Add
SQNM to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| SQNM > SEC Filings for SQNM > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
All statements in this report that are not historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act. These forward-looking statements can generally be identified as such because the context of the statement will include words such as "may," "will," "intend," "plans," "believes," "anticipates," "expects," "estimates," "predicts," "potential," "continue," "opportunity," "goals," or "should," the negative of these words or words of similar import. Similarly, statements that describe our future plans, strategies, intentions, expectations, objectives, goals or prospects are also forward-looking statements. These forward-looking statements are or will be, as applicable, based largely on our expectations and projections about future events and future trends affecting our business, and so are or will be, as applicable, subject to risks and uncertainties including but not limited to the risk factors discussed in this report, that could cause actual results to differ materially from those anticipated in the forward-looking statements. We caution investors that there can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements. Our views and the events, conditions and circumstances on which these future forward-looking statements are based, may change. All forward statements are qualified in their entirety by this cautionary statement and we undertake no obligation to revise or update any such statements to reflect events or circumstances after the date hereof.
SEQUENOM®, SpectroCHIP ®, iPLEX®, and MassARRAY® are registered trademarks and EpiTYPER™, SEQureDx™, MassCLEAVE ™, iSEQ™, AttoSense™ and SensiGene™ are trademarks of Sequenom, Inc. This report may also refer to trade names and trademarks of other organizations.
Sequenom, Inc. was incorporated in 1994 under the laws of the State of Delaware. As used in this report, the words "we," "us," "our," and "Sequenom" refer to Sequenom, Inc. and its wholly owned subsidiaries on a consolidated basis, unless explicitly noted otherwise.
Overview
We are a life sciences company committed to improving healthcare through genetic analysis solutions. We provide technology, products and laboratory developed diagnostic tests that target and serve discovery and clinical research and molecular diagnostic markets. Our customers use our products to translate the results of genomic science into solutions for biomedical research, translational research, molecular medicine applications, agricultural, livestock, and other areas of research. Our development and commercialization efforts in various diagnostic areas include noninvasive prenatal diagnostics, oncology, infectious diseases, autoimmune, endocrine and other disorders.
Molecular Diagnostics and SEQureDx™ Technology
Molecular Diagnostics
We are committed to researching, developing and pursuing the commercialization of various noninvasive molecular diagnostic tests for prenatal genetic disorders and diseases, oncology, infectious diseases, and other diseases and disorders. We have branded our diagnostic technology for prenatal diagnostics under the trademark SEQureDx. Our efforts in molecular diagnostics are focused on noninvasive diagnostics currently using our proprietary MassARRAY system; however, we may in the future employ other platforms with our applications as may be more suitable on a case-by-case basis considering optimum test performance and commercialization factors.
Currently, we are primarily focused on developing and commercializing prenatal screening and diagnostic tests using our noninvasive, circulating cell-free fetal (ccff) nucleic acid based assay technology. This technology would use a simple maternal blood
draw from the patient's arm for a prenatal diagnosis or risk assessment in order to provide reliable information about the status of the fetus early in pregnancy. Our planned screening and diagnostic tests in areas of women's health, oncology, and infectious disease are also noninvasive and are expected to use simple blood draws from patients rather than invasive procedures such as surgery.
Supporting our initiatives in women's health, oncology and infectious disease we completed our acquisition of the complete AttoSense portfolio of gene-based molecular tests and related assets from SensiGen, LLC in February 2009. The acquisition includes highly-sensitive and specific tests for the detection and monitoring of human papillomavirus (HPV) (the primary cause of cervical and head and neck cancers), systemic lupus erythematosus (Lupus), chronic kidney disease (CKD), and other tests, all of which utilize our proprietary MassARRAY platform.
