Strong sales helped Walgreen (WAG) post better-than-expected quarterly results, pushing shares of the drugstore chain up sharply Tuesday. Shares climbed 9.5% in midmorning trading.

The Deerfield, Ill.-based company earned 44 cents a share for the quarter ended Aug. 31, a decline from 45 cents a share in the year-ago quarter. Wall Street analysts expected, on average, profit of 39 cents a share. Revenue was slightly better than expected, coming in at $15.7 billion. Analysts expected sales of $15.68 billion.

What prompted the results? A combination of profits on drugs and belt-tightening. Prescription sales (about two-thirds of total sales) rose 9%, and generic drug sales powered a rise in the gross margin to 27.7% from 27.6%. Same-store sales climbed 4.5% for the pharmacy and dropped 1.4% for other merchandise. "Our balance sheet should only strengthen as we slow our store growth, control inventory and drive cost savings over the next few years," said Chief Financial Officer Wade Miquelon on a Tuesday conference call.

Still, Pali Capital analyst Robert Summer worried that a slow retail environment could be a problem for Walgreen. "We continue to envision front-end sales weakness offset by some level of resiliency in the pharmacy," Summer wrote in a Monday preview note. "Unfortunately, we anticipate that comp trends will remain weak, if not accelerate to the downside."

Bill Dreher, an analyst with Deutsche Bank, wrote Tuesday that the cost cutting measures of Walgreen's "Rewiring for Growth" plan had been effective.

Bottom Line: Buy
Wait just a bit to let the stock settle out from its bounce and take the chance to benefit from the nexus of improving retail and health-care trends.

Sequenom Down

Shares of San Diego biotech firm Sequenom (SQNM) screeched down 35% in midday trading on Monday after the company fired top managers for poorly supervising data on a test for Down Syndrome.

Chief Executive Harry Stylli and Elizabeth Dragon, senior vice president of research and development, as well as three other unnamed employees, were all dismissed. Chief Financial Officer Paul Hawran and Steven Owings, head of commercial development for prenatal diagnostics, resigned.

Harry Hixson, a veteran executive at Amgen (AMGN), Abbott Laboratories (ABT) and Elitra Pharmaceutical, was appointed as interim CEO. In a Monday night conference call, Hixson said the company had started to address possible problems with the Trisomy 21 test, a noninvasive method for detecting the genetic abnormality that causes Down Syndrome, after initial reports of trouble surfaced in April. The company appointed a board and authorized an investigation, the results of which were released Monday. "The company failed to put in place adequate protocols and controls for the conduct of studies in the T21 program at the company," he said. "This resulted in inadequately substantiated claims, inconsistencies, and errors in the test data and results for our T21 program."

Hixson said Sequenom will institute remedial measures and controls to prevent a recurrence of botched tests and trials, including new disclosure controls, new procedures for testing and the creation of a science committee that will report to the board of directors.

The planned measures didn t impress Oppenheimer & Co. analyst Amit Hazan, who said investors should avoid Sequenom shares. "Considering the importance of T21 to the company's valuation and the uncertainties that surround it, in addition to cash burn issues, the ongoing lawsuits and an SEC investigation, we maintain our Underperform rating" and said bringing the test back to the clinical testing stage could be an expensive process.

His comments were echoed by Elemer Piros, an analyst at Rodman & Renshaw, who added that "it is not clear if and when investors may hear the closure of this story."

Raj Mehta, at Auriga, said the lack of guidance and visibility into Sequenom's entire molecular diagnostics business was a clear sell signal, and that prospects for recovery appear minimal, he wrote Tuesday. Although scientific research supports some basic principles that would allow fetal DNA to be collected from a mother's blood plasma "there is no evidence at present that suggests it will equate to a cost-effective sensitive/specific test that has any commercial viability."

Bottom Line: Sell
This company has operated under a cloud for some time, and any investor hoping for a positive outcome will have to absorb the financial impact of corporate and scientific chicanery.