Sequenom (SQNM) 10-Q 2013 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________ 

FORM 10-Q

 ____________________ 

(Mark One)

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

For the quarterly period ended June 30, 2013

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

For the transition period from to

Commission File Number: 000-29101

____________________ 

SEQUENOM, INC.

(Exact name of registrant as specified in its charter)

____________________ 

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

3595 John Hopkins Court San Diego, California	92121
(Address of principal executive offices)	(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.    x   Yes    o   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x   Yes    o   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o  (Do not check if a smaller reporting company)	Smaller reporting company filer	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

As of July 17, 2013, there were 115,363,000 shares of the registrant's Common Stock outstanding.

SEQUENOM, INC.

INDEX

		Page No.
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2013 and 2012 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	61
SIGNATURES		62

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SEQUENOM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

	June 30, 2013			December 31, 2012
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	53,423		$	123,802
Marketable securities	53,492			52,140
Accounts receivable, net	10,071			7,887
Inventories	20,432			10,570
Other current assets and prepaid expenses	4,634			3,075
Total current assets	142,052			197,474
Property, equipment and leasehold improvements, net	32,721			33,494
Goodwill	10,007			10,007
Other assets	7,980			7,980
Total assets	$	192,760		$	248,955
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable	$	22,257		$	16,469
Accrued expenses	21,243			24,507
Long-term debt and obligations, current portion	7,619			7,601
Other current liabilities	2,664			2,713
Total current liabilities	53,783			51,290
Long-term debt and obligations, less current portion	13,377			17,041
5.00% Convertible Senior Notes due 2017	130,000			130,000
Other long-term liabilities	1,988			2,617
Commitments and contingencies
Stockholders' equity (deficit):
Convertible preferred stock, par value $0.001; 5,000 shares authorized, no shares issued or outstanding at June 30, 2013 and December 31, 2012	—			—
Common stock, par value $0.001; 185,000 shares authorized, 115,362 and 114,787 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively	115			115
Additional paid-in capital	960,445			954,372
Accumulated other comprehensive income	338			423
Accumulated deficit	(967,286		)	(906,903		)
Total stockholders' equity (deficit)	(6,388		)	48,007
Total liabilities and stockholders' equity (deficit)	$	192,760		$	248,955

See accompanying notes to unaudited condensed consolidated financial statements.

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SEQUENOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share information)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Statements of Operations
Revenues:
Diagnostic services	$	24,526		$	8,110		$	53,609		$	12,890
Genetic analysis product sales and services	10,325			10,142			19,740			20,282
Total revenues	34,851			18,252			73,349			33,172
Cost of revenues:
Cost of diagnostic services	20,634			9,407			41,713			16,278
Cost of genetic analysis product sales and services	3,699			3,698			7,158			7,121
Total cost of revenues	24,333			13,105			48,871			23,399
Gross margin	10,518			5,147			24,478			9,773
Operating expenses:
Selling and marketing	13,452			11,310			27,109			20,987
Research and development	13,019			13,070			26,853			24,914
General and administrative	12,735			9,949			26,218			17,299
Total operating expenses	39,206			34,329			80,180			63,200
Loss from operations	(28,688		)	(29,182		)	(55,702		)	(53,427		)
Interest expense, net	(2,121		)	(299		)	(4,290		)	(546		)
Other income (expense), net	(80		)	(116		)	(245		)	(45		)
Loss before income taxes	(30,889		)	(29,597		)	(60,237		)	(54,018		)
Income tax expense	(134		)	(20		)	(146		)	(22		)
Net loss	$	(31,023	)	$	(29,617	)	$	(60,383	)	$	(54,040	)
Net loss per common share, basic and diluted	$	(0.27	)	$	(0.26	)	$	(0.52	)	$	(0.48	)
Weighted average number of shares outstanding, basic and diluted	115,174			114,549			115,107			112,531
Statements of Comprehensive Loss
Net loss	$	(31,023	)	$	(29,617	)	$	(60,383	)	$	(54,040	)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities, net of taxes	(3		)	(8		)	32			11
Foreign currency translation adjustment	55			(176		)	(117		)	(169		)
Total other comprehensive income (loss)	52			(184		)	(85		)	(158		)
Comprehensive loss	$	(30,971	)	$	(29,801	)	$	(60,468	)	$	(54,198	)

See accompanying notes to unaudited condensed consolidated financial statements.

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SEQUENOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended June 30,
	2013			2012
Operating activities
Net loss	$	(60,383	)	$	(54,040	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	5,671			6,113
Depreciation and amortization	7,532			4,755
Other non-cash items	492			2
Changes in operating assets and liabilities:
Accounts receivable	(2,254		)	(679		)
Inventories	(10,078		)	(1,842		)
Prepaid expenses and other assets	(1,797		)	499
Accounts payable and accrued expenses	4,606			2,384
Other liabilities	(132		)	(79		)
Net cash used in operating activities	(56,343		)	(42,887		)
Investing activities
Purchases of property, equipment and leasehold improvements	(9,145		)	(4,883		)
Purchases of marketable securities	(45,628		)	(10,329		)
Maturities of marketable securities	44,309			27,151
Net cash paid for other assets	(250		)	(1,439		)
Net cash provided by (used in) investing activities	(10,714		)	10,500
Financing activities
Payments on term loan and capital lease obligations	(3,676		)	(33		)
Borrowings on term loan	—			5,000
Proceeds from stock offering, net of issuance costs	—			58,161
Net proceeds from exercise of stock options and ESPP purchases	402			593
Net cash provided by (used in) financing activities	(3,274		)	63,721
Effect of exchange rate changes on cash and cash equivalents	(48		)	(104		)
Net increase (decrease) in cash and cash equivalents	(70,379		)	31,230
Cash and cash equivalents at beginning of period	123,802			28,926
Cash and cash equivalents at end of period	$	53,423		$	60,156
Supplemental non-cash investing and financing activity:
Building and improvements acquired through financing obligation	$	—		$	1,872

See accompanying notes to unaudited condensed consolidated financial statements.

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SEQUENOM, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

We are a life sciences company providing innovative genetic analysis solutions to improve healthcare through our two operating segments, Molecular Diagnostics and Genetic Analysis. We provide molecular diagnostics testing services through our subsidiary Sequenom Center for Molecular Medicine, LLC, or Sequenom CMM, and research use only products, services, and applications, and genetic analysis products that translate the results of genomic science into solutions for biomedical research, translational research, molecular medicine applications, and other areas of research, including agricultural and livestock. Our development and commercialization efforts in various diagnostic areas include noninvasive prenatal and women's health related diagnostics and ophthalmology-related diagnostics, autoimmunity, neurology and oncology.

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP, and include the accounts of Sequenom, Inc. and its wholly-owned subsidiaries, collectively referred to as Sequenom, or the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated balance sheet at December 31, 2012 has been derived from the audited financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements.

In the opinion of management these quarterly financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results presented. Interim results are not necessarily indicative of results for a full year or any other period(s). These financial statements should be read in conjunction with the audited financial statements and disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission, or SEC, on April 2, 2013.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates and assumptions.

Revenue Recognition

Our revenues are generated primarily from the sale of products and providing services. Diagnostic services revenues from Sequenom CMM results from providing the following laboratory developed tests, or LDTs: MaterniT21 PLUS test to detect fetal aneuploidies, or trisomies, by determining the relative amount of 21, 18, and 13, X and Y chromosomal material present in circulating cell-free DNA in a maternal blood sample; SensiGene Fetal RHD Genotyping test, or SensiGene RHD test, to determine the presence or absence of fetal Rhesus D factor; Heredi-T Cystic Fibrosis Carrier Screening test, or Heredi-T CF test, to help identify individuals who may have an increased risk of having certain cystic fibrosis genetic mutations; and RetnaGene Age-related Macular Degeneration test, or RetnaGene AMD test, to predict the risk of a patient with “dry” or early stage age-related macular degeneration, or AMD, progressing to “wet” or advanced choroidal neovascular disease within 2, 5, and 10 years. Genetic analysis product sales and services revenues primarily consist of sales of MassARRAY systems and consumables used in genetic analysis, including extended warranty services associated with the MassARRAY systems, as well as other amounts earned under contract research agreements.

Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collectability is reasonably assured. Revenues are deferred for fees received before earned.

Diagnostic services revenues earned by Sequenom CMM have been primarily recognized on a cash basis due to the lack of contractual reimbursement agreements with third-party payors for a significant portion of our services and limited collections experience. Sequenom CMM generally bills third-party payors upon generation and delivery of a test result to the ordering physician following completion of a test. As such, we take assignment of benefits and risk of collection with the third-party payor. Patients have out-of-pocket costs for amounts not covered by their insurance carrier and Sequenom CMM bills the patient directly for these amounts in the form of co-pays and deductibles in accordance with their insurance carrier and health plans. Some payors may not cover Sequenom CMM's test as ordered by the physician under their reimbursement policies. Consequently, Sequenom CMM pursues reimbursement on a case-by-case basis. We will recognize diagnostic services revenues upon cash collection until we can reliably estimate the amount that would be ultimately collected for each of

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Sequenom CMM's LDTs. We record revenues and accounts receivable for billing directly to physician offices and international customers when the price is fixed and determinable and where we believe collectability is reasonably assured.

From time to time, we receive requests for refunds of payments made by third-party payors. Upon becoming aware of a refund request, we establish an accrued liability for tests covered by the refund request until we determine the amounts upon which a refund is due. Historically, these amounts have not been material.

Revenues from sales of MassARRAY systems and consumables are recognized upon shipment and transfer of title to the customer and when all revenue recognition criteria are met. Our contracts do not contain refund or cancellation clauses. Revenues from the sale or licensing of our proprietary software are recognized upon transfer of title to the customer. We recognize revenues on maintenance services for ongoing customer support over the maintenance period.

Royalty revenues are generally recorded on an accrual basis when earned.

Cost of Revenues

Cost of revenues includes the cost of materials, direct labor including laboratory, manufacturing and service personnel, equipment and infrastructure expenses associated with processing blood and other samples, quality control analyses, and shipping charges to transport samples and products, and license fees. Infrastructure expenses include allocated facility occupancy and information technology costs. Costs associated with performing Sequenom CMM's diagnostic services are recorded as tests are processed. Costs recorded for sample processing and shipping charges represent the cost of all the tests processed during the period regardless of whether revenues were recognized with respect to that test. Royalties for licensed technology calculated as a percentage of product revenues and fixed annual payments relating to the launch and commercialization of Sequenom CMM's tests are recorded as license fees in cost of revenues at the time product revenues are recognized or in accordance with other contractual obligations.

Research and Development Expenses

Research and development expenses are comprised of costs incurred to develop technology and carry out clinical studies and include salaries and benefits, reagents and supplies used in research and development laboratory work, infrastructure expenses, including allocated facility occupancy and information technology costs, contract services, and other outside costs. Research and development costs are expensed as incurred.

We also enter into collaboration and clinical study agreements with clinical collaborators and record these costs as research and development expenses. Accruals are recorded for estimated study costs comprised of work performed by our collaborators under contract terms. Advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized and recognized as expense as the goods are delivered or the related services are performed.

Collaboration, Development and Licensing Agreements

Revenues. We enter into license agreements and collaborative research and development arrangements with life sciences partners that may involve multiple deliverables. Our arrangements may contain one or more of the following elements: upfront fees, milestone payments, royalties, and license fees. Each deliverable in the arrangement is evaluated to determine whether it meets the criteria to be accounted for as a separate unit of accounting or whether it should be combined with other deliverables. Revenues are recognized for each element when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable, and collection is reasonably assured.

Upfront fees received for license and collaborative agreements are recognized under the milestone method whereby they are recognized when earned, as evidenced by written acknowledgment from the collaborator or other persuasive evidence that the milestone has been achieved, provided that the milestone event is substantive.  A milestone event is considered to be substantive if its achievability was not reasonably assured at the inception of the agreement and the Company's efforts led to the achievement of the milestone or the milestone was due upon the occurrence of a specific outcome resulting from the Company's performance. If both of these criteria are not met, the milestone payment is recognized over the remaining minimum period of the Company's performance obligations under the agreement.  We assess whether a milestone is substantive at the inception of each agreement. In the periods presented, there were no material revenues related to upfront fees under collaboration, development and licensing agreements.

Expenses. We enter into collaborative agreements with life sciences partners that provide us with rights to develop, produce, and market products using certain know-how, technology and patent rights maintained by these partners. Terms of the various collaboration agreements may require us to make milestone payments upon the achievement of certain product research and development objectives and pay royalties on future sales, if any, of commercial products resulting from the collaboration.

Milestone and up-front payments are generally recorded as research and development expenses if the payments relate to products that have not yet been commercialized. Milestone and up-front payments made related to commercialized tests are

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generally capitalized as intangible assets and amortized to cost of goods sold over the estimated economic life of the product. Royalties paid are generally recorded in cost of revenues and are accrued for at the time the related revenues are recognized.

Concentration of Risks

Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash and cash equivalents, marketable securities, and accounts receivable. We limit our exposure to credit loss by placing cash and investments with high credit quality financial institutions. Additionally, we have established guidelines regarding diversification of investments and their maturities, which are designed to maintain principal and maximize liquidity.

Concentration of credit risk with respect to accounts receivable related to product sales is limited due to our large and diverse customer base, which is dispersed over different geographic areas. Allowances are maintained for potential credit losses and such losses have historically been within our expectations.

We grant credit generally on an unsecured basis to customers of our genetic analysis business throughout North America, Europe, and Asia, except to customers in China which are on a secured basis until a collection history is established. To reduce credit risk, certain sales are secured by letters of credit from commercial banks.

We are dependent on our suppliers and contract manufacturers to provide raw materials and devices of appropriate quality and reliability and to meet applicable regulatory requirements. In certain cases we rely on single sources of supply. Consequently, in the event that supplies are delayed or interrupted for any reason, our ability to develop and produce our products and services could be impaired, which could have a material adverse effect on our business, financial condition and results of operations.

Fair Value Measurements

Our financial instruments consist principally of cash and cash equivalents, short-term marketable securities, accounts receivable, accounts payable, accrued expenses, long term debt and Convertible Senior Notes.

The carrying amounts of financial instruments such as cash equivalents, accounts receivable, accounts payable and accrued expenses approximate the related fair values due to the short-term maturities of these instruments. Marketable securities consist of available-for-sale securities that are reported at fair value.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Accounting guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Includes other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs that are supported by little or no market activities, therefore requiring an entity to develop its own assumptions.

We value our cash equivalents and marketable securities using quoted market prices or alternative pricing sources and models utilizing observable market inputs and, as such, classify our cash equivalents and marketable securities within Level 1 or Level 2. As of June 30, 2013 and December 31, 2012, we had no assets or liabilities measured at fair value on a recurring basis within the Level 3 hierarchy.

Cash, Cash Equivalents, and Marketable Securities

Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less at the time of purchase.

Investments with an original maturity of more than three months at the time of purchase are considered marketable securities. All marketable securities have been classified by management as available-for-sale. Our available-for-sale securities are carried at fair value, with unrealized gains and losses, determined on a specific identification basis, reported as a component of other comprehensive income (loss) in stockholders' equity (deficit) until realized.

A decline in the market value of any marketable security below cost that is determined to be other-than-temporary will result in a revaluation of its carrying amount to fair value. The impairment would be included in other income or expense in the condensed consolidated statements of operations and a new cost basis for the security is established. There were no such declines in market value of any marketable security in the periods presented.

8

Accounts Receivable

We bill third-party payors for Sequenom CMM's LDTs upon delivery of test results to ordering physicians and we take assignment of benefits and the risk of collection with these payors. We do not record accounts receivable for billings to third-party payors or self-pay patients as these revenues are currently recognized on a cash basis.

We invoice our genetic analysis product sales and services as orders are shipped and/or services provided and any other contractual obligations are met. Our contracts typically require payment within 30 to 60 days of the date of invoice. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We specifically analyze accounts receivable and historical bad debts, customer credit, current economic trends, and changes in customer payment trends when evaluating the adequacy of the allowance for doubtful accounts. Account balances are charged-off against the allowance when it is probable the receivable will not be recovered.

We cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Measurement of such losses requires consideration of historical loss experience, including the need to adjust for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and financial health of specific customers. We consider all available information in our assessments of the adequacy of the reserves for uncollectible accounts. If the historical data used to calculate the allowance provided for doubtful accounts does not reflect our future ability to collect outstanding receivables or if the financial condition of customers were to deteriorate, resulting in impairment of their ability to make payments, an increase in the provision for doubtful accounts may be required.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market value (net realizable value). We estimate the recoverability of our inventory by reference to our internal estimates of future demands and product life cycles, including expiration.

Warranty Cost and Reserves

We provide a warranty provision related to the sales of our MassARRAY systems based on our historical experience of repairs required under the warranty period. We generally provide a one-year warranty on our MassARRAY system and related equipment. We establish an accrual for estimated warranty expenses associated with system sales based on historical amounts, which is recorded as a component of cost of product revenue.

Property, Equipment and Leasehold Improvements

Property consists of a leased building which did not meet the sale-leaseback criteria and is recorded at its fair value at the date of the lease, less depreciation. The building is being depreciated over a period of 15 years equal to the term of the related lease and extensions. Equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets (generally 3 to 5 years). Leasehold improvements are stated at cost and amortized using the straight-line method over the estimated useful life of the improvement or the remaining term of the lease, whichever is shorter. The maximum estimated useful life of any leasehold improvement is 15 years from the completion of the improvement. Maintenance and repairs are charged to operations as incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operating expense.

Goodwill and Intangible Assets

Goodwill represents the excess purchase price of net tangible and identifiable intangible assets acquired in business combinations over their estimated fair value. The allocation of purchase price for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. Goodwill is deemed to have an indefinite life and, therefore, is not amortized.

Intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. The amounts and useful lives assigned to intangible assets that have finite useful lives, which consist of purchased patent rights and license and lab accreditation costs, requires the use of estimates and the exercise of judgment. These intangible assets are being amortized over the expected economic use of the asset. Intangible assets with finite lives are not material and are included in non-current other assets on our condensed consolidated balance sheets.

We annually evaluate our intangible assets and goodwill at the reporting unit level during the fourth quarter each fiscal year, or more frequently if we believe indicators of impairment are present. We periodically re-evaluate the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of our long-lived assets. If assets are considered to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.

9

North Carolina Lease

Because the terms of the Company's facility lease agreements for its North Carolina laboratory site required the Company's extensive involvement in the construction of the building, the Company is deemed to be the owner of the building for accounting purposes only. Accordingly, the Company recorded assets representing the fair value of the building based on the assessed value and the total costs of the improvements, including the costs paid by the lessor (the legal owner of the building), with an associated long-term obligation. Upon completion of construction of the building, the Company did not meet the sale-leaseback criteria for de-recognition of the building assets and obligation. Therefore the lease is accounted for as a long-term financing obligation. At the end of the lease term, including exercise of any renewal options, the net remaining financing obligation over the net carrying value of the fixed assets will be recognized as a non-cash gain on sale of the property. We report rent expense only on the land portion of the property but not for the building which is owned for accounting purposes. Rather, building rental payments under the lease are recognized as a reduction of the financing obligation and interest expense.

Stock-based Compensation

We measure and recognize compensation expense for all stock-based payments made to employees, directors, and consultants based on estimated fair value, net of an estimated forfeiture rate. These stock-based awards include stock options, restricted stock and restricted stock units, and stock purchase rights under our employee stock purchase plan. We estimate the fair value of stock options granted and stock purchase rights using the Black-Scholes-Merton, or BSM, option-pricing model, which requires the use of estimates such as stock price volatility and expected option lives, as well as expected option forfeiture rates, to value employee stock-based compensation at the date of grant. The fair value of our restricted stock awards and units is based on the market price of our common stock on the date of grant.

We recognize stock-based compensation cost on a straight-line basis over the requisite service period of the award or, in the case of performance-based awards, over the period from the date that the performance milestone achievement is reasonably assured to the estimated achievement date. Stock-based compensation expense is recognized only for those awards that are ultimately expected to vest. We estimate forfeitures at the time of grant and revise the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs.

Due to our net loss position, no tax benefits for stock-based compensation have been recognized in the condensed consolidated statements of cash flows. We have not recognized, and do not expect to recognize in the near future, any tax benefit related to stock-based compensation cost as a result of the full valuation allowance of our net deferred tax assets and our net operating loss carryforwards.

The fair value of options granted to non-employees is estimated at the measurement date using the BSM pricing model and remeasured at each reporting date to fair value, with changes in fair value recognized as expense in the statement of operations and comprehensive loss.

Income Taxes

Our provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for the expected future tax benefit to be derived from tax loss and credit carryforwards. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. A valuation allowance is established when it is more likely than not the future realization of all or some of the deferred tax assets will not be achieved. The evaluation of the need for a valuation allowance is performed on a jurisdiction by jurisdiction basis, and includes a review of all available positive and negative evidence. When we establish or reduce the valuation allowance against deferred tax assets, our provision for income taxes will increase or decrease, respectively, in the period such determination is made. As of June 30, 2013 and December 31, 2012, we maintained a valuation allowance against U.S. and foreign deferred tax assets that we concluded had not met the “more likely than not” threshold. Changes in the valuation allowance when they are recognized in the provision for income taxes are included as a component of the estimated annual effective tax rate.

We recognize excess tax benefits associated with stock-based compensation to stockholders' equity only when realized. When assessing whether excess tax benefits relating to stock-based compensation have been realized, we follow the with-and-without approach, excluding any indirect effects of the excess tax deductions. Under this approach, excess tax benefits related to stock-based compensation are not deemed to be realized until after the utilization of all other tax benefits available to us.

We recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions will be reflected in income tax expense.

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Foreign Currency Translation and Transactions

The financial statements of our subsidiaries in Germany, United Kingdom (dissolved as of December 31, 2012), and Japan are measured using, respectively, the Euro, British Pound, and Japanese Yen, as the functional currency. Assets and liabilities of these subsidiaries are translated at the rates of exchange in effect at the respective balance sheet dates. Income and expense items are translated at the average monthly rate of exchange during the reporting period. Net unrealized gains or losses resulting from the translation of foreign financial statements are reported as a component of accumulated other comprehensive income (loss).

Monetary assets and liabilities denominated in currencies other than the respective functional currencies are initially recorded using the foreign currency exchange rates at the time such transactions arise. The value of these receivables and payables is subject to changes in currency exchange rates from the point at which the transactions are originated until the settlement in cash. Subsequent remeasurement at each balance sheet date is recognized as transaction gains and losses in income as unrealized or realized upon settlement of the transaction. Foreign currency transaction gains or losses were not significant for the periods presented.

Net Loss Per Share

Basic and diluted net loss per common share for the periods presented is computed by dividing net loss by the weighted-average number of common shares outstanding during the respective periods, without consideration of common stock equivalents. Common stock equivalents that could potentially reduce net income per common share in the future that were not included in the determination of diluted loss per common share as their effects were antidilutive are as follows (in thousands):

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2013	2012	2013	2012
Shares underlying Convertible Senior Notes	28,088	—	28,088	—
Options to purchase common stock	14,170	11,149	13,900	10,371
Restricted stock units not yet vested and released	1,757	819	1,613	846
Options to purchase shares under the Employee Stock Purchase Plan	159	101	146	85
Warrants to purchase common stock	250	250	250	250
	44,424	12,319	43,997	11,552

Recently Adopted Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2013-02, "Comprehensive Income." This update requires an entity to present information about amounts reclassified out of accumulated other comprehensive income and their corresponding effect on the respective line items in net income in one place, and in some cases, cross-references to related footnote disclosures. The adoption of this update did not have a material impact on our consolidated financial statements.

