SEQUENOM INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ending September 30, 2002

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-29101

SEQUENOM, INC.

(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)		77-0365889 (I.R.S. Employer Identification Number)

3595 John Hopkins Court San Diego, California (Address of principal executive offices)		92121 (Zip Code)

Registrant’s telephone number, including area code: (858) 202-9000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

The number of shares of the Registrant’s Common Stock outstanding as of November 12, 2002 was 39,398,189.

SEQUENOM, INC.

INDEX

		Page No.
PART I—FINANCIAL INFORMATION		3

Item 1.	Financial statements

	Condensed Consolidated Balance Sheets—as of September 30, 2002 (unaudited) and December 31, 2001	3

	Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2002 and 2001	4

	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2002 and 2001	5

	Notes to the unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

PART II—OTHER INFORMATION		30
Item 1.	Legal Proceedings	30
Item 2.	Changes in Securities and Use of Proceeds	30
Item 5.	Other Information	30
Item 6.	Exhibits and Reports on Form 8-K	31

PART I—FINANCIAL INFORMATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value and share information)

	September 30, 2002			December 31, 2001
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	30,224		$	71,686
Short-term investments, available-for-sale		65,427			67,322
Restricted cash and investments		10,504			4,127
Accounts receivable, net		8,124			9,995
Inventories, net		6,843			8,051
Other current assets and prepaid expenses		3,694			4,134

Total current assets		124,816			165,315
Equipment and leasehold improvements, net		21,859			25,099
Intangible assets, net		18,482			19,416
Goodwill		25,010			141,565
Other assets		4,865			4,986

Total assets	$	195,032		$	356,381

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses	$	16,366		$	21,464
Accrued acquisition and integration costs		6,507			6,519
Deferred revenue		1,711			6,625
Current portion of long-term bank debt		3,211			1,250
Current portion of capital lease obligations		706			1,059

Total current liabilities		28,501			36,917
Deferred revenue, less current portion		917			1,800
Capital lease obligations, less current portion		724			1,092
Long-term debt, less current portion		6,154			1,750
Long-term deferred tax liability		5,238			6,220
Stockholders’ equity:
Common stock, par value $0.001; 75,000,000 shares authorized, 39,396,959 and 37,367,228 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively		39			37
Additional paid-in capital		452,730			447,756
Deferred compensation related to stock options		(247	)		(605	)
Accumulated other comprehensive (expense) income		(623	)		437
Accumulated deficit		(298,401	)		(139,023	)

Total stockholders’ equity		153,498			308,602

Total liabilities and stockholders’ equity	$	195,032		$	356,381

See accompanying notes.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share and share information)

	Three months ended September 30,						Nine months ended September 30,
	2002			2001			2002			2001
	(Unaudited)						(Unaudited)
Revenues:
Product related	$	6,554		$	6,239		$	19,054		$	14,956
Services		275			2,485			5,445			6,267
Research and development grants		65			80			184			183

Total revenues		6,894			8,804			24,683			21,406

Costs and expenses:
Cost of product and service revenue		4,102			5,361			14,159			14,559
Research and development		9,157			8,537			25,365			20,641
Selling, general and administrative		6,783			5,642			21,064			15,677
In-process research & development		3,668			24,920			3,668			24,920
Integration costs		—			—			3,000			—
Amortization of acquired intangibles		944			—			2,815			—
Amortization of deferred stock compensation		95			215			359			756

Total costs and expenses		24,749			44,675			70,430			76,553

Loss from operations		(17,855	)		(35,871	)		(45,747	)		(55,147	)
Net interest income		921			1,386			3,036			4,965
Other (expense) income, net		(386	)		52			(702	)		28

Net loss before income taxes and cumulative effect of accounting change		(17,320	)		(34,433	)		(43,413	)		(50,154	)
Deferred income tax benefit		328			—			982			—

Net loss before cumulative effect of accounting change		(16,992	)		(34,433	)		(42,431	)		(50,154	)
Cumulative effect of accounting change		—			—			(116,947	)		—

Net loss	$	(16,992	)	$	(34,433	)	$	(159,378	)	$	(50,154	)

Net loss per share, basic and diluted:
Before cumulative effect of accounting change	$	(0.45	)	$	(1.37	)	$	(1.12	)	$	(2.04	)
Cumulative effect of accounting change		—			—		$	(3.10	)		—

Net loss per share, basic and diluted	$	(0.45	)	$	(1.37	)	$	(4.22	)	$	(2.04	)

Weighted average shares outstanding, basic and diluted		38,197,440			25,098,290			37,729,529			24,600,228

See accompanying notes.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Nine months ended September 30,
	2002			2001
	(Unaudited)
Operating activities
Net loss	$	(159,378	)	$	(50,154	)
Adjustments to reconcile net loss to net cash used in operating activities:
Cumulative effect of accounting change		116,947			—
In-process research and development		3,668			24,920
Other non-cash items		8,013			5,002
Changes in operating assets and liabilities:
Inventories		1,322			(3,311	)
Accounts receivable		2,015			(7,288	)
Other current assets		595			(1,134	)
Other assets		2,000			(1,749	)
Accounts payable and accrued expenses		(9,602	)		8,679
Deferred revenue		(5,867	)		(2,628	)
Other liabilities		3,493			—

Net cash used in operating activities		(36,794	)		(27,663	)

Investing activities
Purchase of equipment and leasehold improvements		(3,458	)		(12,886	)
Net change in restricted cash		(6,360	)		—
Net change in marketable investment securities		27			(17,477	)
Cash received from purchase acquisition		547			61,350
Investment in investee		(1,000	)		—

Net cash (used)/provided in investing activities		(10,244	)		30,987

Financing activities
Net payments on capital lease obligations		(815	)		137
Net proceeds of long-term debt		5,821			—
Proceeds from exercise of stock options and ESPP purchases		999			557

Net cash provided by financing activities		6,005			694

Net (decrease)/increase in cash and cash equivalents		(41,033	)		4,018
Effect of exchange rate changes on cash and cash equivalents		(429	)		(222	)
Cash and cash equivalents at beginning of period		71,686			70,046

Cash and cash equivalents at end of period	$	30,224		$	73,842

Supplemental schedule of financing activities:
Fair value of net assets acquired net of cash	$	4,072		$	179,450

Supplemental disclosure of cash flow information:
Interest paid	$	123		$	187

See accompanying notes.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements of SEQUENOM, Inc. (“SEQUENOM” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for a full year.

The condensed balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain amounts in the December 31, 2001 balance sheet have been reclassified to conform with current year presentation.

These financial statements should be read in conjunction with the audited financial statements and footnotes thereto included in SEQUENOM’s Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission (“SEC”).

(2) Segment information

The Company reports its financial results in two business segments, SEQUENOM Genetic Systems and SEQUENOM Pharmaceuticals. Segment financial information for SEQUENOM Genetic Systems and SEQUENOM Pharmaceuticals prior to 2002 has not been provided as SEQUENOM then operated in one business segment, making it impracticable to do so.

Unaudited segment information for the three months and nine months ended September 30, 2002 is as follows (Dollars in thousands, unaudited):

	Three months ended September 30, 2002									Nine months ended September 30, 2002
	SEQUENOM Genetic Systems			SEQUENOM Pharmaceuticals			Total			SEQUENOM Genetic Systems			SEQUENOM Pharmaceuticals			Total
Revenues from external customers	$	6,815		$	79		$	6,894		$	24,416		$	267		$	24,683
Loss from operations	$	(6,397	)	$	(11,458	)	$	(17,855	)	$	(18,653	)	$	(27,094	)	$	(45,747	)

The SEQUENOM Pharmaceuticals segment loss from its operations in the three and nine months ended September 30, 2002 includes a $3.7 million in-process research and development charge arising from the acquisition of Axiom Biotechnologies, Inc., in the third quarter of 2002, and in the nine months ending September 30, 2002 includes a $3 million integration charge for the closure of the Swedish operations at our Uppsala facility in the second quarter of 2002. We acquired this facility as part of Gemini Genomics plc in September 2001.

The Company has no intersegment revenues. Corporate costs are allocated to segments based on each segment’s estimated proportion of total operational expenses. The Company does not currently segregate assets by segment as a significant proportion of the Company’s total assets are cash, cash equivalents, and marketable securities which the Company does not assign to its two operating segments. Goodwill is attributable entirely to the SEQUENOM Pharmaceutical segment.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(3) Comprehensive Income (Loss)

Statement of Financial Accounting Standards (“SFAS”) No. 130, Reporting Comprehensive Income requires reporting and displaying comprehensive income (loss) and its components which, for SEQUENOM, includes net loss and unrealized gains and losses on investments and foreign currency translation gains and losses. In accordance with SFAS No.130, the accumulated balance of other comprehensive income (loss) is disclosed as a separate component of stockholders’ equity. Other comprehensive loss for the three month and nine month periods ending September 30, 2002 was a loss of approximately $244,000 and of $1,062,000, respectively, compared to gains of approximately $261,000 and $452,000 in the three month and nine month periods ended September 30, 2001.

