Sequenom, Inc. Reports Financial Results For The Third Quarter Of 2013

    Sequenom, Inc. Reports Financial Results For The Third Quarter Of 2013

Announces Record Revenue for the Quarter

PR Newswire

SAN DIEGO, Nov. 7, 2013

SAN DIEGO, Nov. 7, 2013 /PRNewswire/ --Sequenom, Inc. (NASDAQ: SQNM), a life
sciences company providing innovative testing and genetic analysis solutions,
today reported total revenues of $44.0 million for the third quarter of 2013,
an increase of 26% compared to revenues of $34.9 million for the second
quarter of 2013, and an increase of 92% compared to revenues of $22.9 million
for the third quarter of 2012.

"We are proud to report record-breaking revenues for the third quarter, which
primarily resulted from the continued adoption of the MaterniT21™ PLUS test,"
said Harry F. Hixson, Jr., Ph.D., Chairman and CEO of Sequenom. "In October,
we marked the second anniversary of the launch of Sequenom Laboratories
industry-leading noninvasive prenatal test (NIPT) by announcing additional
content for our MaterniT21 PLUS test. We began to report the presence of
subchromosomal microdeletions and autosomal trisomies for chromosomes 16 and
22. This expansion of the MaterniT21 PLUS test, as part of our Enhanced
Sequencing Series, is the result of our continued investment and further
validates the importance and value of our pioneering NIPT testing services to
health care professionals and their patients."

Revenues in the diagnostics services operating segment from the company's
Sequenom Laboratories subsidiary, also doing business as Sequenom Center for
Molecular Medicine, were $33.3 million in the third quarter of 2013, up from
$24.5 million in the prior quarter and from $12.5 million in the prior year
period. For the third quarter 2013, diagnostic revenues accounted for 76% of
total revenues, versus 70% in the second quarter of 2013. Revenues from the
Sequenom Laboratories operating segment are recorded primarily on a cash
basis.

Total tests accessioned increased 87% over the prior year third quarter to
48,300 patient samples during the third quarter of 2013. Approximately 38,600
of those patient samples tested during the third quarter were MaterniT21™ PLUS
laboratory-developed test (LDT) samples, compared to approximately 38,000 in
the second quarter of 2013, growing 2% sequentially as the laboratory
increased its focus on tests with acceptable reimbursement. In the third
quarter, Sequenom Laboratories implemented a program to reduce the volume of
uncompensated Medicaid tests, while continuing to work with state agencies to
obtain reimbursement for its tests. As a percentage of the total of MaterniT21
PLUS tests accessioned, Medicaid tests declined from 26% in the second quarter
to 21% in the third quarter, with the trend declining to 17% in September.

Collections for diagnostics services improved in the third quarter 2013
compared to the second quarter, with a sequential increase in revenue of 36%.
Revenues for services performed in the current quarter improved, and revenues
collected for services performed in prior periods improved in the third
quarter 2013 compared to the prior quarter. Following is a summary of
diagnostic services revenues for the past five quarters:

                                                 (in millions)
                                                 Q3    Q4    Q1    Q2    Q3

                                                 2012  2012  2013  2013  2013
Collections and revenue recorded for services in $8.7  $9.5  $10.2 $12.0 $15.0
the quarter
Collections for services in prior quarters       3.8   11.5  18.9  12.5  18.3
Diagnostic services revenues                     $12.5 $21.0 $29.1 $24.5 $33.3

With further experience with its in-house billing system and implementation of
coding changes by third-party payors, collections by Sequenom Laboratories
improved, particularly for services performed in prior periods. However, along
with many other laboratories in the diagnostics industry, Sequenom
Laboratories continued to experience delays in receipt of payments from
third-party payors. The molecular diagnostics coding changes adopted by CMS,
Medicaid and third-party payors at the beginning of 2013 included the
elimination and replacement of certain molecular diagnostics billing codes.
These changes continue to result in requests by many payors for additional
information to process claims for services, which causes delays in receiving
payment.

In the second and third quarter of 2013, collections for services in prior
quarters included $6.3 million related to services performed in 2012, for a
total of $25.2 million collected in 2013 related to services performed prior
to 2013 and recorded on the cash basis.