2. Other Financial Information

Marketable Securities

Our marketable securities are comprised of the following (in thousands):

	As of June 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. treasury securities	$	40,012	$	6	$	(1	)	$	40,017
Certificates of deposit	13,058		1		(12		)	13,047
Mutual funds	229		199		—			428
Total marketable securities	$	53,299	$	206	$	(13	)	$	53,492

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	As of December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. treasury securities	$	40,019	$	8	$	(12	)	$	40,015
Certificates of deposit	11,746		1		(9		)	11,738
Mutual funds	224		163		—			387
Total marketable securities	$	51,989	$	172	$	(21	)	$	52,140

As of June 30, 2013 and December 31, 2012, gross unrealized losses on marketable securities were insignificant. There were no impairments considered other-than-temporary for the periods presented, as it is management's intention and ability to hold the securities until maturity or a recovery of the cost basis or recovery of fair value.

There were no sales of marketable securities during all periods presented and, therefore, there were no gross realized gains or losses on sales of marketable securities during all periods presented. As of June 30, 2013, all of our marketable securities were due within one year. 

Inventories

Inventories consist of the following (in thousands):

	June 30, 2013		December 31, 2012
Raw materials	$	17,689	$	8,317
Work in process	1,108		655
Finished goods	1,635		1,598
Total	$	20,432	$	10,570

Inventories are shown net of obsolete and excess reserves of $0.7 million and $0.5 million at June 30, 2013 and December 31, 2012, respectively.

Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements and related accumulated depreciation and amortization are as follows (in thousands):

	June 30, 2013			December 31, 2012
Building and improvements	$	8,687		$	8,660
Laboratory equipment	47,743			42,846
Leasehold improvements	8,472			7,950
Office furniture and equipment	20,340			19,537
	85,242			78,993
Less accumulated depreciation and amortization	(52,521		)	(45,499		)
Total	$	32,721		$	33,494

Depreciation expense for the six months ended June 30, 2013 and 2012 was $7.3 million and $4.4 million, respectively. Assets recorded under capital leases of $0.4 million and $0.4 million are included in the office furniture and equipment balance at June 30, 2013 and December 31, 2012, respectively. Depreciation of assets under capital leases is included in depreciation expense.

Accrued Expenses

Accrued expenses consist of the following significant items (in thousands):

	June 30, 2013		December 31, 2012
Accrued royalties, licenses, and collaboration payments	$	7,507	$	5,338
Accrued compensation and related taxes	5,259		11,409
Accrued professional fees and consulting	4,270		2,511
Other	4,207		5,249
Total	$	21,243	$	24,507

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Stockholders' Equity (Deficit)

Changes in shares of common stock outstanding and total stockholders' equity (deficit) are as follows (in thousands):

	Shares of Common Stock Outstanding	Total Stockholders' Equity (Deficit)
Balance as of December 31, 2012	114,787	$	48,007
Net loss	—	(60,383		)
Stock-based compensation	—	5,671
Shares issued or vested under employee stock plans	575	402
Unrealized gain on available-for-sale securities	—	32
Foreign currency translation adjustment	—	(117		)
Balance as of June 30, 2013	115,362	$	(6,388	)

Accumulated Other Comprehensive Income

Comprehensive loss and its components encompasses all changes in equity other than those with stockholders, and includes net loss, unrealized gains and losses on our available-for-sale marketable securities, and foreign currency translation gains and losses.

Changes in accumulated other comprehensive income by component are as follows (in thousands):

	Unrealized Net Gains on Available-for-Sale Securities, net of Deferred Taxes		Foreign Currency Translation Adjustments			Total
Balance as of December 31, 2012	$	97	$	326		$	423
Other comprehensive income (loss)	32		(117		)	(85		)
Balance as of June 30, 2013	$	129	$	209		$	338

3. Business Segments

We operate our business on the basis of two reportable segments: Molecular Diagnostics and Genetic Analysis.

Molecular Diagnostics, through Sequenom CMM, performs molecular diagnostic testing services utilizing its LDTs for noninvasive prenatal and women's health related diagnostics and ophthalmology-related diagnostics, and plans to develop or acquire additional diagnostic tests in those and other fields including autoimmunity, neurology and oncology. Services revenues from our Molecular Diagnostics segment are primarily derived from providing testing services using Sequenom CMM's LDTs. Revenues from our Molecular Diagnostics segment are generated primarily from customers located within the United States. 

Our Genetic Analysis segment researches, develops and commercializes components and applications for our proprietary MassARRAY system, a nucleic acid analysis research-use only system that measures genetic target material and variations. Product sales, services and contract research revenues from our Genetic Analysis segment are primarily derived from sales of our MassARRAY systems, which are comprised of hardware, software applications, consumable chips and reagents, as well as the provision of contract research services, to clinical research laboratories, bioagriculture, biotechnology and pharmaceutical companies, academic institutions and government agencies. Revenues from our Genetic Analysis segment are generated primarily from customers located in North America, and customers and distributors located in Europe and Asia.

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Revenues and operating loss by segment are as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Revenues:
Molecular Diagnostics	$	24,526		$	8,110		$	53,609		$	12,890
Genetic Analysis	10,325			10,142			19,740			20,282
Total revenues	$	34,851		$	18,252		$	73,349		$	33,172
Operating income (loss):
Molecular Diagnostics	$	(17,306	)	$	(18,311	)	$	(31,010	)	$	(34,685	)
Genetic Analysis	1,032			(42		)	1,082			752
Unallocated	(12,414		)	(10,829		)	(25,774		)	(19,494		)
Total loss from operations	$	(28,688	)	$	(29,182	)	$	(55,702	)	$	(53,427	)

Segment performance assessment is based on a revenue and operating income (loss) basis exclusive of certain unallocated costs, including corporate general and administrative expenses, litigation expense, other indirect costs, and certain other costs, which are not allocated to our segments for performance assessment by our chief operating decision maker. Unallocated operating expenses excluded from our segments for performance assessment represent expenses that do not reflect, according to criteria established by us, operating expenses associated with our reportable segment activities.

Intersegment revenues and transfers were immaterial during the periods presented.

4. Long-Term Obligations

Long-term obligations consist of the following (in thousands, except percentages):

	June 30, 2013			December 31, 2012
5% Convertible Senior Notes due October 2017, interest payable semi-annually in April and October, beginning April 1, 2013	$	130,000		$	130,000
Bank loans due May 2015, principal and interest payable monthly, weighted-average effective interest rate of 5.5%; net of unamortized discounts of $203 and $326 at June 30, 2013 and December 31, 2012, respectively	14,437			17,949
Obligation for building and improvements, effective interest of 4.9% at June 30, 2013 and December 31, 2012, expiring October 2026	6,232			6,318
Capital lease liabilities expiring January 2016, net of unamortized discounts of $85 and $117 at June 30, 2013 and December 31, 2012, respectively	327			375
Total long-term obligations	$	150,996		$	154,642
Less current portion	(7,619		)	(7,601		)
Non-current portion	$	143,377		$	147,041

Unamortized deferred debt issuance costs related to our Convertible Senior Notes at June 30, 2013 and December 31, 2012 totaled $4.5 million and $5.0 million, respectively.

At June 30, 2013, we were in compliance with all covenants under our bank loans. These include a minimum liquidity covenant requiring us to maintain with the bank unrestricted cash and marketable securities plus available amounts equal to or greater than the sum of all indebtedness owed to the bank plus our operating liquidity.

5. Commitments and Contingencies

Patent Litigation

In December 2011, we were named as a defendant in a complaint filed by plaintiff Aria Diagnostics, Inc., or Aria, in the United States District Court for the Northern District of California, case no. 3:11-cv-06391-SI. Since the complaint was filed, Aria changed its name to Ariosa Diagnostics, Inc. In the complaint, the plaintiff seeks a judicial declaration that no activities related to the plaintiff's noninvasive, prenatal test using cell-free DNA circulating in the blood of a pregnant woman do or will

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infringe any claim of U.S Patent No. 6,258,540 entitled Noninvasive Prenatal Diagnosis, or the '540 Patent, which we have exclusively in-licensed from Isis. In March 2012, we filed an answer to the complaint and asserted counterclaims that Aria is infringing the '540 Patent and seeking unspecified damages and injunctive relief. Our counterclaims name our licensor Isis as a nominal counter-defendant for purposes of subject matter jurisdiction only and we seek to realign Isis as a co-counter plaintiff in the matter. In March 2012, Aria responded to our answer and counterclaims and asserted affirmative defenses including invalidity of the '540 Patent under United States patent laws. In March 2012 we filed a motion against Aria for preliminary injunctive relief. On July 5, 2012, the Court denied our motion for preliminary injunctive relief and on July 16, 2012 we filed a Notice of Appeal to the United States Court of Appeals for the Federal Circuit from the order denying the preliminary injunction motion. Appellate briefs have been filed, oral argument took place on January 9, 2013, and the appeal is pending. We intend to vigorously defend against the judicial declaration sought by Aria in its complaint and intend to vigorously pursue our claims against Aria for damages and injunctive relief.

In January 2012, we were named as a defendant in a complaint filed by plaintiff Natera, a Delaware corporation, in the United States District Court for the Northern District of California, case no. 3:12-cv-00132-SI. In the complaint, the plaintiff seeks a judicial declaration that (i) activities related to the plaintiff's noninvasive, prenatal paternity test do not directly or indirectly infringe any claim of the '540 Patent, which we have exclusively in-licensed from Isis, and (ii) one or more claims of the '540 Patent are invalid for failure to comply with the requirements of the patent laws of the United States. In April 2012, we filed an answer to the complaint and asserted counterclaims that Natera and DNA Diagnostics Center, Inc., or DDC, are infringing the '540 Patent based on their activities relating to noninvasive prenatal paternity testing and noninvasive prenatal aneuploidy testing and seeking unspecified damages and injunctive relief. Our counterclaims name our licensor Isis as a nominal counter-defendant for purposes of subject matter jurisdiction only and we seek to realign Isis as a co-counter plaintiff in the matter. We intend to vigorously defend against the judicial declarations sought by Natera in its complaint and intend to vigorously pursue our claims against Natera for damages and injunctive relief.

In February 2012, we and Sequenom CMM were named as defendants in a complaint filed by plaintiffs Verinata Health, Inc., or Verinata, and The Board of Trustees of the Leland Stanford Junior University, or Stanford, in the United States District Court for the Northern District of California, case no. 3:12-cv-00865-SI. In the complaint (i) Verinata seeks a judicial declaration that activities related to its noninvasive prenatal test using cell-free DNA circulating in the blood of a pregnant woman do not directly or indirectly infringe any claim of the '540 Patent, which we have exclusively in-licensed from Isis, (ii) Verinata seeks a judicial declaration that each claim of the '540 Patent is invalid for failure to comply with the requirements of the patent laws of the United States, and (iii) Verinata and Stanford allege that we and Sequenom CMM, by performing its noninvasive prenatal MaterniT21 LDT, have and continue to directly infringe U.S. Patent No. 8,008,018 entitled Determination of Fetal Aneuploidies by Massively Parallel DNA Sequencing and U.S. Patent No. 7,888,017 entitled Noninvasive Fetal Genetic Screening by Digital Analysis, each of which have been exclusively licensed to Verinata by Stanford and seek unspecified damages. In March 2012, we filed an answer to the complaint and asserted counterclaims that Verinata is infringing the '540 Patent and seeking unspecified damages and injunctive relief. Our counterclaims name our licensor Isis as a nominal counter-defendant for purposes of subject matter jurisdiction only and we seek to realign Isis as a co-counter plaintiff in the matter. In June 2012, plaintiffs Verinata and Stanford amended their complaint and allege that we and Sequenom CMM, by performing its noninvasive prenatal MaterniT21 PLUS test, have and continue to directly infringe U.S. Patent No. 8,195,415 entitled Noninvasive Diagnosis of Fetal Aneuploidy by Sequencing, which has been exclusively licensed to Verinata by Stanford and seek unspecified damages. In July 2012, we filed an answer to the complaint. On March 12, 2013 the United States Patent and Trademark Office, or USPTO, declared a patent interference (Patent Interference No. 105,920 (DK)) between Verinata's '018 Patent, which Verinata has asserted against us in the litigation, and our in-licensed pending patent application no. 13/070,275 (publication no. US2011/0318734 entitled “Diagnosing Fetal Chromosomal Aneuploidy Using Massively Parallel Genomic Sequencing”). On May 3, 2013, the USPTO declared a patent interference (Patent Interference No. 105,922 (DK)) between Verinata's '415 Patent, which Verinata has asserted against us in the litigation, and our in-licensed pending patent application no. 13/070,266 (publication no. US2012/0003637 entitled “Diagnosing Fetal Chromosomal Aneuploidy Using Massively Parallel Genomic Sequencing”). We intend to vigorously defend against the judicial declarations sought and allegations of infringement set forth by plaintiffs in their complaint and intend to vigorously pursue our claims against Verinata for damages and injunctive relief. Verinata was acquired by Illumina, Inc. in the first quarter of 2013.

Former Employee Litigation

In August 2010, Paul Hawran, our former chief financial officer, sued the three directors who comprised the special committee that during 2009 conducted the investigation of activity related to a prior trisomy 21 test under development at that time, alleging that they had defamed him, invaded his privacy, negligently and intentionally interfered with his prospective economic advantage, and committed unfair business practices under California Business and Professions Code Section 17200, and seeking unspecified damages. Mr. Hawran alleged in his complaint that he was asked to resign because he had raised concerns about the conduct of certain of our directors. The lawsuit, Hawran v. Hixson et al, case no. 37-2010-00058632-CU-DF-NC, was filed in the Superior Court of California for the North County of San Diego. In September 2010, we were served with an amended complaint in this lawsuit, in which Mr. Hawran named us as a defendant in addition to the three individuals

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previously named and added claims of breach of contract and intentional and negligent misrepresentation. In October 2010, the defendants filed a motion to strike the complaint under California Code of Civil Procedure Section 425.16 on the grounds that Mr. Hawran's claims arise from acts in furtherance of the defendants' right of petition or free speech under the United States or California Constitution in connection with a public issue and filed a demurrer to each and every cause of action in the complaint. On January 3, 2011, the Superior Court issued a minute order dismissing some, but not all, of the claims alleged in the amended complaint. The defendants filed a notice of appeal regarding the minute order on January 11, 2011 and Mr. Hawran filed a cross-appeal regarding the same on January 31, 2011. On September 13, 2012, the California Court of Appeal (Fourth Appellate Division) affirmed the Superior Court's order. On October 23, 2012, the individual defendants and we filed a Petition for Review with the Supreme Court of California and on December 19, 2012, the Petition for Review was denied. On January 7, 2013, we and the individual defendants filed an answer to the complaint. The individual defendants and we intend to vigorously defend ourselves against the claims advanced. On January 7, 2013, we filed a cross-complaint against Mr. Hawran for breach of fiduciary duty and a demand for unspecified damages. Mr. Hawran subsequently made a demand to us for indemnity under contract and by law for legal fees and expenses in connection with his defense of the cross-complaint. On April 12, 2013, our Board of Directors denied on a preliminary basis Mr. Hawran's demand for indemnity. On May 14, 2013, Mr. Hawran filed a complaint in the Delaware Court of Chancery seeking a determination of his right to indemnity and advancement as to expenses for defense of the cross-complaint. On May 17, 2013, we filed a request for dismissal without prejudice of the cross-complaint and dismissal of the cross-complaint was entered by the court on June 4, 2013.

In addition, from time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business, including claims related to our products, tests, and services, including our laboratory developed test services. These other matters are, in the opinion of management, immaterial with respect to our consolidated financial position, liquidity, or results of operations.

Claim estimates that are probable and can be reasonably estimated are reflected as liabilities of the Company. Because of the uncertainties related to our pending litigation, investigations, inquiries or claims, management is currently unable to predict the ultimate outcome of any litigation, investigation, inquiry or claim, determine whether a liability has been incurred, or make an estimate regarding the possible loss or range of loss that could result from an unfavorable outcome. It is reasonably possible that some of the matters, which are pending or may be asserted, could be decided unfavorably to the Company. An adverse ruling or outcome in any lawsuit involving us could materially affect our business, liquidity, consolidated financial position or results of operations ability to sell one or more of our products or could result in additional competition. In view of the unpredictable nature of such matters, we cannot provide any assurances regarding the outcome of any litigation, investigation, inquiry or claim to which we are a party or the impact on us of an adverse ruling of such matters.

6. Stock Compensation Plans

Equity Incentive Plans

A summary of the combined activity under all of our stock option plans during the six months endedJune 30, 2013 is as follows:

	Shares Subject to Options (in thousands)		Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
As of December 31, 2012	12,488		$	6.17
Granted	2,148		$	4.14
Exercised	(12	)	$	3.74
Forfeitures and cancellations	(412	)	$	5.92
Outstanding at June 30, 2013	14,212		$	5.87	7.4	$	2,887
Options exercisable at June 30, 2013	7,581		$	6.92	6.2	$	1,915
Options vested or expected to vest at June 30, 2013	13,262		$	5.98	7.3	$	2,716

The aggregate intrinsic value of stock options exercised during the six months endedJune 30, 2013 and 2012 was $11,000, and $10,000, respectively. Cash received from stock option exercises for the six months endedJune 30, 2013 and 2012 was $46,000 and $45,000, respectively. As of June 30, 2013, we had reserved 6.8 million shares of common stock for issuance under our stock option plans.

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The following table summarizes activity related to our restricted stock awards and restricted stock units during the six months endedJune 30, 2013 (shares in thousands):

	Number of Shares		Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2012	905		$	4.34
Grants and awards	982		$	4.14
Vested and released	(338	)	$	4.27
Forfeitures and cancellations	(51	)	$	4.03
Outstanding at June 30, 2013	1,498		$	4.19

The total fair value of restricted stock awards and restricted stock units that vested during the six months ended June 30, 2013 and 2012 was $1.3 million and $0.6 million, respectively.

Employee Stock Purchase Plan (ESPP)

During the six months ended June 30, 2013 and 2012, a total of 0.3 million and 0.1 million shares were purchased by the ESPP and distributed to employees at an average price of $2.41 and $3.66 per share with aggregate intrinsic values of $0.6 million and $0.1 million, respectively.

As of June 30, 2013, we had reserved 2.4 million shares of common stock for issuance under the ESPP.

Stock-Based Compensation Expense

Following are the weighted-average underlying assumptions used to determine the fair value of stock option award grants and for stock purchase rights under the ESPP:

	Six Months Ended
	June 30,
	2013			2012
Stock option grants
Risk-free interest rate	1.2		%	1.8		%
Volatility	93.9		%	94.5		%
Dividend yield	—		%	—		%
Expected life (years)	6.9			6.7
Weighted-average grant date fair value	$	3.27		$	3.71

	Six Months Ended
	June 30,
	2013			2012
ESPP stock purchase rights
Risk-free interest rate	0.1		%	0.1		%
Volatility	60.1		%	66.0		%
Dividend yield	—		%	—		%
Expected life (years)	0.5			0.5
Weighted-average grant date fair value	$	1.32		$	1.52

Our determination of fair value is affected by our stock price as well as assumptions regarding a number of complex and subjective variables that require judgment. The computation of the expected option life assumption is based on a weighted-average calculation combining the average historical exercise activity and assumptions regarding the estimated life of all unexercised, outstanding stock options, and stock purchased under the ESPP. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of our employee stock options. The expected volatility is based on the historical volatility of our stock. We have not paid any dividends on common stock since our inception and do not anticipate paying dividends on common stock in the foreseeable future.

We recognize stock-based compensation cost over the vesting period using the straight-line single option method. Stock-based compensation expense is recognized only for those awards that are ultimately expected to vest. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Pre-vesting forfeitures are based on historical experience and during the six months ended June 30, 2013 and 2012 were estimated to be 13.4% and 11.2%, respectively. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs.

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Total non-cash stock-based compensation expense for all stock awards and purchase rights were recognized in our condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Cost of revenues	$	236	$	296	$	528	$	567
Selling and marketing expense	710		851		1,564		1,812
Research and development expense	624		940		1,374		1,720
General and administrative expense	1,027		1,139		2,205		2,014
	$	2,597	$	3,226	$	5,671	$	6,113

As of June 30, 2013, there was $17.4 million of unamortized compensation cost related to unvested stock option awards, which is expected to be recognized over a remaining weighted-average vesting period of 2.7 years. As of June 30, 2013, there was $0.1 million of unamortized compensation cost related to unvested restricted stock awards which is expected to be recognized over a remaining weighted-average vesting period of 0.5 years. As of June 30, 2013, there was $2.8 million of unamortized compensation cost related to unvested restricted stock units, which is expected to be recognized over a remaining weighted-average vesting period of 2.7 years. As of June 30, 2013, total unrecognized non-cash, compensation expense for purchase rights granted and outstanding was $0.1 million, which is expected to be recognized over a remaining weighted-average vesting period of 0.1 years.

7. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables summarize our fair value hierarchy for assets and liabilities measured at fair value on a recurring basis (in thousands):

	Fair Value Measurements at Reporting Date Using
Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
As of June 30, 2013
Cash equivalents:
Money market funds	$	30,571	$	30,571	$	—
Marketable securities:
U.S. treasury securities	40,017		40,017		—
Certificates of deposit	13,047		—		13,047
Mutual funds	428		428		—
Total marketable securities	53,492		40,445		13,047
Total	$	84,063	$	71,016	$	13,047

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	Fair Value Measurements at Reporting Date Using
Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
As of December 31, 2012
Cash equivalents:
Money market funds	$	105,141	$	105,141	$	—
Certificates of deposit	1,391		—		1,391
Total cash equivalents	106,532		105,141		1,391
Marketable securities:
U.S. treasury securities	40,015		40,015		—
Certificates of deposit	11,738		—		11,738
Mutual funds	387		387		—
Total marketable securities	52,140		40,402		11,738
Total	$	158,672	$	145,543	$	13,129

There were no transfers in or out of Level 1, Level 2, or Level 3 investments during the six months endedJune 30, 2013.

For fair values determined by Level 1 inputs, which utilize quoted prices in active markets for identical assets, the level of judgment required to estimate fair value is relatively low. We value our investments in money market funds, U.S. treasury securities and mutual funds using Level 1 inputs. Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves and fair values determined by Level 3 inputs, which utilize unobservable data points support by little or no market activities, require the exercise of judgment and use of estimates, that if changed, could significantly affect our statement of financial position and results of operations. We value our investments in certificates of deposit using Level 2 inputs.

Our Level 2 securities are initially valued at the transaction price and subsequently valued and reported utilizing fair values provided by our investment managers who estimate the fair value using inputs other than quoted prices that are observable either directly or indirectly, such as quotes from multiple third-party pricing vendors, fund or trust companies and quoted prices for securities with similar maturity and rating features. We perform additional procedures to corroborate the fair value of our securities, including the comparison of fair values provided by our investment managers to those obtained from other reliable sources.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain non-financial assets and liabilities are measured at fair value on a nonrecurring basis in accordance with authoritative guidance. These include items such as non-financial assets and liabilities initially measured at fair value in a business combination and non-financial long-lived asset groups measured at fair value for an impairment assessment. In general, non-financial assets including goodwill, intangible assets, and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when any impairment is recognized. There were no material non-financial assets and liabilities deemed to be other-than-temporarily impaired and measured at fair value on a nonrecurring basis during the six months ended June 30, 2013 or 2012.