Prenatal Diagnostics
Noninvasive prenatal diagnostic tests based on our foundational ccff nucleic acid analysis intellectual property are initially being developed on our MassARRAY platform for chromosomal aneuploidies including Trisomy 21 (Down syndrome), Rhesus D genotyping and fetal sex determination. Through our College of American Pathology (CAP) accredited and Clinical Laboratory Improvement Amendments (CLIA) certified laboratory, the Sequenom Center for Molecular Medicine (Sequenom CMM), located in Grand Rapids, Michigan, we intend to develop, validate and commercialize noninvasive prenatal laboratory developed tests (LDTs). This is a common approach used for most molecular genetic tests. We have made substantial investments in our information technology infrastructure to enhance the capabilities of our CLIA certified laboratory to track samples and provide electronic ordering and reporting, and have put in place sample collection and transportation logistics that can be readily scaled. We are also actively engaging relationships with third party payors that will support our pricing structure and reimbursement opportunities.
In April 2009, we announced that the expected launch of our Trisomy 21 test has been delayed. We are no longer relying on our previously announced research and development (R&D) test data and results. We are evaluating both RNA and DNA approaches, including sequencing, for a Trisomy 21 test. We are continuing to collect clinical samples for sponsored clinical studies through independent third parties, the results of which will be published in peer-reviewed journals prior to the launch of any Trisomy 21 test that we develop.
In September 2009, we launched a carrier screening LDT for Cystic Fibrosis through our CAP/CLIA certified laboratory, Sequenom CMM. Subject to the completion of a final and rigorous review of data for all of our tests under development, we plan to launch separate noninvasive prenatal screening LDTs for Rhesus D genotyping and fetal sex determination in the late first quarter or early second quarter of 2010. Concurrent with our LDT commercialization activities, we plan to conduct the development, validation, and other activities necessary to file submissions with the Food and Drug Administration (FDA) seeking approval for selected diagnostic tests. We anticipate revenues from our Cystic Fibrosis test to be minimal through the end of 2009.
Genetic Analysis
Our proprietary MassARRAY system, comprised of hardware, software applications, consumable chips and reagents, is a high performance (in speed, accuracy and cost efficiency) nucleic acid analysis platform that quantitatively and precisely measures genetic target material and variations. Our platform is widely accepted as a leading high-performance DNA analysis platform for the fine mapping genotyping market and is gaining traction in newer developing markets, such as agricultural-biotechnology and clinical research. Our customers include premier clinical research laboratories, bio-agriculture, bio-technology and pharmaceutical companies, academic institutions, various government agencies worldwide. To provide customer support for our expanding user base and in an effort to maximize market penetration, we have established direct sales and support personnel serving North America, Europe, Australia and Asia, in addition to regional distribution partners in France, India, Israel, Russia, Eastern Europe, South Korea, New Zealand, Singapore, Taiwan, Kuwait, Saudi Arabia and Turkey.
Our MassARRAY system provides reliable results for a wide range of DNA/RNA analysis applications including single nucleotide polymorphism (SNP) genotyping detection of mutations, analysis of copy number variants and other structural genome variations. In addition, the system provides quantitative gene expression analysis, quantitative DNA methylation analysis, comparative sequence analysis of haploid organisms, SNP discovery, and oligonucleotide quality control. These applications are provided through proprietary application software that operates on the MassARRAY platform and through the purchase of consumable chips and reagent sets. While the MassARRAY system is versatile across many applications, it is a robust and cost-effective genotyping solution for fine mapping projects enabled through our iPLEX multiplexing assay, which permits multiplexed SNP analysis using approximately the same amount of reagents and chip surface area as is used for a single locus/SNP analysis.
Our research and development efforts in genetic analysis are committed to producing new and improved components and applications for the MassARRAY system that deliver greater system versatility and excellent data quality at a competitive price per data point. These research and development activities and new applications also facilitate and support our diagnostics initiatives.
As a result of weaker demand for our MassARRAY systems resulting from the economic environment in early 2009, in April 2009 we formally approved and implemented a cost cutting initiative in our genetic analysis business which is expected to result in an approximately $8.0 million decrease in costs in 2009 and an overall annualized reduction in costs of approximately $10.0 million. This initiative included a decrease in the genetic analysis workforce that resulted in a cumulative charge of approximately $1.5 million for the nine months ended September 30, 2009 in connection with one-time termination benefits, office closures and other related costs.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
• Revenue recognition
• Goodwill and impairment evaluations of long-lived assets
• Allowance for doubtful accounts
• Reserves for obsolete and slow-moving inventory
• Warranty costs
• Income taxes
• Share-based compensation
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application. There are also areas in which management's judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of our Board of Directors.