(4) Net Loss Per Share

In accordance with SFAS No. 128, Earnings Per Share, and SEC Staff Accounting Bulletin No. 98, basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period, including shares held in escrow relating to the Axiom acquisition. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares are comprised of incremental common shares issuable upon the exercise of stock options and warrants, and were excluded from historical diluted loss per share because of their anti-dilutive effect.

(5) Cumulative Effect of Accounting Change.

In January 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets deemed to have an indefinite useful life no longer be amortized but be reviewed for impairment upon adoption of SFAS No. 142 and annually thereafter. The Company will perform its annual impairment review during the fourth quarter of each year, commencing in the fourth quarter of 2002.

Under SFAS No. 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. No amortization on the goodwill arising on the acquisition of Gemini Genomics plc in September 2001 was recognized during 2001 in accordance with the transition arrangements in SFAS No. 142. Quarterly results as reported are therefore comparable. Upon adoption of SFAS No. 142 in January 2002, the Company recognized a one-time, non-cash charge of $116.9 million to reduce the carrying value of its goodwill. The charge is non-operational in nature and is reflected as a cumulative effect of an accounting change in the consolidated statement of operations. In calculating the impairment charge, the fair value of the SEQUENOM Pharmaceuticals segment was estimated using a discounted cash flow methodology. The charge relates entirely to the SEQUENOM Pharmaceuticals segment.

The SFAS No. 142 goodwill impairment charge is associated solely with goodwill resulting from the acquisition of Gemini Genomics plc. The amount of the impairment primarily reflects a decline in long term market expectations for genomics companies which in turn has led to a decline in the Company’s stock price since the acquisition was announced and valued for accounting purposes in May 2001.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(6) Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market value. Standard cost, which approximates actual cost, is used to value inventories. The components of inventories were (in thousands):

	September 30, 2002		December 31, 2001
	(Unaudited)
Raw materials	$	2,882	$	3,859
Work in process		75		61
Finished goods		3,886		4,131

Total	$	6,843	$	8,051

(7) Business combination

In the third quarter of 2002, SEQUENOM completed the acquisition of Axiom Biotechnologies, Inc., a company based in San Diego, California. Under the terms of the agreement, holders of Axiom stock received 0.2093 of a share of newly issued SEQUENOM common stock in exchange for each share of capital stock of Axiom. As a result of this transaction, SEQUENOM issued up to approximately 1.7 million shares of its common stock and assumed outstanding options and warrants, equivalent to approximately 250,000 additional shares of common stock. 400,000 of the 1.7 million shares relating to this transaction have been placed in escrow, and may be released from escrow on August 30, 2003, subject to a reduction based upon certain indemnification obligations of Axiom to SEQUENOM. The transaction was accounted for using the purchase method of accounting.

In connection with this transaction, the Company conducted a valuation of the intangible assets acquired in order to allocate the purchase price in accordance with Accounting Principles Board Opinion No. 16. The total purchase price of $5.0 million is estimated to be allocated as follows (in millions):

Net assets acquired	$	0.4
In-process research and development		3.7
Intangible assets		0.5
Goodwill		0.4

	$	5.0

The intangible assets are being amortized over their estimated useful lives of five years. The goodwill is not being amortized, but will be subject to an annual impairment test. At the time of acquisition, the technological feasibility of the acquired in-process research and development had not yet been established and management determined that at that time the technology had no future alternative uses and accordingly, the value assigned to in-process research and development was immediately charged to the statement of operations.

The acquisition is considered immaterial to SEQUENOM’s revenues and expenses during the three and nine month periods ending September 30, 2002, and accordingly no pro-forma information is provided. Axiom’s financial results are incorporated into our consolidated financial information from September 1, 2002.

(8) New Accounting Pronouncements

In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 replaces SFAS No. 121 and provisions of APB Opinion No. 30 for the disposal of segments of a business and is effective for fiscal years beginning after

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 15, 2001. The statement creates one accounting model, based on the framework established in SFAS No. 121, to be applied to all long-lived assets including discontinued operations. SFAS No. 144 became effective for the Company on January 1, 2002. We are examining the book value of approximately $26 million of tangible and intangible assets relating to our genetic services business following a reduction in revenues from these operations. Depending on the outcome of contract negotiations for genetic services with customers during the fourth quarter of 2002, a FAS 144 impairment in the carrying value may arise with respect to these assets.

In June 2002, the FASB issued Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This Statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred. Adoption of this Statement is required at the beginning of fiscal year 2003. This Statement will impact the timing of exit or disposal activities reported by the Company after adoption.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

All statements in this Form 10Q that are not historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our “anticipation,” “expectations,” “beliefs,” “hopes,” “goals,” “intentions,” “strategies” or the like. Such statements are based on management’s current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. We caution investors that there can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited to, the risk factors discussed in this Form 10-Q under the caption “Risks and Uncertainties.” We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based.

Overview

We are a leading high-performance DNA analysis company organized into two segments: SEQUENOM Genetic Systems and SEQUENOM Pharmaceuticals. The two segments combine to capitalize on our MassARRAY high-performance DNA analysis platform, SNP assay portfolio, disease gene discovery programs and extensive DNA sample repository.

•

SEQUENOM Genetic Systems. This segment includes the sales and support of our MassARRAY hardware, consumables and software product offerings, research and development toward expanding applications of the MassARRAY platform, and the provision of genetic services. Our core technology components include the MassARRAY system for high-performance DNA analysis, and a broad portfolio of single nucleotide polymorphisms (SNP) assays. We commenced sales of our first MassARRAY system in January 2000. Through September 30, 2002, we have placed a total of 84 systems with leading companies and institutions. We have sold our products to genetics, pharmacogenetics, diagnostic and agricultural biotechnology companies, as well as leading research institutions, in North America, Europe and Asia. Through September 30, 2002 our product revenues consisted of revenues from the placement of MassARRAY systems, the sales of MassARRAY consumables used with the MassARRAY systems, the licensing of proprietary software, and license fees from end-users. Our service revenues consist of genetic validation services, with revenue recognized as phases of projects are completed.

We expect SEQUENOM Genetic Systems to launch new products on a regular basis. The impact of these new products and fluctuations in the level of genetic validation services undertaken on revenues, margins, expenses and cash flows is uncertain and depends on many factors as described in this Form 10-Q in the section entitled Risks and Uncertainties.

•

SEQUENOM Pharmaceuticals. This segment includes operations relating to disease gene discovery, target identification, functional validation and ultimately diagnostic and therapeutic product development. SEQUENOM Pharmaceuticals applies the power of human genetics to systematically identify potential disease-related genes that affect significant portions of the overall population.

We believe that our technology should enable us to scan virtually every gene in the human genome for association with a given disease, and do so using large sample populations. Using our technology in house and in partnerships, we are generating a portfolio of candidate disease gene markers associated with significant human health disorders, including cardiovascular disease, cancer, diabetes, and obesity. By focusing on disease genes with a broad population impact, we expect to play an important role in bringing new therapeutic products to market while maximizing the return on drug development.

In September 2001, we completed our acquisition of Gemini Genomics plc, a company based in the United Kingdom. Gemini Genomics was a clinical genomics company focused on the discovery of novel gene-based drug discovery targets. Gemini Genomics collected and analyzed information from a

wide range of human population groups, including twins, disease-affected families, isolated, or founder, populations and drug trial subjects. As a result of the Gemini Genomics acquisition, we issued approximately 13.0 million shares of our Common Stock and assumed outstanding options and warrants to purchase approximately 1.2 million additional shares. The transaction was accounted for using the purchase method of accounting. Net cash and other tangible assets totaling approximately $53.8 million were acquired, in addition to approximately $18.7 million of intangible assets and $24.9 million of in-process research and development.

We estimate that our integration expenses will total approximately $26.0 million, including our initial integration cost estimate of $23.0 million and an additional $3.0 million relating to our decision to close our Uppsala facility, that we made in the quarter ended June 30, 2002. These expenses include both transaction and integration costs as well as an estimate of costs involved in subleasing excess leased space or terminating lease obligations that are not necessary or useful for the operation of our business. We expect that it may take us up to two years to sublease all the identified surplus space. As of September 30, 2002, we had exited one lease in Cambridge, England and were negotiating subleases in Boston, Massachusetts. Active marketing of the excess space continues. As of September 30, 2002, the remaining accrual of $6.5 million relates substantially to facility exit costs. We believe that the remaining accrual is sufficient to exit the remaining leases, but any required payments in excess of our estimated costs will impact reported results in later financial periods.

