Sequenom Expands Its International Reach
Life-sciences company Sequenom (NAS: SQNM) saw a few rays of sunshine peek through the clouds in the past few weeks. The company announced today that it completed several international distribution agreements that expand access to the MaterniT21 PLUS testing service. The agreements cover Japan, Hong Kong, the Czech Republic, Slovakia, the Netherlands, and Israel.
These agreements come on the heels of another piece of good news on the international front for Sequenom. Last week, the company's European licensee, LifeCodexx, obtained CE Marking for its trisomy 21 test that uses Sequenom technology. The achievement enabled LifeCodexx to begin offering testing services at prenatal clinics and hospitals in Germany, Austria, Liechtenstein, and Switzerland.
What it means
New market opportunities can't hurt. But exactly how big are these new markets for Sequenom?
Sequenom estimates its available market in the U.S. for MaterniT21 PLUS to be around 750,000 patients per year. That figure amounts to 18.75% of the 2010 U.S. birth rate. If we assume that ratio roughly applies to the new areas covered in Sequenom's agreements plus the areas served by LifeCodexx, the company could increase its available market by around 470,000 patients per year using the most recent birth rates of the included areas.
Of course, these are only available market projections -- not what Sequenom will necessarily be able to sell. One challenge for the company in the U.S. has been in getting payers to cover its testing.
Coventry Health Care (NYS: CVH) agreed to pay for the MaterniT21 tests earlier this year and then decided to end coverage. The U.S. Centers for Medicare and Medicaid Services (CMS) does not cover Sequenom's fetal testing.
On the positive side, MultiPlan became the first major payer to cover MaterniT21 earlier this year. MultiPlan contracts with more than 900,000 providers and provides coverage to more than 55 million members.
These challenges might not be as difficult in other countries, though. For example, Swiss media reported that health insurers there stated that they will cover testing "once the effectiveness has been proven."
The market appeared to shrug off Sequenom's announcement, perhaps a reflection that new market potential doesn't always translate to new market reality. Shares were down several points after the open before regaining ground midday.
Looking ahead
Sequenom is still relatively early in its rollout of MaterniT21 PLUS. The company first commercialized the testing services in fourth quarter of 2011. Revenue within its diagnostic services segment has grown considerably since then, increasing more than 400% to $8.1 million in the most recent quarter.
The company relies heavily on genome-sequencing machines from Illumina (NAS: ILMN) . Sequenom negotiated an extension of its reagent and instrument supply agreement with Illumina several months ago. This underscores the company's high expectations of strong demand for MaterniT21 testing.
The key for Sequenom will be in obtaining additional commitments from payers to reimburse the costs of MaterniT21 for patients. Perhaps the acquisition of Coventry Health Care by Aetna (NYS: AET) could result in a reversal of Coventry's previous decision reversal. An agreement with a large player such as Aetna would be huge for Sequenom.
In the meantime, Sequenom can look forward to moving ahead in several additional countries thanks to the developments from the past two weeks.
Foolish bottom line
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Fool contributorKeith Speightsowns no shares in the stocks mentioned above.Motley Fool newsletter serviceshave recommended buying shares of Illumina and Coventry Health Care. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.
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