Fair Value of Other Financial Instruments

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of our long-term obligations are as follows (in thousands):

	June 30, 2013				December 31, 2012
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Convertible Senior Notes	$	130,000	$	151,450	$	130,000	$	156,000
Bank Loans	14,437		14,437		17,949		17,949

At June 30, 2013 and December 31, 2012, the fair values of our Convertible Senior Notes and Bank Loans were based on quoted prices of similar instruments (Level 1).

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

Introduction

All statements in this report that are not historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act. These forward-looking statements can generally be identified as such because the context of the statement will include words such as “may,” “will,” “intend,” “plans,” “believes,” “anticipates,” “expects,” “estimates,” “predicts,” “potential,” “continue,” “opportunity,” “goals,” or “should,” the negative of these words or words of similar import. Similarly, statements that describe our future plans, strategies, intentions, expectations, objectives, goals, or prospects are also forward-looking statements. These forward-looking statements are or will be, as applicable, based largely on our expectations and projections about future events and future trends affecting our business, and so are or will be, as applicable, subject to risks and uncertainties including but not limited to the risk factors discussed in this report, that could cause actual results to differ materially from those anticipated 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. Our views and the events, conditions and circumstances on which these future forward looking statements are based, may change. All forward-looking statements are qualified in their entirety by this cautionary statement and we undertake no obligation to revise or update any such statements to reflect events or circumstances after the date hereof.

SEQUENOM ® , Sequenom Center for Molecular Medicine ® , SpectroCHIP ® , iPLEX ® , SensiGene ® , SEQureDx ® iSEQ ® , and MassARRAY ® are registered trademarks and RetnaGene™, MaterniT21™, MaterniT21™ PLUS and Heredi-T^TM are trademarks of Sequenom, Inc. This report may also refer to trade names and trademarks of other organizations.

Sequenom, Inc., was incorporated in 1994 under the laws of the State of Delaware. As used in this report, the words “we,” “us,” “our,” the “Company,” and “Sequenom” refer to Sequenom, Inc. and its wholly-owned subsidiaries on a consolidated basis, unless explicitly noted otherwise.

This following discussion and analysis of financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Operating results are not necessarily indicative of results that may occur in future periods.

Overview

We are a life sciences company providing innovative genetic analysis solutions to improve healthcare through our two operating segments:

• Molecular Diagnostics, through our wholly-owned molecular diagnostic reference laboratory, Sequenom Center for Molecular Medicine, LLC or Sequenom CMM, performs molecular diagnostic testing services utilizing its laboratory-developed tests, or LDTs, for noninvasive prenatal and women's health related diagnostics and ophthalmology-related diagnostics and plans to develop or acquire additional diagnostic tests in those and other fields including autoimmunity, neurology and oncology. Patient samples are collected by health care professionals and submitted to Sequenom CMM for testing and test results are reported back to the ordering physician. Sequenom CMM's first LDT was launched in 2009.

• Genetic Analysis, which currently provides research use only products, services and applications that translate the results of genomic science into solutions for biomedical research, translational research, molecular medicine applications, and other areas of research, including agricultural and livestock.

Our Molecular Diagnostics segment, through our subsidiary Sequenom CMM, has validated and currently offers to physicians four LDTs: MaterniT21PLUS test to detect fetal aneuploidies, or trisomies, by determining the relative amount of 21, 18, and 13, X and Y chromosomal material present in circulating cell-free DNA in a maternal blood sample; SensiGene RHD test to determine the presence or absence of fetal Rhesus D factor; Heredi-T CF test to help identify individuals who may have an increased risk of having certain cystic fibrosis genetic mutations; and RetnaGene AMD test to predict the genetic risk of a patient with “dry” or early stage age-related macular degeneration, or AMD, progressing to “wet” or advanced choroidal neovascular disease within 2, 5, and 10 years. Our Molecular Diagnostics segment grew significantly in 2012 due primarily to the rapid market adoption of the MaterniT21 PLUS test since its launch in October 2011. 

We depend upon third-party payors to provide reimbursement for our tests. Accordingly, Sequenom CMM has and expects to continue to focus substantial resources on obtaining reimbursement coverage from third-party payors. In December 2012, the American Congress of Obstetricians and Gynecologists, or ACOG, and the Society for Maternal Fetal Medicine Specialists, or SMFM, issued a joint committee opinion on noninvasive prenatal testing for fetal aneuploidy, which supported the use of circulating cell-free fetal DNA as a basis for noninvasive prenatal testing in pregnant women at high risk of carrying a fetus

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with fetal aneuploidy. We believe these guidelines will drive further adoption of Sequenom CMM's MaterniT21 PLUS test and strengthen our efforts to obtain insurance reimbursement. We continue to invest in Sequenom CMM's diagnostic services infrastructure to support and expand its operations. 

We believe that our diagnostic services revenues will continue to be affected by our current revenue recognition policy of generally recognizing revenues upon cash collection, the overall acceptance and demand for our new and existing commercial products and services, the adoption rates of Sequenom CMM's existing LDTs and any future LDTs, and payment patterns of third-party payors and patients. In the United States, the American Medical Association, or AMA, generally assigns specific billing codes for laboratory tests under a coding system known as Current Procedure Terminology, or CPT, codes, which are necessary for us to bill and receive reimbursement for our diagnostic tests. Once the CPT code is established, Centers for Medicare and Medicaid Services, or CMS, in turn establishes payment levels and coverage rules under Medicare, and private payors establish rates and coverage rules independently. Additionally, payors have initiated efforts to develop a more specific set of billing codes for laboratory tests so that the particular laboratory test is more precisely identified. CMS implemented new codes beginning January 1, 2013 that did not include a fee schedule for the particular codes relevant to most of Sequenom CMM's tests. This coding change adopted by CMS and most third party payors has resulted in delayed payments and, in some cases, reduced payments from payors for services performed in 2013. Additionally, following the coding change, many state Medicaid programs have not included the appropriate test code in their fee schedule and, in some cases, are considering whether molecular diagnostic tests such as ours should be a covered benefit.

Currently, Sequenom CMM performs its testing services primarily as an out-of-network laboratory with most insurance companies. As an out-of-network laboratory, Sequenom CMM bills insurance companies and bills patients for deductibles and copayment amounts. Due to Sequenom CMM's current out-of-network provider status associated with the lack of existing contracts with most payors and the current level of adoption rates, we expect amounts billed and collected will fluctuate until these factors are resolved. Sequenom CMM's diagnostic testing services revenues are primarily recognized on a cash basis, until we can reliably estimate the amount that would be ultimately collected for each of its tests.

Sequenom CMM performs its LDTs at three locations, San Diego, California, and Raleigh-Durham, North Carolina (effective June 2013) for its MaterniT21 PLUS test, and Grand Rapids, Michigan, for its other tests. Sequenom CMM will continue efforts to ensure that office and laboratory space is adequate to accommodate the necessary capacity requirements to meet Sequenom CMM's current and expanding business needs. In January 2013, we entered into a lease for a new facility with an additional approximately 49,000 square feet of office space in San Diego, California, into which we may relocate certain corporate functions to enable expansion of the San Diego lab in our existing facility. We believe these expansion efforts will be enough to meet our and Sequenom CMM's needs for the remainder of 2013.

We have a history of recurring losses from operations and we expect to incur additional operating losses in 2013 as we continue to expand our commercial infrastructure to serve the prenatal and ophthalmology markets, expand Sequenom CMM's laboratory capacity, and work to further develop existing tests, conduct clinical studies and develop additional products and tests. The timing of becoming profitable is dependent upon a number of factors, including the timing of reimbursement payments from third-party payors; our and Sequenom CMM's costs to expand our test capacity; the timing and costs related to research and development projects; selling and marketing efforts; and administrative support to support the growing company. Our capital requirements to sustain operations have been and will continue to be significant. As of June 30, 2013, we had available cash and cash equivalents and current marketable securities totaling $106.9 million and working capital of $88.3 million.

Our strategic focus in 2013 will be to continue to accelerate the growth of our diagnostic testing business, grow our revenues through obtaining contracts with payors and increasing our market penetration and cash collections to create a sustainable, profitable business model for the future. We will continue to expand our relationships with physicians who order our tests and invest in our research and development programs to develop additional or enhanced tests and additional products for sale within the genetic analysis market.

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Second Quarter of 2013

• Total revenues during the three months endedJune 30, 2013 increased $16.6 million, or 91%, to $34.9 million when compared to $18.3 million during the three months endedJune 30, 2012.

◦ Diagnostic services revenues during the three months endedJune 30, 2013 increased $16.4 million, or 202%, to $24.5 million when compared to $8.1 million during the three months endedJune 30, 2012.

◦ Genetic analysis product sales and services revenues during the three months endedJune 30, 2013 increased $0.2 million, or 2%, to $10.3 million when compared to $10.1 million during the three months endedJune 30, 2012.

• Total accessions for all Sequenom CMM tests in our Molecular Diagnostics segment during the three months endedJune 30, 2013 increased 26,300, or 129%, to 46,700 when compared to 20,400 during the three months endedJune 30, 2012, and increased 2,200, or 5%, when compared to 44,500 during the three months endedMarch 31, 2013.

• Total revenues during the six months endedJune 30, 2013 increased $40.2 million, or 121%, to $73.3 million when compared to $33.2 million during the six months endedJune 30, 2012.

◦ Diagnostic services revenues during the six months endedJune 30, 2013 increased $40.7 million, or 316%, to $53.6 million when compared to $12.9 million during the six months endedJune 30, 2012.

◦ Genetic analysis product sales and services revenues during the six months endedJune 30, 2013 decreased $0.5 million, or 3%, to $19.7 million when compared to $20.3 million during the six months endedJune 30, 2012.

• Total accessions for all Sequenom CMM tests in our Molecular Diagnostics segment during the six months endedJune 30, 2013 increased 58,100, or 176%, to 91,200 when compared to 33,100 during the six months endedJune 30, 2012.

• Discretionary compensation expense decreased during the three months endedJune 30, 2013 by $2.9 million compared to the three months endedJune 30, 2012 due to a lower estimate of bonus expense in the quarter; for the six months endedJune 30, 2013 discretionary compensation expense decreased $2.3 million compared to the six months endedJune 30, 2012 as a result of the lower estimate of bonus expense.

Results of Operations

Revenues

We derive our revenues primarily from diagnostic services and product sales and services related to our genetic analysis products. We operate our business in two segments, Molecular Diagnostics, which comprises our laboratory testing services business conducted by our subsidiary, Sequenom CMM, and Genetic Analysis, which sells and services our MassARRAY system and related products and provides contract services to our customers.

Our revenues and accessions were as follows:

	Three Months Ended									Six Months Ended
	June 30,						Change			June 30,						Change
(dollars in thousands)	2013			2012			$		%	2013			2012			$			%
Diagnostic services	$	24,526		$	8,110		$	16,416	202%	$	53,609		$	12,890		$	40,719		316%
Genetic analysis product sales and services	10,325			10,142			183		2%	19,740			20,282			(542		)	(3)%
Total revenues	$	34,851		$	18,252		$	16,599	91%	$	73,349		$	33,172		$	40,177		121%
% of Total revenues:
Diagnostic services	70		%	44		%				73		%	39		%
Genetic analysis product sales and services	30		%	56		%				27		%	61		%
Total	100		%	100		%				100		%	100		%
							Change									Change
							#		%							#			%
Total accessions (for all Sequenom CMM tests)	46,700			20,400			26,300		129%	91,200			33,100			58,100			176%

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Diagnostic Services

Diagnostic services revenues are derived primarily from payments for providing testing services for Sequenom CMM's LDTs and are primarily recognized on a cash basis as payments are received. Sequenom CMM will continue to account for these revenues on a cash basis until further experience and third-party contracts are gained and we are able to demonstrate that we can make a reasonable estimate of collectible amounts before moving to the accrual method of accounting.

Each test performed relates to a patient specimen collected by a health care professional, and received by the laboratory. Such specimen encounter is commonly referred to as an “accession” in the laboratory sector. Although accessions are not billed until the test is complete and results are reported to the ordering physicians, we believe that the number of accessions received is useful to understand the volume of Sequenom CMM's business. These tests are typically completed within approximately six business days from the date of accession. Revenues for diagnostic services are generated primarily from customers located within the United States. Our international customers collect and ship patient samples to the laboratory, and Sequenom CMM processes the samples in its laboratory in the United States. We also have royalty agreements with international customers whom we have licensed our technology to for certain countries.

The $16.4 million, or 202%, and $40.7 million, or 316%, increases in diagnostic services revenues during the three and six months ended June 30, 2013, respectively, when compared to the same periods in the prior year, are primarily attributable to the increase in the number of accessions and collections for accessions in prior periods. However, in the second quarter of 2013 the sequential quarter revenues decreased $4.6 million while total accessions increased 2,200, or 5%, when compared to the three months ended March 31, 2013. Sequential quarter revenues for the three months ended June 30, 2013 are lower due to delays in the receipt of payments as a result of coding changes adopted as of January 1, 2013 by CMS and most third party payors which resulted in delayed payments and, in some cases, reduced payments from payors, particularly government payors, for services performed in 2013, and to lower than expected collections by our external billing provider in conjunction with the transition of our billing function to an in-house system. During the three months endedJune 30, 2013, approximately 49% of the revenues recognized are attributable to tests performed within the same period, compared to 35% during the three months ended March 31, 2013, and 74% during the three months ended June 30, 2012. Payments from one commercial payor resulted in $6.2 million in revenues during three months endedJune 30, 2013 and $13.9 million during the six months endedJune 30, 2013, or 25% and 26% of diagnostic revenues, respectively.

The increase in the number of accessions during the three and six months ended June 30, 2013 compared to the same periods in 2012 of 129% and 176%, respectively, is primarily attributable to the increased market adoption of the MaterniT21 PLUS test which was introduced domestically in the fourth quarter of 2011, and to a lesser extent internationally in the first quarter of 2012, and expansion of Sequenom CMM's prenatal sales force and its advisory board's efforts to expand the awareness of the clinical utility of this test. International revenues accounted for $2.8 million and $0.5 million of diagnostic services revenues during the three months ended June 30, 2013 and 2012, respectively, and $3.4 million and $0.7 million of diagnostic services revenues during the six months ended June 30, 2013 and 2012, respectively.

We believe that our diagnostic services revenues will continue to be affected by our current revenue recognition policy of generally recognizing revenues upon cash collection, the overall acceptance and demand for our new and existing commercial products and services, the adoption rates of Sequenom CMM's existing LDTs and any future LDTs we may develop, and payment patterns of third-party payors and patients. The coding change adopted as of January 1, 2013 by CMS and most third-party payors has resulted in delayed payments and, in some cases, reduced payments from payors for services performed in 2013. Following the coding change, many state Medicaid programs have not included the appropriate test code in their fee schedule and, in many cases, are considering whether molecular diagnostic tests such as ours should be a covered benefit. As a result, revenues from government payors has declined from $2.3 million during the three months ended March 31, 2013 to $1.4 million during the three months endedJune 30, 2013. We continue to pursue collection for our tests with third-party payors, including Medicare and Medicaid where appropriate, and are unable to predict if this trend will continue. Revenues collected from government payors to date in 2013 are less than 10% of our diagnostics revenues.

Genetic Analysis Product Sales and Services

Our genetic analysis product sales and services revenues were as follows:

	Three Months Ended								Six Months Ended
	June 30,				Change				June 30,				Change
(dollars in thousands)	2013		2012		$			%	2013		2012		$			%
System sales	$	3,388	$	3,356	$	32		1%	$	6,007	$	6,296	$	(289	)	(5)%
Consumables	5,352		5,006		346			7%	10,103		10,521		(418		)	(4)%
Maintenance services	1,260		1,345		(85		)	(6)%	2,558		2,580		(22		)	(1)%
Contract research and other	325		435		(110		)	(25)%	1,072		885		187			21%
Total	$	10,325	$	10,142	$	183		2%	$	19,740	$	20,282	$	(542	)	(3)%

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Genetic Analysis product sales and services revenues are derived from sales of research use only consumables, including our SpectroCHIP consumable chip used with our iPLEX assay and other assays, MassARRAY systems, maintenance agreements, sales and licensing of our proprietary software, and contract research services. Revenues for genetic analysis products and services are generated from customers primarily located in North America, and customers and distributors located in Europe and Asia.

Total Genetic Analysis revenues remained relatively flat when comparing the three and six months ended June 30, 2013 to the same periods during 2012.

Our revenues have historically fluctuated from period to period and, we believe, will likely continue to fluctuate substantially in the future based upon the unpredictable sales cycle for the MassARRAY system and consumables, general economic conditions, and the overall acceptance and demand for our new and existing commercial products and services.

Cost of Revenues and Gross Margins

Cost of revenues consists of material, direct labor of our laboratory, manufacturing and service personnel, outside laboratory costs, royalties and overhead. Gross margin consists of our revenues less cost of revenues.

Our costs of revenues and gross margins were as follows:

	Three Months Ended								Six Months Ended
	June 30,					Change			June 30,					Change
(dollars in thousands)	2013		2012			$		%	2013		2012			$			%
Cost of Revenues
Diagnostic services	$	20,634	$	9,407		$	11,227	119%	$	41,713	$	16,278		$	25,435		156%
Genetic analysis product sales and services	3,699		3,698			1		—%	7,158		7,121			37			1%
Total	$	24,333	$	13,105		$	11,228	86%	$	48,871	$	23,399		$	25,472		109%
Gross Margin
Diagnostic services	$	3,892	$	(1,297	)	$	5,189	400%	$	11,896	$	(3,388	)	$	15,284		451%
Genetic analysis product sales and services	6,626		6,444			182		3%	12,582		13,161			(579		)	(4)%
Total	$	10,518	$	5,147		$	5,371	104%	$	24,478	$	9,773		$	14,705		150%
Gross Margin as a % of Revenues
Diagnostic services	16%		(16)%						22%		(26)%
Genetic analysis product sales and services	64%		64%						64%		65%
Total	30%		28%						33%		29%

Diagnostic Services

Cost of diagnostic services revenues represents the cost of materials, direct labor, equipment and infrastructure expenses associated with accessioning patient specimens (including quality control analyses and shipping charges to transport patient specimens), royalties, and license fees. Infrastructure expenses include allocated facility occupancy and information technology costs. Costs associated with performing tests are recorded as tests are processed. Costs recorded for patient specimen processing represent the cost of all the tests processed during the period regardless of whether revenues were recognized with respect to that test. Royalties for licensed technology calculated as a percentage of product revenues are recorded as license fees in cost of product revenues at the time product revenues are recognized or in accordance with other contractual obligations. While license fees are generally calculated as a percentage of product revenues, the percentage increase in license fees does not correlate exactly to the percentage increase in product revenues because certain agreements contain provisions for fixed annual payments and other agreements have tiered rates and payments that may be capped at annual minimum or maximum amounts. License fees represent a significant component of our cost of product revenues and are expected to remain so for the foreseeable future.

Of the $11.2 million, or 119%, increase in cost of diagnostic services revenues during the three months endedJune 30, 2013 when compared to the three months endedJune 30, 2012, $5.4 million is attributable to increased test volumes and related variable costs, and $5.8 million is attributed to laboratory operational costs to support increased production capacity for Sequenom CMM's diagnostic services, including $1.2 million related to the additional site in Raleigh-Durham North Carolina.

Of the $25.4 million, or 156%, increase in cost of diagnostic services revenues during the six months endedJune 30, 2013, when compared to the six months endedJune 30, 2012, $13.4 million is attributable to increased test volumes and related

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variable costs, and $12.2 million is attributed to laboratory operational costs to support increased production capacity for Sequenom CMM's diagnostic services, including $1.2 million related to the additional site in Raleigh-Durham North Carolina,

Gross margin as a percentage of diagnostic services revenues is also affected by our current revenue recognition policy of generally recognizing revenues upon cash collection, which may result in costs being incurred in one period that relate to revenues recognized in a later period. Favorable gross margin during the three and six months ended June 30, 2013 compared to a negative gross margin during the three and six months ended June 30, 2012 is primarily attributable to collections for accessions in prior quarters. Approximately 49% of the revenues recognized during the three months endedJune 30, 2013 are attributable to tests performed during the same period, whereas 74% of the revenues recognized during the three months endedJune 30, 2012 are attributable to tests performed during that same period, primarily due to delays in the receipt of payments as a result of coding changes adopted as of January 1, 2013 by CMS and most third-party payors which resulted in delayed payments.

We expect that gross margin for our diagnostic services will continue to fluctuate and be affected by the adoption rates of Sequenom CMM's diagnostic tests, our revenue recognition policy, the levels of reimbursement, and payor and other contracts we may enter into for our tests.

We expect the cost of revenues to increase in future periods to the extent we process more tests, and to reflect the expanded capacity within Sequenom CMM's laboratory, including its additional site in Raleigh-Durham, North Carolina. Sequenom CMM currently has the physical capacity to conduct 300,000 MaterniT21 PLUS tests per year with minimal additional capital investment. The North Carolina site can be expanded if, and when, additional capacity is needed.

Genetic Analysis Product Sales and Services

Gross margin as a percentage of genetic analysis product sales and services revenues remained relatively flat when comparing the three and six months ended June 30, 2013 to the same periods during 2012.

We expect that gross margin for our genetic analysis product sales and services will fluctuate on a quarterly basis and be affected by, among other things, the selling price for MassARRAY systems and consumables, consumable sales per MassARRAY system sold, the mix of product sales and the type of services, competitive conditions, sales volumes, discounts offered, sales through distributors, as well as our manufacturing costs, inventory reserves and obsolescence charges required, and royalty payment obligations on in-licensed technologies.

Operating expenses

Our operating expenses were as follows:

	Three Months Ended								Six Months Ended
	June 30,				Change				June 30,				Change
(dollars in thousands)	2013		2012		$			%	2013		2012		$		%
Selling and marketing	$	13,452	$	11,310	$	2,142		19%	$	27,109	$	20,987	$	6,122	29%
Research and development	13,019		13,070		(51		)	—%	26,853		24,914		1,939		8%
General and administrative	12,735		9,949		2,786			28%	26,218		17,299		8,919		52%

Selling and marketing expenses

Selling and marketing expenses consist primarily of compensation and related departmental expenses for sales and marketing, customer support, and business development personnel.

Of the $2.1 million, or 19%, increase in selling and marketing expenses during the three months endedJune 30, 2013, when compared to the three months endedJune 30, 2012, $2.7 million is due to the expansion of our Molecular Diagnostics sales force, including the cost of labor, travel and commissions, and $0.3 million is due to higher marketing costs in 2013. These increases are offset by the decrease in discretionary compensation expense of $0.8 million during the 2013 period.

Of the $6.1 million, or 29%, increase in selling and marketing expenses during the six months endedJune 30, 2013, when compared to the six months endedJune 30, 2012, $4.8 million is due to the expansion of our Molecular Diagnostics sales force, including the costs of labor, travel and commissions, $1.4 million is due to higher marketing operations labor and related costs as we increased headcount to support our commercial Molecular Diagnostics operations as a whole, and $0.4 million is due to increased marketing costs in 2013. These increases are offset by the decrease in discretionary compensation expense of $0.6 million during the 2013 period.

We expect the growth of selling and marketing expenses to moderate in future periods due to our efforts to control costs while increasing penetration in our markets and obtaining additional reimbursement for our tests. We expect this to continue until collections improve to support further selling and marketing efforts.