In the third quarter of 2002, we completed our acquisition of Axiom Biotechnologies, Inc., a company based in San Diego, CA. This acquisition should enable us to move our candidate disease genes forward through the drug discovery process by adding internal medicinal chemistry, assay and screening abilities, a library of well characterized human cell lines, and intellectual property. In connection with the Axiom acquisition, we issued approximately 1.7 million shares of our common stock of which 400,000 shares have been placed in escrow, and may be released from escrow on August 30, 2003, subject to reduction based upon certain indemnification obligations of Axiom to SEQUENOM. As part of the Axiom acquisition we also assumed outstanding options and warrants, exercisable into approximately 250,000 additional shares of SEQUENOM common stock. The transaction was accounted for using the purchase method of accounting. Net cash and other tangible assets totaling approximately $0.4 million were acquired, in addition to approximately $0.5 million of intangible assets and $3.7 million of in-process research and development.

We have completed four genome-wide discovery genetics studies using our portfolio of 25,000 genetic markers. These scans were conducted in the areas of breast cancer, diabetes, skin cancer and morbidity and have yielded encouraging portfolios of potential disease-related genes, which we plan to further characterize through internal development programs. We also plan to conduct scans in seven additional disease areas by the middle of 2003. We intend to investigate further the genes discovered in an effort to ultimately produce therapeutic and diagnostic products.

Since our inception, we have incurred significant losses. As of September 30, 2002, we had an accumulated deficit of $298.4 million. We expect to incur losses for the foreseeable future, and expect our expenses to increase, as we expand development and commercialization of new products, information-based intellectual property and products from our SEQUENOM Pharmaceuticals business unit. The addition of subsidiaries based in foreign countries from the acquisition of Gemini Genomics has resulted in an increase in operating costs. The operating expenses from these subsidiaries are included in our consolidated statement of operations from October 2001.

Results of Operations for the Three and Nine Months Ended September 30, 2002 and 2001

Business Segment Highlights for the three and nine months ended September 30, 2002

	Three months ended September 30, 2002									Nine months ended September 30, 2002
	SEQUENOM Genetic Systems			SEQUENOM Pharmaceuticals			Total			SEQUENOM Genetic Systems			SEQUENOM Pharmaceuticals			Total
	($ in thousands) (unaudited)
Product sales	$	6,540		$	14		$	6,554		$	19,015		$	39		$	19,054
Validation services		275			—			275			5,401			44			5,445
Research and development grants		—			65			65			—			184			184

Total revenues		6,815			79			6,894			24,416			267			24,683
Cost of product and service revenue		4,095			7			4,102			14,139			20			14,159
Research and development		3,791			5,366			9,157			12,489			12,876			25,365
Selling, general and administrative		5,237			1,546			6,783			16,153			4,911			21,064
In-process research and development		—			3,668			3,668			—			3,668			3,668
Integration costs		—			—			—			—			3,000			3,000
Amortization of intangibles		89			950			1,039			288			2,886			3,174

Total costs and expenses		13,212			11,537			24,749			43,069			27,361			70,430

Loss from operations	$	(6,397	)	$	(11,458	)	$	(17,855	)	$	(18,653	)	$	(27,094	)	$	(45,747	)

Segment financial information for SEQUENOM Genetic Systems and SEQUENOM Pharmaceuticals prior to 2002 has not been provided as SEQUENOM then operated in one business segment, making it impracticable to do so. Management discussion and analysis compares the total revenues, costs and expenses for the company in the three and nine months ended September 30, 2002 to the same periods in 2001. Beginning in the quarter ended March 31, 2003, the management discussion and analysis will compare revenues and costs and expenses on a business segment basis.

Revenues

Total revenues for the three months and nine months ended September 30, 2002 were $6.9 million and $24.7 million, respectively, decreasing $1.9 million from $8.8 million in the three month period ended September 30, 2001 and increasing $3.3 million from $21.4 million in the nine month period ended September 30, 2001.

Product related revenues for the three and nine months ended September 30, 2002 increased to $6.6 million and $19.1 million respectively, from $6.2 million and $15.0 million, respectively for the same periods in 2001. These product revenues were derived from the sale of MassARRAY systems, consumables including our proprietary SpectroCHIP^TM chips, licensing of our proprietary software and license fees from end-users. The increase in our installed system base from 48 at September 30, 2001 to 84 at September 30, 2002, resulted in an increase in our SpectroCHIP chip and proprietary software revenues.

Service revenues for the three and nine months ended September 30, 2002 declined to $0.3 million and $5.4 million, respectively, compared to $2.5 million and $6.3 million, respectively, in the same periods in 2001. We derived these revenues from the completion of significant phases in genetic validation projects. The service revenue marketplace is competitive and we do not anticipate significant revenue from this area in the short term, if at all. We are examining the book value of approximately $26 million of tangible and intangible assets relating

to our genetic service business following a reduction in revenues. Depending on the outcome of contract negotiations for genetic services with customers during the fourth quarter of 2002, a FAS 144 impairment in the carrying value may arise with respect to these assets.

Research and development grant revenue for the three and nine months ended September 30, 2002 were $65,000 and $184,000, respectively, compared to $80,000 and $183,000, respectively, for the same periods of 2001.

We expect that future revenues will be affected by, among other things, customer budgets, new product introductions, competitive conditions and government research funding.

Cost of Product and Service Revenue

Total cost of product and service revenues for the three months and nine months ended September 30, 2002 were $4.1 million and $14.2 million, respectively, compared to $5.4 million and $14.6 million, respectively, for the same periods in 2001. Gross margin for the three and nine months ended September 30, 2002 was 40% and 42%, respectively, compared to 39% and 31%, respectively, for the same periods of the prior year. Gross margins increased in the three and nine month periods ended September 30, 2002 due to the increased volumes and margins from MassARRAY consumables compared to the same periods in 2001.

Research and Development Expenses

Research and development expenses for the three and nine months ended September 30, 2002 increased to $9.2 million and $25.4 million, respectively, from $8.5 million and $20.6 million, respectively, in the same period in the prior year. These expenses consist primarily of salaries and related personnel costs, materials costs and costs related to our disease gene discovery programs, improvements to our existing products and validation of products under development. The $0.7 million and $4.8 million increases from the three and nine month periods ending September 30, 2001 to 2002 resulted primarily from an increase in personnel to support our expanded research and development activities in the disease gene discovery programs, as well as our acquisition of Gemini Genomics in the third quarter of 2001, whose research and development expenses we consolidated with ours beginning in the fourth quarter of 2001 and our acquisition of Axiom, whose research and development expenses we consolidated with ours beginning on September 1, 2002.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three and nine months ended September 30, 2002 increased to $6.8 million and $21.1 million, respectively, from $5.6 million and $15.7 million, respectively, in the same periods in the prior year. These expenses consist primarily of salaries and related costs for sales and marketing, customer support, business development, legal, finance and human resource personnel, and their related function’s expenses. The $1.2 million and $5.4 million three and nine month increases from 2001 to 2002 resulted primarily from additional business development and customer support activities and expenses associated with filing patent applications on our intellectual property and expenses to support Gemini Genomics’ activities following our acquisition in September 2001.

Amortization of Acquired Intangibles

In connection with the acquisition of Gemini Genomics in 2001 and Axiom Biotechnologies in 2002, we have acquired approximately $19.1 million of intangible assets, including clinical data collections, cell lines, and intellectual property. These intangible assets will be amortized over three to five years and are allocated to the SEQUENOM Pharmaceuticals segment. The amortization expense in the three and nine month periods ending September 30, 2002 was approximately $944,000 and $2.8 million, respectively. No charge was made in the three and nine month periods ending September 30, 2001 as amortization of intangibles we acquired in the Gemini Genomics transaction did not commence until the fourth quarter of 2001 and the Axiom acquisition did not take place until the third quarter of 2002.

Amortization of Deferred Stock Compensation

Deferred stock compensation represents the difference between the estimated fair value of our common stock and the exercise price of options at the date of grant. Amortization of this amount for the three and nine months ended September 30, 2002 was approximately $95,000 and $359,000, respectively, compared to approximately $215,000 and $756,000, respectively, for the same periods in the prior year. The deferred compensation is being amortized over the vesting periods of the individual stock options using the graded vesting method. We expect to record amortization for deferred compensation approximately as follows: $60,000 during the remainder of 2002, and $187,000 during 2003.

Net Interest Income

Net interest income represents returns on our cash and short term investments, less interest expense on our bank loans and capital lease obligations. Net interest income for the three and nine months ended September 30, 2002 declined to $0.9 million and $3.0 million, respectively, from $1.4 million and $5.0 million in the same periods in the prior year. The decrease in interest income resulted from lower interest rates, and, for the three months ended September 30, 2002, lower average cash balances.

Cumulative Effect of Accounting Change

In January 2001, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets deemed to have an indefinite useful life will no longer be amortized but will be reviewed for impairment upon adoption of SFAS No. 142 and annually thereafter. The Company will perform its annual impairment review during the fourth quarter of each year, commencing in the fourth quarter of 2002.