As of September 30, 2013, uncollected amounts outstanding for tests delivered
that were not recognized as revenue upon delivery of the test result because
the accrual revenue recognition criteria were not met, ranged from
approximately $46 million to $51 million. These estimates are net of estimated
write-downs and adjustments, and actual revenue will depend upon the
reimbursement ultimately to be received for outstanding claims.

Sequenom Laboratories' international business continues to grow, and
contributed 11% of total diagnostic services revenue for the third quarter of
2013.

Third quarter 2013 revenues from the Sequenom Bioscience operating segment
(formerly known as the genetic analysis segment) of $10.7 million increased 3%
as compared to the same period in 2012, at $10.4 million. In September, the
Company announced that it had engaged an investment banker to assist in the
evaluation of strategic alternatives for this business segment. 

Total cost of revenues increased to $27.0 million for the third quarter of
2013, compared to $24.3 million for the second quarter and $17.5 million for
the prior year period. Cost of revenues increased due to the significant
increase in Sequenom Laboratories' test volumes over the prior year and the
costs incurred to support increased testing capacity.

Overall gross margin for the third quarter of 2013 was 38%, as compared to
gross margin of 23% for the third quarter of 2012. This improvement is
attributable primarily to the positive contribution from the Sequenom
Laboratories business resulting from collections for tests performed in the
current and prior quarters and improved efficiencies in processing patient
samples. Gross margin for the Sequenom Laboratories business in the third
quarter of 2013 was approximately 30%, as compared to a negative gross margin
in the third quarter of 2012. Gross margin for the Sequenom Bioscience
business for the third quarter of 2013 was 64%, flat as compared to the prior
year period.

Selling and marketing expenses declined to $12.4 million for the third quarter
of 2013 from $12.7 million year-over-year, resulting primarily from lower
compensation costs. Research and development expenses of $10.4 million for the
third quarter of 2013 were $1.8 million lower than the $12.2 million in the
third quarter of 2012, and down sequentially from research and development
expenses of $13.0 million for the second quarter of 2013. The decline was
primarily due to the completion of Sequenom Laboratories' facility in North
Carolina in the second quarter, which was used for commercial testing for all
of the third quarter, with expenses included in cost of revenues.

General and administrative expenses for the third quarter of 2013 were $14.1
million, as compared to $10.1 million for the third quarter of 2012, primarily
due to increased legal expenses associated with patent litigation, increased
internal billing costs due to the growth in test volume and increased
collection efforts required to collect revenues. General and administrative
expense was up sequentially from $12.7 million from the second quarter of
2013. 

During the third quarter of 2013, a restructuring charge of $6.0 million was
recorded in connection with the elimination of approximately 75 positions, the
related exit from a facility the Company had planned to occupy for expansion,
and the impairment of certain intangible assets.

Total operating expenses for the third quarter of 2013 were $43.0 million, as
compared to total operating expenses of $35.0 million for the third quarter of
2012, and up sequentially from total operating expenses of $39.2 million for
the second quarter of 2013. The increase in operating expenses primarily
resulted from the $6.0 million restructuring expenses incurred in the third
quarter of 2013.

Net loss for the third quarter of 2013 was $28.1 million, or $0.24 per share,
as compared to net loss of $30.2 million, or $0.26 per share, for the same
period in 2012, and net loss of $31.0 million, or $0.27 per share, for the
second quarter of 2013. The adjusted net loss for the third quarter of 2013
was $22.1 million, or $0.19 per share, excluding the restructuring cost.

Net cash used in operating activities was $18.7 million for the third quarter
of 2013, compared to $22.6 million in the same period in the prior year and
$36.7 million in the second quarter. The improvement was primarily due to
increased collections for diagnostic services and improvements in inventory
management.

"We are pleased to report that collection of our diagnostic services revenues
improved significantly during the third quarter despite the impact of the
coding changes and the corresponding delays in reimbursement. We are extremely
pleased with the progress of Sequenom Laboratories billing process, which was
brought in-house in the second quarter, providing us with improved visibility
to the status of our claims and enabling us to respond timely to requests by
payors for additional information. We continue to work through these
challenges and expect to see additional improvements as we focus on
collections during the remainder of 2013," said Paul V. Maier, Sequenom's CFO.
"We have restructured our operations for renewed efficiencies and reduced the
run rate of our operating expenses by approximately $13 million annualized,
which will begin to take effect in the fourth quarter."