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Research and development expenses

Research and development expenses consisted primarily of compensation and related personnel expenses, product development costs, quality and regulatory costs, and expenses relating to licensing costs and work performed under research and development contracts.

Of the $0.1 million, or 0.4%, decrease in research and development expenses during the three months endedJune 30, 2013, when compared to the three months endedJune 30, 2012, $2.3 million is primarily due to increased labor, supplies and facility-related costs incurred for the expansion of Sequenom CMM's laboratory facilities, partially offset by $1.8 million in lower supplies and other expenses related to research projects during 2013 and the decrease in discretionary compensation expense of $0.9 million during the 2013 period.

Of the $1.9 million, or 8%, increase in research and development expenses during the six months endedJune 30, 2013, when compared to the six months endedJune 30, 2012, $4.7 million is primarily due to increased labor, supplies and facility-related costs incurred for the expansion of Sequenom CMM's laboratory facilities, partially offset by $2.2 million in lower supplies and other expenses related to research projects during 2013 and the decrease in discretionary compensation expense of $0.8 million during the 2013 period.

We expect our research and development expenses to decrease slightly in future periods now that validation of Sequenom CMM's additional laboratory site is complete, while we increase our investments in our product pipeline for prenatal testing, ophthalmology diseases, and other molecular diagnostic areas, along with increased investment in research use only panels and potential clinical applications of our MassARRAY systems.

General and administrative expenses

General and administrative expenses consist primarily of compensation and related departmental expenses for executive, legal, finance, non-allocated information technology and human resource personnel and outside professional fees.

The $2.8 million, or 28%, increase in general and administrative expenses during the three months endedJune 30, 2013, when compared to the three months endedJune 30, 2012, is primarily related to increased legal costs of $2.0 million, associated primarily with patent litigation, increased billing costs of $1.1 million due to our transition to an in-house billing system and increased headcount to support our operations resulting in higher labor and related costs of $0.4 million. These increases are offset by the decrease in discretionary compensation expense of $0.8 million during the 2013 period.

The $8.9 million, or 52%, increase in general and administrative expenses during the six months endedJune 30, 2013, when compared to the six months endedJune 30, 2012, is primarily related to increased legal costs of $5.0 million, associated primarily with patent litigation, increased billing costs of $2.8 million due to our transition to an in-house billing system and increased headcount to support our operations resulting in higher labor and related costs of $1.7 million. These increases are offset by the decrease in discretionary compensation expense of $0.6 million during the 2013 period.

We expect the growth of general and administrative expenses to moderate in future periods as we seek to improve efficiencies in our operations. In addition, legal expenses will continue to fluctuate in future periods.

Other income and expense, and income tax expense

	Three Months Ended									Six Months Ended
	June 30,									June 30,
(dollars in thousands)	2013			2012			$ Change			2013			2012			$ Change
Interest expense, net	$	(2,121	)	$	(299	)	$	(1,822	)	$	(4,290	)	$	(546	)	$	(3,744	)
Other (expense) income, net	(80		)	(116		)	36			(245		)	(45		)	(200		)
Income tax expense	(134		)	(20		)	(114		)	(146		)	(22		)	(124		)

Interest expense, net

The increase in interest expense, net, during the three and six months ended June 30, 2013 is attributable to the issuance of our Convertible Senior Notes in September 2012 and higher outstanding balances on our term loan.

Other (expense) income, net

Other expense, net, during the three and six months ended June 30, 2013 primarily relates to the net foreign currency transaction losses recognized during the period.

Income tax expense

Our income tax expense during all periods presented is primarily due to statutory tax liabilities resulting from our state and foreign operations.

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Segment Results

Segment performance assessment is based on revenue and operating income (loss) exclusive of certain unallocated costs, including corporate general and administrative expenses, litigation expense, other indirect costs, and certain other costs, which are not allocated to our segments for performance assessment by our chief operating decision maker. Unallocated operating expenses excluded from our segments for performance assessment represent expenses that do not reflect, according to criteria established by us, operating expenses associated with our reportable segment activities. No allocation of resources is done by our chief operating decision maker in consideration of discrete segment assets and we do not discretely allocate assets to our operating segments. Intersegment revenues and transfers are immaterial. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

The following table sets forth our revenues and operating income (loss) from our Molecular Diagnostics and Genetic Analysis segments:

	Three Months Ended										Six Months Ended
	June 30,						Change				June 30,						Change
(dollars in thousands)	2013			2012			$			%	2013			2012			$			%
Revenues:
Molecular diagnostics	$	24,526		$	8,110		$	16,416		202%	$	53,609		$	12,890		$	40,719		316%
Genetic analysis product sales and services	10,325			10,142			183			2%	19,740			20,282			(542		)	(3)%
Total	$	34,851		$	18,252		$	16,599		91%	$	73,349		$	33,172		$	40,177		121%
Operating income (loss):
Molecular diagnostics	$	(17,306	)	$	(18,311	)	$	1,005		(5)%	$	(31,010	)	$	(34,685	)	$	3,675		(11)%
Genetic analysis product sales and services	1,032			(42		)	1,074			--	1,082			752			330			44%
Unallocated	(12,414		)	(10,829		)	(1,585		)	15%	(25,774		)	(19,494		)	(6,280		)	32%
Total	$	(28,688	)	$	(29,182	)	$	494		(2)%	$	(55,702	)	$	(53,427	)	$	(2,275	)	4%

Molecular Diagnostics

Sequenom CMM introduced new LDTs during 2011 and significantly expanded its commercial sales force to drive adoption of its LDTs. Sequenom CMM is continuing its efforts to obtain reimbursement for all of its tests, however many payors initially denied coverage for the MaterniT21 PLUS test as they had considered the test investigational and experimental. With the publication of the ACOG and SMFM joint committee opinion on noninvasive prenatal testing for fetal aneuploidy in late 2012, the test is no longer considered investigational and experimental. We recognize Molecular Diagnostics revenues primarily on a cash basis; however we record costs to perform the tests as those costs are incurred. Laboratory operating costs have increased as the number of tests processed continues to increase.

Operating losses for Molecular Diagnostics during the three months endedJune 30, 2013 decreased $1.0 million when compared to the three months endedJune 30, 2012 due primarily to improved gross margin of $5.2 million, lower clinical research expenses of $1.2 million due to timing of research projects and the decrease in discretionary compensation expense of $0.9 million. These decreases in operating loss were partially offset by $2.7 million in higher costs incurred for the expansion of our Molecular Diagnostics sales force, $2.3 million in higher labor, supplies and facility-related costs incurred for the expansion of Sequenom CMM's laboratory facilities, and $1.1 million in higher billing costs due to our transition to an in-house billing system.

Operating losses for Molecular Diagnostics during the six months endedJune 30, 2013 decreased $3.7 million when compared to the six months endedJune 30, 2012 due primarily to the improved gross margin of $15.3 million, lower clinical research expenses of $1.4 million due to timing of research projects and the decrease in discretionary compensation expense of $0.8 million. These decreases in operating loss were partially offset by $4.8 million in higher costs incurred for the expansion of our Molecular Diagnostics sales force, $4.7 million in higher labor, supplies and facility-related costs incurred for the expansion of Sequenom CMM's laboratory facilities, $1.4 million in higher labor and related costs as we increased headcount to support our Molecular Diagnostics operations and $2.8 million in higher billing costs due to our transition to an in-house billing system.

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Genetic Analysis

Operating income for Genetic Analysis during the three months endedJune 30, 2013 increased $1.1 million as compared to the three months endedJune 30, 2012 due primarily to lower clinical sample, supplies and other research-related expenses during 2013 of $0.6 million and the decrease in discretionary compensation expense of $0.5 million.

Operating income for Genetic Analysis during the six months endedJune 30, 2013 increased $0.3 million as compared to the six months endedJune 30, 2012 due primarily to $0.8 million in lower clinical sample, supplies and other research-related expenses during 2013 and the decrease in discretionary compensation expense of $0.5 million. These improvements were partially offset by lower gross margin of $0.6 million and $0.4 million related to increased marketing personnel and consulting costs.

Unallocated

Unallocated costs were higher by $1.6 million during the three months endedJune 30, 2013 when compared to the three months endedJune 30, 2012, due primarily to additional legal expenses of $2.0 million and additional labor costs of $0.6 million due to increased headcount to support operations. This increase was partially offset by the decrease in discretionary compensation expense of $1.0 million during the 2013 period.

Unallocated costs were higher by $6.3 million during the six months endedJune 30, 2013 when compared to the six months endedJune 30, 2012, due primarily to additional legal expenses of $5.0 million and additional labor costs of $2.2 million due to increased headcount to support operations. This increase was partially offset by the decrease in discretionary compensation expense of $0.8 million during the 2013 period.

Liquidity and Capital Resources

We have a history of recurring losses from operations and had an accumulated deficit of $967.3 million as of June 30, 2013. Our capital requirements to sustain operations, including commercialization of Sequenom CMM's LDTs, research and development projects, and litigation have been and will continue to be significant. As of June 30, 2013 and December 31, 2012, we had working capital of $88.3 million and $146.2 million, respectively.

We consider the material drivers of our cash flow to be testing volumes and collections of billed tests for our diagnostic testing services, sales volumes of our genetic analysis products and services, working capital, inventory management, and operating expenses. Our principal sources of liquidity are our cash, cash equivalents, and marketable securities, collections for our commercialized tests and product sales and services, and $10.0 million available at June 30, 2013 under our revolving line of credit facility. We have also financed our operating and capital requirements during the last three years with proceeds from the issuance of our Convertible Senior Notes and the public offering of our common stock during 2012, and the public and private offerings of our common stock during 2010.

We have expanded the operations of Sequenom CMM following commercialization of the MaterniT21 PLUS test, including research and development activities related to improvements to current tests and expansion of Sequenom CMM's diagnostic testing menu. Sequenom CMM may further expand its marketing and sales capabilities in order to increase demand for the MaterniT21 PLUS test and other tests, to expand geographically, and to successfully commercialize any other LDTs it may develop, however in the near term we are focused on improving cash collections and productivity.

As of June 30, 2013, cash, cash equivalents, and current marketable securities totaled $106.9 million, compared to $175.9 million at December 31, 2012. The $69.0 million decrease is due primarily to our cash used in operating activities, purchases of equipment and leasehold improvements, and repayment on our term loan of $56.3 million, $9.1 million and $3.7 million, respectively. Our cash equivalents and marketable securities are held in a variety of securities that include U.S. government treasuries, certificates of deposits, and money market funds that have ratings of AA, or are fully guaranteed by the U.S. government, and mutual funds.

At our current and anticipated level of operating loss, we expect to continue to incur net operating cash outflows until reimbursement for our tests is established with the majority of third-party payors. We expect that our June 30, 2013 balances of cash and marketable equity securities are sufficient to provide for our operating needs through at least the end of 2013.

Operating Activities

Cash used in operations during the six months endedJune 30, 2013, was $56.3 million, compared to $42.9 million for the six months endedJune 30, 2012. Our use of cash was primarily a result of the net loss of $60.4 million during the six months endedJune 30, 2013 compared to $54.0 million for six months endedJune 30, 2012. Changes in operating assets and liabilities during the six months endedJune 30, 2013 used net cash of $9.7 million, which includes increased inventories of $10.1 million, higher accounts receivable balances of $2.3 million, and lower accrued liabilities balances of $3.3 million, partially offset by higher accounts payable balances of $5.8 million. We expect to decrease inventories over the next quarter.

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Investing Activities

Net cash used by investing activities of $10.7 million during the six months endedJune 30, 2013, primarily reflects purchases of marketable securities net of maturities of $1.3 million and purchases of capital equipment and leasehold improvements of $9.1 million.

Financing Activities

Net cash used by financing activities during the six months endedJune 30, 2013 was $3.3 million, compared to net proceeds of $63.7 million during the six months endedJune 30, 2012. Financing activities during the six months endedJune 30, 2013 include payments on debt obligations of $3.7 million partially offset by $0.4 million in cash proceeds from the exercise of stock options and employee contributions under our employee stock purchase plan.

Off-Balance Sheet Arrangements

We have no significant contractual obligations not fully recorded on our consolidated balance sheets or fully disclosed in the notes to our consolidated financial statements.

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Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect amounts reported in the accompanying consolidated financial statements and related notes. In preparing our financial statements, we make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management considers relevant. Because future events and their effects cannot be determined with certainty, actual results could differ materially from our assumptions and estimates. Our senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of our Board of Directors.

We believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements:

• revenue recognition;

• accounts receivable;

• reserves for obsolete and slow-moving inventory;

• research and development expenses;

• stock-based compensation; and

• our North Carolina lease.

In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles, or GAAP, and does not require management's judgment in its application. There are also areas in which management's judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of our Board of Directors.

During the second quarter of 2013, there were no significant changes in our critical accounting policies and estimates. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2012 for a more complete discussion of our critical accounting policies and estimates.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in its Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, has concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2013 to provide reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (b) such information is accumulated and communicated to our management, including our CEO and CFO, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

During the quarter ended June 30, 2013, our subsidiary, Sequenom CMM, moved its billing function in-house, using an internal billing team and a hosted software solution to bill and collect for tests completed following the conversion date. This change affected our internal controls over revenues, accounts receivable and cash. Except for this change, there were no changes in our internal control over financial reporting during the quarter ended June 30, 2013 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and our Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II - OTHER INFORMATION

Item 1.    Legal Proceedings

Patent Litigation

In December 2011, we were named as a defendant in a complaint filed by plaintiff Aria Diagnostics, Inc., or Aria, in the United States District Court for the Northern District of California, case no. 3:11-cv-06391-SI. Since the complaint was filed, Aria changed its name to Ariosa Diagnostics, Inc. In the complaint, the plaintiff seeks a judicial declaration that no activities related to the plaintiff's noninvasive, prenatal test using cell-free DNA circulating in the blood of a pregnant woman do or will infringe any claim of U.S Patent No. 6,258,540 entitled Noninvasive Prenatal Diagnosis, or the '540 Patent, which we have exclusively in-licensed from Isis Innovation Limited, or Isis. In March 2012, we filed an answer to the complaint and asserted counterclaims that Aria is infringing the '540 Patent and seeking unspecified damages and injunctive relief. Our counterclaims name our licensor Isis as a nominal counter-defendant for purposes of subject matter jurisdiction only and we seek to realign Isis as a co-counter plaintiff in the matter. In March 2012, Aria responded to our answer and counterclaims and asserted affirmative defenses including invalidity of the '540 Patent under United States patent laws. In March 2012 we filed a motion against Aria for preliminary injunctive relief. On July 5, 2012, the Court denied our motion for preliminary injunctive relief and on July 16, 2012 we filed a Notice of Appeal to the United States Court of Appeals for the Federal Circuit from the order

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denying the preliminary injunction motion. Appellate briefs have been filed, oral argument took place on January 9, 2013, and the appeal is pending. We intend to vigorously defend against the judicial declaration sought by Aria in its complaint and intend to vigorously pursue our claims against Aria for damages and injunctive relief.

In January 2012, we were named as a defendant in a complaint filed by plaintiff Natera, a Delaware corporation, in the United States District Court for the Northern District of California, case no. 3:12-cv-00132-SI. In the complaint, the plaintiff seeks a judicial declaration that (i) activities related to the plaintiff's noninvasive, prenatal paternity test do not directly or indirectly infringe any claim of the '540 Patent, which we have exclusively in-licensed from Isis, and (ii) one or more claims of the '540 Patent are invalid for failure to comply with the requirements of the patent laws of the United States. In April 2012, we filed an answer to the complaint and asserted counterclaims that Natera and DNA Diagnostics Center, Inc., or DDC, are infringing the '540 Patent based on their activities relating to noninvasive prenatal paternity testing and noninvasive prenatal aneuploidy testing and seeking unspecified damages and injunctive relief. Our counterclaims name our licensor Isis as a nominal counter-defendant for purposes of subject matter jurisdiction only and we seek to realign Isis as a co-counter plaintiff in the matter. We intend to vigorously defend against the judicial declarations sought by Natera in its complaint and intend to vigorously pursue our claims against Natera for damages and injunctive relief.

In February 2012, we and Sequenom CMM were named as defendants in a complaint filed by plaintiffs Verinata Health, Inc., or Verinata, and The Board of Trustees of the Leland Stanford Junior University, or Stanford, in the United States District Court for the Northern District of California, case no. 3:12-cv-00865-SI. In the complaint (i) Verinata seeks a judicial declaration that activities related to its noninvasive prenatal test using cell-free DNA circulating in the blood of a pregnant woman do not directly or indirectly infringe any claim of the '540 Patent, which we have exclusively in-licensed from Isis, (ii) Verinata seeks a judicial declaration that each claim of the '540 Patent is invalid for failure to comply with the requirements of the patent laws of the United States, and (iii) Verinata and Stanford allege that we and Sequenom CMM, by performing its noninvasive prenatal MaterniT21 PLUS test, have and continue to directly infringe U.S. Patent No. 8,008,018 entitled Determination of Fetal Aneuploidies by Massively Parallel DNA Sequencing and U.S. Patent No. 7,888,017 entitled Noninvasive Fetal Genetic Screening by Digital Analysis, each of which have been exclusively licensed to Verinata by Stanford and seek unspecified damages. In March 2012, we filed an answer to the complaint and asserted counterclaims that Verinata is infringing the '540 Patent and seeking unspecified damages and injunctive relief. Our counterclaims name our licensor Isis as a nominal counter-defendant for purposes of subject matter jurisdiction only and we seek to realign Isis as a co-counter plaintiff in the matter. In June 2012, plaintiffs Verinata and Stanford amended their complaint and allege that we and Sequenom CMM, by performing its noninvasive prenatal MaterniT21 PLUS test, have and continue to directly infringe U.S. Patent No. 8,195,415 entitled Noninvasive Diagnosis of Fetal Aneuploidy by Sequencing, which has been exclusively licensed to Verinata by Stanford and seek unspecified damages. In July 2012, we filed an answer to the complaint. On March 12, 2013 the United States Patent and Trademark Office, or USPTO, declared a patent interference (Patent Interference No. 105,920 (DK)) between Verinata's '018 Patent, which Verinata has asserted against us in the litigation, and our in-licensed pending patent application no. 13/070,275 (publication no. US2011/0318734) entitled “Diagnosing Fetal Chromosomal Aneuploidy Using Massively Parallel Genomic Sequencing”). On May 3, 2013, the USPTO declared a patent interference (Patent Interference No. 105,922 (DK)) between Verinata's '415 Patent, which Verinata has asserted against us in the litigation, and our in-licensed pending patent application no. 13/070,266 (publication no. US2012/0003637 entitled “Diagnosing Fetal Chromosomal Aneuploidy Using Massively Parallel Genomic Sequencing”). We intend to vigorously defend against the judicial declarations sought and allegations of infringement set forth by plaintiffs in their complaint and intend to vigorously pursue our claims against Verinata for damages and injunctive relief. Verinata was acquired by Illumina, Inc. in the first quarter of 2013.

Former Employee Litigation

In August 2010, Paul Hawran, our former chief financial officer, sued the three directors who comprised the special committee that during 2009 conducted the investigation of activity related to a prior trisomy 21 test under development at that time, alleging that they had defamed him, invaded his privacy, negligently and intentionally interfered with his prospective economic advantage, and committed unfair business practices under California Business and Professions Code Section 17200, and seeking unspecified damages. Mr. Hawran alleged in his complaint that he was asked to resign because he had raised concerns about the conduct of certain of our directors. The lawsuit, Hawran v. Hixson et al, case no. 37-2010-00058632-CU-DF-NC, was filed in the Superior Court of California for the North County of San Diego. In September 2010, we were served with an amended complaint in this lawsuit, in which Mr. Hawran named us as a defendant in addition to the three individuals previously named and added claims of breach of contract and intentional and negligent misrepresentation. In October 2010, the defendants filed a motion to strike the complaint under California Code of Civil Procedure Section 425.16 on the grounds that Mr. Hawran's claims arise from acts in furtherance of the defendants' right of petition or free speech under the United States or California Constitution in connection with a public issue and filed a demurrer to each and every cause of action in the complaint. On January 3, 2011, the Superior Court issued a minute order dismissing some, but not all, of the claims alleged in the amended complaint. The defendants filed a notice of appeal regarding the minute order on January 11, 2011 and Mr. Hawran filed a cross-appeal regarding the same on January 31, 2011. On September 13, 2012, the California Court of Appeal (Fourth Appellate Division) affirmed the Superior Court's order. On October 23, 2012, the individual defendants and

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we filed a Petition for Review with the Supreme Court of California and on December 19, 2012, the Petition for Review was denied. On January 7, 2013, we and the individual defendants filed an answer to the complaint. The individual defendants and we intend to vigorously defend ourselves against the claims advanced. On January 7, 2013, we filed a cross-complaint against Mr. Hawran for breach of fiduciary duty and a demand for unspecified damages. Mr. Hawran subsequently made a demand to us for indemnity under contact and by law for legal fees and expenses in connection with his defense of the cross-complaint. On April 12, 2013, our Board of Directors denied on a preliminary basis Mr. Hawran's demand for indemnity. On May 14, 2013 Mr. Hawran filed a complaint in the Delaware Court of Chancery seeking a determination of his right to indemnity and advancement as to expenses for defense of the cross-complaint. On May 17, 2013 we filed a request for dismissal without prejudice of the cross-complaint and dismissal of the cross-complaint was entered by the court on June 4, 2013.

In addition, from time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business, including claims related to our products, tests, and services, including our laboratory developed test services. These other matters are, in the opinion of management, immaterial with respect to our consolidated financial position, liquidity, or results of operations.

Claim estimates that are probable and can be reasonably estimated are reflected as liabilities of the Company. Because of the uncertainties related to our pending litigation, investigations, inquiries or claims, management is currently unable to predict the ultimate outcome of any litigation, investigation, inquiry or claim, determine whether a liability has been incurred, or make an estimate regarding the possible loss or range of loss that could result from an unfavorable outcome. It is reasonably possible that some of the matters, which are pending or may be asserted, could be decided unfavorably to the Company. An adverse ruling or outcome in any lawsuit involving us could materially affect our business, liquidity, consolidated financial position or results of operations ability to sell one or more of our products or could result in additional competition. In view of the unpredictable nature of such matters, we cannot provide any assurances regarding the outcome of any litigation, investigation, inquiry or claim to which we are a party or the impact on us of an adverse ruling of such matters.

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Item 1A. Risk Factors

Before deciding to invest in our company or deciding to maintain or increase your investment, you should carefully consider the risks described below, in addition to the other information contained in this report and in our other filings with the SEC. The risks and uncertainties described below and in our other filings are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs, our business, financial condition and results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose your investment. The risk factors in this report have been revised to incorporate changes to our risk factors from those included in our annual report on Form 10-K for the year ended December 31, 2012. The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing changes, including any material changes, from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC.

*We may not be able to generate significant revenues from any of the tests we have commercialized including Sequenom CMM's MaterniT21 PLUS tests or tests that we may develop in the future.

