Sequenom secures IP amid legal charges

November 23, 2009
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Even as it faces lawsuits alleging fraud and insider trading, Sequenom Inc. recently moved to secure the licensing rights to the flagship test it has been planning to process at its Grand Rapids laboratory.

Interim CEO Harry Hixson Jr. said Sequenom has secured licenses for the genetic technology on which its SEQureDx tests are based. The test analyzes fetal genetic material that circulates in a pregnant woman’s bloodstream to determine whether the fetus has Down syndrome, potentially a $2 billion market.

In an amended agreement with ISIS Innovation Ltd., the technology transfer arm of Oxford University in England, the San Diego-based Sequenom agreed to pay $1 million immediately, double royalty payments, and pay more during the final 12 months of the patent term. Sequenom retains royalty-bearing rights to the patent and its foreign equivalents.

During a quarterly conference call earlier this month, Hixson addressed concerns from analysts about the beleaguered firm’s ability to hold on to its intellectual property licenses.

“I’m delighted to report that we remain the exclusive licensee of this very important technology,” Hixson said.

According to a study published in January by the PHG Foundation in England, Dennis Lo, professor of medicine at the Chinese University of Hong Kong, was a professor at Oxford University in 1997 when he published a paper that identified cell-free fetal DNA from the Y chromosome of male fetuses in mothers’ bloodstreams. Lo is listed as an inventor on a 1997 European patent that details potential applications, including testing for Down syndrome, fetal gender and RhD status, the paper stated.

In 2005, Sequenom obtained exclusive license from ISIS Innovation in the U.S. and Europe.

“We spoke with Dennis Lo several times since our April and September announcements, including our announcement of findings from the internal investigation,” Hixson said. “I am delighted to report that Dr. Lo is still very much committed to working with Sequenom to enable delivery of what we all believe will be an important new diagnostic tool.”

Sequenom bought the Center for Molecular Medcine, a CLIA-certified lab, a year ago from Spectrum Health and the Van Andel Institute to handle processing of the tests it expects to launch based on Lo’s work.

The company said it planned to expand the lab, now located in Grand Valley State University’s Cook-DeVos Center for Health Sciences, and hire 500 people and invest $20 million by 2013. But in April, it reported employee “mishandling” of clinical test results for the Down syndrome test and has said that both the market launch of the test and lab expansion in Grand Rapids would be delayed. The company has not yet provided details about the mishandling.

During the conference call, Hixson disclosed that, contrary to his previous comments, one company officer and two lower-level employees who left the company in September financially benefited from stock sales that occurred shortly before the April announcement that the Down syndrome test data had been compromised. He said the officer sold the stock to obtain cash for a down payment on a house.

Earlier this month, two shareholders from Minnesota and North Carolina filed a derivative lawsuit in the U.S. District Court in southern California that contends that the firm’s officers and board members knew the clinical test data was compromised and issued false public reports. The lawsuit also accuses Steven Owings, who had been vice president of commercial development for prenatal diagnostics, of insider trading because he sold more than 22,500 shares of Sequenom stock for $365,967 about one month prior to the company’s announcement about the mishandled test data.

After the announcement, the value of Sequenom’s common stock plunged 75 percent in a day.

Following a five-month company investigation, in September Sequenom fired five employees — including then-CEO Harry Stylli and the senior vice president for research — and obtained resignations from two other employees.

The company also faces a complaint in a New York state court from Xenomics Inc., a small company traded on the Pink Sheets that since 1999 has been doing research and development on maternal urine DNA tests for fetal conditions. Xenomics is seeking $300 million from Sequenom, alleging Sequenom breached its licensing agreement by misrepresenting itself.

The SEC, the Federal Bureau of Investigation, the U.S. Attorney for the Southern District of California and Nasdaq are investigating Sequenom. Hixson said he could not comment on those investigations, but pledged Sequenom’s cooperation.

In its quarterly filing, the company said the SEC’s Enforcement Division is seeking information about Sequenom’s failed bid for Exact Sciences Inc., a Wisconsin company that is working on stool tests for colorectal cancer. In January, Sequenom proposed an all-stock transaction for Exact Sciences, but withdrew the offer when Exact Sciences found another deal.

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