Under SFAS No. 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. No amortization on the goodwill arising as a result of our acquisition of Gemini Genomics in September 2001 was recognized during 2001 in accordance with the transition arrangements in SFAS No. 142. Quarterly results as reported are therefore comparable. Upon adoption of SFAS No. 142 in January 2002, the Company recognized a one-time, non-cash charge of $116.9 million to reduce the carrying value of its goodwill. The charge is non-operational in nature and is reflected as a cumulative effect of an accounting change in the consolidated statement of operations. In calculating the impairment charge, the fair value of the SEQUENOM Pharmaceuticals segment was estimated using a discounted cash flow methodology, and the charge related entirely to the SEQUENOM Pharmaceuticals segment.

The SFAS No. 142 goodwill impairment is associated solely with goodwill resulting from the acquisition of Gemini Genomics. The amount of the impairment primarily reflects a decline in long term market expectations for genomics companies which in turn has led to a decline in the Company’s stock price since the acquisition was announced and valued for accounting purposes in May 2001. The review in the fourth quarter of 2002, as required by SFAS No. 142, will examine the remaining $25 million of goodwill of the SEQUENOM Pharmaceuticals segment.

Liquidity and Capital Resources

In February 2000, we completed our initial public offering (IPO) raising net proceeds of approximately $144.1 million. Prior to our IPO, we funded our operations with $55.6 million from private equity financings, $6.0 million in loans and convertible loans and $2.2 million from equipment financing arrangements. As of September 30, 2002, cash, cash equivalents, short-term investments and restricted cash totaled $106.2 million compared to $143.1 million as of December 31, 2001. Our cash reserves are held in a variety of interest-bearing instruments including investment-grade corporate bonds, commercial paper and money market accounts.

Cash used in operations for the nine months ended September 30, 2002 was $36.8 million compared with $27.7 million for the same period in 2001. The net loss of $159.4 million for the nine months ended September 30, 2002 was partially offset by non-cash charges of $128.6 million, of which $116.9 million was related to the cumulative effect of accounting change upon the adoption of SFAS No. 142, $3.7 million of in process research and development relating to the Axiom acquisition, $7.9 million of depreciation and amortization and loss on disposal of fixed assets, approximately $609,000 from losses in our investee, Provid Pharmaceuticals, Inc. (Provid), a product-oriented drug discovery company with expertise in small molecule therapeutics, and approximately $379,000 related to stock based compensation, offset by approximately $982,000 of deferred income tax benefit. Investing activities, other than the changes in our short-term investments and restricted cash, used $3.9 million in cash during the first nine months of 2002 due to purchases of additional laboratory equipment associated with our high-throughput genotyping activities, and $1.0 million for our investment in Provid, offset by cash we received from our acquisition of Axiom of approximately $547,000.

Net cash provided by financing activities was $6.0 million for the nine months ended September 30, 2002 compared to approximately $694,000 for the same period in 2001. Financing activities in the first nine months of 2002 included receipts of $7.2 million from long-term debt and capital leases and the receipt of proceeds from the exercise of stock options and employee stock purchase plan purchases of $1.0 million, offset by $2.2 million used to repay long-term debt and capital lease obligations.

The following table summarizes our contractual obligations as of September 30, 2002 (in millions):

	Total		Less than one year		1-3 years		After 3 years
Contractual obligations:
Long-term debt	$	9.4	$	3.2	$	6.2	$	—
Capital lease obligations		1.4		0.7		0.7		—
Operating leases		81.5		5.7		16.7		59.1

Total Contractual Obligations	$	92.3	$	9.6	$	23.6	$	59.1

We believe our existing cash, cash equivalents and short-term investments, will be sufficient to fund our operating expenses, debt obligations and capital requirements through at least the next 12 months. However, the actual amount of funds that we will need during or after the next 12 months will be determined by many factors, some of which are beyond our control, and we may need funds sooner than currently anticipated. These factors include but are not limited to:

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the level of our success in selling our MassARRAY systems, consumables, assays and services;

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the level of our sales and marketing expenses;

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the extent to which we enter into collaborations or joint ventures;

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our ability to introduce and sell new products and services;

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our success in developing diagnostic and therapeutic products, alone or in collaboration with our partners, and obtaining any required regulatory approval for those products;

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the level of our acquisition and integration expenses, including tax and other liabilities from the Gemini Genomics, Axiom Biotechnologies or other acquisitions;

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our ability to exit existing excess facilities on terms that are financially acceptable;

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the level of our expenses associated with litigation or termination of agreements;

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the costs and timing of obtaining new patent rights;

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the costs and expenses associated with defending or asserting any intellectual property claims or other litigation;

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the extent to which we acquire technologies or companies; and

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regulatory changes and competition and technological developments in the market.

We have a $25.0 million bank line of credit, of which $18.6 million is available for borrowing. We have an asset-backed loan line from GE Capital of $4.0 million, of which $0.8 million is available for borrowing. We have no commitments for any additional financings. When we require additional funds, general market conditions or the then-current market price of our common stock may not support capital raising transactions such as an additional public or private offering of our common stock. If additional funds are required and we are unable to obtain them on a timely basis or on terms favorable to us, we may be required to cease or reduce further commercialization of our products, to sell some or all of our technology or assets or to merge all or a portion of our business with another entity. If we raise additional funds by selling shares of our capital stock, the ownership interest of our stockholders will be diluted.

Risks and Uncertainties

The following is a summary of the many risks we face in our business. You should carefully read these risks and uncertainties in evaluating our business.

Recent Operating Losses; Accumulated Deficit

We have experienced significant operating losses in each period since our inception. We expect these losses to continue and it is uncertain when, if ever, we will become profitable. These losses have resulted principally from costs incurred in research and development and from selling, general and administrative costs associated with our operations. Our costs have exceeded our revenues in each period since our inception. We expect to incur operating losses in the future as a result of expenses associated with marketing and sales, production, research and product development, and selling, general and administrative costs as well as costs associated with consolidating and completing the integration into our business of Gemini Genomics, that we acquired in September 2001, and Axiom Biotechnologies, that we acquired in the third quarter of 2002.

We Have a Limited Operating History

We are a relatively new company and, for the most part, our technologies, particularly in the Pharmaceuticals segment, are still in the early stages of development. For the Genetic System segment, we have only recently begun to incorporate our technologies into commercial products. We need to make significant investments to ensure our products perform correctly and are cost-effective. In addition, we may need to obtain additional regulatory approvals to sell our products for future application in diagnostics and therapeutics. Even if we develop our products for commercial use and obtain all necessary regulatory approval, we may not be able to develop products that:

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are accepted by the genomics, diagnostic, pharmaceutical or other marketplaces;

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meet customers’ demands;

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are protected from competition by others;

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do not infringe the intellectual property rights of others;

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can be manufactured in sufficient quantities or at a reasonable cost; or

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can be marketed successfully.

Our Operating Results May Fluctuate Significantly

Our revenues and results of operations may fluctuate significantly, depending on a variety of factors, including the following:

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our success in selling, and changes in the demand for, our products and services;

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variations in the timing of payments from customers and collaborative partners and the recognition of these payments as revenues;

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the pricing of our products and services;

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the timing of any new product or service offerings and demand and acceptance by customers;

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changes in the research and development budgets of our customers and partners;

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our progress with research and development, particularly in our SEQUENOM Pharmaceuticals segment;

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the introduction of new products and services by our competitors;

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changes in the regulatory environment affecting health care and healthcare providers;

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expenses related to, and the results of, any litigation or other proceedings relating to intellectual property rights, supply contracts, or any other types of obligations or rights;

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our ability to enter into and maintain strategic collaborations;

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our ability to identify candidate disease gene markers that may lead to future therapeutic or diagnostic products;

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our ability to conduct preclinical studies and clinical trials of any potential therapeutic, diagnostic or other products and obtain regulatory approval of any potential products;

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the cost and timing of our adoption of new technologies;

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the cost, quality and availability of oligonucleotides, tissue samples, reagents and related components and technologies; and

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the cost of integrating and consolidating the operations of Gemini Genomics and Axiom Biotechnologies into our business.

In particular, our revenues and operating results are unpredictable because they depend on the number, timing and type of MassARRAY system placements that we make during the year, the quantity and timing of consumables sales, completion of milestones in service agreements and the duration of revenue generating license agreements and collaborative programs with partners. Any delay in generating or recognizing revenues could cause significant variations in our operating results from year to year and could result in increased operating losses.

We believe that period-to-period comparisons of our financial results will not necessarily be meaningful. You should not rely on these comparisons as an indication of our future performance. If our operating results in any future period fall below the expectations of securities analysts and investors, our stock price will likely fall.