Our business is substantially dependent on our ability to develop and launch and obtain reimbursement for our diagnostic tests and Sequenom CMM LDTs, including the MaterniT21 PLUS test. Sequenom CMM has committed significant research and development resources for the development and validation of LDTs and we have likewise invested significant research and development resources for its life sciences research genetic analysis products and services and potential future diagnostic products. There is no guarantee that Sequenom CMM will successfully generate significant revenues from any of its testing services, including its MaterniT21 PLUS test, or any other testing services that it plans to launch in the future. Sequenom CMM has launched testing services for cystic fibrosis carrier screening, noninvasive prenatal Rhesus D genotyping and assessment of the genetic risk of a patient with “dry” or early stage age-related macular degeneration, or AMD, progressing to “wet” or advanced choroidal neovascular disease within 2, 5, and 10 years. In October 2011, Sequenom CMM launched a testing service for the noninvasive prenatal detection of fetal aneuploidy, now branded as the MaterniT21 PLUS test. We and Sequenom CMM have limited experience in licensing, manufacturing, selling, marketing, distributing and collecting for tests. If we and Sequenom CMM, or our partners, are not able to successfully market or sell noninvasive prenatal diagnostic tests or other tests we may develop for any reason, including the failure to obtain significant reimbursement from payors, or failure to obtain or maintain any required regulatory approvals, we will not generate revenues or will not generate significant revenues from the sale of such tests or Sequenom CMM's testing services. A number of factors could impact our and Sequenom CMM's ability to sell noninvasive prenatal diagnostic or other tests we have developed or may develop in the future or generate significant revenues from the sale of such tests or testing services, including the following:

• the availability of alternative and competing tests or products and technological innovations or other advances in medicine that cause our technologies to be less competitive;

• pricing pressures, lower prices offered by competitors, or changes in third-party payor, government payor or private insurer reimbursement policies including potential delays or refusals to pay and uncertainty related to recent changes in billing codes (CPT codes);

• our ability to establish and maintain sufficient intellectual property rights in our products;

• our freedom to operate and intellectual property rights held by others, including United States Patent No. 7,888,017 titled “Noninvasive Fetal Genetic Screening by Digital Analysis” and No. 8,8008,018 titled “Determination of Fetal Aneuploidies By Massive Parallel DNA Sequencing” and No. 8,195,415 titled “Noninvasive Diagnosis of Fetal Aneuploidy by Sequencing” assigned to Stanford and licensed to Verinata;

• parties infringing our intellectual property rights or operating outside our intellectual property rights;

• the ability to implement and maintain controls and risk management measures as appropriate;

• reliance on Sequenom CMM, which is subject to routine governmental oversight and inspections for continued operation pursuant to the Clinical Laboratory Improvement Amendments, or CLIA, to process tests ordered by physicians;

• Sequenom CMM's ability to establish and maintain adequate infrastructure to support the continued commercialization of the MaterniT21 PLUS test and its testing services, including establishing adequate laboratory space, information technology infrastructure, sample collection and tracking systems including the laboratory information management system, or LIMS, electronic ordering and reporting systems and other infrastructure and hiring adequate laboratory and other personnel;

• compliance with federal, state and foreign regulations governing laboratory testing on human specimens;

• the sale and marketing of research use only or other tests, including noninvasive prenatal tests;

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• the accuracy rates of such tests, including rates of false negatives and/or false positives;

• concerns regarding the safety and effectiveness or clinical validity of noninvasive prenatal or other tests;

• changes in the regulatory environment affecting health care and health care providers, including changes in laws regulating laboratory testing and/or device manufacturers and any laws regulating prenatal testing;

• the extent and success of Sequenom CMM's sales and marketing efforts and ability to drive adoption of its testing services, including the MaterniT21 PLUS test;

• the extent to which payors and health care providers may limit or deny the addition of new laboratory developed test service providers to their programs;

• general changes or developments in the market for women's and/or prenatal health diagnostics, or diagnostics in general;

• ethical and legal issues concerning the appropriate use of the information resulting from noninvasive prenatal diagnostic tests or other tests;

• the refusal by women to undergo such tests for moral, religious or other reasons, or based on perceptions about the safety or reliability of such tests;

• our ability to provide effective customer support; and

• our ability to license and protect our SEQureDx patented technology and our other technologies.

Claims by other companies that we infringe their intellectual property rights could adversely affect our business.

From time to time, companies (for example, Verinata), have asserted, and may again assert, patent, copyright and other intellectual proprietary rights against our products or products using our technologies. These claims have resulted and may in the future result in lawsuits being brought against us. We may not prevail in any lawsuits alleging patent infringement given the complex technical issues and inherent uncertainties in intellectual property litigation. If any of our products, technologies or activities, in particular our research use only iPLEX products and MassARRAY system, and Sequenom CMM's LDTs (including the MaterniT21 PLUS test) from which we derive and expect to continue to derive a substantial portion of our revenues, were found to infringe on another company's intellectual property rights, we could be subject to an injunction that would force the removal of such product from the market or we could be required to redesign such product, which could be costly. We could also be ordered to pay damages or other compensation, including punitive damages and attorneys' fees to such other company. A negative outcome in any such litigation could also severely disrupt the sales of our marketed products to our customers or their customers, which in turn could harm our relationships with our customers, our market share and our product revenues. Even if we are ultimately successful in defending any intellectual property litigation, such litigation is expensive and time consuming to address, will divert our management's attention from our business and may harm our reputation.

Our ability to compete in the market may decline if we lose some of our intellectual property rights, if patent rights that we rely on are invalidated, or if we are unable to obtain other intellectual property rights.

Our success will depend on our ability to obtain, protect, and maintain the validity of patents on our technology, to protect our trade secrets, and to maintain our rights to licensed intellectual property or technologies. Such patent rights include United States Patent No. 6,258,540 and foreign equivalents, which we have licensed from Isis for noninvasive prenatal diagnostics and noninvasive prenatal gender determination testing for social and lifestyle purposes, and also include United States Patent Application Nos. 12/178,181, 13/417,119, 13/070,266, and 13/070,275 (published, respectively, as U.S. Publication Nos. US2009/0029377, US2012/0208708, US 2012/0003637, and US2011/0318734), each titled “Diagnosing Fetal Chromosomal Aneuploidy Using Massively Parallel Genomic Sequencing,” and their foreign equivalents, and pending United States patent application no. 12/614,350 (publication no. US2010/0112590) entitled “Diagnosing Fetal Chromosomal Aneuploidy Using Genomic Sequencing With Enrichment” and its foreign equivalents, which we have exclusively in-licensed from the Chinese University of Hong Kong, or CUHK, and which include allowed claims covering noninvasive prenatal diagnostics for aneuploidy testing using massively parallel sequencing.

Our patent applications or those of our licensors may not result in the issuance of patents in the United States or other countries. Our patents or those of our licensors may not afford meaningful protection for our technology and products. Others may challenge our patents or those of our licensors by proceedings such as interference, oppositions, inter partes review, and reexaminations or in litigation seeking to establish the invalidity of our patents. On March 12, 2013 the USPTO declared a patent interference (Patent Interference No. 105,920 (DK)) between our in-licensed pending application no. 13/070,275 (publication no. US2011/0318734) and U.S. patent no. 8,008,018, licensed to Verinata. On May 3, 2013, the USPTO declared a second patent interference (Patent Interference No. 105,922 (DK)) between our in-licensed pending patent application no. 13/070,266 (publication no. US2012/0003637 entitled “Diagnosing Fetal Chromosomal Aneuploidy Using Massively Parallel Genomic Sequencing”) and U.S. patent no. 8,195,415, licensed to Verinata. On May 3, 2013, the USPTO declared a third

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patent interference (Patent Interference No. 105,923 (DK)) between our in-licensed pending patent application no. 12/178,181 (publication no. US2009/0029377 entitled “Diagnosing Fetal Chromosomal Aneuploidy Using Massively Parallel Genomic Sequencing”) and pending patent application no. 12/393,833, titled “Non-invasive Fetal Screening By Digital Analysis” licensed to Verinata. On May 3, 2013, the USPTO declared a fourth patent interference (Patent Interference No. 105,924 (DK)) between our in-licensed pending patent application no. 13/417,119 (publication no. US2012/0208708 entitled “Diagnosing Fetal Chromosomal Aneuploidy Using Massively Parallel Genomic Sequencing”) and pending patent application no. 12/393,833, titled “Non-invasive Fetal Screening By Digital Analysis” licensed to Verinata. The USPTO may declare additional patent interferences including other pending patent applications or patents owned or controlled by us and Verinata. We cannot assure that we will prevail in the current or any future interference proceedings involving our patent rights. In the event that one or more of our patents are challenged, the USPTO or a court may invalidate the patent(s) or determine that the patent(s) is not enforceable, which could harm our competitive position. If one or more of our patents are invalidated or found to be unenforceable, or if the scope of the claims in any of these patents is limited by the USPTO or a court decision, we could lose certain market exclusivity afforded by patents owned or in-licensed by us and potential competitors could more easily bring products to the market that directly compete with our own, including Sequenom CMM's MaterniT21 PLUS test. Such adverse decisions may negatively impact our revenues. For example, we were named as a defendant in separate complaints filed by Aria Diagnostics, Inc. (now Ariosa Diagnostics, Inc., or Ariosa), Natera, and Verinata, pursuant to which a judicial declaration has been sought that certain of the plaintiffs' activities do not infringe any claim of United States Patent No. 6,258,540. These parties have also sought a judicial declaration that one or more claims of the United States Patent No. 6,258,540 are invalid for failure to comply with the requirements of the patent laws of the United States. In addition, Ariosa has sought to invalidate United States Patent No. 6,258,540 through a petition for inter partes review (Case IPR2012-00022 (MPT)) under 35 U.S.C. section 312 and 37 C.F.R. section 42.108, before The Patent Trial and Appeal Board (PTAB) of the USPTO. On March 19, 2013 the PTAB ordered the commencement of inter partes review. On April 19, 2013 Ariosa submitted a second petition for inter partes review seeking to invalidate additional claims of the 6,258,540 patent. As a result, our patents or those of our licensors, including United States Patent No. 6,258,540, could be narrowed or invalidated or become unenforceable or lose priority to other patents, which could adversely affect our ability to successfully commercialize any of our diagnostic products that are dependent upon such patents.

While we believe our exclusive license to United States Patent No. 6,258,540 provides us substantial rights with respect to prenatal diagnostic products independent of platform, and we are also the licensee of patent applications, including the patent applications mentioned above in-licensed from CUHK, that contain allowed claims regarding the use of sequencing in prenatal diagnostics, we are also aware of other patents and patent applications that are owned or licensed by Verinata that contain the same and/or similar claims and the USPTO has declared four separate patent interference proceedings, as mentioned above with respect to certain patent rights that we in-license from CUHK and patent rights claimed by Verinata related to the use of sequencing in prenatal diagnostics. Interference proceedings are expensive, a lengthy process, and there can be no assurance that we would prevail in such a proceeding. If we do not prevail in any such proceeding, the prevailing party may obtain superior rights to our claimed inventions and technology, which could adversely affect our ability to successfully market and commercialize the MaterniT21 PLUS test.

Also, in the Verinata complaint, Verinata and co-plaintiff Stanford have alleged our infringement of United States Patent Nos. 7,888,017 titled “Noninvasive Fetal Genetic Screening by Digital Analysis” and 8,008,018 titled “Determination of Fetal Aneuploidies by Massively Parallel DNA Sequencing” and 8,195,415 titled “Noninvasive Diagnosis of Fetal Aneuploidy by Sequencing” that include patent claims purportedly covering methods for the noninvasive detection of fetal aneuploidy. Challenging the validity of these patents and defending against claims of infringement of these patents, or if we are forced to defend against any other asserted intellectual property right, is costly and diverts management's attention and resources. As a result of this lawsuit, we may have to develop costly alternative technology or enter into licensing agreements. These agreements, if necessary, may be unavailable on terms acceptable to us, which could seriously harm our business and financial condition.

Additionally, on September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The Leahy-Smith Act and its implementation have increased the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

Competitors may develop products similar to ours that do not conflict with our patents or patent rights. Others may develop products, technologies or methods, including noninvasive prenatal tests or other diagnostic tests in violation of our patents or those of our licensors, or by operating around our patents or license agreements, which could reduce sales of our consumables or reduce or remove our noninvasive prenatal and other diagnostic commercialization opportunities. To protect or enforce our patent rights, we have initiated interference and inter partes review proceedings, and we may initiate oppositions, reexaminations, or litigation against others. However, these activities are expensive, take significant time and divert

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management's attention from other business concerns. We may not prevail in these activities. If we are not successful in these activities, the prevailing party may obtain superior rights to our claimed inventions and technology, which could adversely affect our ability to successfully market and commercialize any of our diagnostic products that are dependent upon such technologies, including the MaterniT21 PLUS test. The patent position of biotechnology companies generally is highly uncertain and involves complex legal and factual questions that are often the subject of litigation. No consistent policy has emerged from the USPTO, the offices of foreign countries or the courts regarding the breadth of claims allowed or the degree of protection afforded under biotechnology patents. There is a substantial backlog of biotechnology patent applications at the USPTO and of the equivalent offices around the world and the approval or rejection of patent applications may take several years.

If we breach any of the terms of our license or supply agreements, or these agreements are otherwise terminated or modified, the termination or modification of such agreements could result in our loss of access to critical components and could delay or suspend our commercialization efforts, and we may compete with our suppliers which may adversely affect our business.

We have sourced or licensed components of our technology from other parties. Our failure to maintain continued supply of such components, particularly in the case of sole suppliers, or the right to use these components would seriously harm our business, financial condition, and results of operations. In the event of any adverse developments with these vendors, our product supply may be interrupted, which would have an adverse impact on our business. Changes to or termination of our agreements or inability to renew our agreements with these parties or enter into new agreements with other suppliers could result in the loss of access to these aspects of our technology or other intellectual property rights or technologies that we may acquire from time to time and could impair, delay, or suspend our commercialization efforts, including efforts to market and commercialize the MaterniT21 PLUS test. While we negotiate for agreement periods or notice of termination periods that provide us reasonable periods of time to secure alternative supplies, and require that such agreements may not be terminated without advance notice arbitrarily or without good reason, such as uncured breach or insolvency, these negotiations are often unsuccessful or such provisions may not provide us with adequate time to secure alternative supplies, provide us with access to alternative technologies on commercially acceptable terms, or otherwise provide us with adequate protection.

For example, Illumina, Inc., or Illumina, is the sole supplier of sequencers and certain consumables for Sequenom CMM's MaterniT21 PLUS test. The supply of sequencers and consumables to Sequenom CMM is provided under our supply agreement (and amendments thereto) with Illumina which expires in July 2016. In early 2013, Illumina completed its acquisition of Verinata, a provider of noninvasive tests for the identification of fetal chromosomal abnormalities, a party adverse to us in patent litigation, and a direct competitor of Sequenom CMM and its MaterniT21 PLUS test. We understand Illumina supplies the same or similar sequencers and consumables to Verinata. In view of Illumina's acquisition, we face risk and uncertainty regarding continuity of a successful working relationship with Illumina under the current supply agreement, we face risk and uncertainty regarding the impact of the acquisition on Sequenom CMM's ability to compete with Verinata in the marketplace based on test price and in view of economic advantages enjoyed by Verinata associated with cost of goods for their competing test, and we face risk and uncertainty regarding our ability to renew the supply agreement or to enter into a new supply agreement with Illumina, if at all, and on financial terms that are attractive or acceptable to us. Our failure to maintain continued supply of such sequencers and consumables would seriously harm our business, financial condition, and results of operations.

We and Sequenom CMM depend on third-party products and services and limited sources of supply to develop and manufacture our products.

We and Sequenom CMM rely on outside vendors to supply certain products and the components and materials used in our products and to provide us with certain services. Illumina is the sole supplier of sequencers and certain consumables for Sequenom CMM's MaterniT21 PLUS test and those products have lead times of several months. Among other risks, using a platform provided by another party presents potential manufacturing supply and reliability, quality compliance, and intellectual property infringement risks. For example, we have no control over the manufacture of the Illumina sequencers and consumables that Sequenom CMM is using for its MaterniT21 PLUS test, including whether such sequencers will meet their quality control requirements to ensure quality and reliability for the sequencers and consumables, and can give no assurance that they will be able to obtain a reliable supply of the sequencers and consumables that we need for their LDT. In the event that demand for our products declines or does not meet our forecasts, we could have excess inventory or increased expenses or our margins could decrease which could have an adverse impact on our financial condition and business.

Many other products, components and materials, including blood collection tubes for Sequenom CMM's MaterniT21 PLUS test and the MassARRAY mass spectrometry system that is currently used for Sequenom CMM's cystic fibrosis carrier screen and fetal Rhesus D genotyping LDTs, are obtained from a single supplier or a limited group of suppliers and some also have lead-times of several months. Our consumables also include components provided by sole suppliers. Sequenom CMM uses a single logistics/courier service for the majority of patient samples submitted for its cystic fibrosis carrier screening test.

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These suppliers may be subject to regulation by the FDA and would therefore need to comply with federal regulations related to the manufacture and distribution of regulated products. Because we cannot ensure the actual production or manufacture of such critical equipment and materials, or the ability of our suppliers to comply with applicable legal and regulatory requirements, we may be subject to significant delays caused by interruption in production or manufacturing.

In the event of any adverse developments with these suppliers or vendors, our product supply may be interrupted and obtaining substitute components could be difficult or require us to re-design our products and assays which would have an adverse impact on our business. In the past, we have experienced quality problems with and delays in receiving components used to produce our consumable chips and quality issues with our chips, and also had technical difficulties with our pin-tool nanoliter dispenser device. Our reliance on outside vendors generally, and a sole or a limited group of suppliers in particular, involves several risks, including:

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

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

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

• Sequenom CMM's inability to provide LDTs, including the MaterniT21 PLUS test, or to maintain or increase its capacity to do so.

Certain of Sequenom CMM's LDTs, including the MaterniT21 PLUS test, may not be eligible for reimbursement by payors or may become ineligible for reimbursement, , or reimbursement may be significantly delayed, due to changes in billing codes (CPT codes), or otherwise, which may limit the demand for these tests by physicians and their patients.

Certain of Sequenom CMM's LDTs, or future LDTs which it intends to launch as a testing service, may not be deemed medically necessary or may otherwise not be subject to reimbursement by payors, which could affect demand for such tests by physicians.

In the United States, the regulatory process allows diagnostic tests and LDTs to be marketed regardless of any coverage determinations made by payors. For new diagnostic tests and LDTs, each third-party payor makes its own decision about which tests it will cover, how much it will pay and whether it will continue reimbursing the test. Clinicians may order diagnostic tests that are not reimbursed by third-party payors if the patient is willing to pay for the test without reimbursement, but coverage determinations and reimbursement levels and conditions are critical to the commercial success of a diagnostic product.

CMS, a federal agency within the Department of Health and Human Services, establishes reimbursement payment levels and coverage rules for Medicare. State Medicaid plans and third-party payors establish rates and coverage rules independently. As a result, the coverage determination process is often a time-consuming and costly process that requires us to provide scientific and clinical validity for the use of our tests to each payor separately, with no assurance that approval will be obtained. If CMS or other third-party payors decide not to cover our diagnostic tests and LDTs, place significant restrictions on the use of our tests or LDTs, or offer inadequate payment amounts, our ability to generate revenues from our diagnostic tests or LDTs could be limited.

Even if one or more third-party payors decides to cover our tests or LDTs, that payor may reduce utilization or stop or lower reimbursement at any time, which could reduce our revenues. We are currently considered a “non-contracting provider” by most third-party payors because we have not entered into a specific contract to provide our specialized testing services to their insured patients at specified rates of reimbursement. Without such contracts, we may not be able to obtain reimbursement for our tests or LDTs at acceptable rates, which could also reduce our revenues.

Reimbursement for diagnostic tests furnished to Medicare beneficiaries generally is made based on a fee schedule set by CMS using a statutory formula. In recent years, payments under these fee schedules have decreased and may decrease more. In addition, Medicare fee schedules are impacted by the billing codes selected for reporting services, and changes to certain laboratory billing codes for diagnostic tests, are being considered, which may affect payment levels. We cannot predict whether or when third-party payors will cover our tests or offer adequate reimbursement to make them commercially attractive. Clinicians or patients may decide not to order our tests if third-party reimbursement is inadequate, especially if ordering the test could result in financial liability for the patient, and reduced or discontinued purchases of our products would cause our revenues to decline.

Under the statutory formula for Medicare clinical laboratory fee schedule amounts, increases are made annually based on the Consumer Price Index for All Urban Consumers, or CPI-U, as of June 30 for the previous 12-month period. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the PPACA) (discussed below), which, among other things, imposed additional cuts to the Medicare reimbursement for clinical laboratories. The PPACA replaced the 0.5% cut enacted by the Medicare Improvements for Patients and Providers Act of 2008, or MIPPA, with a “productivity adjustment” that will reduce the CPI-U

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update in payments for clinical laboratory tests. For 2012, the productivity adjustment was -1.2%. In addition, the PPACA includes a separate 1.75% reduction in the CPI-U update for clinical laboratories for the years 2011 through 2015. On February 22, 2012, President Obama signed the Middle Class Tax Relief and Job Creation Act of 2012, which mandated an additional change in reimbursement for clinical laboratory services payments. This legislation requires CMS to reduce the Medicare clinical laboratory fee schedule by 2% in 2013, which in turn will serve as a base for 2014 and subsequent years. Levels of reimbursement may continue to decrease in the future, and future legislation, regulation or reimbursement policies of third-party payors may harm the demand for and reimbursement available for our products, which in turn, could harm pricing and sales. The payment amounts under the Medicare clinical laboratory fee schedule are important not only for our reimbursement under Medicare, but also because the schedule often establishes the payment amounts set by other third-party payors. For example, state Medicaid programs are prohibited from paying more than the Medicare fee schedule limit for clinical laboratory services furnished to Medicaid recipients. As a result, in light of reductions in the clinical laboratory fee schedule, certain third-party payors may also reduce reimbursement amounts.

In the United States, the American Medical Association, or AMA, generally assigns specific billing codes for laboratory tests under a coding system known as Current Procedure Terminology, or CPT, codes, which are necessary for us and our customers to bill and receive reimbursement for our diagnostic tests. Once the CPT code is established, CMS in turn establishes payment levels and coverage rules under Medicare, and private payors establish rates and coverage rules independently. We cannot guarantee that any of our tests are or will be covered by the CPT codes that we believe may be applied to them or that any of our tests or other products will be approved for coverage or reimbursement by Medicare, Medicaid or any third-party payor. Our tests and the CPT codes we use may not qualify for Medicaid reimbursement in any or all of the 50 states.

In addition, payors have initiated efforts to develop a more specific set of billing codes for laboratory tests so that the particular laboratory test is more precisely identified. The 2013 physician fee schedule explains CMS' plans for new CPT codes applicable to molecular diagnostic tests. In 2011, the AMA adopted over 100 analyte-specific codes for molecular diagnostic testing, which will replace the prior, more general methodology codes, which were billed on a “stacked” basis, meaning that reimbursement amounts for all relevant codes were added together. CMS delayed implementing the new codes in 2012, but did implement them beginning January 1, 2013, although without a fee schedule for the particular codes relevant to Sequenom CMM's tests. These coding changes and lack of a CMS fee schedule could negatively affect our product pricing and the amount of and timing of carrier reimbursement.

Sequenom CMM's failure to establish enrollment in and obtain favorable payment policies from state Medicaid programs could result in a substantial portion of our services being unreimbursed and adversely affect our results of operations and financial condition.

Sequenom CMM has established enrollment in many Medicaid state programs. We are continuing our efforts to seek positive Medicaid payment policies in additional states. In those states where we are not enrolled in the Medicaid system, we do not receive reimbursement for our tests. If we are unable to receive reimbursement under state Medicaid programs, our opportunity for future revenues would be reduced, which would adversely affect our results of operations and financial condition.

