Sequenom's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Sequenom (SQNM)

Q1 2012 Earnings Call

May 3, 2012, 5:00 p.m. ET

Executives

Marcy Graham - Senior Director, IR

Harry Hixson - Chairman and CEO

Paul Maier – CFO

Ron Lindsay - Director and EVP

Bill Welch - SVP, Diagnostics

Dirk van den Boom - SVP, R&D

Analysts

David Ferreiro – Oppenheimer & Co.

Brian Weinstein - William Blair

Nandita Koshal - Barclays Capital

William Quirk – Piper Jaffray

Kevin DeGeeter - Ladenburg Thalmann & Co.

Elemer Piros - Rodman & Rodman & Renshaw

Jon Wood (Brandon)– Jefferies & Co.

Zarak Khurshid - Wedbush Securities

Presentation

Operator

Good afternoon, and welcome to the Sequenom Inc. first quarter 2012 earnings conference call. (Operator Instructions).

I would now like to turn this conference over to Marcy Graham, Senior Director of Investor Relations. Please go ahead.

Marcy Graham

Thank you, Laura. Welcome to the Sequenom conference call to discuss operating results for the first quarter of 2012. Joining me today are Dr. Harry Hixson, Chairman and CEO, Paul Maier, CFO, Dr. Ron Lindsay, Director and Executive Vice President of Research and Development, Bill Welch, Senior Vice President of Diagnostics and Dr. Dirk van den Boom, Senior Vice President of Research and Development, who will join us later for the Q&A portion of our call.

This call is also being broadcast live over the web and will be available for replay through Friday, May 11 th, 2012, on the investor section of our website at www.sequenom.com. Before we begin, please note that this call will include a discussion of Sequenom and Sequenom CMM’s current plans and intentions regarding product development, operations, commercialization, including diagnostic test projections, goals and other matters, as well as expectations regarding Sequenom’s future financial performance and reporting, statements that are not historical facts, but are forward-looking statements. Forward-looking statements are not guarantees of performance, they involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by any forward-looking statement. For information about the risks and uncertainties that Sequenom faces, please refer to the risk factors set forth in our recent filings with the Securities and Exchange Commission. Sequenom assumes no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances after today’s call, or to reflect the occurrence of unanticipated events. With that, I would like to now turn the call over to Dr. Harry Hixson. Harry?

Harry Hixson

Thank you, Marcy. Good afternoon and thanks for joining us on today’s call to discuss Sequenom’s first quarter for 2012. We are pleased to report that Sequenom and the Sequenom Center for Molecular Medicine, or Sequenom CMM, enjoyed a very productive start to 2012. During this first full quarter since the launch of the MaterniT21 PLUS laboratory developed test, or LDT, unit test volumes for diagnostic testing services grew at a rate faster than our internal goals, while we work to expand our operational capabilities, to manage this growth going forward.

Two weeks ago, Sequenom CMM announced total prenatal and retinal LDT volumes of more than 12,700 tests accessioned in the first quarter of 2012, including more than 4,900 MaterniT21 PLUS samples. This compares to a total volume of 21,000 for all Sequenom CMM tests performed during the entire previous year.

As of the last week of March, the number of MaterniT21 PLUS tests accessioned equated to 30,000 tests on an annualized basis, up from our earlier announcement of a projected run rate of 20,000 tests per year. Based on this steadily increasing adoption rate, at that time we increased our internal 2012 corporate goal to 40,000 billed MaterniT21 PLUS tests.

Today I’m pleased to announce that as of the last week of April, our 52-week sample accession run rate is now at more than 45,000 tests. This increase reflects the continued growth in volumes at the end of the first quarter and the initial impact of the recently expanded Sequenom CMM sales force.

Last month, we announced our first significant reimbursement agreement. This contract with MultiPlan Incorporated provides coverage of the MaterniT21 PLUS LDT for more than 900,000 nationwide providers under contract, with more than 55 million lives in its network. We are working to achieve our corporate goal to become an in-network provider with at least two national payors before the end of 2012.

In parallel, we continue to negotiate agreements with regional and local payor organizations, as well working towards providing testing services to medicate patients in both states. Acceptance of the MaterniT21 PLUS LDT in the prenatal diagnostic community has exceeded our expectations. The weekly test volumes and uptake of MaterniT21 PLUS LDT continues to increase steadily week-over-week. The response from patients and healthcare providers has been very positive.

As is typical in the first year following the launch of a new testing service, diagnostic service revenue is primarily recognized when cash is received, but costs are recognized at the time services are performed. The delay in revenue recognition results in a decrease in gross margin, which is significantly magnified by increasing test volumes. Therefore, diagnostic revenue recognized in the current period does not relate directly to the costs incurred in the same period. This will continue until such time as the company converts to accrual accounting for diagnostic service revenue, which is expected when sufficient reimbursement history has been established.

We will continue to report test volumes at the end of each quarter as a method of providing clear visibility into our growth trajectory and the market acceptance of Sequenom CMM’s testing services in the near term. To manage the growing diagnostic services business, and to ensure that we can meet anticipated market demand, we continue to invest considerable resources to expand our operational capabilities and improve our process efficiency, which should reduce our cost of goods sold over time. For example, Sequenom CMM expects by mid-year to increase the level of sample multiplexing, which translates directly into higher sample throughput per sequencing instrument, and to introduce automation steps in sample preparation.

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