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Sequenom Inc. Reports Operating Results (10-Q)

August 05, 2010 | About:
10qk

10qk

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Sequenom Inc. (SQNM) filed Quarterly Report for the period ended 2010-06-30.

Sequenom Inc. has a market cap of $375.6 million; its shares were traded at around $6.04 with and P/S ratio of 9.9. SQNM is in the portfolios of Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

Under the terms of the agreement, in the event that the first commercial sale of a licensed product in the United States has not occurred on or before January 31, 2011, we will pay Optherion a non-creditable license maintenance fee equal to $260,000 per year. The license maintenance fee will be pro-rated for any period less than a full year before the first commercial sale of a licensed product in the United States. Following the first commercial sale of a licensed product in the United States, we will no longer be required to pay the license maintenance fee, but instead we will pay Optherion a minimum royalty payment each year during the term of the agreement ranging between $260,000 and $270,000 per year and such minimum payment shall be creditable against any royalties due based upon licensed product sales. We have also agreed to make payments to Optherion upon the achievement of specified development, regulatory and commercial milestones, and during the life of the patent claims licensed under the agreement, royalties on the cumulative worldwide annual net sales of products successfully developed and commercialized covered by the patent claims and know-how licensed under the agreement. We also agreed, upon entry into the agreement, to reimburse Optherion for its prior patent related costs and expenses in the amount of approximately $1.1 million. The agreement will remain in force in each country until the expiration of our obligation to make royalty payments in such country, subject to earlier termination by either party upon uncured material breach or other specified circumstances. Optherion may terminate the agreement if we challenge the validity of any patent covered by the licensed technology, if we abandon or suspend our research, development, marketing or commercialization of the licensed products, or if we fail to comply with certain insurance requirements set forth in the agreement. We may terminate the agreement for any reason upon 90 days prior written notice, provided that if such notice of termination is delivered prior to the first anniversary of the effective date of the agreement, we shall be required to pay Optherion a non-creditable termination fee of $2,000,000. In the event that the agreement expires pursuant to its terms, we will retain the licenses and sublicenses granted under the agreement as fully paid and royalty free, subject to certain specified limitations.

Consumables revenue for the three and six months ended June 30, 2010 increased to $5.4 million and $10.5 million, respectively, compared to $5.2 million and $9.9 million, respectively, for the same periods in 2009. These increases are attributable to our larger installed base of MassARRAY compact systems in 2010 against the comparative periods in 2009, as well as increased consumables orders from our customers in the biomedical research and agricultural biology markets against the comparative period.

MassARRAY and product related revenues for the three and six months ended June 30, 2010 were $5.3 million and $10.0 million, respectively, as compared to $3.3 million and $6.4 million, respectively, for the same periods in 2009. The increases of $2.0 million and $3.6 million for the three and six months ended June 30, 2010, as compared to the same periods in 2009 were primarily due to increases in MassARRAY system hardware and software sales of $1.6 million and $2.7 million during the three and six months ended June 30, 2010, respectively, from the comparative periods in 2009 and were attributable to higher system placements in the current year periods. Revenue from other product sales, which primarily represents MassARRAY system maintenance contract revenue, for the three and six months ended June 30, 2010 were $1.2 million and $2.5 million, respectively, as compared to $0.8 million and $1.5 million, respectively, for the same periods in 2009. The increases of $0.4 million and $1.0 million for the three and six months ended June 30, 2010, are due to more service contracts in effect over our larger installed base against the comparative period.

We recorded contract research services revenue of $0.4 million and $0.8 million, respectively, for the three and six months ended June 30, 2010, as compared to $0.7 million and $1.5 million, respectively, for the same periods in 2009. The decreases of $0.8 million and $0.7 million for the three and six months ended June 30, 2010, are attributable to our cost cutting initiative that commenced in April 2009, which refocused our genetic analysis service business on higher margin studies and fewer projects.

Cost of consumables and products revenues for the three and six months ended June 30, 2010 and 2009 were $3.8 million and $7.8 million, respectively, compared to $2.4 million and $4.8 million, respectively, for the same periods in 2009. Gross margins on consumables and product related sales for the three and six months ended June 30, 2010 were 64% and 62%, respectively, compared to 71% and 70%, respectively, for the same periods in 2009. Gross margins decreased primarily due to the mix of products sold, which consisted of increased system placements in the current periods as compared to the same periods in 2009. MassARRAY systems, which historically sell at lower gross margins, were offset by slightly higher consumable sales for the three and six months ended June 30, 2010, which historically sell at higher average gross margins.

Cost of contract research service revenues for the three and six months ended June 30, 2010 were $0.1 million and $0.2 million, respectively, compared to $0.7 million and $1.7 million, respectively, for the same periods in 2009. Gross margins were 70% and 74% during the current periods, as compared to negative 1% and negative 14% in the comparable periods in the prior year. The improved margins in 2010 are attributable to our focus on fewer, higher margin studies and projects after our April 2009 cost cutting initiative. Gross margins on contract research service revenues are dependent on the particular contract terms of the work undertaken.

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