Billing complexities associated with obtaining payment or reimbursement for our tests may negatively affect our revenues, cash flow and profitability. We may incur additional financial risk related to collections and reimbursement in connection with the commercialization of our molecular diagnostic tests.

Billing for clinical laboratory testing services is complex. Sequenom CMM generally bills third-party payors for its testing services and pursues case-by-case reimbursement where policies are not in place for a particular test. It has very limited experience in billing and pursuing reimbursement and payment for molecular diagnostic tests. As a result of this lack of experience and uncertainty with respect to reimbursement, Sequenom CMM may also face an increased risk in its collection efforts, including potential write-offs of doubtful accounts and long collection cycles for accounts receivable related to its testing service, which could adversely affect our business, results of operations and financial condition. In the first quarter of 2013, Sequenom CMM entered into an agreement to transition its billing procedures from external to internal by hiring a new software vendor to assist Sequenom CMM in performing billing internally and provided notice of termination of its relationship with an external billing vendor. Sequenom CMM began internal billing operations on May 1, 2013, and the external billing vendor is continuing efforts to collect for tests completed prior to that date. Sequenom CMM has very limited experience performing billing internally and working with this software vendor, and this may further increase risk in Sequenom CMM's collection efforts. Among the factors complicating our billing of third-party payors are:

• disputes among payors as to which party is responsible for payment;

• disparity in coverage among various payors;

• disparity in information and billing requirements among payors; and

• incorrect or missing billing information, which is required to be provided by the prescribing physician.

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These billing complexities, and the related uncertainty in obtaining payment for our tests, could negatively affect our revenues, cash flow and profitability.

Our failure to comply with governmental payor regulations could result in our being excluded from participation in Medicare, Medicaid or other governmental payor programs, which would decrease our revenues and adversely affect our results of operations and financial condition.

The Medicare program is administered by CMS, which, like the states that administer their respective state Medicaid programs, imposes extensive and detailed requirements on diagnostic services providers, including, but not limited to, rules that govern how we structure our relationships with physicians, how and when we submit reimbursement claims and how we provide our specialized diagnostic services. Our failure to comply with applicable Medicare, Medicaid and other governmental payor rules could result in our inability to participate in a governmental payor program, our returning funds already paid to us, civil monetary penalties, criminal penalties and/or limitations on the operational function of our laboratory. If we were unable to receive reimbursement under a governmental payor program, a substantial portion of our revenues would be lost, which would adversely affect our results of operations and financial condition.

The U.S. health care reform law could adversely affect our business, profitability and stock price and prevent the commercial success of the MaterniT21 PLUS test.

In March 2010, President Obama signed into law the PPACA which may have far-reaching consequences for most health care companies, including diagnostic companies like us. As a result of this new legislation, substantial changes could be made to the current system for paying for health care in the United States, including changes made in order to extend medical benefits to those who currently lack insurance coverage. On June 28, 2012, the United States Supreme Court upheld the constitutionality of PPACA, excepting certain provisions that would have required states to expand their Medicaid programs or risk losing all of the state's Medicaid funding. At this time, it remains unclear whether there will be any further changes made to PPACA, whether in part or in its entirety.

Although we cannot fully predict the many ways that health care reform might affect our business, the PPACA, as discussed above, includes two separate reductions in the reimbursement of clinical laboratory services under the clinical laboratory fee schedule. First, it includes a “productivity adjustment” (which was -1.2% for 2011 and 2012). Second, it includes an additional 1.75% reduction, the first of a series of such annual reductions effective from 2011 to 2015, which would reduce the annual Consumer Price Index-based update that would otherwise determine our reimbursement for clinical laboratory services. In addition, the Middle Class Tax Relief and Job Creation Act of 2012 requires CMS to reduce the Medicare clinical laboratory fee schedule by 2% in 2013, which in turn will serve as a base for 2014 and subsequent years. These reimbursement cuts could adversely affect our business.

The PPACA includes expansions of health care fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance. As discussed below, enforcement of any of these laws against our company could harm our business.

It is unclear whether and to what extent, if at all, other anticipated developments resulting from health care reform, such as an increase in the number of people with health insurance and an increased focus on preventive medicine, may provide us additional revenue. Extending coverage to a large population could substantially change the structure of the health insurance system and the methodology for reimbursing medical services, drugs and devices. These structural changes could entail modifications to the existing system of third-party payors and government programs, such as Medicare and Medicaid, the creation of additional government-sponsored health care insurance sources, or some combination of both, as well as other changes. Restructuring the coverage of medical care in the United States could impact the reimbursement for diagnostic tests and LDTs like ours, including Sequenom CMM's MaterniT21 PLUS test. If reimbursement for our diagnostic tests is substantially less than we or our clinical laboratory customers expect, or rebate obligations associated with them are substantially increased, our business could be materially and adversely impacted.

Any health care reform measures adopted by the U.S. government and other governments could cause significant pressure on the pricing of health care products and services, including the MaterniT21 PLUS test, in the United States and internationally, as well as the amount of reimbursement available from governmental agencies or other third-party payors. The continuing efforts of the U.S. and foreign governments, insurance companies, managed care organizations and other payors to contain or reduce health care costs may compromise Sequenom CMM's ability to set prices at commercially attractive levels for its LDTs, including the MaterniT21 PLUS test, and other diagnostic tests and LDTs that we or Sequenom CMM may develop. Changes in health care policy, such as the creation of broad limits for diagnostic products, could substantially diminish the sale of or inhibit the utilization of future diagnostic tests, increase costs, divert management's attention and adversely affect our ability to generate revenues and achieve profitability.

New laws, regulations and judicial decisions, or new interpretations of existing laws, regulations and decisions, relating to health care availability, methods of delivery or payment for diagnostic products and services, or sales, marketing or pricing,

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may also limit our potential revenues, and we may need to revise our research and development or commercialization programs. The pricing and reimbursement environment may change in the future and become more challenging for a number of reasons, including policies advanced by the U.S. government, new health care legislation or fiscal challenges faced by government health administration authorities. Specifically, in both the U.S. and some foreign jurisdictions, there have been a number of legislative and regulatory proposals and initiatives to change the health care system in ways that could affect our and Sequenom CMM's ability to sell our diagnostic tests and LDTs, including the MaterniT21 PLUS test, profitably. Some of these proposed and implemented reforms could result in reduced utilization or reimbursement rates for our diagnostic products.

 If our production and laboratory facilities are damaged, our business would be seriously harmed.

Our only manufacturing facility for research use only genetic analysis products is located in San Diego, California, where Sequenom CMM also has a laboratory. Sequenom CMM has laboratory facilities in San Diego, California, Grand Rapids, Michigan, and Raleigh-Durham, North Carolina. Damage to our facilities due to war, fire, natural disaster, earthquake, 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 cannot be certain that our limited insurance to protect against business interruption would be adequate or would continue to be available to us on commercially reasonable terms, or at all.

*Our wholly-owned subsidiary, Sequenom CMM, has limited experience operating a CLIA-certified laboratory and has limited capacity and infrastructure. Its ability to successfully develop and commercialize LDTs and to generate revenues will depend on its ability to successfully operate its CLIA-certified laboratory, establish and maintain necessary capacity, and maintain required regulatory licensures.

Sequenom CMM, our wholly-owned CLIA-certified laboratory, has developed, validated and commercialized four LDTs. Sequenom CMM launched its first LDT in 2009 and has limited experience operating a CLIA-certified laboratory. For future LDTs, if Sequenom CMM is unable to successfully develop and validate any new LDTs that it intends to commercialize it may not be able to successfully commercialize such tests on the anticipated timelines or at all. Although we have invested substantially in Sequenom CMM's infrastructure, it is possible that it may not have adequate infrastructure and capacity in place to meet demand for its currently launched testing services or for the demand of future LDTs that it develops. Sequenom CMM's ability to successfully develop and validate LDTs will depend on its ability to successfully operate and maintain required regulatory licensure and we cannot provide assurances that Sequenom CMM will have sufficient resources to continue its operations and maintain its licenses. Sequenom CMM currently performs its MaterniT21 PLUS test solely from its San Diego and North Carolina facilities. Sequenom CMM faces risk in relying upon two facilities to meet demand for, perform, and generate revenues from the MaterniT21 PLUS test. Reliance upon two facilities presents risk to Sequenom CMM's operations in the event that one or both facilities' capacity is exceeded, or one or both facilities experiences production problems or delays.

CLIA is designed to ensure the quality and reliability of clinical laboratories by mandating specific standards in the areas of personnel qualifications, administration and participation in proficiency testing, patient test management, quality control, quality assurance and inspections. The sanction for failure to comply with CLIA requirements may be suspension, revocation or limitation of a laboratory's CLIA certificate, which is necessary to conduct business, as well as significant fines and/or criminal penalties. Laboratories must undergo on-site surveys at least every two years, which may be conducted by the Federal CLIA program or by a private CMS approved accrediting agency such as the College of American Pathologists, or CAP, among others. Sequenom CMM is also subject to regulation of laboratory operations under state clinical laboratory laws as will be any new CLIA-certified laboratory that we establish or acquire. State clinical laboratory laws may require that laboratories and/or laboratory personnel meet certain qualifications, specify certain quality controls or require maintenance of certain records. Certain states, such as California, Florida, Maryland, New York, Pennsylvania and Rhode Island, require that laboratories obtain licenses to test specimens from patients residing in those states and additional states may require similar licenses in the future. If Sequenom CMM is unable to obtain and maintain licenses from states where required, it will not be able to process any samples from patients located in those states. Only Washington and New York States are exempt under CLIA, as these states have established laboratory quality standards at least as stringent as CLIA's. Potential sanctions for violation of these statutes and regulations include significant fines and the suspension or loss of various licenses, certificates and authorizations, which could adversely affect our business and results of operations.

If Sequenom CMM fails to maintain compliance with the CLIA requirements, CMS or state agencies could require Sequenom CMM to cease its testing services, including the MaterniT21 PLUS test. Even if it were possible for Sequenom CMM to bring its laboratory back into compliance after failure to comply with such requirements, Sequenom CMM could incur significant expenses and potentially lose revenues in doing so.

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Failure to establish, and perform to, appropriate quality standards to assure that the highest level of quality is observed in the performance of Sequenom CMM's testing services and in the design, manufacture and marketing of our products and Sequenom CMM's testing services could adversely affect the results of our operations and adversely impact our reputation.

The provision of clinical testing services, including the MaterniT21 PLUS test, and related services, and the design, manufacture and marketing of diagnostic products involve certain inherent risks. The services that we and Sequenom CMM provide and the products that we and Sequenom CMM design, manufacture and market are intended to provide information for health care providers in providing patient care. Therefore, users of such services and products may have a greater sensitivity to errors than the users of services or products that are intended for other purposes, such as research.

Manufacturing or design defects, incomplete process controls, unexpected failure modes, unanticipated use of our or Sequenom CMM's services or products, or inadequate disclosure of information (including associated risks or limitations) relating to the use of the services or products can lead to injury or other adverse events, including production disruptions, backorders, or incorrect clinical testing results. These events could lead to recalls or safety alerts relating to our or Sequenom CMM's services or products (either voluntary or required by governmental authorities) and could result, in certain cases, in the removal of services or products from the market. Any recall could result in significant costs as well as negative publicity that could reduce demand for our or Sequenom CMM's LDTs. Personal injuries relating to the use of our or Sequenom CMM's services or products can also result in product liability claims being brought against us.

We have limited experience and rely on technology provided by third parties for commercialization of our products.

Sequenom CMM's noninvasive prenatal and other molecular diagnostic LDTs are relatively new in the marketplace. Additionally, we continue to develop new products and create new applications for our products. We are also researching, developing and pursuing the commercialization of additional noninvasive molecular diagnostic tests for prenatal genetic disorders and other diseases and disorders for use on our MassARRAY system and other platforms, and we have limited or no experience in these applications of our technology and operating and selling in these markets. We have limited experience developing and commercializing sequencing-based technology and rely on collaborative partners and sequencing technology provided by others in order to commercialize any test utilizing sequencing, including the MaterniT21 PLUS test.

You should evaluate us in the context of the uncertainties and complexities affecting an early stage company developing products and applications for the life science industries and experiencing the challenges associated with entering into new markets that are highly competitive. Based on our limited experience in developing new products and applications, we and Sequenom CMM may not:

• effectively execute on or focus our research and development efforts;

• properly model new opportunities to ensure appropriate resource allocation;

• create new products that are appropriately developed to meet customer needs;

• perform adequate and timely validation testing of such products and applications;

• effectively assess and meet regulatory requirements in the United States and other countries;

• ensure appropriate communication between different departments responsible for commercialization activities;

• implement effective product launch, sales, or reimbursement strategies;

• effectively design and manufacture products that achieve commercial success; or

• take other actions that ultimately lead to commercial success of any new products or applications that we develop.

Despite its ability to commercialize the MaterniT21 PLUS test, Sequenom CMM may face setbacks in the development and validation of other noninvasive prenatal and molecular diagnostic LDTs.

We need to make significant investments to ensure our diagnostic tests as well as our genetic analysis products and applications perform properly and are cost-effective. We or our partners will likely need to apply for and obtain certain regulatory approvals to sell certain of our products under development for diagnostic applications, and it is uncertain whether such approvals will be granted.

Even if we develop new products for commercial use and obtain all necessary regulatory approvals, we may not be able to develop products that are accepted or satisfy customers in the genomic, diagnostic, noninvasive prenatal, clinical research, pharmaceutical, or other markets or the emerging field of molecular medicine and that can be marketed and sold successfully.

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Sequenom CMM will need to expand its marketing and sales capabilities in order to increase demand for the MaterniT21 PLUS test, to expand geographically, and to successfully commercialize any other diagnostic tests it may develop.

Sequenom CMM's current sales and marketing operations may not be sufficient to achieve the level of market awareness and sales required to attain significant commercial success for the MaterniT21 PLUS test, to expand its geographic presence, and to successfully commercialize any other diagnostic tests it may develop. In order to increase sales of the MaterniT21 PLUS test, Sequenom CMM may need to continue to:

• expand its sales force by recruiting additional sales representatives in selected markets;

• enter into collaborative relationships with third parties to expand sales and marketing reach and frequency;

• educate clinicians, other health care professionals, clinical diagnostic laboratories, health care thought leaders, network providers, and third-party payors regarding the clinical benefits and cost-effectiveness of the MaterniT21 PLUS test;

• expand the number of clinical diagnostic laboratory and hospital laboratory customers; and

• establish, expand, and manage sales and reimbursement arrangements with third parties, such as insurance companies and network providers.

Sequenom CMM has limited experience in selling and marketing the MaterniT21 PLUS test. Sequenom CMM may need to hire additional sales and marketing personnel with experience in the diagnostic, medical device or pharmaceutical industries. Sequenom CMM faces competition from other companies in these industries, some of whom are much larger than us and who can pay significantly greater compensation and benefits than we can, in seeking to attract and retain qualified sales and marketing employees. If Sequenom CMM is unable to hire and retain qualified sales and marketing personnel, our business will suffer. If Sequenom CMM is not able to successfully implement our marketing, sales, reimbursement, and commercialization strategies, Sequenom CMM may not be able to expand geographically, increase sales of the MaterniT21 PLUS test, obtain adequate levels of reimbursement, or successfully commercialize any future LDTs that it may develop.

Our operating results may fluctuate significantly.

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

• Sequenom CMM's success in providing its diagnostic testing services, including the MaterniT21 PLUS test, and the level of reimbursement and collection obtained for these tests;

• the timing and pricing of our products and services, including new product or service offerings, and those of our competitors;

• our ability to manage costs and expenses and effectively implement our business strategy;

• our ability, if necessary, to raise additional capital;

• our success in manufacturing, marketing and selling, and changes in the demand for, our products and services, including our research use only MassARRAY system and iPLEX multiplex genotyping application and other applications and related consumables, genetic content panels and related consumables, and demand for products and services for DNA methylation (epigenetic analysis) and other applications;

• the amount of royalties that we are required to pay to third parties in connection with the sale of certain of our products and services and Sequenom CMM's testing services;

• our success in collecting payments from third-party payors, customers, and collaborative partners, variations in the timing of these payments and the recognition of these payments as revenues;

• our success in responding to customer complaints effectively and managing relationships with our customers;

• our ability to identify and develop in a cost-efficient manner new applications and products, such as noninvasive prenatal or other diagnostic assays and other diagnostic technologies, our ability to improve current products to increase demand for such products and the success of such applications, products and improvements;

• our ability to establish and maintain sufficient intellectual property rights;

• the potential need to acquire licenses to new technology, including genetic markers that may be useful in diagnostic applications, or to use our technology in new markets, which could require us to pay unanticipated license fees and royalties in connection with licenses we may need to acquire;

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• our research and development progress, including Sequenom CMM's ability to develop and validate improved or new LDTs, and how rapidly we are able to achieve technical milestones;

• the cost, quality and availability of the MassARRAY system, SpectroCHIP consumable chips, oligonucleotides, reagents and related components and technologies;

• material developments in our customer and supplier relationships, including our ability to successfully transition to new technologies and/or alternative suppliers;

• our ability to obtain regulatory clearance or approval of any potential diagnostic test that we develop in the future; and

• the amount of any legal expenses, settlement payments, fines or damages arising from litigation generally and the extent to which it is not covered by insurance.

Further, our revenues and operating results are difficult to predict because we do not have sufficient history to forecast revenues reliably for Sequenom CMM's tests, including the MaterniT21 PLUS test, and also because our revenues and operating results depend on the number, timing, and type of MassARRAY system placements that we make during the year and the quantity and timing of consumables sales for the installed base of systems. The absence of or delay in reimbursement for Sequenom CMM's testing services and generating revenues has had and will continue to have a significant adverse effect on our operating results from period to period and will result in increased operating losses unless and until such reimbursement is established, at sufficient levels to cover our costs. Changes in the relative mix of our MassARRAY system and consumables sales, as well as service agreements can have a significant impact on our gross margin, as consumable sales and service agreements typically have margins significantly different than MassARRAY system sales. Our international revenues and operating results are also difficult to predict because they depend upon the activities of our distributors in some countries.

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 may decline.

*We depend on sales of our consumable chips and other MassARRAY consumables for a significant portion of our Genetic Analysis revenues.

Sales of our consumable chips and other consumables for the MassARRAY system are an important source of revenue. Revenues from MassARRAY consumables totaled approximately 15% of our total revenues during the three months endedJune 30, 2013. Factors which may limit the use of our consumable chips and other consumables or otherwise adversely affect our revenues from consumables include:

• the extent of our customers' level of utilization of their MassARRAY systems;

• our ability to provide timely repair services and our ability to secure replacement parts, such as lasers, for our MassARRAY systems;

• the extent to which customers increase multiplexing levels using iPLEX applications;

• the availability and adoption of new technologies and applications provided by our competitors;

• a failure to sell additional MassARRAY systems;

• the termination of contracts with or adverse developments in our relations with suppliers of our consumables;

• the training of customer personnel in the use of our products;

• the acceptance of our technology by our customers;

• any negative publicity with respect to the lawsuit filed by our former chief financial officer or other litigation or developments or events in our prenatal diagnostic and other programs;

• uncertainty about our ability to fund operations and supply products and services to customers;

• unstable, weak, or deteriorating economic conditions and fiscal policies or changes in fiscal policies that negatively impact customer buying decisions;

• competition from other products and service providers or failure of our products or applications or services;

• negative publicity or evaluations, particularly with respect to product warranty and repair and troubleshooting services provided to existing customers;

• our ability to maintain necessary quality standards and specifications for our SpectroCHIP consumable chip; or

• our ability to maintain suppliers for components for the MassARRAY system.

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*Our increased leverage as a result of our issuance of the 5% Convertible Senior Notes due October 2017 may harm our financial condition and results of operations.

Our total consolidated long-term debt and obligations as of June 30, 2013, which includes the 5% Convertible Senior Notes due October 2017, or Convertible Senior Notes, was $151.0 million and represented approximately 104% of our total capitalization as of that date.

Our level of indebtedness could have important consequences on our future operations, including:      

• making it more difficult for us to meet our payment and other obligations under the Convertible Senior Notes and our other outstanding debt;

• resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements, which could result in all of our indebtedness becoming immediately due and payable;

• reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;

• limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industries in which we operate and the general economy;

• placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged and that, therefore, may be able to take advantage of opportunities that our debt levels or leverage prevent us from exploiting; and

• limiting our ability to obtain additional financing.

Each of these factors may have a material and adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under the Convertible Senior Notes and our other indebtedness.

We may not be able to generate enough cash flow from our operations to service our indebtedness.

We have a significant amount of indebtedness. In September 2012, we completed the sale of $130.0 million of our Convertible Senior Notes. Our ability to make payments on, and to refinance, our indebtedness, including the Convertible Senior Notes, and to fund planned commercialization efforts, research and development efforts, working capital and other general corporate purposes depends on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors, some of which are beyond our control. Historically, our business has generated losses and we may never become profitable. If we are unable to generate the necessary cash flow, we may be required to adopt one or more alternatives, such as selling assets, refinancing or restructuring indebtedness or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. If we raise additional debt, it will increase our interest expense, our leverage and our operating and financial costs. In addition, the terms of the indenture governing the Convertible Senior Notes restricts our ability to incur additional debt, and the agreements governing our other existing or future indebtedness may restrict us from adopting any of these alternatives. We may not be able to execute any of these actions on commercially reasonable terms or at all.

The Convertible Senior Notes also include a provision whereby upon a “fundamental change”, which is defined in the indenture related to the Convertible Senior Notes, holders of the Convertible Senior Notes may require us to repurchase, for cash, all or a portion of their Convertible Senior Notes. We may not have sufficient funds to pay the interest or repurchase price when due. In addition, the terms of any borrowing agreements which we may enter into from time to time may require early repayment of borrowings under circumstances similar to those constituting a “fundamental change”. These agreements may also make our repurchase of Convertible Senior Notes an event of default under the agreements.

If we fail to make any required payments under our indebtedness, or otherwise breach the terms of our indebtedness, including the Convertible Senior Notes, all or a substantial portion of our indebtedness could be subject to acceleration. In such a situation, it is unlikely we would be able to repay the accelerated debt, which would have a material adverse impact on our business, results of operations and financial condition.

*If we fail to generate enough cash flow from our operations or otherwise obtain the capital necessary to fund our operations, our financial results, financial condition and our ability to continue as a going concern will be adversely affected and we will have to cease or reduce further commercialization efforts or delay or terminate some or all of our product development programs.

We expect to continue to incur losses for at least through the year ending December 31, 2013 and may have to raise additional cash to fund our planned operations.

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Our cash, cash equivalents, and current marketable securities were $106.9 million as of June 30, 2013. Based on our current plans, we believe our cash, cash equivalents and current marketable securities and collections for our commercialized tests and products sales and services will be sufficient to fund our operating expenses and capital requirements through at least the end of 2013. Sequenom CMM is continuing to expand its operations following commercialization of the MaterniT21 PLUS test and its research and development activities related to improvements to current tests and expansion of its LDT menu may require raising additional funds. In addition, there can be no assurances that these commercialization or research and development activities will be successful. We cannot be certain that our efforts to obtain reimbursement for our tests will be successful. Sequenom CMM's current sales and marketing operations may not be sufficient to achieve the level of market awareness and sales required for it to attain significant commercial success for the MaterniT21 PLUS test. If we or Sequenom CMM are not able to successfully implement our marketing, sales commercialization, and reimbursement strategies, we and Sequenom CMM may not be able to expand geographically, increase sales of the MaterniT21 PLUS test or successfully commercialize any future LDTs or diagnostic tests that we may develop and therefore may not be able to generate revenues sufficient to fund operations. If we are not able to generate revenues sufficient to fund operations, we may need to raise additional funds through financing or other means. The actual amount of funds that we will need and the timing of any such investment will be determined by many factors, some of which are beyond our control.