During the first nine months of 2009, there were no significant changes in our critical accounting policies and estimates. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our the year ended December 31, 2008 for a more complete discussion of our critical accounting policies and estimates.
Results of Operations for the Three and Nine Months Ended September 30, 2009 and 2008
Revenues
Total revenues for the three months ended September 30, 2009 decreased to $9.2 million from $11.6 million for the same period in 2008 and was comprised of product related sales and contract research services. Total revenues for the nine months ended September 30, 2009 decreased to $27.1 million from $35.0 million for the same period in 2008. Product related revenues are derived from sales of consumables including our SpectroCHIP bioarray chips used with our iPLEX and other assays, MassARRAY systems, maintenance agreements, sales and licensing of our proprietary software, and license fees from end-users.
Consumables revenue for the three and nine months ended September 30, 2009 increased to $5.4 million and $15.4 million, respectively, compared to $5.0 million and $14.6 million, respectively, for the same periods in 2008 due to increased consumables orders from our customers in the biomedical research and agricultural biology markets. MassARRAY and product related revenues for the three and nine months ended September 30, 2009 were $3.7 million and $10.1 million, respectively, as compared to $5.7 million and $16.9 million for the same periods in 2008. The decrease of $2.0 million and $6.8 million for the three and nine months ended September 30, 2009, respectively, as compared to the same period in 2008 was due to fewer system placements in the three and nine months ended September 30, 2009. The decrease in MassARRAY system hardware and software sales was attributable to the continued slowing of academic, pharmaceutical, and clinical research institutions capital expenditure requirements associated with the current economic environment. The decrease in revenue from MassARRAY and product related sales were offset by increased revenue recognized from MassARRAY system maintenance contracts. System maintenance contracts revenue for the three and nine months ended September 30, 2009 were $1.4 million and $3.0 million, respectively, compared to $0.8 million and $2.3 million, respectively, for the same periods in 2008. The increase in MassARRAY system maintenance contracts revenue is primarily attributable to our higher installed system base when compared to the prior periods.
We recorded services revenue of $0.1 million and $1.6 million, respectively, for the three and nine months ended September 30, 2009, as compared to $0.9 million and $3.5 million, respectively, for the same periods in 2008. The decreases of $0.8 million and $1.9 million are attributable to our cost cutting initiative that commenced in April 2009. Service revenue is expected to be minimal for the remainder of 2009.
Research and other revenues, which consists of license and research grant payments, were approximately $3,000 and $5,000, respectively, for the three and nine months ended September 30, 2009 compared to $0 and $71,000, respectively, for the same periods in 2008. The timing of research revenues depends upon our expenditures on grant research and our receipt of grant funding from sponsoring agencies. We expect license and grant revenue to be minimal going forward.
Our revenues have historically fluctuated from period to period and likely will continue to fluctuate substantially in the future based upon the unpredictable sales cycle for the MassARRAY system, general economic conditions, revenue recognition criteria, the overall acceptance and demand for our new and existing commercial products and services, as well as the future adoption rates of our cystic fibrosis carrier screening assay and future assays.
Cost of product and service revenues and gross margin
Cost of consumables and products revenues for the three and nine months ended September 30, 2009 were $2.5 million and $7.3 million, respectively, compared to $3.5 million and $11.3 million, respectively, for the same periods in 2008. Gross margins on consumables and product related sales for the three and nine months ended September 30, 2009 were 73% and 71%, respectively, compared to 67% and 64%, respectively, for the same periods in 2008. Gross margins increased primarily due to fewer system placements, which historically sell at lower gross margins, during the three and nine months ended September 30, 2009, as compared to same period in 2008, offset by higher consumable sales, which historically sell at higher average gross margins, to the comparable period in 2008.
