Friday, December 23, 2011

What's Up With the Back-Slapping, Sequenom?

from The Motley Fool:

The future of Sequenom (Nasdaq: SQNM  ) rests in the hands of the company's MaterniT21 LDT, which offers mothers a way to test for Down syndrome with a simple blood test. An update on the progress of the launch that started in October sure would be nice.

Investors got their update yesterday, but there were no sales numbers in the release. There was nothing beyond a qualitative announcement that "numerous leading health-care providers across the United States" have begun ordering the test. The thing reads more like an advertisement for MaterniT21 LDT than anything else. Although I'm not sure that peer pressure -- "look, your colleagues are ordering it, so you should, too" -- is the best advertising message for doctors.

It's not the number of sites prescribing the test that's important, but the number of tests ordered.

They could be correlated, but they don't necessarily have to be. Sometimes persuading doctors to try a product out on one patient is the easy part and getting them to continue using it regularly is substantially harder. Shares spiked as high as 9% yesterday, although investors seem to have come to their senses, with shares ending up just 2.7%. I'm not sure the news is worth even that much.

Back-slapping should always be treated as suspect because biotechs are eternally in need of cash. BioSante Pharmaceuticals' (Nasdaq: BPAX  ) chief executive officer hinted that multiple companies were interested in its female libido drug, LibiGel, and then followed up the rise in stock price with a secondary offering. Good move, too, since the drug failed. And last week, Cell Therapeutics (Nasdaq: CTIC  ) used the jump in share price after announcing that it had resubmitted its marketing application for pixantrone to the Food and Drug Administration to raise some additional capital needed to retire debt. Geron (Nasdaq: GERN  ) has been another serial good-news capital raiser. Not that I blame the companies; just as investors should hit the sell button if valuations get out of whack with reality, companies should, too.

Is a capital raise by Sequenom coming? Absolutely. The company's CFO said as much during the company's analyst and investor day last month. The company ended the third quarter with just over $100 million in the bank, which should last the company into early 2013. But no company wants to be sitting on that little cash, so Sequenom plans to raise cash "sometime during 2012."

If the launch of MaterniT21 LDT goes well, I'd expect the share price to rise from here, and I suspect management thinks the same thing. So if management decides to raise capital now, before providing sales figures for the launch, I'd take that as a bad sign.

I'm not saying that's going to happen for sure -- perhaps the company's press-relations department was just on a candy cane-induced sugar high and decided it needed something to do during a notoriously slow week -- but it's certainly something investors should look out for.

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