A Reduction in Revenues from Sales of MassARRAY Products Would Harm Our Business

A decline in the demand for MassARRAY Systems and consumables would reduce our total revenues and harm our business. We expect that sales of the MassARRAY system and consumables will account for a substantial portion of our total revenues for the foreseeable future. The following factors, among others, may reduce the demand for MassARRAY products:

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competition from other products;

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failure of SNPs to demonstrate medical relevance;

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changes in fiscal policies and the economy which may impact customer decision making;

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negative publicity or evaluation; or

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intellectual property claims or litigation.

A Reduction in Revenues from Service Contracts and Collaborations Would Harm Our Business

A decline in the demand for our genetic services or a reduction in the level of such services performed on behalf of collaborators would reduce our total revenues and harm our business. We expect that revenue from service contracts will account for a substantial portion of our total revenues for the foreseeable future, although in the short term we have no substantial genetic services contracts in place. The following factors, among others, may reduce the demand for our services:

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competition from other providers of similar services;

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changes in fiscal policies and the economy which may impact customer decision making;

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negative publicity or evaluation;

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our ability to secure further collaborations on favorable terms, if at all; or

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technological changes rendering our services uncompetitive.

We May Need Additional Capital in the Future to Support Our Growth

Based on our current plans, we believe our cash, cash equivalents and short-term investments will be sufficient to fund our operating expenses, debt obligations and capital requirements through at least the next 12 months. However, the actual amount of funds that we will need during or after the next 12 months will be determined by many factors, some of which are beyond our control, and we may need funds sooner than currently anticipated. These factors include:

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the level of our success in selling our MassARRAY systems, consumables, assays and services;

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the level of our sales and marketing expenses;

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the extent to which we enter into licensing arrangements, collaborations or joint ventures;

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our progress with research and development, particularly in our SEQUENOM Pharmaceuticals segment;

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our ability to introduce and sell new products and services;

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the costs and timing of obtaining new patent rights;

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the extent to which we acquire technologies or companies;

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our success in consolidating and integrating Gemini Genomics, its subsidiaries, and Axiom Biotechnologies into our business;

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regulatory changes and competition and technological developments in the market; and

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the level of our expenses associated with litigation.

When we require additional funds, general market conditions or the then-current market price of our common stock may not support capital raising transactions such as an additional public or private offering of our common stock. If we require additional funds and we are unable to obtain them on a timely basis or on terms favorable to us, we may be required to cease or reduce further commercialization of our products and services, sell some or all of our technology or assets or merge with another entity. If we raise additional funds by selling additional shares of our capital stock, the ownership interest of our stockholders will be diluted.

We May Not Be Able to Successfully Adapt Our Products for Commercial Applications

A number of potential applications of our MassARRAY technology will require significant enhancements in our core technology. If we are unable to complete the development, introduction or scale-up of the manufacturing of any product or genotyping facility, or if any of our products or new applications do not achieve a significant level of market acceptance, our business, financial condition and results of operations could be seriously harmed. In addition, we may fail to sustain the market acceptance of our already established products, such as our MassARRAY systems as well as new products and applications. Sustaining or achieving market acceptance will depend on many factors, including demonstrating to customers that our technology is superior to other technologies and products which are available now or which may become available in the future. We believe that our revenue growth and profitability will substantially depend on our ability to overcome significant technological challenges, successfully introduce our newly developed products, applications and services into the marketplace.

We May Not Be Able to Form and Maintain the Collaborative Relationships that Our Business Strategy Requires and the Relationships May Lead to Disputes Over Technology Rights

We must form research collaborations and licensing arrangements with several partners at the same time to operate our business successfully. To succeed, we will have to maintain our existing relationships and establish additional collaborations. We cannot be sure that we will be able to establish any additional research collaborations or licensing arrangements necessary to develop and commercialize products using our technology or that we can do so on terms favorable to us. If our collaborations are not successful or we are not able to manage multiple collaborations successfully, our programs will suffer. If we increase the number of collaborations, it will become more difficult to manage the various collaborations successfully and the potential for conflicts among the collaborators will increase.

We and our Collaborative Partners May Not Be Successful in Developing or Commercializing Therapeutic, Diagnostic or Other Products Using Our Products, Services or Discoveries

Development of therapeutic, diagnostic and other products based on our discoveries and/or our collaborative partners’ discoveries will be subject to risks of failure inherent in their development or commercial viability. These risks include the possibility that any such products will:

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fail to receive necessary regulatory approvals;

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fail to be developed prior to the successful marketing of similar products by competitors;

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be found to be ineffective;

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be difficult or impossible to manufacture on a commercial scale;

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be uneconomical to market;

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fail to be successfully commercialized if adequate reimbursement from government health administration authorities, private health insurers and other organizations for the costs of these products is unavailable to provide adequate return on our or our collaborative partner’s investment;

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be found to be toxic; or

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be impossible to market because they infringe on the proprietary rights of third parties or compete with products marketed by third parties that are superior.

If a partner or we discover therapeutic, diagnostic or other products using our products, services or discoveries, we may rely on that partner for product development, regulatory approval, manufacturing and marketing of those products before we can realize revenue and some of the milestone payments, royalties and other payments we may be entitled to under the terms of our collaboration agreements. If we are unable to

successfully achieve milestones or our collaborative partners fail to develop successful products, we will not earn the revenues contemplated. Our collaboration agreements may allow the partner significant discretion in electing whether to pursue any of these activities. We cannot control the amount and timing of resources our collaborators may devote to our programs or potential products. As a result, we cannot be certain that our collaborators will choose to develop or commercialize any products or will be successful in doing so. In addition, if a collaborator is involved in a business combination, such as a merger or acquisition or changes in its business focus, its performance in its agreement with us may suffer and, as a result, we may not generate any revenues or only limited revenues from the royalty, milestone and similar payment provisions of our agreement with that collaborator.

We May Not Successfully Develop or Derive Revenues From Our Genotyping and Gene Discovery Programs

Our genotyping and gene discovery programs are still in the early stages of implementation, continue to evolve, and may not result in marketable products. We are directing our technology and development focus primarily toward identifying genes that are believed to be responsible for, or indicate the presence of, certain diseases.

We have only identified a limited number of specific candidate genes under our research programs. Our technologies and approach to gene discovery may not enable us to successfully identify the specific genes that cause or predispose individuals to the complex diseases that are the targets of our efforts to identify genetic variations that have medical utility. In addition, the diseases we are targeting are generally believed to be caused by a number of genetic and environmental factors. It may not be possible to address such diseases through gene-based therapeutic or diagnostic products. Accordingly, even if we are successful in identifying specific genes, our discoveries may not lead to the development of commercial products.

We May Not Successfully Obtain Regulatory Approval of any Therapeutic, Diagnostic or Other Product which We or Our Collaborative Partners Develop

The Food and Drug Administration, or FDA, must approve any drug product before it can be marketed in the U.S. A drug product must also be approved by the regulatory agencies of foreign governments before the product can be sold outside the U.S. Before a new drug application can be filed with the FDA, the potential product must undergo preclinical testing and clinical trials. Commercialization of any therapeutic, diagnostic or other product which we or our collaborators may develop depends upon successful completion of these preclinical studies and clinical trials. Preclinical testing and clinical development are long, expensive and uncertain processes and we do not know whether we, or any of our collaborative partners, will be permitted to undertake clinical trials of any potential products. It may take us or our collaborative partners many years to complete any such testing, and failure can occur at any stage of testing. Preliminary results of trials do not necessarily predict final results, and acceptable results in early trials may not be repeated in later trials. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. Delays or rejections of potential products may be encountered based on changes in regulatory policy for product approval during the period of product development and regulatory agency review. Moreover, if and when our projects reach clinical trials, we or our collaborative partners may decide to discontinue development of any or all of these projects at any time for commercial, scientific or other reasons.

If the Medical Relevance of SNPs Becomes Questionable, We May Have Less Demand for Our Products and Services

Some of the products we hope to develop involve new and unproven approaches. They are based on the assumption that information about genes may help scientists better understand complex disease processes. Scientists generally have a limited understanding of the role of genes in diseases, and few products based on gene discoveries have been developed. We cannot be certain that genetic information will play a key role in the

development of drugs and diagnostics in the future. If we are unable to generate valuable information that can be used to develop these drugs and diagnostics, the demand for our products and services will be reduced and our business will be harmed.

If We Do Not Succeed in Obtaining Development and Marketing Rights for Some of the Assays Developed in Collaboration with Others, our Revenue and Profitability Could Be Reduced

Our business strategy includes, in part, the development of assays in collaboration with others, and we intend to obtain commercialization rights to those assays. If we are unable to obtain rights to those assays, our revenue and profitability could be reduced. To date, we have initiated limited activities towards the exploitation of any commercialization rights or products developed in collaboration with third parties. Even if we obtain commercialization rights, commercialization of products may require resources that we do not currently possess and may not be able to develop or obtain.