Nine Months to Date Results

For the nine months ended September 30, 2013, the Company reported revenues of
$117.3 million, an increase of 109% from revenues of $56.0 million for the
first nine months of 2012. Revenues in the first nine months of 2013 from the
Sequenom Laboratories operating segment grew 242%, while revenues from the
Sequenom Bioscience segment were essentially flat in the first nine months of
2013 as compared to the prior year period.

Gross margin for the first nine months of 2013 was 35% of revenues, as
compared to gross margin of 27% for the first nine months of 2012, a
difference primarily attributable to the improved gross margin associated with
increased test volumes and collections for Sequenom Laboratories.

Total operating expenses for the first nine months of 2013 were $123.1
million, as compared to total expenses of $98.2 million for the first nine
months of 2012. In 2013, we incurred higher general and administrative
expenses, primarily as a result of patent litigation, and higher selling and
marketing expenses primarily associated with increased headcount to support
our efforts to expand test volume and revenue. Restructuring charges of $6.0
million were recorded in 2013. Total stock-based compensation expense was $8.0
million for the first nine months of 2013, down from $9.2 million as compared
to the first nine months of 2012.

Net loss for the first nine months of 2013 was $88.5 million, or $0.77 per
share, as compared to net loss of $84.3 million, or $0.74 per share, for the
same period in 2012, reflecting an increase in costs associated primarily with
the growth in test volume of the MaterniT21 PLUS test, patent litigation and
restructuring costs. The adjusted net loss for the first nine months of 2013
was $82.5 million, or $0.72 per share, excluding the restructuring cost.

Net cash used in operating activities was $75.0 million for the first nine
months of 2013, compared to $65.5 million in the same period in the prior
year. This increase included an additional investment of approximately $9.9
million in diagnostic inventory for safety stock to support expanded test
capacity and commencement of commercial operations in the Sequenom
Laboratories North Carolina facility. While we expect cash burn to fluctuate
on a quarterly basis, we expect the cash burn to decline as collections and
revenues increase.

The Company also used cash for capital investments of $11.7 million and debt
repayments of $5.5 million during the first nine months of 2013. As of
September 30, 2013, total cash, cash equivalents, and marketable securities
were $84.7 million.

Operational Updates

The annualized run rate for the MaterniT21 PLUS test at the end of the third
quarter continued to exceed 150,000 samples, despite the reduction in the
Medicaid tests accessioned. Sequenom Laboratories believes it will meet its
goal of 150,000 samples for the year. "We believe that we continue to be the
market leader in NIPT. Based upon our volume and our understanding of the
marketplace, we estimate that we have over 60% unit share of the U.S.
high-risk pregnancy market," according to William J. Welch, President and
Chief Operating Officer.

Sequenom Laboratories continues negotiations with the payor community. As of
September 30, 2013, agreements had been executed that cover approximately 90
million lives for the MaterniT21 PLUS test. Importantly, we are receiving
payments as an in-network or out-of-network provider from all of the major
national payors.

Last month, Sequenom Laboratories announced an important addition to the
MaterniT21 PLUS test, a significant achievement and testament to the
laboratory's ongoing research and development efforts. This improvement,
called the Enhanced Sequencing Series, ushers in a new era for noninvasive
testing. With the ability to detect subchromosomal changes, the MaterniT21
PLUS test is able to provide content previously undetected from a maternal
blood draw. These results can now present health care providers and their
patients with information that may have taken months or years to obtain
otherwise.

"The Enhanced Sequencing Series affirms the value of using higher content
genome-wide massively parallel sequencing, as opposed to targeted approaches,"
said Welch. "By using a genome-wide solution, Sequenom Laboratories is
positioned to continue to add future meaningful content in an effective,
efficient way."

