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Sequenom, Inc. Patent Interference Proceeding Is the Latest Bit of Drama Though Shouldn’t Impact NearTerm Market Dynamics

On Friday, Sequenom announced that the U.S. Patent and Trademark Office (USPTO) had withdrawn the issuance of a recently issued patent that had claims to novel methods for detecting fetal aneuploidy using massively parallel sequencing. The patent was entitled Diagnosing Fetal Chromosomal Aneuploidy Using Massively Parallel Genomic Sequencing and was invented by Drs. Dennis Lo, Rossa Chiu, and Alan Chan of the Chinese University of Hong Kong. Sequenom has exclusive rights to this patent. The reason the patent was withdrawn was in connection with an anticipated patent interference proceeding between parties, with pending patent applications or issued patents directed to similar subject matter.

It is assumed that the other party referenced is privately held Verinata, and given the contentiousness between them and Sequenom and with this being a crucial piece of IP, it is not terribly surprising that we are now looking at a lengthy interference proceeding. For now, it will not impact anything in the marketplace, where Sequenom continues to be the clear market leader with significant cash to fund IP battles, facility expansion, and broad sales‐and‐marketing coverage. So while this is the latest frustrating development for Sequenom and will probably break stock momentum gained over the last few weeks, any possible impact from this will not be felt for some time and is very uncertain.

Discussion

On December 6, Sequenom announced that the USPTO would issue them a patent related to the use of massively parallel genomic sequencing in diagnosing fetal chromosomal aneuploidy. With Sequenom’ s main piece of intellectual property (the ‘540 patent, which covers the detection of fetal nucleic acid from maternal serum or plasma) being disputed by multiple parties, the sequencing patent is an important way to keep other companies that were using a massively parallel sequencing approach out of the market. Given everything we have heard out of Verinata about their views of IP and importance this patent has, we had always expected that an interference proceeding was likely.

The announcement on Friday merely brings this from a possibility to a reality, and we will finally get a more definitive ruling as to who has the rights in this space. Importantly, we would not expect to hear anything for some time in this case (though we do not have a time frame yet) and we do not expect that it will in any way impact results in the field, where the battle between these two companies is being won decisively by Sequenom. In fact, with the deep pockets that Sequenom has, they will have no problem pursuing their IP cases, building out a deep sales‐and‐marketing organization, pursuing R&D applications within and outside of prenatal diagnostics, and expanding their labfootprint.

We do not think the same can be said for privately held Verinata at this point (though of course we have no true read on their balance sheet), and we have maintained that this IP battle was the best chance they had to compete, given their est does not appear to be getting significant uptake among our field contact database.

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