Thursday, December 18, 2008

Sequenom (SQNM) in Investors Business Daily

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Sequenom (SQNM) getting some good press in Investors Business Daily. I have a hard time valuing this stock on any metric "today" since the real growth curve shall begin "late 2009 or 2010"ish, but this is one of the few stocks I see out in the landscape with true home run potential. My favorite kind of stock; getting in early before the crowd if the thesis is correct - old school investing rather than trying to front run hedge fund computers as is the dominant action today. A lot more test data should be available to us by summer 2009, but everything thus far has been stellar.

For the near term the chart has improved remarkably the past few days, we took some short term profits when the stock approached its 50 day moving average (last Friday) expecting the stock to stall for a while, but it cut through that resistance without blinking so we quickly (within an hour) got most of our position back. To begin the next leg up, we'd want to see the stock clear early November highs. (stalled out there yesterday) But unlike Apple (AAPL) which we sold a few days ago (with the poor chart), we want to see *this* type of technical action when the market rebounds - stocks that act this well when the market smoke clears, should be leaders on the next lasting leg up.

Again I don't know what fair value is "today", but the potential fair value in 2010/2011 is ... high.

From IBD...
  • Sequenom, (SQNM) already known for its noninvasive prenatal Down syndrome test, announced on Nov. 24 that it can apply the same science to many other genetic disorders before a baby is born. The company's technology comes from discoveries by Dr. Dennis Lo at the Chinese University of Hong Kong. His method requires only a blood sample from the mother, not the extensive screening of both parents and the amniocentesis that is the current standard.
  • The worldwide market for such tests could be from $5 billion to $10 billion, says Harry Stylli, Sequenom's CEO, who recently spoke with IBD about his company's recent announcement.

IBD: Explain the significance of the broad application of this technology.

Stylli: Before this innovation occurred, there was no easy way to figure out whether a fetus had a monogenic disease, like cystic fibrosis or beta thalassemia, or hemophilia or whatever.

Monogenic means that only one gene is screwed up, or it could be more than one gene, but it causes a specific disorder. It's usually due to some kind of mutation in the fetus' makeup.

The only way you could test before our technology was developed by Dr. Lo was by an invasive procedure, amniocentesis, which carries risk. Our innovation enables us to have a general solution to the vast majority of these disorders.

The number of disorders that hitherto had an indeterminate, perhaps genetic component, like schizophrenia or autism, are also likely to be amenable to our approach. As we learn more about the genetic basis of a variety of human conditions, this kind of approach is likely to work for them.

IBD: How many disorders do you think you can determine, and how early?

Stylli: At least hundreds. Maybe thousands.

For example, muscular dystrophy, phenyl ketone urea, disorders of the red blood cell like sickle cell, and the Ashkenazi Jewish genetic disorders like Tay-Sachs, Canavan and Gaucher.

All these would be tractable with our approach, arguably when the fetus is near the end of the first trimester or early in the second. If you know the condition your baby has before it's born, you can take steps to ameliorate that situation as soon as the baby is born.

IBD: In lay terms, how does it work?

Stylli: Imagine that fetal DNA is swimming around in the mother's bloodstream, surrounded by the mother's DNA. It's very difficult to extract fetal DNA from the mother's blood. What we've found is a technique that enables us to achieve this goal and takes it a step further, making it possible to determine and quantify the mutations that are present for any specific disorder.

The technique is a way of diluting all these molecules to find individual molecules. We can separate the fetal DNA from the maternal blood sample. The technology lets us then drill down to find out which mutations are present in the fetal DNA.

IBD: Will you license this technology?

Stylli: We could. We could license it to other parties or develop it ourselves and then license it.

Initially our plan is to develop it ourselves. We think our IP (intellectual property) is secure because it's not just one set of IP, but many layers. It's licensed to us exclusively. We're the worldwide repository for all this IP.

IBD: What do you expect regulators to demand of you in order to grant approval?

Stylli: At first we'll be regulated under the Clinical Laboratory Improvement Amendments (CLIA), but we'll also take it to the Food and Drug Administration. (Under CLIA, the Centers for Medicare & Medicaid Services regulates laboratory testing, except research, performed on humans. These rules are less demanding than those of the FDA.)

Labs that are CLIA-licensed are empowered to develop their own tests and offer them for sale to doctors and their patients. There are also FDA-regulated tests, which relate to the sale of these tests as kits for resale by third parties.

For the latter, we need FDA approval. The FDA would decide what category of its regulatory levels applies to our tests.

We now (have) to get FDA approval for our Down syndrome test. The FDA will set requirements we'll have to fulfill.

IBD: What's your marketing plan?

Stylli: We're contemplating offering multiple tests in a single format. We could take the most prevalent disorders and group them in terms of ethnicity, for example.

We won't look for partnerships in the U.S., but we may in Europe and the rest of the world. We are planning to build our own sales force and have started recruiting.

The Down syndrome test will be out in June 2009. We might see our first test for monogenic disorders on the market next year. For our prenatal versions of the test, we're looking at 2010 or 2011.

There are many ways we can develop the approach to offer value to society.

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[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; no personal position

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