We may need to raise additional funds in the future to support expanding commercialization of the MaterniT21 PLUS test and continued development and commercialization of our proprietary technology. We may need to sell equity or debt securities to raise significant additional funds. However, it may be difficult for us to raise additional capital through the sale of equity or debt securities.

The amount of additional funds we may need depends on many factors, including:

• the degree to which our costs and expenses exceed our revenues;

• Sequenom CMM's success selling and marketing the MaterniT21 PLUS test and the level of reimbursement and collections from third-party payors;

• Sequenom CMM's success in generating revenues from its testing services for cystic fibrosis carrier screening, fetal Rhesus D genotyping, and age-related macular degeneration, and the level of collections and reimbursement for these and future tests;

• our success in selling our MassARRAY system, ancillary reagents, software and services;

• the terms and conditions of sales contracts, including extended payment terms;

• the level of our selling, general, and administrative expenses;

• our obligation to pay royalties to third parties in connection with the sale of our tests;

• our success and the extent of our investment in the research, development and commercialization of diagnostic technology, including genetic analysis technology, molecular diagnostics and noninvasive prenatal diagnostic technology and the acquisition and/or licensing of third-party intellectual property rights;

• our success in obtaining sufficient quantities and quality of patient samples;

• our success in obtaining regulatory clearance or approval to market our diagnostic products in various countries, including the United States;

• Sequenom CMM's success in validating additional diagnostic tests and the levels of clinical performance achieved;

• Sequenom CMM's success either alone or in collaboration with our partners in launching and selling additional diagnostic products or services;

• our success and the extent of our investment in the research and development in our genetic analysis business;

• the extent to which we enter into, maintain, and derive revenues from licensing agreements, including agreements to out-license our noninvasive prenatal analysis technology, research and other collaborations, joint ventures and other business arrangements;

• the level of our legal expenses and any damages or settlement payments arising from ongoing or new patent related litigation;

• the amount of any legal expenses, settlement payments, fines or damages arising from the lawsuit filed by our former chief financial officer and any future investigation or litigation and the extent to which any of the foregoing is not covered by insurance;

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• the dilution from any issuance of securities, whether in connection with future capital-raising or acquisition transactions, the settlement of litigation, or otherwise;

• the extent to which we acquire, and our success in integrating, technologies or companies;

• compliance with corporate governance and regulatory developments or initiatives;

• regulatory changes by the FDA, CMS and other worldwide regulatory authorities; and

• technological developments in our markets.

Additional financing may not be available in amounts or on terms satisfactory to us or at all. General market conditions, the market price of our common stock, our financial condition, uncertainty about the successful commercialization and development of other LDTs and diagnostic tests, regulatory developments, the uncertainty regarding the results of ongoing litigation matters, the status and scope of our patent rights or other factors may not support capital raising transactions. In addition, our ability to raise additional capital may depend upon obtaining stockholder approval. There can be no assurance that we will be able to obtain stockholder approval if it is necessary. If we are unable to obtain sufficient additional funds on a timely basis or on terms favorable to us, we may be required to cease or reduce further commercialization of our products, to cease or reduce certain research and development projects, to sell, license or otherwise dispose of some or all of our technology or assets or business units, to merge all or a portion of our business with another entity or we may not be able to continue as a going concern. If we raise additional funds by selling shares of our capital stock (or otherwise issue shares of our capital stock or rights to acquire share of our capital stock), the ownership interest of our current stockholders will be diluted.

The development of new, more cost-effective tests that can be performed by our customers or by patients, or the internalization of testing by hospitals or physicians, could negatively impact our testing volume and revenues.

Advances in technology may lead to the development of more cost-effective tests that can be performed outside of a commercial clinical laboratory such as point-of-care tests that can be performed by physicians in their offices, esoteric tests that can be performed by hospitals in their own laboratories or home testing that can be performed by patients in their homes. Although CLIA compliance makes it cost prohibitive for many physicians to operate clinical laboratories in their offices, manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing point-of-care test equipment to physicians. Diagnostic tests cleared or approved by the FDA for home use are automatically deemed to be exempt under CLIA and may be performed in physician office laboratories with minimal regulatory oversight under CLIA as well as by patients in their homes. Test kit manufacturers could seek to increase sales to both physicians and patients of test kits cleared or approved by the FDA for point-of-care testing or home use. Development of such technology and its use by our customers could reduce the demand for Sequenom CMM's testing services and negatively impact our revenues. Our future success will depend on our ability to keep pace with the evolving needs of our customers on a timely and cost-effective basis and to pursue new market opportunities that develop as a result of technological and scientific advances.

Our revenues are subject to risks faced by our customers and potential customers.

We expect that our revenues throughout 2013 and perhaps thereafter, will include a large contribution from MassARRAY systems and consumables sales provided to academic institutions and other research institutions. Our operating results could fluctuate substantially due to reductions and delays in research and development expenditures by these customers. These reductions and delays could result from factors such as:

• changes in economic conditions and possible country-based boycotts;

• changes in government programs that provide funding for these customers;

• other factors affecting research and development spending; or

• uncertainty about our ability to continue as a going concern and fund operations and supply products and services to customers.

None of these factors are within our control. We have broadened the markets to which we sell our products and applications and continue to develop new applications and products for use in new markets. We are targeting customers in clinical research and clinical marker validation, the emerging field of molecular medicine, genetic service laboratories, and animal testing laboratories and diagnostic testing markets. We have limited or no experience operating in certain of these potential markets and, as a result, may be unable to develop products and applications that allow us to penetrate these markets or successfully generate any revenues from sales in these markets. We have limited ability to forecast demand for our products and applications in these markets.

The sales cycles for our MassARRAY systems are lengthy, and we may expend substantial funds and management effort with no assurance of successfully selling our products or services.

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The sales cycles for our MassARRAY system products are typically lengthy. Our sales and licensing efforts require the effective demonstration of the benefits, value, and differentiation and validation of our products and services, and significant education and training of multiple personnel and departments within a customer organization. We may be required to negotiate agreements containing terms unique to each prospective customer or licensee which would lengthen the sales cycle. We may expend substantial funds and management effort with no assurance that we will sell our products or services. In addition, this lengthy sales cycle makes it more difficult for us to accurately forecast revenues in future periods and may cause revenues and operating results to vary significantly in such periods.

We have a history of generating a large percentage of our Genetic Analysis revenues at the end of each quarterly accounting period and quarterly revenues from our molecular diagnostics segment through Sequenom CMM may be difficult to predict.

Due to the manner in which many customers in target markets for our MassARRAY systems allocate and spend their budgeted funds for acquisition of our products, a large percentage of our sales are booked at the end of each quarterly accounting period. Because of this timing of our sales, we may not be able to reliably predict order volumes and our quarterly revenues. A sales delay of only a few days may significantly impact our quarter-to-quarter comparisons.

Additionally, Sequenom CMM started commercializing the MaterniT21 PLUS test in the fourth quarter of 2011. We may be unable to accurately predict quarterly revenues relating to the MaterniT21 PLUS test due to our limited sales history and Sequenom CMM's limited experience in marketing and commercializing and obtaining reimbursement for laboratory testing services.

If our quarterly or year-end revenues fall below the expectations of securities analysts and investors, our stock price may decline. Similarly, if we are unable to ship our customer orders on time, or if extended payment terms are required, there could be a material adverse effect on the timing of revenues for a given quarter.

If our customers are unable to adequately prepare samples for our MassARRAY system, the overall market demand for our products may decline.

Before using the MassARRAY system, customers must prepare samples by following several steps that are subject to human error, including DNA isolation and DNA amplification. If DNA samples are not prepared appropriately, or the proposed assays are too complex, the MassARRAY system may not generate a reading or a correct reading. If our customers experience these difficulties, they might achieve lower throughput levels than specified for the system. If our customers are unable to generate expected levels of throughput, they might not continue to purchase our consumables, they could express their discontent with our products to others, or they could collaborate with others to jointly benefit from the use of our products. Any or all of these actions would reduce the overall market demand for our products. From time to time, we have experienced customer complaints regarding data quality and difficulty in processing more complex assays.

We have limited commercial production capability and experience and may encounter production problems or delays, which could result in lower revenue.

We partially assemble the MassARRAY system and partially manufacture our consumable chips and MassARRAY kits. The MassARRAY system requires more outsourcing of component manufacturing and more internal assembly. To date, we have only produced our current products in moderate quantities. We may not be able to maintain acceptable quality standards as we ramp up production of the MassARRAY system. To achieve anticipated customer demand levels, we will need to transition and scale-up our production capability and maintain adequate levels of inventory while manufacturing our products at a reasonable cost. We may not be able to produce sufficient quantities to meet market demand or manufacture our product at a reasonable cost. If we cannot achieve the required level and quality of production, we may need to abandon or reduce our internal efforts and fully 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 might not be able to successfully outsource our production or enter into licensing or other arrangements with these third parties, which would adversely affect our business. Also, from time to time we have experienced quality issues on some of our chips. We may not be able to maintain acceptable quality standards for production of our chips, which could harm our business and result in lower revenue.

Uncertainty regarding the development of new LDTs and diagnostic tests could materially adversely affect our and Sequenom CMM's business, financial condition, and results of operations.

We and Sequenom CMM are continuing to focus research and development efforts on LDTs and diagnostic tests, in addition to improvements and additions to current LDTs, including the MaterniT21 PLUS test. The launch of any other diagnostic test will require the completion of certain clinical development and commercialization activities, and may include the efforts of collaborative partners on which we sometimes rely, and the expenditure of additional cash resources. We can give no assurance that we will be able to successfully complete the clinical development of any other LDT or diagnostic test or that we will be able to establish or maintain the collaborative relationships (if any collaborators are involved) that are essential to our clinical development and commercialization efforts. We also can give no assurance that we will be able to reduce our

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expenditures sufficiently or otherwise mitigate the risks associated with our business to raise enough capital to complete clinical development or commercialization activities. Clinical development requires large numbers of patient samples and we may not be able to use prior collected samples or collect a sufficient number of appropriate samples in a timely manner in the future to complete clinical development for any planned LDT or diagnostic test. Patient samples for clinical development for noninvasive prenatal tests may be unavailable or available only in limited quantities due to an increased number of competitive parties seeking such samples. Also, as noninvasive testing increases in popularity and invasive testing (such as amniocentesis) potentially declines over time, less patient samples for clinical development become available that include confirmatory data from an invasive procedure such as amniocentesis. Failure to possess or to collect a sufficient number of appropriate samples in a timely manner could prevent or significantly delay our ability to research, develop, complete clinical development and validation, obtain FDA clearance or approval as may be necessary, or launch any of our planned LDTs or diagnostic tests. Any failure to complete on-going clinical studies for our planned LDTs and diagnostic tests could have material adverse effects on our business, operating results or financial condition.

*We may not successfully obtain, or maintain, regulatory approval of any noninvasive prenatal or other product which we or our licensing or collaborative partners develop.

Products that we or our collaborators develop in the molecular diagnostics, noninvasive prenatal diagnostic, or other markets, depending on their intended use, may be regulated as medical devices by the FDA and other worldwide regulatory authorities. In the United States our products may require either Premarket Approval, or PMA, or 510(k) clearance, from the FDA, prior to marketing in interstate commerce. The 510(k) Premarket Notification process usually takes from three to six months from submission to clearance, but can take significantly longer. The Premarket Approval process is much more costly, lengthy, uncertain, and generally takes from nine to eighteen months or longer from submission to approval. In addition, commercialization of any diagnostic or other product that we or our licensees or collaborators develop would depend upon successful completion of non-clinical (bench) testing and clinical studies. Non-clinical bench testing and clinical studies can be long, expensive, and uncertain processes and we do not know whether we, our licensees, or any of our collaborators, would be permitted or able to undertake clinical studies of any potential products. It may take us or our licensees or collaborators many years to complete any such testing, and failure could occur at any stage. Results from preliminary studies do not necessarily predict final results, and acceptable results in early studies may not be repeated in later studies. A number of companies in the diagnostics industry, including biotechnology companies, have suffered significant setbacks in clinical studies, even after promising results in earlier studies. 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. If our projects reach clinical studies, we or our licensees or collaborators could decide to discontinue development of any or all of these projects at any time for commercial, scientific, or other reasons.

The FDA currently regulates in vitro diagnostic, or IVD, devices under the authority of Section 201(h) of the Federal Food, Drug, and Cosmetic Act. To date, the FDA has exercised its regulatory enforcement discretion not to regulate LDTs and exempted from regulation LDTs created and used within a single laboratory. The FDA has emphasized that its policy was to regulate LDTs in a way that would not inhibit the development of such tests or diminish the contribution they make to public health. However, at a July 19, 2010 FDA public meeting on oversight of LDTs, the FDA stated that it was reconsidering its policy. The FDA commented that regulation of LDTs may be warranted because of the growth in the volume of testing services utilizing LDTs and as a result of the increased complexity of these tests. The July 2010 positions have been reiterated in subsequent statements by the FDA. To date, the FDA has not released draft guidance or regulations regarding LDTs. Our revenues from testing services utilizing LDTs comprised approximately 52% of our total revenues for the year ended December 31, 2012 and approximately 73% of total revenues for the six months ended June 30, 2013. LDT-related revenues are expected to increase as a percentage of total revenues in future years.

Although LDTs to date have not been subject to FDA regulation, certification of the laboratory is required under CLIA to ensure the accuracy and reliability of all laboratory testing, except research, on human specimens through a quality assurance program, which includes standards in the areas of personnel qualifications, administration and participation in proficiency testing, patient test management and quality control procedures. In addition, state laboratory licensing and inspection requirements may also apply.

We cannot predict the extent of the FDA's future regulation and policies with respect to LDTs in general or our diagnostic tests in particular. If Sequenom CMM is unable to successfully launch any additional LDTs or if it is otherwise required to obtain FDA premarket clearance or approval prior to commercializing any of its products or services, its ability to generate revenues from providing such products may be delayed and it may never be able to generate significant revenues from providing diagnostic products.

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The results of preclinical and clinical studies are not necessarily predictive of future results, and our current diagnostic products and product candidates may not have favorable results in later studies.

We intend to publish results of certain of our studies, and have published studies of Sequenom CMM's LDTs, and there can be no assurance that such results when published will be viewed favorably by clinicians, patients or investors. In addition, Sequenom CMM's scientific collaborators and other third parties may also publish results relating to their own studies. There can be no assurance that the results of their studies when published will be viewed favorably. If such results are not viewed favorably after publication, it could have a negative impact on the perception of Sequenom CMM's technology and its LDTs.

Performance achieved in published studies may not be repeated in later studies that would be required to obtain either premarket approval or premarket clearance from the FDA. Limited results from earlier-stage validation studies may not predict results from studies in larger numbers of subjects drawn from more diverse populations over a longer period of time. Unfavorable results from ongoing preclinical and clinical studies could result in delays, modifications or abandonment of ongoing or future clinical studies, or abandonment of a product development program or may delay, limit or prevent regulatory approvals or commercialization.

We and our licensees and collaborators may not be successful in developing or commercializing diagnostic products, including noninvasive prenatal diagnostic products, or other products using our equipment, services, or discoveries.

Development of LDTs, including the MaterniT21 PLUS test, or other LDTs developed by Sequenom CMM, our licensees, or our collaborators are subject to risks of failure inherent in the development and commercial viability of any such product, such as demand for such product. These risks further include the possibility that such product would:

• be found to be ineffective, unreliable, inadequate or otherwise fail to receive regulatory approval;

• be difficult or impossible to manufacture on a commercial scale;

• be uneconomical to market or otherwise not be effectively marketed;

• fail to be successfully commercialized if adequate reimbursement from government health administration authorities, private health insurers, and other organizations for the costs of such product is unavailable;

• be impossible to commercialize because such product infringes on the proprietary rights of others or competes with products marketed by others that are superior;

• fail to be commercialized prior to the successful marketing of similar products by competitors; or

• be subject to competitive price erosion that makes it uneconomical to market effectively.

If a licensee discovers or develops diagnostic or other products or we or Sequenom CMM or a collaborator, discover or develop diagnostic or other products using our technology, products, services, or discoveries, we may rely on that licensee or collaborator, referred to as partner, for product development, regulatory approval, manufacturing, and marketing of those products before we can realize revenues and some or all of the milestone payments, royalties, or other payments we may be entitled to under the terms of the licensing or collaboration agreement. If we or our partners fail to develop successful products, we will not earn the revenues contemplated and we could lose license rights to intellectual property that are required to commercialize such products. Our agreements may allow our partners significant discretion in electing whether to pursue any of these activities. We cannot control the amount and timing of resources our partners may devote to our programs or potential products. As a result, we cannot be certain that our partners will choose to develop or commercialize any products or will be successful in doing so. In addition, if a partner is involved in a business combination, such as a merger or acquisition, or changes its business focus, its performance under 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 contained in our agreement with that partner.

We may not be able to form and maintain the collaborative relationships or the rights to third-party intellectual property and technologies that our business strategy requires and such relationships may lead to disputes over technology rights or product revenue, royalties, or other payments.

We form research collaborations and licensing arrangements with collaborators to operate our business successfully. To succeed, we will have to maintain our existing relationships and establish additional collaborations and licensing arrangements. Our current strategy includes pursuing partnering opportunities with companies interested in or involved in the development of pharmaceutical and diagnostic products. Our strategy also includes obtaining licenses to third-party intellectual property rights and technologies, such as our exclusive license to noninvasive prenatal analysis rights that we acquired from Isis (United States Patent No. 6,258,540 entitled “Noninvasive Prenatal Diagnosis” and foreign equivalents), from CUHK (United States Patent Application Nos. 12/178,181 and 13/417,119, 13/070,266, and 13/070,275 (published, respectively, as U.S. Publication Nos. US2009/0029377, US2012/0208708, US2012/0003637, and US2011/0318734, and each titled “Diagnosing Fetal Chromosomal Aneuploidy Using Massively Parallel Genomic Sequencing,”) and foreign equivalents, and exclusive rights we

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have acquired related to our development and commercialization of Sequenom CMM's test to predict the risk of a patient with “dry” or early stage age-related macular degeneration, or AMD, progressing to “wet” or advanced choroidal neovascular disease within 2, 5, and 10 years, and other rights we have acquired to potentially expand our product portfolio and generate additional sources of revenue. Disputes may arise in connection with these collaborations and licensing arrangements, which may result in liability to us or may result in the loss of acquired technology that may adversely affect our business. If there is any dispute between us and Isis regarding our rights under our license agreement with Isis, our and Sequenom CMM's ability to exclusively commercialize noninvasive prenatal diagnostic tests and LDTs, including the MaterniT21 PLUS test, may be adversely affected and could delay or completely terminate our product development and commercialization efforts for these tests.

We cannot be sure that we will be able to establish any additional research collaborations, licensing arrangements, or other partnerships necessary to develop and commercialize products or that we can do so on terms favorable to us. If we are unable to establish these collaborations or licensing arrangements, we may not be able to successfully generate any milestone, royalty, or other revenues from sales of these products or applications. If our collaborations or licensing arrangements are not successful or we are not able to manage multiple collaborations successfully, our programs will suffer and we may never generate any revenues or only generate limited revenues from sales of products based on licensed rights or technologies or under these collaborative or licensing arrangements. If we increase the number of collaborations or licensing agreements, it will become more difficult to manage the various relationships successfully and the potential for conflicts among the collaborators and licensees or licensors will increase. Conflicts with our collaborators, licensees or licensors, or other factors may lead to disputes over technology or intellectual property rights or product revenue, royalties, or other payments, which may adversely affect our business, including our ability to generate revenues from the MaterniT21 PLUS test.

In addition, our government grants provide the government certain license rights to inventions resulting from funded work. Our business could be harmed if the government exercises those rights.

The agreements and rights we rely upon to protect the intellectual property underlying our products may not be adequate, which could enable others to use our technology and reduce our ability to compete with them.

We require our employees, consultants, advisors, and collaborators to execute confidentiality agreements and in certain cases, assignment or license agreements. We cannot guarantee that these agreements will provide us with adequate intellectual property ownership or protection against improper or unauthorized use or disclosure of confidential information or inventions. In some situations, these agreements may conflict with or be subject to the rights of others with whom our employees, consultants, advisors, or collaborators have prior employment or consulting relationships. In some situations, as is the case with our employees in Germany, these types of agreements or relationships are subject to foreign law, which provides us with less favorable rights or treatment than under United States law. Others may gain access to our inventions, trade secrets or independently develop substantially equivalent proprietary materials, products, information, and techniques.

Our business and industry are subject to complex and costly regulation and if government regulations are interpreted or enforced in a manner adverse to us, we may be subject to enforcement actions, penalties, exclusion, and other material limitations on our operations.

We are subject to various federal, state and local laws targeting fraud and abuse in the health care industry, including anti-kickback and false claims laws. The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal health care program, such as Medicare or Medicaid. The definition of “remuneration” has been broadly interpreted to include anything of value, including, for example, gifts, discounts, the furnishing of free supplies, equipment or services, credit arrangements, payments of cash and waivers of payment. Several courts have interpreted the statute's intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. The PPACA, among other things, amends the intent requirement of the federal Anti-Kickback Statute and certain criminal health care fraud statutes to provide that, effective March 23, 2010, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act or the civil monetary penalties statute, which imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the health care industry. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements, Congress authorized the HHS Office of Inspector General, or OIG, to issue a series of regulations, known as “safe harbors.” These safe harbors set forth requirements that, if met in their entirety, will assure health care providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of a transaction or

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arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal, or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable safe harbor may result in increased scrutiny by government enforcement authorities, such as the OIG. Penalties for violations of the federal Anti-Kickback Statute include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other healthcare programs. Many states have adopted laws similar to the Anti-Kickback Statute. Some of these state prohibitions apply to referral of patients for health care items or services reimbursed by any payor, not only the Medicare and Medicaid programs, and do not contain identical safe harbors. Government officials have brought cases against numerous companies and certain sales and marketing personnel for allegedly offering unlawful inducements to potential or existing customers in an attempt to procure their business.

In addition to the Anti-Kickback Statute, we are also subject to the physician self-referral laws, commonly referred to as the Stark law, which generally prohibits physicians from referring Medicare patients to providers of “designated health services,” including clinical laboratories, with whom the physician or the physician's immediate family member has an ownership interest or compensation arrangement, unless an applicable exception applies. The Stark law is a strict liability statute, meaning that a violation may occur regardless of the parties' intent. Moreover, many states have adopted or are considering adopting similar laws, some of which extend beyond the scope of the Stark law to prohibit the payment or receipt of remuneration for the prohibited referral of patients for designated health care services and physician self-referrals, regardless of the source of the payment for the patient's care. Penalties for violations of the Stark law include denial of payment, refund of payment, imposition of up to $15,000 in civil monetary penalties for each claim submitted in violation of the law, up to $100,000 in civil monetary penalties for each “arrangement or scheme” that violates the law, a civil monetary penalty of three times the amount claimed, and exclusion from participation in the Medicare program and/or other government health programs. If it is determined that certain of our practices or operations violate the Stark law or similar statutes, the imposition of any such penalties could harm our business.