Cost of services revenue for the three and nine months ended September 30, 2009 were $0.2 million and $1.9 million, respectively, compared to $1.0 million and $3.3 million, respectively, for the same periods in 2008. Gross margins were negative for the three and nine months ended September 30, 2009 due to the completion of remaining unfavorable, low volume contracts. Gross margins on contract research services have been dependent on particular contract terms of the work undertaken in each quarter.
Our overall gross margin for the three and nine months ended September 30, 2009 was 71% and 66%, respectively, compared to 61% and 58%, respectively, for the same periods in 2008. When compared to the prior periods, the increase in overall gross margin was attributable to lower system and contract research revenues, which are sold at a lower margin than consumables. The increase in consumables revenue during the third quarter of 2009 as compared to the third quarter of 2008 also contributed to the improved margin.
We believe that gross margin in future periods will be affected by, among other things, the selling price for systems and consumables, consumable sales per MassARRAY system sold, the mix of product sales and the type of services, competitive conditions, sales volumes, discounts offered, sales through distributors, as well as the cost of goods sold, inventory reserves and obsolescence charges required and royalty payment obligations on in-licensed technologies. Our gross margin will also be affected by the adoption rates of our diagnostic LDTs we commercialize, the payor contracts for laboratory developed or diagnostic tests and the volume of tests sold.
Research and development expenses
Research and development expenses for the three and nine months ended September 30, 2009, increased to $8.5 million and $27.5 million, respectively, as compared to $7.1 million and $18.4 million, respectively, for the same periods in 2008. These expenses consisted primarily of salaries and related personnel expenses, product development costs, and expenses relating to work performed under research contracts.
The increase in research and development expenses of $1.4 million for the three months ended September 30, 2009, as compared to the same period in 2008 primarily relates to increased headcount and related costs of $0.7 million, an increase of $1.3 million for clinical trial costs associated with our prenatal diagnostic, molecular diagnostic and genetic analysis programs, $0.5 million for higher share-based compensation charges and an increase of other miscellaneous expenses of $0.1 million primarily associated with travel for clinical site monitoring and higher facilities related charges, offset by a decrease of $1.1 million in collaboration costs associated with various research and development projects and related licensing activities.
The increase in research and development expenses of $9.1 million for the nine months ended September 30, 2009 compared to the same period in 2008 primarily relates to headcount and related costs of $2.2 million, an increase of $2.8 million for clinical trial costs associated with our prenatal diagnostic, molecular diagnostic and genetic analysis programs, an increase of $1.8 million for higher share-based compensation charges, increased operating supplies of $0.5 million primarily associated with our noninvasive prenatal diagnostic research and development, $0.4 million of higher rent, communications and general facilities expenses associated with Sequenom CMM, our CLIA certified laboratory acquired in the fourth quarter of 2008, $0.8 million of increased depreciation primarily associated with the acquisition of Sequenom CMM, an increase of other miscellaneous expenses of $0.2 million primarily associated with travel for clinical site monitoring and higher corporate related charges and $0.9 million in higher allocated overhead charges primarily due to the full allocation of our IT department across all functional areas. These increases were offset by decreased consultant expenses of $0.5 million due to the increase in headcount to support various research and development projects.
We expect our research and development expenses to remain higher through the end of 2009 compared to 2008, due to our investments during 2009 in the development of noninvasive prenatal nucleic acid based tests, as well as new products and applications for our MassARRAY platform.
Selling and marketing expenses
Selling and marketing expenses for the three and nine months ended September 30, 2009 increased to $5.9 million and $20.2 million, respectively, as compared to $5.9 million and $18.0 million, respectively, for the same periods in 2008. These expenses consisted primarily of salaries and related expenses for sales and marketing, customer support, and business development personnel and their related department expenses.
There was minimal change in selling and marketing expenses for the three months ended September 30, 2009 compared to the same period in 2008 with minor fluctuations related to increased headcount and related costs of $0.1 million associated with building our contract sales force infrastructure for our noninvasive diagnostics business and $0.1 million for higher share-based compensation charges, offset by a decrease of $0.2 million in various sales and marketing expenditures, primarily related to reduced advertising and public relations expenses for sales and marketing projects associated with genetic analysis programs, decreased travel expenditures and lower facilities related expenses.
