity.
In my opinion, the opportunity is best examined through the eyes of a pregnant woman. While many investors point to amniocentesis as the appropriate market size, I believe a successful SEQureDx test will become the de facto screening test, as it is far more accurate than the current triple test. As with any test, I do not expect it to prove 100% accurate as the testing experience increases, but that will not be an impediment so long as this test is superior, cost-effective, and noninvasive when compared to current standard of care.
The hook for women is simple: noninvasive, more accurate. This test could truly revolutionize the screening practice, and the increased sense of confidence will encourage its use. Women will request this test if the data continue to stand the test of time, and doctors will not resist, as science would prevail in the courtroom if they guided incorrectly. I can imagine this test being discussed on Oprah and The Today Show and seen in women's magazines. If the data stand, resistance is futile.
So what is all this testing worth? Three million tests a year at $700 a test nets more than $2 billion in revenue in the U.S. alone. With only 15% cost of goods and only requiring a relatively small sales force, Sequenom should carry 60% operating margins. That works out to $720 million in after-tax profits per year, or more than $11 a share. A reasonable 20 multiple on the U.S. business alone yields a $200 stock in time.
Outrageous? It sure seems like it. But the key to me is the stock's asymmetry. I think the upside opportunity vastly exceeds the downside risk at this point in the company's development. If this test is only able to capture the U.S. amnio market, it would yield roughly $2 per share for the company.
[Dec 18: Sequenom in Investors Business Daily][Oct 30: Sequenom Misses But We Don't Really Care]
[Oct 7: Sequenom Down 8% on "Competition" Threat]
[Sep 23: Sequenom - All Systems Go on Down Syndrome's Test]
[Aug 13: Beginning Stake in Sequenom]
Long Sequenom in fund and personal account
