Sequenom Maintains Tight Lid on “Mishandled Data” of Key Diagnostic Test

8/11/09

Three months ago, San Diego’s Sequenom disclosed that the launch of a new prenatal test for Down syndrome would be delayed because scientific data had been mishandled. So what have we learned since that bombshell announcement? Not much.

The company’s recent quarterly filing with the SEC suggests Sequenom (NASDAQ: SQNM) must start the process of validating its test from scratch. It states: “We are no longer relying on our previously announced research and development (R&D) test data and results.”

During the company’s quarterly earnings call last week, executives shed no light on what went wrong. Sequenom CEO Harry Stylli told analysts and investors that the company hopes to launch the test in 2010, according to a transcript on Seeking Alpha. But Stylli declined to be specific about what needs to be done to bring the test to market.

Sequenom announced on April 29 that it was delaying introduction of SEQureDx, its much-anticipated genetic test for Down syndrome, because a management review uncovered inconsistencies in the data. The company’s shares lost 76 percent of their value in trading the next day, and have barely recovered since. The disclosure was a shock because just six days earlier – on April 23 – the company said the Down syndrome test was on track for a June launch.

What happened in those intervening days is a mystery to investors. I asked Sequenom spokesman Ian Clements to provide a timeline showing when and how management learned of the mess, but he said doing so would interfere with an internal investigation. Four outside directors are looking into the matter, assisted by attorney Robert D. Rose of the Los Angeles firm Sheppard Mullin Richter & Hampton. San Diegans with long memories will remember Rose as the federal prosecutor who convicted J. David Dominelli of masterminding an $80 million Ponzi scheme in the 1980s.

I also asked Clements to identify the four outside directors, whose names haven’t been disclosed. He agreed to find out of if he could reveal who they are; when I hear back from him, I’ll report his answer.

The SEC is asking questions, too. Sequenom disclosed on June 29 it received written notice that the agency had opened an investigation into the company’s mishandling of data. In addition, the SEC wants information on another matter: Sequenom’s offer to acquire Exact Sciences in January 2009. Sequenom dropped a hostile bid for the Marlborough, MA-based company after Exact Sciences, acting to save itself, sold some assets to Genzyme. Sequenom says it intends to cooperate fully with the SEC.

Four unidentified employees continue to be suspended with pay in connection with the data mishandling matter, Clements said.

Meanwhile, Sequenom is trying to pick up the pieces and move the Down syndrome genetic test forward. Down syndrome is a leading cause of mental retardation and occurs when a baby has three copies of chromosome 21 instead of two. Currently, prenatal tests for Down syndrome use amniocentesis, which can cause miscarriages. The Sequenom test uses a blood sample from the pregnant woman to look for evidence of a third chromosome. Rodman & Renshaw analyst Boris Peaker told me Sequenom’s main value to investors largely hinges on this test. It is not enough for the Sequenom test to work, he said; it must be more accurate than existing methods. “Otherwise, why bother?” he said.

Clements tells me the company plans an internal study of about 1,000 blood samples to see how the test performs. But he says Sequenom won’t launch the test until outside researchers complete an independent study of 15,000 or so samples and publish the results. During the conference call last week, Sequenom’s Stylli said no “named executives”— those listed in the proxy—have been suspended from their jobs because of the incident. So it appears at this point that the debacle hasn’t spread to the executive suite.

Denise Gellene is a former Los Angeles Times science writer and regular contributor to Xconomy. You can reach her at dgellene@xconomy.com Follow @

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