We Depend on Sales of SpectroCHIP Array Chips and Other Consumables for a Significant Portion of Our Revenues

Sales of SpectroCHIP chips and other consumables are an important source of revenue. Factors which may limit the use of SpectroCHIP chips and other consumables include: failure to achieve additional sales of MassARRAY systems, the acceptance of our technology by our customers, the extent of our customers’ level of utilization of their MassARRAY systems, and the training of customer personnel. If our customers do not purchase sufficient quantities of SpectroCHIP chips and other consumables, our revenues will be lower than anticipated.

The Sales Cycle For Our Products is Lengthy. We May Expend Substantial Funds and Management Effort With No Assurance of Successfully Selling Our Products or Services.

Our sales cycle is typically lengthy. Our sales effort requires the effective demonstration of the benefits and differentiation of our products and services to and significant training of many different departments within a potential customer. These departments might include research and development personnel and key management. In addition, we may be required to negotiate agreements containing terms unique to each customer which contributes to the length of our sales cycle. We may expend substantial funds and management effort with no assurance that we will successfully sell our products or services.

If Our Customers Are Unable to Adequately Prepare Samples As Required By Our MassARRAY System, the Overall Market Demand For Our Products May Decline.

Before using our MassARRAY system, customers must prepare samples by following several steps that are prone to human error, including DNA isolation and DNA segment amplification. If DNA samples are not prepared appropriately, or proposed assays are extremely complex, our MassARRAY system may not generate a reading. If our customers experience similar difficulties, they may achieve lower levels of throughput than those for which our system was designed. If our customers are unable to generate expected levels of throughput, they may not continue to purchase our consumables, they may express their discontent with our products in the marketplace, potentially driving down demand for our products, or they may collaborate with others to jointly use our products. Any or all of these actions would reduce the overall market demand for our products.

If Ethical, Privacy or Other Concerns Surrounding the Use of Genetic Information Becomes Widespread, We May Have Less Demand for Our Products and Services

Genetic testing has raised ethical issues regarding privacy and the appropriate uses of the resulting information. For these reasons, governmental authorities may call for limits on or regulation of the use of genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no

known cure. Similarly, such concerns may lead individuals to refuse to use genetics tests even if permissible. Any of these scenarios could reduce the potential markets for our products and services, which could seriously harm our business, financial condition and results of operations.

If We Do Not Have Adequate Access to Genetic Materials, We Will Not Be Able to Develop Our Pharmaceuticals Business

We depend on third parties for the collection of extensive and detailed proprietary clinical data and the collection and storage of large quantities of genetic material, such as DNA, and other biological samples. We need access to normal and diseased human tissue samples, other biological materials and related clinical and other information to develop our products and services. We may not be able to obtain or maintain access to these materials and information. If the validity of the consents obtained from our volunteers or our collaborators’ volunteers is successfully challenged, we may lose access to genetic material. In addition, government regulation in the United States and foreign countries could result in restricted access to, or use of, human and other tissue samples. If we lose access to sufficient numbers or sources of tissue samples, or if tighter restrictions are imposed on our use of the information generated from tissue samples, our business will suffer.

We May Not Successfully Integrate Gemini Genomics, Axiom Biotechnologies, and any Other Future Acquisitions

In September 2001 we completed our acquisition of Gemini Genomics and in the third quarter of 2002 we completed the acquisition of Axiom Biotechnologies. In the future, we may acquire additional companies or technologies, or enter into other strategic transactions. Managing these acquisitions and any future acquisition will entail numerous operational and financial risks, including:

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exposure to unknown liabilities;

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higher than expected acquisition and integration costs which may cause our quarterly and annual operating results to fluctuate;

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combining the operations and personnel of acquired businesses with our own, which may be difficult and costly, and integrating or completing the development and application of any acquired technologies, which may disrupt our business and divert our management’s time and attention;

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impairment of relationships with key customers of acquired businesses due to changes in management and ownership of the acquired businesses;

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inability to retain key employees of any acquired businesses or hire enough qualified personnel to staff any new or expanded operations;

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inability to sublease on financially acceptable terms excess leased space or terminate lease obligations of acquired businesses that are not necessary or useful for the operation of our business;

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exposure to U.S. and foreign federal, state and local tax liabilities in connection with any acquisition or the integration of any acquired businesses; and

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increased amortization expenses if an acquisition results in significant goodwill or other intangible assets.

If the Validity of the Consents From Our Volunteers or Our Clinical Collaborators’ Volunteers Is Successfully Challenged, We Could Be Forced To Stop Using Some Of Our Clinical Or Genetic Resources, Which Could Hinder Our Gene Discovery Programs

We have attempted to ensure that all clinical data and genetic and other biological samples that we receive from our subsidiaries and our clinical collaborators have been collected from volunteers who have provided our collaborators or us with appropriate consents for the data and samples to be used for purposes which extend to

cover our gene discovery program and other activities. In addition, we have attempted to ensure that data and samples that have been collected by our clinical collaborators are provided to us on an anonymous basis. We have also attempted to ensure that the volunteers from whom our data and samples are collected do not retain or have conferred on them any proprietary or commercial rights to the data or samples or any discoveries derived from them. Our clinical collaborators are based in a number of different countries. While we believe that one of our advantages is the number of different ethnic groups we have information about in our clinical databases, the fact that our data and samples come from and are collected by entities based in different countries results in complex legal questions regarding the adequacy of consents and the status of genetic material under a large number of different legal systems. The consents obtained in any particular country could be challenged in the future, and those consents may prove invalid, unlawful or otherwise inadequate for our purposes. Any findings against us or our clinical collaborators could deny us access to or force us to stop using some of our clinical or genetic resources which could hinder our gene discovery programs. Also, we could become involved in legal challenges which could consume a substantial proportion of our management and financial resources.

We May Not Have the Resources Required to Successfully Compete in the Biotechnology Industry

The biotechnology industry is highly competitive. We expect to compete with a broad range of companies in the United States and abroad that are engaged in the development and production of products, services and strategies to analyze genetic information. They include:

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biotechnology, pharmaceutical, chemical and other companies;

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academic and scientific institutions;

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governmental agencies; and

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public and private research organizations.

Many of our competitors have much greater financial, technical, research, marketing, sales, distribution, service and other resources than we do. Moreover, our competitors may offer broader product lines, services and have greater name recognition than we do, and may offer discounts as a competitive tactic. In addition, several early stage companies are currently making or developing products that compete with our products. Our competitors may develop or market technologies or products that are more effective or commercially attractive than our current or future products, or that may render our technologies or products obsolete. We may also compete against some of our customers, which may adversely affect our relationships with them.

Our Ability to Compete in the Market May Decline If We Lose Some of Our Intellectual Property Rights Due to Lawsuits to Protect or Enforce our Patents

Our success will depend on our ability to obtain and protect patents on our technology and to protect our trade secrets. Our patents, which have been or may be issued, may not afford meaningful protection for our technology and products. Others may challenge our patents and, as a result, our patents could be narrowed, invalidated or unenforceable. In addition, our current and future patent applications may not result in the issue of patents in the United States or foreign countries. Competitors may develop products similar to ours that do not conflict with our patents. In addition, others may develop products for use with the MassARRAY system in violation of our patents that could reduce sales of consumables. In order to protect or enforce our patent rights, we may initiate interference proceedings, oppositions, or patent litigation against third parties, such as infringement suits. These lawsuits could be expensive, take significant time and divert management’s attention from other business concerns. The patent position of biotechnology firms generally is highly uncertain, involves complex legal and factual questions, and has recently been the subject of much litigation. No consistent policy has emerged from the U.S. Patent and Trademark Office or the courts regarding the breadth of claims allowed or the degree of protection afforded under biotechnology patents. In addition, there is a substantial backlog of biotechnology patent applications at the U.S. Patent and Trademark Office, and the approval or rejection of patent applications may take several years.

Our Success Will Depend Partly on Our Ability to Operate Without Infringing on or Misappropriating the Proprietary Rights of Others

We may be sued for infringing on the patent rights or misappropriating the proprietary rights of others. From time to time, we receive letters from companies regarding their issued patents and patent applications alleging or suggesting possible infringement. Intellectual property litigation is costly, and, even if we prevail, the cost of such litigation could adversely affect our business, financial condition and results of operations. In addition, litigation is time consuming and could divert management attention and resources away from our business. If we do not prevail in any litigation, in addition to any damages we might have to pay, we could be required to stop the infringing activity or obtain a license. Any required license may not be available to us on acceptable terms, or at all. In addition, some licenses may be non-exclusive, and therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a required license or are unable to design around a patent, we may be unable to sell some of our products, which could have a material adverse affect on our business, financial condition and results of operations.

The Rights We Rely Upon to Protect the Intellectual Property Underlying Our Products May Not Be Adequate, Which Could Enable Third Parties to Use Our Technology and Would Reduce Our Ability to Compete in The Market

We require our employees, consultants, advisors and collaborators to execute confidentiality agreements. However, we cannot guarantee that these agreements will provide us with adequate protection against improper use or disclosure of confidential information. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, advisors or collaborators have prior employment or consulting relationships. Further, others may gain access to our trade secrets or independently develop substantially equivalent proprietary information and techniques.