The increase in selling and marketing expenses of $2.2 million for the nine months ended September 30, 2009 compared to the same period in 2008 primarily was related to increased headcount and related costs of $0.6 million, increased travel and related costs of $0.5 million associated with building our contract sales force infrastructure for our noninvasive diagnostics business, increased consulting charges of $0.5 million related to our managed care and corporate branding activities and $1.2 million for higher share-based compensation charges. These increases were offset by a decrease of $0.3 million in reduced advertising and public relations expenses for sales and marketing projects associated with our noninvasive prenatal technology and a decrease of $0.4 million from adjustments to our bad debt reserve related to the collection of previously reserved receivables.
We expect our sales and marketing expenses to remain higher in 2009 compared to 2008, due to our increased headcount and related expenditures incurred during 2009 as we strengthed our sales force and built our marketing and commercial development teams for our molecular diagnostic tests.
General and administrative expenses
General and administrative expenses for the three and nine months ended September 30, 2009 increased to $6.7 million and $21.9 million, respectively, as compared to $4.8 million and $12.5 million, respectively, for the same periods in 2008. These expenses consisted primarily of headcount and related expenses for legal, the independent investigation, finance and human resource personnel and their related department expenses.
The increase in general and administrative expenses of $1.9 million for the three months ended September 30, 2009 from the same period in 2008 was primarily due to $0.8 million of increased legal fees associated with new and ongoing litigation, as well as the independent investigation expenses, $0.3 million for increased headcount and related expenses, $0.2 million of increased insurance expense and other corporation expense, $0.3 million of higher rent and communications expenses associated with our San Diego facilities, increased consulting charges of $0.2 million and $0.2 million in higher share-based compensation charges.
The increase in general and administrative expenses of $9.4 million for the nine months ended September 30, 2009 from the same period in 2008 was primarily due to $5.9 million for increased legal fees related to new and ongoing litigation, as well as independent investigation expenses, $1.2 million in higher share-based compensation charges, $0.6 million for increased headcount and related expenses, $1.2 million for higher rent and communications expenses associated with our San Diego facilities maintenance and communications expenses, $0.2 million in increased investor relations consulting, audit and tax related expenses, $0.3 million of higher insurance and other corporation expense and $0.2 million for higher depreciation expense, offset by a decrease of $0.2 million in miscellaneous department expenses.
We expect general and administrative expenses to remain higher through the end of 2009 compared to 2008, due to the build-out of our infrastructure during 2009 to support our anticipated growth and from higher legal costs due to ongoing litigation and investigation expenses.
Restructuring expense
Restructuring expense for the three and nine months ended September 30, 2009 was $0.5 million and $1.5 million, respectively, as compared to none in the same periods in 2008. The increase in restructuring expense was due to our April 2009 reduction in our genetic analysis workforce, two office closures and other related costs. We expect to continue to experience higher margins compared to prior periods, as well as annualized reduction in costs as a result of this cost cutting initiative.
Interest income, net
Interest income, net, was $0.1 million and $0.4 million, respectively, for the three and nine months ended September 30, 2009, as compared to $0.5 million and $1.2 million, respectively, for the same periods in 2008. A reduction of our cash, cash equivalents and marketable securities balances in the current periods, in conjunction with changes in our investment policy and the overall reduction in the rates of return in our investment portfolio are attributable to the decreases of $0.4 million and $0.8 million, respectively, for the three and nine months ended September 30, 2009.
Loss on marketable securities
Loss on marketable securities was none and $38,000, respectively, for the three and nine months ended September 30, 2009, as compared to $0.1 million and $1.2 million, respectively, for the comparable periods in 2008. The recognized loss through the nine months ended September 30, 2009, was due to an other-than-temporary impairment of one of our investments in auction rate securities (ARS), as compared to the prior comparable periods, which was due to an other-than-temporary impairment of two of our investments in ARS. If the credit ratings of the security issuers deteriorate or if uncertainties in these . . .
|
|