In September, Sequenom submitted two Premarket 510(k) Notifications for the
IMPACT Dx™ System and the IMPACT Dx™ Factor V Leiden and Factor II Genotyping
Tests to the U.S. Food and Drug Administration. The IMPACT Dx System is the
clinical laboratory version of the Company's MassArray^® System. Premarket
clearance of the IMPACT Dx System will enable the Company to expand from
research use only into clinical diagnostics and is expected to facilitate
registration of the IMPACT Dx System in international markets.

In the third quarter, Sequenom completed its early access program to enable
selected customers to complete studies that validated that the ultrasensitive
assay on the MassArray System can detect mutations down to 0.1%. This is
another important step in the increased utility of the MassArray System. The
Company expects to launch additional research-use-only panels in oncology and
rare blood antigen typing.

As previously announced, on October 30, 2013, the U.S. District Court for the
Northern District of California issued an order finding that the Lo '540
patent (U.S. Patent No. 6,258,540) is invalid. The court found that the '540
patent combines the discovery of a natural phenomenon, the presence of
cell-free paternal DNA in the blood of a pregnant woman, with conventional
diagnostic methods. The court concluded that the combination of conventional
methods with discovery of a natural phenomenon fails to qualify as
patent-eligible subject matter in accordance with Section 101 of the patent
code.

"We believe the court's decision is wrong and misapplies or ignores
controlling law," said Welch. "We believe that Drs. Lo and Wainscoat invented
a novel method for detecting paternally inherited fetal DNA in maternal plasma
and that their invention is more than just the discovery of a natural
phenomenon. We intend to appeal the court's order to the United States Court
of Appeals for the Federal Circuit." 

In August 2013, the United States Court of Appeals for the Federal Circuit, in
a 3-0 decision, vacated the District Court's order denying the Company's
motion for a preliminary injunction and corrected the District Court's
preliminary claim construction. The October 30 summary judgment does not
impact the current competitive landscape, as the Company has competed without
the benefit of the patent being recognized.

Non-GAAP Financial Measures

"GAAP" refers to financial information presented in accordance with generally
accepted accounting principles in the United States. To supplement the
condensed consolidated financial statements and discussion presented on a GAAP
basis, this press release includes non-GAAP financial measures with respect to
the quarter and nine months ended September 30, 2013. Management uses non-GAAP
financial measures because it believes the appropriate analysis of our
performance cannot be effectively considered while incorporating the effect of
items and charges that have not been experienced consistently in prior
periods. The Company reported the following non-GAAP financial measures:
"adjusted net loss" and "adjusted net loss per share." These non-GAAP
financial measures are not in accordance with or an alternative to GAAP.

Adjusted net earnings exclude the impact of charges associated with
restructuring our operations including the impairment of intangible assets.
Adjusted net loss per share excludes the effect of the same items from net
loss per share. Management believes those costs do not reflect the ongoing
performance of the core business. Management uses adjusted net income or loss
to prepare operating budgets and forecasts and to measure our performance
against those budgets and forecasts. Reconciliations of net loss, the GAAP
measure most directly comparable to adjusted net loss, and net loss per share,
the GAAP measure most directly comparable to adjusted net loss per share, are
provided on the attached schedule.

Conference Call Information

A conference call hosted by Harry F. Hixson, Jr., Ph.D., Chairman and CEO, and
other members of senior management will take place today, November 7, at 5:00
pm ET (2:00 pm PT) and will be webcast live on the Sequenom website. 

To access the live teleconference call, dial 877-883-0383 in the U.S. and
Canada, and 412-902-6506 for other international callers. Please use code
1655358. If you are unable to listen to the live webcast, a teleconference
replay will be available through Friday, November 29, 2013. Interested parties
can access the replay by dialing 877-344-7529 or 412-317-0088 internationally
and entering the conference number 10035907.

The conference call webcast is accessible through the "Investors" section of
the Sequenom Web site at www.sequenom.com/invest. An online replay will be
available following the initial broadcast until Friday, November 29, 2013.

