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Sequenom: The Case for the Defense ...

A recent post on the ongoing troubles at Sequenom (SQNM) -- in which I noted that the company has been sued by one of its partners, claiming it "has no real non-invasive testing for Down Syndrome" -- really stirred the hornets' nest.

While I'm happy for day-traders to spend their time on the Yahoo stock message boards trying to make the case that I'm a "criminal" and a "crooked scumbag" merely for trying to figure out whether Sequenom's Down Syndrome test actually exists in any tangible form, I take offense at the late-night phonecalls from people who have blocked their numbers.

Just to state the obvious: I hold no position, long or short, in Sequenom or its partners or its competitors.

Nonetheless, here's the putative case for Sequenom, based on what I'm hearing from people who think that this disaster area of a company can pull something out of the fire:

  1. Harry Hixson: would not have agreed to be the new CEO if there was nothing inside Sequenom to be developed. The former president/COO of Amgen also held positions with Abbott Laboratories, and is a director of Arena Pharmaceuticals, Infinity Pharmaceuticals and Novabay Pharmaceuticals. He would not put his reputation on the line for no good reason.
  2. The disclosures are reassuring: Hixson has stated in his conference calls that testing has started again and is ongoing. Why would he say that if there's nothing to test? It would be an SEC violation to do so.
  3. Authorities have brought no charges: Sure the company has been sued, but hasn't everyone? If there was really criminal insider trading or a data scam going on, wouldn't the FBI and SEC have brought charges?
  4. Xenomics: which made the allegation that the Down Syndrome test was in a state of "non-existence," is a parasite company that wants an easy payout from its battered host. Its suit should be ignored.
  5. It's a blood test: Not a urine test. Even though Xenomics licensed a urine test to Sequenom, and Sequenom is developing a blood test, the discrepancy is meaningless. Besides, a successful test for nucleic acid sequences in urine would be more sensitive than one for blood because there's less protein floating around in sterile urine than blood -- which would mean that a blood test would be easier by comparison.
  6. The long term: If Sequenom can really launch a non-invasive blood test for Down Syndrome then every pregnant woman in the country would take it -- leading to a massive payday.
  7. The short term: Even if Sequenom burns all its cash (it lost about 50 percent of it from Q3 2008 to Q3 2009) it will be a takeover target for a grown-up company -- and that means there ought to be a premium on the stock.
Doubtless the Yahoo boards will now fill up with fulsome apologies. But just to bait them further: Do a search of for all of Sequenom's tests for Down Syndrome. There are three (here and here and here). All of them were opened prior to the April 2009 discovery that something was rotten in the state of Denmark. Let's hope the bad old data doesn't get mixed up with the good new data.