Washington Editor

Sequenom Inc. expects to save about $10 million a year by dropping its internal drug discovery program to concentrate on its Genetic Systems business unit in the genetic research and diagnostic services market.

The pharmaceutical side of Sequenom, of San Diego, will shut down during the third quarter, taking with it about 50 employees, leaving the firm with about 160 people, company officials said.

Sequenom's stock (NASDAQ:SQNM) Thursday fell 1 cent to close at $1.08.

"We simply cannot afford to support an internal drug discovery effort any longer," Toni Schuh, Sequenom's president and CEO, said in a conference call. The internal research pharmaceutical discovery pipeline was based on a limited number of attractive targets in the therapeutic areas of metabolic disease and cancer, he added.

Those candidate gene targets, as well as others, likely will be licensed out to other companies that can take them forward.

Sequenom already has had a certain degree of success in that type of business model. For example, in December the firm licensed its osteoporosis targets to Procter & Gamble Co., of Cincinnati, in a deal valued at $30 million. (See BioWorld Today, Dec. 19, 2003.)

Going forward, the company's goal is to build its Genetic Systems business unit and to achieve profitability, said Steve Zaniboni, Sequenom's chief financial officer.

Already the firm has expanded the capabilities of its platform technology, the MassARRAY Compact, from high-throughput genotyping to include the mid-range throughput segment for virtually all relevant applications in RNA and DNA analysis, enabling Sequenom to service the broad needs of the clinical research and diagnostic services market, the company said.

"The goal for our genetics business is to successfully transition from a relatively small market driven primarily by large government-funded research programs for high-throughput genotyping to the much larger general lab and clinical research market with a supply of high-quality genetic analysis products," Schuh said. "This market is growing substantially, and this is an area of great opportunity for MassARRAY product sales."

Also Thursday, Sequenom released its earnings for the quarter ended June 30, indicating that it has $50.7 million in cash, cash equivalents, short-term investments and restricted cash.

Total consolidated revenues were $6 million, compared to $7.7 million for the second quarter of 2003. Total costs and expenses for the quarter decreased to $16.3 million, compared to $17.8 million for the second quarter of 2003.

Sequenom's net loss for the quarter increased to $9.9 million, or 25 cents per share, compared to $9.3 million, or 24 cents per share, for the same period last year.

The majority of costs associated with closing the pharmaceutical division will be recorded in the third quarter.

Sequenom also entered a three-year Cooperative Research and Development Agreement with the National Human Genome Research Institute (NHGRI) of the National Institutes of Health in Bethesda, Md., to perform allele-specific gene expression of genes conferring susceptibility to Type II diabetes using MassARRAY Quantitate Gene Expression.

The collaboration builds on previous research by the two organizations to analyze DNA for single nucleotide polymorphisms and furthers work performed by the NHGRI for the Finland-U.S. investigation of non-insulin-dependent diabetes mellitus fusion project.

Meanwhile, Sequenom, along with the Chinese University of Hong Kong and Boston University, developed a process to determine genetic mutations in circulating fetal nucleic acids in maternal plasma. Sequenom said the approach eliminates the risk of fetal loss associated with current invasive prenatal testing procedures, such as amniocentesis, and is potentially applicable to other areas requiring genetic trace analysis, such as early cancer detection. The findings were published in the online early edition of the Proceedings of the National Academy of Sciences.

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