About Sequenom

Sequenom, Inc. (NASDAQ: SQNM) is a life sciences company committed to
improving healthcare through revolutionary genomic and genetic analysis
solutions. Sequenom develops innovative technology, products and diagnostic
tests that target and serve discovery and clinical research, and molecular
diagnostic markets. The company was founded in 1994 and is headquartered in
San Diego, California. Sequenom maintains a Web site at
http://www.sequenom.com to which Sequenom regularly posts copies of its press
releases as well as additional information about Sequenom. Interested persons
can subscribe on the Sequenom Web site to email alerts or RSS feeds that are
sent automatically when Sequenom issues press releases, files its reports with
the Securities and Exchange Commission or posts certain other information to
the Web site.

About Sequenom Laboratories

Sequenom Laboratories, a CAP accredited and CLIA-certified molecular
diagnostics laboratory, has developed a broad range of laboratory tests, with
a focus on prenatal and ophthalmological diseases and conditions. Branded
under the names SensiGene™, MaterniT21™ PLUS, HerediT™, NextView™ and
RetnaGene™, these molecular genetic laboratory-developed tests provide early
patient management information for obstetricians, geneticists, maternal fetal
medicine specialists and ophthalmologists. Sequenom Laboratories is changing
the landscape in genetic disorder diagnostics using proprietary cutting edge
technologies.

SEQUENOM®, MaterniT21™ PLUS, SensiGene™, HerediT™, NextView™, RetnaGene™,
IMPACT Dx™ and MassArray® are trademarks of Sequenom, Inc. All other
trademarks and service marks are the property of their respective owners.

Forward-Looking Statements

Except for the historical information contained herein, the matters set forth
in this press release, including statements regarding the Company's estimated
range of approximately $46 million to $51 million of uncollected amounts
outstanding for tests delivered which were not recognized as revenue upon
delivery of the test result and the dependence of actual revenue upon the
amount of reimbursement ultimately received, the Company's expectations and
goals regarding the number of samples to be accessioned for the MaterniT21
PLUS test during 2013, the Company's expectations regarding improvements in
reimbursement and collections of diagnostic segment revenues during the
remainder of 2013 and the magnitude and timing of such improvements, Sequenom
Laboratories' ongoing negotiations with payors and continuing efforts to sign
contracts with payors, the future outcome of Sequenom's review of potential
strategic alternatives for its Bioscience business segment, the potential for
Sequenom's entry into a transaction for the Bioscience business segment, the
Company's plans to add future content to the MaterniT21 PLUS test through the
Enhanced Sequencing Series, expected premarket clearance of the IMPACT Dx
System and its effect or impact on the Company's expansion from research into
clinical diagnostics and product registration in international markets, the
Company's plans to launch additional research-use-only panels for the
MassArray system, the impact of restructuring for operational efficiencies,
and the Company's intention to appeal the court's order are forward-looking
statements within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
subject to risks and uncertainties that may cause actual results to differ
materially, including the risks and uncertainties associated with market
demand for and acceptance and use of technology and tests such as the
MaterniT21 PLUS test, reliance upon the collaborative efforts of other parties
such as, without limitation, healthcare providers, international marketing
partners, distributors and licensees, the Company or third parties obtaining
or maintaining regulatory approvals that impact the Company's business,
government regulation particularly with respect to diagnostic products and
laboratory developed tests, publication processes, the performance of designed
product enhancements, the Company's ability to develop and commercialize
technologies and products, particularly new technologies such as noninvasive
prenatal diagnostics, laboratory developed tests, and genetic analysis
platforms, the Company's financial position, the timing and amount of
reimbursement that Sequenom Laboratories receives from payors for its
laboratory developed tests, the Company's ability to manage its existing cash
resources or raise additional cash resources, competition, intellectual
property protection and intellectual property rights of others, litigation
involving the Company, and other risks detailed from time to time in the
Company's most recently filed Quarterly Report on Form 10-Q, its most recently
filed reports on Form 8-K, and its most recently filed Annual Report on Form
10-K, and other documents subsequently filed with or furnished to the
Securities and Exchange Commission. These forward-looking statements are based
on current information that may change and you are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this press release. All forward-looking statements are qualified in
their entirety by this cautionary statement, and the Company undertakes no
obligation to revise or update any forward-looking statement to reflect events
or circumstances after the issuance of this press release.



SEQUENOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share information)
                                  Three Months Ended      Nine Months Ended

                                  September 30,           September 30,
                                  2013        2012        2013       2012
Revenues:
Diagnostic services               $  33,268  $  12,501  $86,877    $25,391
Bioscience product sales and      10,683      10,352      30,423     30,634
services
Total revenues                    43,951      22,853      117,300    56,025
Cost of revenues:
Cost of diagnostic services       23,242      13,836      64,955     30,114
Cost of bioscience product sales  3,800       3,711       10,958     10,832
and services
Total cost of revenues            27,042      17,547      75,913     40,946
Gross margin                      16,909      5,306       41,387     15,079
Operating expenses:
Selling and marketing             12,400      12,652      39,509     33,639
Research and development          10,415      12,189      37,268     37,103
General and administrative        14,131      10,126      40,349     27,425
Restructuring costs               6,018       —           6,018      —
Total operating expenses          42,964      34,967      123,144    98,167
Loss from operations              (26,055)    (29,661)    (81,757)   (83,088)
Interest expense, net             (2,106)     (600)       (6,396)    (1,146)
Other income (expense), net       111         44          (134)      (1)
Loss before income taxes          (28,050)    (30,217)    (88,287)   (84,235)
Income tax expense                (98)        (20)        (244)      (42)
Net loss                          $ (28,148)  $(30,237)   $(88,531)  $(84,277)
Net loss per common share, basic  $  (0.24)  $  (0.26)  $ (0.77)   $ (0.74)
and diluted
Weighted average number of shares 115,592     114,712     115,255    113,263
outstanding, basic and diluted



SEQUENOM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)
                                             September30,
                                                             December31, 2012
                                             2013
Assets
Current assets:
Cash, cash equivalents and marketable        $   84,713      $    175,942
securities
Accounts receivable, net                     8,620           7,887
Inventories                                  20,234          10,570
Other current assets and prepaid expenses    4,194           3,075
Total current assets                         117,761         197,474
Property, equipment and leasehold            29,907          33,494
improvements, net
Other assets                                 17,156          17,987
Total assets                                 $   164,824     $    248,955
Liabilities and stockholders' equity
(deficit)
Current liabilities:
Accounts payable                             $   15,403      $    16,469
Accrued expenses                             24,832          24,507
Long-term debt and obligations, current      7,631           7,601
portion
Other current liabilities                    4,341           2,713
Total current liabilities                    52,207          51,290
Long-term liabilities                        143,646         149,658
Total stockholders' equity (deficit)         (31,029)        48,007
Total liabilities and stockholders'          $   164,824     $    248,955
equity(deficit)



SEQUENOM, INC.

RECONCILIATION OF GAAP NET LOSS TO ADJUSTED NET LOSS (1) (2)

(Unaudited)

(in thousands, except amounts per share)
                        Three Months Ended September 30,
                        2013                     2012
                        Amount       Per Share   Amount       Per Share
GAAP net loss           $ (28,148)   $  (0.24)   $ (30,237)   $  (0.26)
Reconciling item:
Restructuring costs (2)   6,018         0.05       -             -
Adjusted net loss       $ (22,130)   $  (0.19)   $ (30,237)   $  (0.26)
                        Nine Months Ended September 30,
                        2013                     2012
                        Amount       Per Share   Amount       Per Share
GAAP net loss           $ (88,531)   $  (0.77)   $ (84,277)   $  (0.74)
Reconciling item:
Restructuring costs (2)   6,018         0.05       -             -
Adjusted net loss       $ (82,513)   $  (0.72)   $ (84,277)   $  (0.74)

(1) Amounts may not foot due to rounding.
(2) See accompanying Non-GAAP Financial Measures section for description of
Non-GAAP adjustments.

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SOURCE Sequenom, Inc.

Website: http://www.sequenom.com
Contact: Paul Maier, Chief Financial Officer, Sequenom, Inc., +1-858-202-9028,
investorrelations@sequenom.com; or Rachel Kennedy, Media Contact, Chandler
Chicco Agency, +1-858-449-9575, rkennedy@chandlerchiccocompanies.com