Sequenom, Fueled by Blood Test for Down’s, Aims To Be “Google of Molecular Diagnostics”

10/8/08Follow @xconomy

Life is good at Sequenom these days. CEO Harry Stylli was so relaxed when I stopped by for an interview last week, he was practically lying down in one of the guest chairs in his office at one point while telling me the company’s story.

San Diego-based Sequenom had its breakout moment on September 23. That’s when the company reported results from a study of 400 pregnant women, which showed it can detect Down syndrome of a fetus in early development with 100 percent accuracy, just by drawing a slight amount of the mother’s blood. This is a big deal, because the current crop of tests that look for proteins in the blood are notoriously inaccurate, and the gold standard—amniocentesis and a procedure called CVS—are invasive procedures that carry a small but significant risk of miscarriage.

Wall Street, even in the midst of financial calamity, went wild when this data rolled in on this test, called SEQureDx. Sequenom stock (NASDAQ: SQNM) shot up 35 percent to $27.74 after the news came out. The stock has since dropped back to around $19.50 as Stanford researchers reported similar progress toward a noninvasive test for Down’s, but investors have clearly started doing the math about a new paradigm for genetic testing. There are about 4.2 million live births in the U.S. every year, and about two-thirds get tests for Down syndrome, a chromosomal abnormality that causes mental retardation in about 1 in 1,000 newborns. More data on the accuracy of the Sequenom test needs to confirm the early results, but if it does, the company expects to start marketing its test service in mid-2009, Stylli says.

“The firm appears to have an unrivaled position in non-invasive prenatal diagnostics based on the high accuracy of its tests,” said Elemer Piros, an analyst with Rodman & Renshaw in New York, in a note to clients Oct. 2. He raised his stock price target from $25 to $65, based on projections of Sequenom’s ability to capture $870 million in revenue in 2012 from the market for non-invasive prenatal tests. Piros called it a “potentially paradigm-changing breakthrough.”

I wanted to learn a lot about how Sequenom maneuvered itself into this position, and exactly where it plans to go from here. The company, as its quarterly reports will tell you, has a history of losses, and has racked up an accumulated deficit of more than $500 million. It is best known for marketing its MassArray System of hardware, software, and chemical reagents for high-speed DNA analysis. Stylli, who joined the company in June 2005, said the strategy has switched gears at various times from selling DNA information to pharmaceutical companies, to at one point trying to become a drug developer.

“None of that worked,” says Stylli, an Xconomist. “I joined a distressed company in need of a turnaround, and that’s what I did.”

The transformation to a molecular diagnostics company is built on a license Sequenom obtained from Oxford University to a test for Down’s syndrome developed by researcher Dennis Lo. The idea is that as the fetus develops, small fragments of its DNA and RNA spill into the mother’s bloodstream, Stylli says. The Sequenom test fishes out those DNA fragments, which can identify with certainty whether a child has a copy of an extra chromosome, the cause of Down’s.

I imagine this has pretty strong appeal to expecting moms, given the alternatives. The standard amniocentesis involves sticking a needle into the amniotic sac and removing fluid. It creates a risk of miscarriage in about 1 in every 200 to 400 births, Stylli says. The CVS procedure, which scrapes tissue from inside the birth canal, has a higher risk, of about 1 in 50 to 100 births, he says.

Before resorting to those tests, about two-thirds of pregnant women in the U.S. tend to get a marketed blood test that looks for signature proteins, Stylli says. The tests aren’t very reliable, he says, at about 80 percent sensitivity. That means that about one-fifth of the time, they give a negative result, when in fact the baby has Down’s. Even more problematic is that they create “false positive” results about five percent of the time, Stylli says. That means five percent of the time, the tests say a developing fetus has Down’s when in fact it doesn’t.

Sequenom has more experiments in the works to prove to doctors that it has a simple blood test that’s accurate enough to make these methods obsolete. It will have results comparing its test in 800 to 1,000 patients by January, and another 3,000 to 5,000 patients by June, Stylli says. The company doesn’t need FDA approval, because it’s not marketing a test to doctors to buy—instead it will sell the service, and perform the sequencing work at a certified clinical diagnostics laboratory it bought last month in Grand Rapids, MI.

The size of the market is still a bit of a guess, but it’s certain this test won’t be cheap. Sequenom is still figuring out how to set the price, but it will probably be $600 to $1,000, Stylli says. It will market the device on its own, with a sales force of about 100 people.

This technology ought to be applied to hundreds, if not thousands of pre-natal genetic tests, so Down’s should be the beginning. Maybe I was just being provocative, but I asked Stylli toward the end of the interview if he’s trying to build a new-generation version of Abbott Laboratories, the diversified maker of drugs, diagnostics, and medical devices. He looked at me like that was a weird question. “We want to be the next Google for molecular diagnostics and personalized medicine,” he says. “Think about how important that is.”

He’s right—it is important, and a transformative idea for medicine. How much of this burgeoning market ultimately gets captured by Sequenom is a question we’ll be able to better answer a year from now.

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