If We Do Not Effectively Manage Our Growth or Other Changes in Our Business, It Could Affect Our Ability to Pursue Opportunities and Expand Our Business

Growth in our business has placed, and may continue to place, a significant strain on our personnel, facilities, management systems and resources. We will need to continue to improve our operational and financial systems and managerial controls and procedures and train and manage our workforce. We will have to maintain close coordination among our technical, accounting, marketing, sales and research departments. If we fail to effectively manage our growth and address the above concerns, it could affect our ability to pursue business opportunities and expand our business. Similarly, we have restructured our business into our SEQUENOM Pharmaceuticals and SEQUENOM Genetic Systems business segments and face additional challenges in effectively managing these business segments. We may continue to restructure our business and business segments which may put additional strain on management and our technical, research, accounting, sales and other departments.

If We Cannot Attract and Retain Highly-Skilled Personnel, Our Growth Might Not Proceed as Rapidly as We Intend

The success of our business will depend on our ability to identify, attract, hire, train, retain and motivate highly-skilled personnel, in particular scientific, medical and technical personnel, for our future success. Competition for highly skilled personnel is intense, and we might not succeed in attracting and retaining these employees. If we cannot attract and retain the personnel we require, we might not be able to expand our business as rapidly as we intend.

We Have Limited Commercial Production Capability and Experience and May Encounter Production Problems or Delays, Which Could Result in Lower Revenue

We assemble the MassARRAY system and manufacture the SpectroCHIP chip and MassARRAY kits. To date, we have only produced these products in moderate quantities. Our customers require that we comply with current good manufacturing practices that we may not be able to meet. We may not be able to maintain acceptable quality standards as we ramp up production. To achieve anticipated customer demand levels, we will need to scale-up our production capability and maintain adequate levels of inventory. We may not be able to produce sufficient quantities to meet market demand. If we cannot achieve the required level and quality of production, we may need to outsource production or rely on licensing and other arrangements with third parties. This reliance could reduce our gross margins and expose us to the risks inherent in relying on others. We may not be able to successfully outsource our production or enter into licensing or other arrangements with these third parties, which could adversely affect our business.

We Depend on Third-Party Products and Services and Sole or Limited Sources of Supply to Develop and Manufacture our Products and Components and Materials Used in Our Products

We rely on outside vendors to supply certain products and the components and materials used in our products. Some of these products, components and materials are obtained from a single supplier or a limited group of suppliers. We have experienced quality problems with, and delays in receiving, oligonucleotides, which are necessary materials used in connection with the operation of the MassARRAY system. Our reliance on outside vendors generally, and a sole or a limited group of suppliers in particular, involves several risks, including:

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the inability to obtain an adequate supply of required products, components and materials due to capacity constraints, a discontinuance of a product by a supplier or other supply constraints;

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reduced control over quality and pricing of products, components and materials; and

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delays and long lead times in receiving products, components or materials from vendors.

We May Be Unable to Obtain Licenses to Patented SNPs, Which Could Prevent Us from Obtaining Significant Revenue or Becoming Profitable

The U.S. Patent and Trademark Office has issued and continues to issue patents claiming SNP discoveries and their related associations and functions. If important SNPs are patented, we will need to obtain rights to those SNPs in order to develop, use and sell related assays. Required licenses may not be available on commercially acceptable terms, or at all. If we fail to obtain licenses to important patented SNPs, we may never achieve significant revenue or become profitable.

Because Our Products Currently Depend on Components Licensed or Supplied from Third Parties, Our Breach of Any of the Terms of These Licenses or Supply Agreements or Their Termination Could Result in Our Loss of Access to These Components and Could Delay or Suspend Our Commercialization Efforts

We have acquired or licensed components of our technology from third parties. Our failure to maintain the right to use these components could seriously harm our business, financial condition and results of operations. In addition, changes to or termination of our agreements with these third parties and litigation related thereto could result in the loss of access to these aspects of our technology and could delay or suspend our commercialization efforts and may be costly.

Our grants from the government give the government certain license rights to inventions resulting from funded work. Our business could be harmed if the government exercises those rights.

Our Revenues Are Derived Primarily From, and Are Subject to Risks Faced By, Pharmaceutical and Biotechnology Companies and Governmental and Others Research Institutions

We expect that our revenues in the foreseeable future will be derived primarily from products and services provided to pharmaceutical and biotechnology companies and governmental and other research institutions. Accordingly, our success will depend upon their demand for our products and services. Our operating results may fluctuate substantially due to reductions and delays in research and development expenditures by these customers. These reductions and delays may result from factors such as:

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changes in economic conditions;

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changes in government programs that provide funding;

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changes in the regulatory environment affecting health care and health care providers;

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pricing pressures and reimbursement policies;

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market-driven pressures on companies to consolidate and reduce costs; and

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other factors affecting research and development spending.

None of these factors is within our control.

We are Subject to Risks Associated with Our Foreign Operations

As a result of our acquisition of Gemini Genomics, we are subject to the increased risks of doing business abroad.

We expect that a significant portion of our sales will be made outside the United States. A successful international effort will require us to continue to develop relationships with international customers and partners. We may not be able to identify, attract or retain suitable international customers and partners. Expansion into international markets will require us to continue to establish and grow foreign operations, hire additional personnel to run these operations and maintain good relations with our foreign customers and partners. International operations involve a number of risks not typically present in domestic operations, including:

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currency fluctuation risks;

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changes in regulatory requirements;

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costs and risks of deploying systems in foreign countries;

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licenses, tariffs and other trade barriers;

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political and economic instability;

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difficulties in staffing and managing foreign operations;

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potentially adverse tax consequences;

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the burden of complying with a wide variety of complex foreign laws and treaties; and

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different rules, regulations, and policies governing intellectual property protection and enforcement.

Our international operations are also subject to the risks associated with the imposition of legislation and regulations relating to the import or export of high technology products. We cannot predict whether tariffs or restrictions upon the importation or exportation of our products will be implemented by the United States or other countries.

If Our Production and Laboratory Facilities are Damaged, We Could Experience Lost Revenue and Our Business Would Be Seriously Harmed

Our only production facility is located in San Diego, California. We have laboratories located in California and Canada. Damage to our facilities due to fire, natural disaster, power loss, communications failure, terrorism, unauthorized entry or other events could prevent us from conducting our business for an indefinite period, could result in a loss of important data or cause us to cease development and production of our products. We have limited insurance to protect against business interruption; however, there can be no assurance this insurance will be adequate or will continue to be available to us on commercially reasonable terms, or at all.

Our Stock Price Has Been and May Continue to Be Volatile and Your Investment Could Suffer a Decline in Value

The trading price of our common stock has been volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:

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actual or anticipated variations in quarterly and annual operating results;

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announcements of technological innovations by us or our competitors;

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developments or disputes concerning patent or proprietary rights; and

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general market conditions out of our control.

The stock market in general, and the Nasdaq National Market and the market for life sciences companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the listed companies. Further, there has been particular volatility in the market prices of securities of biotechnology and pharmaceutical companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In addition, the Nasdaq National Market imposes, among other requirements, listing maintenance standards as well as minimum bid and public float requirements. During October, 2002, the closing price of our common stock fell to a low of approximately $1.31 per share. If the closing bid price of our common stock falls below $1.00 per share for thirty consecutive trading days, Nasdaq may choose to notify us that it may delist our common stock from the Nasdaq National Market. If the stock were delisted, the ability of our shareholders to sell their common stock would be negatively impacted. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company as is the present case today. Such litigation could result in substantial costs and a diversion of management’s attention and resources, which could seriously harm our business, financial condition and results of operation.

We Have Adopted Anti-takeover Provisions Which May Limit the Ability of Another Party to Acquire Us, and Which Could Cause Our Stock Price to Decline

Various provisions of our certificate of incorporation, bylaws, stockholder rights plan and Delaware law may discourage or prevent a third party from acquiring us, even if doing so might be beneficial to our stockholders. These provisions provide for, among other things, a classified board of directors, by which approximately one third of the directors are elected each year, advance notice requirements for proposals that can be acted upon at stockholder meetings and limitations on who may call stockholder meetings. Additionally, in October 2001, we adopted a Stockholder Rights Plan. Pursuant to our stockholders rights plan, each share of our outstanding common stock has an associated preferred share purchase right. The rights will not trade separately from our common stock until, and are exercisable only upon, the acquisition or potential acquisition by a person or group of, or the tender offer for, fifteen percent or more of our common stock. As a result of these provisions, we could delay, deter or prevent a takeover attempt or third party acquisition that our stockholders consider to be in their best interests, including a takeover attempt that results in a premium over the market price for the shares held by our stockholders. Additionally, our board of directors, without further approval of the stockholders, is authorized to issue “blank check” preferred stock and to fix the dividend rights and terms, conversion rights,

voting rights, redemption rights and terms, liquidation preferences and any other rights, preferences, privileges and restrictions applicable to this preferred stock. The issuance of preferred stock could adversely affect the voting power of the holders of our common stock, also make it more difficult for a third party to gain control of us, discourage bids for our common stock at a premium or otherwise adversely affect the market price of our common stock.

