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Sequenom Inc. Reports Operating Results (10-Q)

May 11, 2009 | About:

Sequenom Inc. (SQNM) filed Quarterly Report for the period ended 2009-03-31.

Sequenom Inc. is in the field of industrial genomics. Industrial genomics is the large scale commercial use of the knowledge of DNA variations for improving health agriculture and livestock. These variations are the differences between individuals including disease predispositions and variations in drug responses. Single nucleotide polymorphisms are the most common variations. The company has developed the MassArray system an accurate cost-effective technology that is capable of high throughput single nucleotide polymorphism analysis at high speeds. Sequenom Inc. has a market cap of $227.4 million; its shares were traded at around $3.73 with and P/S ratio of 4.8.

Highlight of Business Operations:

MassARRAY and other product related revenues were $3.1 million for the three months ended March 31, 2009, as compared to $4.5 million for the same period in 2008. The decrease of $1.4 million was due to a reduction in MassARRAY system hardware sales to $2.4 million for the three months ended March 31, 2009 from $3.7 million for the same period in 2008 due to fewer system placements in the three months ended March 31, 2009. The decrease in system hardware sales was attributable to the academic, pharmaceutical, and clinical research institutions slowing capital expenditure requirements associated with the current economic environment. Revenue from other product sales, including MassARRAY system maintenance contracts, for the three months ended March 31, 2009 and 2008 were $0.7 million for each quarter.

The increase in research and development expenses of $3.9 million for the three months ended March 31, 2009, as compared to the same period in 2008 primarily relates to increased headcount and related costs of $1.2 million, $0.6 million for higher share-based compensation charges, increased operating supplies of $0.4 million primarily associated with our noninvasive prenatal diagnostic research and development, $0.7 million related to clinical trial costs associated with our Trisomies, RHD and Gender programs, $0.2 million in higher licensing fees to support our diagnostic initiatives, $0.2 million of increased depreciation primarily associated with the acquisition of CMM in the fourth quarter of 2008, $0.1 million in higher consulting costs to support various research and development projects and $0.4 million in higher allocated overhead charges for facilities, IT and other expenses due to higher headcount from that in the first quarter of 2008.

The increase in selling and marketing expenses of $1.5 million for sales and marketing expenses in the three months ended March 31, 2009 compared to the same period in 2008 primarily were related to increased costs of $0.9 million for increased headcount and travel related expenses associated with building our sales force infrastructure for our noninvasive diagnostics business, $0.6 million for higher share-based compensation charges and $0.3 million of advertising and public relations consulting expenses for sales and marketing projects associated with our noninvasive prenatal technology, offset by a decrease of $0.2 million in reduced sale and marketing expenses and positive adjustments to our bad debt reserve.

The increase in general and administrative expenses of $3.5 million for the three months ended March 31, 2009 from the same period in 2008 was primarily due to $2.0 million of increased legal fees associated with on-going litigation, as well as acquisition activities, $0.6 million for increased headcount and related expenses, $0.2 million of higher IT related and equipment expense, $0.2 million in increased audit and tax related expenses, $0.2 million of higher investor relations fees associated with acquisition activity, $0.2 million of higher rent and communications expenses associated with our San Diego facilities and $0.5 million in higher share-based compensation charges, offset by increased allocation of information technology department expenses to other functional departments of $0.5 million.

As of March 31, 2009, cash, cash equivalents and current marketable securities totaled $81.2 million, compared to $98.3 million at December 31, 2008. Our cash equivalents and current marketable securities are held in U.S. Government securities with ratings of AAA and repurchase agreements collateralized by U.S. Government securities with ratings of AAA. As of March 31, 2009, we have $5.7 million of auction rate securities, which reflects a $3.7 million adjustment to the principal value of $9.4 million. Additional discussion with respect to the risks and uncertainties associated with our auction rate securities is included in the Risk Factors in Item 1A of this report, in Quantitative and Qualitative Disclosures about Market Risk in Item 3 of this report and in the notes to our condensed consolidated financial statements included elsewhere in this report.

We consider the material drivers of our cash flow to be sales volumes, working capital, inventory management and operating expenses. Our principal sources of liquidity are our cash, cash equivalents and marketable securities. Cash used in operations for the three months ended March 31, 2009, was $12.7 million, as compared to $9.1 million for the same period in 2008. The use of cash was primarily a result of the net loss of $17.5 million for the three months ended March 31, 2009, adjusted for non-cash items of depreciation and amortization of $1.3 million, share-based compensation of $3.0 million, non-cash compensation charges related to vesting of restricted stock of $0.2 million, offset by a non-cash change in deferred rent of $0.1 million. The changes in our operating assets and liabilities primarily consisted of a decrease in other current assets and prepaid expenses of $0.7 million, other liabilities of $0.1 million and accounts payable and accrued expenses of $1.4 million. These changes were offset by increases in accounts receivable of $2.1 million and deferred revenue of $0.4 million. At our current and anticipated level of operating loss, we expect to continue to incur an operating cash outflow on a quarterly basis for the foreseeable future.

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