Another development affecting the health care industry is the increased use of the federal civil False Claims Act and, in particular, actions brought pursuant to the False Claims Act's “whistleblower” or “qui tam” provisions. The False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program. The qui tam provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In recent years, the number of suits brought by private individuals has increased dramatically. In addition, various states have enacted false claim laws analogous to the False Claims Act. Many of these state laws apply where a claim is submitted to any third-party payor and not merely a federal health care program. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties of $5,500 to $11,000 for each separate false claim. There are many potential bases for liability under the False Claims Act. Liability arises, primarily, when an entity knowingly submits, or causes another to submit, a false claim for reimbursement to the federal government. The False Claims Act has been used to assert liability on the basis of, among other things, inadequate care, kickbacks and other improper referrals, improper use of Medicare numbers when detailing the provider of services, and allegations as to misrepresentations with respect to the services rendered. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Also, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, created several new federal crimes, including health care fraud and false statements relating to health care matters. The health care fraud statute prohibits knowingly and willfully executing a scheme to defraud any health care benefit program, including private third-party payors. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. We are unable to predict whether we would be subject to actions under the False Claims Act or a similar state law, or under the federal crimes created by HIPAA, or the impact of such actions. However, the costs of defending such claims, as well as any sanctions imposed, could significantly adversely affect our financial performance.

Federal law prohibits any entity from offering or transferring to a Medicare or Medicaid beneficiary any remuneration that the entity knows or should know is likely to influence the beneficiary's selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services, including waivers of copayments and deductible amounts (or any part thereof) and transfers of items or services for free or for other than fair market value. Entities found in violation may be liable for civil monetary penalties of up to $10,000 for each wrongful act. Although we believe that our sales and marketing practices are in material compliance with all applicable federal and state laws and regulations, relevant regulatory authorities may disagree, and violation of these laws or our exclusion from such programs as Medicaid and other governmental programs as a result of a violation of such laws could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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Ethical, privacy, or other concerns about the use of genetic information could reduce 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 limit or otherwise regulate the use of genetic testing, including the MaterniT21 PLUS test, or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Such concerns may lead individuals to refuse to use genetics tests even if permitted and may lead to negative public relations. Any of these scenarios could reduce the potential markets for our products and services, which would seriously harm our business, financial condition, and results of operations.

If the validity of an informed consent from a subject was to be challenged, we could be forced to stop using some of our resources, which would hinder our diagnostic product development efforts.

We have measures in place to ensure that all clinical data and genetic and other biological samples that we receive from our clinical collaborators have been collected from subjects who have provided appropriate informed consent for the data and samples provided for purposes which extend to include commercial diagnostic product development activities. We have measures in place to ensure that data and samples that have been collected by our clinical collaborators are provided to us on a subject de-identified manner. We also have measures in place to ensure that the subjects 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 any discoveries derived from them. Our clinical collaborators are based in a number of different countries, and, to a large extent, we rely upon our clinical collaborators for appropriate compliance with the subject's informed consent provided and with local law and international regulation. 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 informed consent and the status of genetic material under a large number of different legal systems. The subject's informed consent obtained in any particular country could be challenged in the future, and those informed consents could 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 samples, which would hinder our diagnostic product development efforts. We could become involved in legal challenges, which could consume our management and financial resources.

If we cannot obtain licenses to patented genetic markers and genes relevant to our diagnostic areas of interest, we could be prevented from obtaining significant revenues or becoming profitable.

The U.S. Patent and Trademark Office has issued patents claiming single SNP and gene discoveries and their related associations and functions. The law is evolving and the validity of those types of patents has been and continues to be unclear. If certain SNPs and genes are patented, the validity of such patents types of patent is unclear and it is uncertain whether we may need to obtain rights to those SNPs and genes to develop, use, and sell related assays and other types of products or services utilizing such SNPs and genes. Required licenses may not be available on commercially acceptable terms. If we were to fail to obtain licenses to certain patented SNPs and genes claimed under valid patents, we might never achieve significant revenues from our diagnostic product development.

If the medical relevance of SNPs or other genetic variation is not demonstrated or is not recognized by others, we may have less demand for our products and services and may have less opportunity to enter into diagnostic product development and commercialization collaborations with others.

Some of the products we hope to develop involve new and unproven approaches or involve applications in markets that we are only beginning to explore. They are based on the assumption that information about genes and SNPs may help scientists better understand conditions or complex disease processes. Scientists generally have a limited understanding of the role of genes and SNPs in diseases. We cannot be certain that genetic information will play a key role in the development of diagnostics or other products in the future, or that any genetic-based findings would be accepted by diagnostic, pharmaceutical, or biotechnology companies or by any other potential market or industry segment. If we or our customers or collaborators are unable to generate valuable information that can be used to develop diagnostics or other products, the demand for our products, applications, and services will be reduced and our business will be harmed.

We may not be able to successfully adapt or maintain our products for commercial applications.

A number of potential applications of our MassARRAY technology and potential products, including research use only and diagnostic applications for noninvasive prenatal and other molecular testing, may require significant enhancements in our core technology or the in-licensing of intellectual property rights or technologies. In connection with developing new products and applications, we may not effectively deploy our research and development efforts in a cost-efficient manner or otherwise in a manner that leads to the successful commercialization and scale-up of such products and applications. If we are unable to complete the development, introduction, or scale-up of any product, or if any of our products or applications, such as epigenetic analysis or iPLEX multiplex genotyping applications, or genetic content panels and their related consumables, do not achieve a significant level of market acceptance, our business, financial condition and results of operations could be seriously harmed.

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We may not be able to successfully compete in the biotechnology and diagnostic industries.

The biotechnology and diagnostic industries are highly competitive. We expect to compete with a broad range of companies in the United States and other countries that are engaged in the development and production of products, applications, services, and strategies to analyze genetic information and strategies to develop and commercialize diagnostic, noninvasive prenatal diagnostic, and other products for customers in the clinical research and clinical marker validation and molecular medicine fields as well as diagnostic service laboratories, animal testing and food safety labs, and customers in other markets. They include:

• biotechnology, pharmaceutical, diagnostic, chemical, and other companies;

• academic and scientific institutions;

• governmental agencies; and

• public and private research organizations.

Some of our competitors may have greater financial, technical, research, marketing, sales, distribution, service, and other resources than we do. Our competitors may offer broader product lines and services and have greater name recognition than we do. Several companies are currently offering, 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 that may render our technologies or products obsolete or that have superior intellectual property rights.

If we do not effectively manage our business as it grows and evolves, it could affect our internal operations as well as our ability to pursue opportunities and expand our business.

As our development and commercialization plans and strategies develop, we expect to expand our employee base for managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure and may impact our ability to maintain effective internal controls for financial reporting.  In addition, evolution in our business, particularly our transition to developing and commercializing molecular diagnostic tests, has placed and may continue to place a significant strain on our personnel, facilities, management systems, information technology infrastructure, disclosure controls, internal controls and resources. If we fail to effectively manage the evolution of our business and the transition to also being a provider of diagnostic products, or fail to take other necessary action to maintain close coordination among our various departments, our ability to execute on our business plan, maintain our credibility, pursue business opportunities, maintain and expand our business, and sell our products and applications in new markets may be adversely affected.

We may not successfully complete the acquisition of businesses or technologies that we desire to acquire.

We may acquire additional businesses or technologies, or enter into other strategic transactions. Managing future acquisitions entails numerous operational and financial risks, including:

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

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

• the 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;

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

• the exposure to unknown liabilities or disputes with the former stakeholders or management or employees of acquired businesses;

• higher than expected acquisition and integration expenses that would cause our quarterly and annual operating results to fluctuate;

• increased amortization expenses if an acquisition results in significant intangible assets;

• combining the operations and personnel of acquired businesses with our own, which would be difficult and costly;

• disputes over rights to acquired technologies or with licensors or licensees of those technologies; and

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• integrating or completing the development and application of any acquired technologies, which would disrupt our business and divert management's time and attention.

We may also attempt to acquire businesses or technologies or attempt to enter into strategic transactions that we are unable to complete. If we are unable to complete such transactions, we may expend substantial resources and ultimately not successfully complete the transaction. Such transactions may also distract management and result in other adverse effects on our business and operations. These transactions may also involve the issuance of shares of our capital stock, which may result in dilution to our stockholders.

We may potentially compete with our customers, which may adversely affect our business.

We have sold MassARRAY systems worldwide to pharmaceutical and biotechnology companies, academic research centers, and government laboratories. Some of our customers use our DNA analysis products to perform contract research services, or to perform genetics studies on their own disease populations for potential diagnostic applications and drug target identification in the same or similar manner as we have done. Although there are many potential contract research services opportunities and disease areas and diagnostic applications, our customers may seek service work or develop and commercialize diagnostic assays or may target diseases areas that may overlap with those that we have chosen to pursue. In such cases we may potentially compete against our customers. Competition from our customers may adversely affect our services business or our ability to successfully commercialize diagnostic products.

If we cannot attract and retain highly-skilled personnel, our growth might not proceed as rapidly as we intend and our business may be adversely affected.

The success of our business will depend on our ability to identify, attract, hire, train, retain, maintain, and motivate highly skilled personnel, particularly sales, scientific, medical, laboratory, CLIA laboratory, and technical personnel, for our future success. Competition for highly skilled personnel is intense, in particular for licensed laboratory technicians in the state of California, and we might not succeed in attracting and retaining these employees. If we cannot attract and retain the personnel we require, we would not be able to expand our business as rapidly as we intend. When we seek to hire personnel to fill open positions, we may be unable to hire qualified replacements for the positions that we need to fill, and there may be significant costs associated with the recruiting, hiring and retention of officers and employees for the open positions. If we lose key employees, scientists, physician collaborators or if our management team is not able to effectively manage us through these events, our business, financial condition, and results of operations may be adversely affected. We do not carry “key person” insurance covering any of our officers or other employees.

Our success is dependent on the performance of our executive officers and key employees, and any accident or disability suffered by an executive officer or key employee could adversely impact our business.

Our business and operations are substantially dependent on the performance of our executive officers and key employees. If an executive officer is incapacitated or disabled by accident, sickness or otherwise so as to render such individual mentally or physically incapable of performing the services and duties required to be performed by such individual, it may adversely impact our results of operations and financial condition.

We incur significant costs as a result of operating as a public company and our management expects to continue to devote substantial time to public company compliance programs.

As a public company, we incur significant legal, accounting and other expenses due to our compliance with regulations and disclosure obligations applicable to us, including compliance with the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules implemented by the SEC and The NASDAQ Stock Market. The SEC and other regulators have continued to adopt new rules and regulations and make additional changes to existing regulations that require our compliance. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that have required the SEC to adopt additional rules and regulations in these areas. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact (in ways we cannot currently anticipate) the manner in which we operate our business. Our management and other personnel devote a substantial amount of time to these compliance programs and monitoring of public company reporting obligations and, as a result of the new corporate governance and executive compensation related rules, regulations and guidelines prompted by the Dodd-Frank Act and further regulations and disclosure obligations expected in the future, we will likely need to devote additional time and costs to comply with such compliance programs and rules. These rules and regulations will continue to cause us to incur significant legal and financial compliance costs and will make some activities more time-consuming and costly.

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*We are subject to risks associated with our foreign operations.

We expect that a significant portion of our genetic analysis segment sales will continue to be made outside the United States. Approximately 70% of our genetic analysis segment sales were made outside of the United States during the three months endedJune 30, 2013. A successful international effort will require us to develop relationships with international customers and collaborators, including distributors. We may not be able to identify, attract, retain, or maintain suitable international customers or collaborators. Expansion into international markets will require us to establish and grow foreign operations, hire additional personnel to run these operations, and maintain good relations with our foreign customers and collaborators or distributors. International operations including many of the same risks to our business that affect our domestic operations, but also involve a number of risks not typically present in domestic operations, including:

• currency fluctuation risks;

• changes in regulatory requirements;

• costs and risks of deploying systems in foreign countries;

• licenses, tariffs, and other trade barriers;

• political and economic instability and possible country-based boycotts;

• difficulties in staffing and managing foreign operations;

• potentially adverse tax consequences;

• compliance with the Foreign Corrupt Practices Act;

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

• 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.

In addition, our international operations are subject to additional laws and regulations that could result in increased operational costs. For example, the European Union is currently in the midst of reviewing updates to the EU Privacy Directive that would result in additional requirements and costs if passed, such as the appointment of a dedicated privacy officer and increased civil and criminal penalties in the event of any loss or unauthorized disclosure of private information related to any resident of the EU.

We must be in compliance with state and federal security and privacy regulations, which may increase our operational costs.

The privacy and security regulations under HIPAA establish comprehensive federal standards with respect to the uses and disclosures of protected heath information, or PHI, by health plans and health care providers, in addition to setting standards to protect the confidentiality, integrity and availability of electronic PHI. The regulations establish a complex regulatory framework on a variety of subjects, including, without limitation:

• the circumstances under which uses and disclosures of PHI are permitted or required without a specific authorization by the patient, including but not limited to treatment purposes, to obtain payments for services and health care operations activities;

• a patient's rights to access, amend and receive an accounting of certain disclosures of PHI;

• the content of notices of privacy practices for PHI; and

• administrative, technical and physical safeguards required of entities that use or receive PHI electronically.

The Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, which became effective on February 17, 2010, makes HIPAA's privacy and security standards directly applicable to “business associates”-independent contractors or agents of covered entities that have access to protected health information in connection with providing a service on behalf of a covered entity. We are a covered entity and also a business associate of our covered entity customers. Among other things, HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney's fees and costs associated with pursuing federal civil actions.

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As Sequenom CMM expands its business it must continue to implement policies and procedures related to compliance with the HIPAA privacy and security regulations, as required by law, which may increase its operational costs. Furthermore, the privacy and security regulations provide for significant fines and other penalties for wrongful use or disclosure of PHI, including potential civil and criminal fines and penalties. Sequenom CMM has evaluated the security of its computer networks and determined that appropriate measures are in place to safeguard PHI contained on such networks. However, no security system is invulnerable to breach, and unauthorized persons may in the future be able to exploit weaknesses in the security systems of Sequenom CMM's computer networks and gain access to such PHI. Additionally, Sequenom CMM shares PHI with third-party contractors who are contractually obligated to safeguard and maintain the confidentiality of PHI. Unauthorized persons may be able to gain access to PHI stored in such third-party contractors' computer networks. Any wrongful use or disclosure of PHI by Sequenom CMM or its third-party contractors, including disclosure due to data theft or unauthorized access to Sequenom CMM's or its third-party contractors' computer networks, could subject us and Sequenom CMM to fines or penalties that could adversely affect our business and results of operations. Although the HIPAA statute and regulations do not expressly provide for a private right of damages, Sequenom CMM also could incur damages under state laws to private parties for the wrongful use or disclosure of confidential health information or other private personal information by Sequenom CMM or its third-party contractors.

In addition, different States and foreign nations, such as the European Union, also impose certain requirements on the collection of all types of personal information. For example, the European Union Privacy Directive requires that we adhere to certain “safe harbor” requirements with respect to any personal information of a European resident or customer while various states in the US have implemented equally restrictive requirements, such as 201 CMR 17.00, which requires that any company that obtains personal information of any resident of the Commonwealth of Massachusetts implement and maintain a security program that adequately protects such information from unauthorized use or disclosure. As a business that operates both internationally and across all fifty States, any wrongful use or disclosure of personally identifiable information, even if it does not constitute PHI, by Sequenom CMM or its third-party contractors, including disclosure due to data theft or unauthorized access to Sequenom CMM's or its third-party contractors' computer networks, could subject us and Sequenom CMM to fines or penalties that could adversely affect our business and results of operations, including the cost of providing credit monitoring and identity theft prevention services to affected consumers and loss of EU Safe harbor certification.

Security threats to our IT infrastructure and/or our physical buildings could expose us to liability, and damage our reputation and business.

It is essential to our business strategy that our technology and network infrastructure and our physical buildings remain secure and are perceived by our customers and corporate partners to be secure. Despite security measures, however, any network infrastructure may be vulnerable to cyber-attacks by hackers and other security threats. As a leader in the field of molecular diagnostic testing and genetics analysis, we may face cyber-attacks that attempt to penetrate our network security, including our data centers, to sabotage or otherwise disable our research, products and services, misappropriate our or our customers' and partners' proprietary information, which may include personally identifiable information, or cause interruptions of our internal systems and services. Despite security measures, we also cannot guarantee security of our physical buildings. If successful, physical building penetration or any cyber-attacks could negatively affect our reputation, damage our network infrastructure and our ability to deploy our products and services, and harm our relationship with customers and partners that are affected, and expose us to financial liability. We maintain cyber security risk insurance coverage, however any uncovered claim or a claim in excess of our insurance coverage would have to be paid out of our cash reserves, which could have a detrimental effect on our financial condition. It is difficult to determine whether we have sufficient insurance coverage to cover potential claims. Also, we may not be able to procure or maintain insurance policies with desirable levels of coverage on commercially acceptable terms, or at all. We can provide no assurance that we will be able to avoid significant claims, which could hurt our reputation and our financial condition.

We may not have adequate insurance if we become subject to product liability or other claims.

Our business exposes us to potential product liability and other types of claims and our exposure will increase as we and Sequenom CMM and our partners and collaborators expand commercialization of our research use only products and Sequenom CMM's LDTs including the MaterniT21 PLUS test. We have product and general liability insurance that covers us against specific product liability and other claims up to an annual aggregate limit of $20.0 million and $2.0 million, respectively. 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. We can provide no assurance that we will be able to avoid significant product liability claims, which could hurt our reputation and our financial condition.

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Responding to claims relating to improper handling, storage or disposal of hazardous chemicals, and radioactive and biological materials that we use could be time consuming and costly.

We use controlled hazardous and radioactive materials in the conduct of our business, as well as biological materials that have the potential to transmit disease. 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 and certain of our current executive officers and directors have been named as defendants in litigation that could result in substantial costs, divert management's attention and otherwise result in dilution to our stockholders.

In September 2010, we were served with a complaint in a lawsuit filed by our former chief financial officer. He has asserted various claims against us, our chief executive officer, our executive vice president and one of our directors arising out of his resignation in September 2009. Although we intend to continue to vigorously defend such claims, there is no guarantee that we will be successful and we may be have to pay damages awards or otherwise may enter into settlement arrangements in connection with such claims. Any such payments or settlement arrangements could have material adverse effects on our business, operating results or financial condition. We may be required to issue additional shares of our common stock or other securities convertible into or exchangeable for our common stock in connection with future settlements, which would result in additional dilution to our stockholders. Even if the pending claims are not successful, litigation with respect to such claims could result in substantial costs and significant adverse impact on our reputation and divert management's attention and resources, which could have a material adverse effect on our business, operating results or financial condition.

Hostile takeover bids and unsolicited offers could adversely impact our value and cause the trading price of our common stock to fall.

The current economic environment may encourage potential acquirers to make unsolicited and underpriced offers to acquire our business. If we are the target of a hostile takeover bid or unsolicited offer that undervalues our company, such hostile takeover bid or unsolicited offer may adversely impact public perception of the value of our company, which could cause the trading price of our common stock to fall. In addition, such hostile takeover bids or unsolicited offers may distract management and result in other adverse effects on our business and operations.

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 but not limited to:

• our ability to generate cash flow and continue as a going concern;

• actual or anticipated variations in quarterly and annual operating results;

• announcements regarding technological innovations, intellectual property rights, the outcome of patent litigation, research and development progress or setbacks, or product launches by us or our competitors;

• our success in entering into, and the success in performing under, licensing and product development and commercialization agreements with others;

• the success of validation studies for Sequenom CMM's LDTs under development and its ability to continue to publish study results in peer-reviewed journals;

• our success in and the expenses associated with researching, developing, commercializing, and obtaining reimbursement for diagnostic products, alone or in collaboration with our partners and obtaining any required regulatory approval for those products and services;

• the status of litigation against us and certain of our directors; and

• securities analysts' earnings projections or recommendations, third-party research recommendations, or general market conditions.

The stock market in general, The NASDAQ Global Select Market, and the market for life sciences companies in particular, have experienced extreme price and volume fluctuations that may have been unrelated or disproportionate to the operating performance of the listed companies. These price fluctuations may be rapid and severe and may leave investors little time to react. Broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance, and may expose us to potential securities class-action litigation.

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We have restated our prior consolidated financial statements, which may lead to additional risks and costs. 

As discussed in Note 2 to our consolidated financial statements included in Part II - Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on April 2, 2013, or the 2012 Annual Report on Form 10-K, we have restated our consolidated financial statements as of and for the years ended December 31, 2011 and for the years ended December 31, 2011 and 2010, including the quarterly financial data in 2010 and 2011 and through September 30, 2012, following the identification of certain prior period accounting errors, that were determined to be, in the aggregate, material. As a result of the restatement, we are subject to additional risks and may incur substantial unanticipated costs for accounting and legal fees.

*We have in the past identified material weaknesses in our internal control over financial reporting which could, if not effectively remediated, result in additional material misstatements in our financial statements.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. As disclosed in Item 9A of our 2012 Annual Report on Form 10-K, management identified material weaknesses in our internal control over financial reporting. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, our management concluded that our internal control over financial reporting was not effective based on criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission in Internal Control-An Integrated Framework. We have implemented a remediation plan designed to address these material weaknesses. If our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results, which could lead to substantial additional costs for accounting and legal fees.

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Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4.   Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6.    Exhibits

Exhibit Number	Description of Document
3.1(1)	Restated Certificate of Incorporation of the Registrant.
3.2(2)	Restated bylaws of Registrant, as amended.
3.3(3)	Registrant's Certificate of Designation of Series A Junior Participating Preferred Stock.
4.1(1)	Specimen common stock certificate.
4.2(3)	Rights Agreement dated as of March 3, 2009, between the Registrant and American Stock Transfer and Trust Company, LLC.
4.3(3)	Form of Right Certificate.
4.4(4)	Warrant dated May 3, 2011, issued to the Chinese University of Hong Kong Foundation Limited.
4.5(5)	Indenture dated as of September 17, 2012 by and between the Registrant and Wells Fargo Bank, National Association, as trustee.
4.6	Form of 5.00% Convertible Senior Notes due 2017 (included in Exhibit 4.5).
10.1(6)	1999 Employee Stock Purchase Plan, as amended.
10.2(6)	2006 Equity Incentive Plan, as amended.
31.1	Certification of Principal Executive Officer pursuant to Rule13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act, as amended.
31.2	Certification of Principal Financial Officer pursuant to Rule13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act, as amended.
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Database.

(1) Incorporated by reference to the Registrant's Current Report on Form 8-K (No. 000-29101) filed June 6, 2006.

(2) Incorporated by reference to the Registrant's Current Report on Form 8-K (No. 000-29101) filed January 15, 2010.

(3) Incorporated by reference to the Registrant's Current Report on Form 8-K (No. 000-29101) filed March 4, 2009.

(4) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (No. 000-29101) for the quarter ended June 30, 2011.

(5) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (No. 000-29101) for the quarter ended September 30, 2012.

(6) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (No. 333-189520) filed June 21, 2013.

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SIGNATURES

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.

Date: July 24, 2013

SEQUENOM, INC.
By:	/S/    PAUL V. MAIER
	Paul V. Maier Chief Financial Officer
By:	/S/    CAROLYN D. BEAVER
	Carolyn D. Beaver Vice President and Chief Accounting Officer

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