Responding to Claims Relating to Improper Handling, Storage or Disposal of Hazardous Chemicals and Radioactive and Biological Materials Which We Use, Could Be Time Consuming and Costly

We use controlled hazardous and radioactive materials in the conduct of our business. The risk of accidental contamination or injury from these materials cannot be completely eliminated. If an accident with these substances occurs, we could be liable for any damages that result, which could seriously harm our business. Additionally, an accident could damage our research and manufacturing facilities and operations, resulting in delays and increased costs. Such damage and any expense resulting from delays, disruptions or any claims may not be covered by our insurance policies.

We Are Highly Dependent on Our Board of Directors and Principal Members of Our Management and Scientific Staff, the Loss of Whom Would Impair Our Ability to Compete

The loss of the services of any of these persons could delay or reduce our product development and commercialization efforts. We may not be able to attract and retain qualified personnel at the Board of Directors level or any management level, which could seriously harm our business, financial condition and results of operations.

We May Not Have Adequate Insurance and If We Become Subject to Product Liability or Other Claims, We May Experience Reduced Demand for Our Products and Services or Be Required to Pay Damages that Exceed Our Insurance Limitations or For Which Insurance Coverage Does Not Exist

Our business exposes us to potential product liability and other types of claims. Any claim in excess of our insurance coverage would have to be paid out of our cash reserves, which would have a detrimental effect on our financial condition. It is difficult to determine whether we have obtained sufficient insurance to cover potential claims. Also, we cannot assure you that we can or will maintain our insurance policies on commercially acceptable terms, or at all.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Short-Term Investments

The primary objective of our investment management activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the fair value of the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the fair value of the principal amount of our investment will probably decline. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities. The average duration of all of our investments has generally been less than one year. Due to the short-term nature of these investments, we believe we have no material exposure to interest rate risk arising from our investments. Therefore, no quantitative tabular disclosure is provided.

Foreign currency rate fluctuations

We have foreign subsidiaries whose functional currencies are the Great British Pound (“GBP”), the Euro (“EUR”) and the Canadian dollar (“CAN”). The subsidiaries accounts are translated from the relevant functional currency to the US dollar using the current exchange rate in effect at the balance sheet date, for balance sheet accounts, and using the average exchange rate during the period for revenues and expense accounts. The effects of translation are recorded as a separate component of stockholders’ equity. Our subsidiaries conduct their business with customers in local currencies. Exchange gains and losses arising from these transactions are recorded using the actual exchange differences on the date of the transaction. We have not taken any action to reduce our exposure to changes in foreign currency exchange rates, such as options or futures contracts, with respect to transactions with our subsidiaries or transactions with our customers where the invoicing currency is not the US dollar. We have significant exposure to exchange rate effects following our September 2001 acquisition of Gemini Genomics as substantially all of Gemini’s cash is denominated in U.S. dollars, leading to potential exchange gain and losses if the GBP and US dollar exchange rate changes significantly. A strengthening of the British pound against the U.S. dollar could result in a material increase in our comprehensive losses for any given financial period. We have made net comprehensive foreign currency losses in the nine months ended September 30, 2002, but you should not view this loss as an indicator of future financial performance in this area. Based on our monetary assets and liabilities that are not denominated in the functional currency used by us or our subsidiary or affiliate having the asset or liability at September 30, 2002, a movement of 10% in the US dollar to Great British pound exchange rate would create an unrealized gain or loss of approximately $2.2 million.

Item 4. Controls and Procedures

The Company’s chief executive officer and chief financial officer performed an evaluation of the Company’s disclosure controls and procedures as of a date within 90 days of the filing date of this report (the “Evaluation Date”). Based on that evaluation, the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective and sufficient to ensure that the information required to be disclosed by the Company in the reports that it files under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

There have been no significant changes in the Company’s internal controls since the Evaluation Date. The Company is not aware of any significant change in any other factors that could significantly affect its internal controls subsequent to the Evaluation Date.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

In November, 2001, we and certain of our current or former officers and directors were named as defendants in a class action shareholder complaint filed by Collegeware USA in the United States District Court for the Southern District of New York. Similar complaints were filed in the same Court against hundreds of other public companies that conducted initial public offerings, or IPOs, of their common stock in the late 1990s and early 2000 (the “In re IPO Securities Litigation”). In the complaint, the plaintiff alleges that the Company, certain of its officers and directors, and its IPO underwriters violated the federal securities laws because the Company’s IPO registration statement and prospectus contained untrue statements of material fact or omitted material facts regarding the compensation to be received by, and the stock allocation practices of, the IPO underwriters. The plaintiff seeks unspecified monetary damages and other relief. In April 2002, the plaintiffs filed an amended complaint against the Company and some of our officers and directors. The Company has not been required to answer to either complaint, and no discovery has been served on the Company. In July 2002, the issuers, directors and officers named as defendants in the In re IPO Securities Litigation cases (including the Company and some of our officers and directors) filed a motion to dismiss all such cases for failure to state a claim against the issuers, directors or officers. The District Court heard oral argument on the motion on November 1, 2002. Also, on October 8, 2002, the claims against the named officers and directors were dismissed without prejudice pursuant to a stipulation providing for a tolling of the statute of limitations against those defendants. We deny all material allegations and intend to defend the action vigorously.

Item 2. Changes in Securities and Use of Proceeds

On August 30, 2002, in connection with the Company’s acquisition of all of the outstanding capital stock of Axiom Biotechnologies, Inc., the Company issued 1,700,000 shares of Company common stock to the former shareholders of Axiom Biotechnologies. 400,000 of the 1,700,000 shares issued by the Company in connection with the Axiom Biotechnologies transaction have been placed in escrow and may be released from escrow on or about August 30, 2003, subject to reduction to satisfy certain indemnification obligations of Axiom Biotechnologies to the Company. Each of the individuals and entities that received common stock of the Company in connection with the Axiom Biotechnologies transaction was, alone or with a purchaser representative, an “accredited investor” within the meaning of Rule 501(a) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). The Company relied on the exemption provided by Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On January 31, 2000, our Form S-1 registration statement (File No. 333-91665) was declared effective by the Securities and Exchange Commission. The registration statement, as amended, covered the offering of 5,250,000 shares of common stock. The offering commenced on January 31, 2000 and the sale to the public of shares of common stock at $26.00 per share was completed on February 3, 2000 for an aggregate price of approximately $136.5 million. The registration statement covered an additional 787,500 shares of common stock that the underwriters had the option to purchase solely to cover over-allotments. These shares were purchased on February 2, 2000 at $26.00 per share for an aggregate price of approximately $20.5 million. The managing underwriters for the offering were Warburg Dillon Read LLC, FleetBoston Robertson Stephens Inc. and SG Cowen Securities Corporation. Expenses incurred in connection with the issuance and distribution of common stock in the offering included underwriting discounts, commissions and allowances of approximately $11.0 million and other expenses of approximately $1.9 million, resulting in net offering proceeds to us of approximately $144.1 million. No payments or expenses were paid to our directors, officers or affiliates or 10% owners of any class of our equity securities. Of the net offering proceeds, through September 30, 2002, approximately $7.0 million has been used to payoff long-term and other debt, approximately $29.3 million to purchase equipment or make leasehold improvements, approximately $12.4 million related to our acquisition of Gemini Genomics, and approximately $83.4 million for general corporate purposes, including hiring additional personnel, expansion of facilities, development and manufacturing of products, and expenses for filing and prosecuting patent applications. The balance is invested in a variety of interest-bearing instruments including investment-grade corporate bonds, commercial paper and money market accounts.

Item 5. Other information

This report when filed with the SEC was accompanied by written statements by Antonius Schuh, our Chief Executive Officer, and Stephen Zaniboni, our Chief Financial Officer, as required by Section 906 of the Sarbannes-Oxley Act of 2002.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

No exhibits were filed during the quarter ended September 30, 2002.

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended September 30, 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 14, 2002	SEQUENOM, INC.

	By:	/s/ STEPHEN L. ZANIBONI
		Stephen L. Zaniboni Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

CERTIFICATIONS

I, Antonius Schuh, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sequenom Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Dated: November 14, 2002								/s/ ANTONIUS SCHUH
								Antonius Schuh, Chief Executive Officer

I, Stephen L. Zaniboni, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sequenom Inc.;

d) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

e) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

f) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

c) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

d) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


Dated: November 14, 2002								/s/ STEPHEN L. ZANIBONI
								Stephen L. Zaniboni Chief Financial Officer