Flawed data delays Sequenom launch

May 11, 2009
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San Diego-based Sequenom Inc., which last fall purchased the Center for Molecular Medicine in Grand Rapids, is slated to host its annual stockholders’ meeting Tuesday, after its announcement of flawed research data for its flagship product.

President & CEO Harry Stylli last week told a MichBio conference that his company still intends to pursue growth in Grand Rapids.

“We expect to grow in Michigan. We’ll need to draw in talent from other parts of the country,” Stylli said in his keynote address to the trade organization’s semi-annual meeting in Ann Arbor. In January, Sequenom purchased SensiGen LLC of Ann Arbor, which made gene-based molecular tests.

Sequenom last fall purchased the CMM in Grand Valley State University’s Cook-DeVos Center for Health Sciences from the Van Andel Institute and Spectrum Health for $4 million and stock. Ninety percent of the deal was in stock, the company said in a press release.

But Sequenom announced in April that research data for its centerpiece product, a DNA maternal blood test to detect Down syndrome in a fetus, has been compromised by “employee mishandling.” Four research and development employees have been suspended with pay and an investigation is underway, said Ian Clements Sr., director of corporate communications for the San Diego-based public firm.

Clements declined to say whether the employees are based in Grand Rapids. He said Stylli was in Grand Rapids last week to meet with the 13-member SCMM staff prior to his Wednesday speech for MichBio in Ann Arbor.

The Down syndrome product had been expected to launch this spring, but now will be delayed until new test data is gathered and a study is published in a peer-reviewed journal, the company said. Validation data for genetic tests for Rhesus D, cystic fibrosis and Fetal XY also will be reviewed. Stylli said the company has faith in the technology behind its DNA- and RNA-based tests.

The company announced in March it would lease 5,423 square feet on the second floor of the Arena Station building, 25 Ottawa Ave. SW, while building out the third floor.

“An integral part of our current plan is still the SCMM in Grand Rapids,” Clements said. “We remain firmly committed to our lab in Grand Rapids. It is an important part as we go through and look at validation of tests for Down syndrome, and all our other tests. All of that is going to come out of the lab.”

The SCMM is Sequenom’s only Clinical Laboratory Improvement Act (CLIA) certified clinical diagnostics laboratory, Clements said.

The flawed data revelation prompted a 75 percent drop in the company’s stock price as well as a flurry of lawsuits from stockholders who claim Sequenom’s earlier statements regarding the apparently flawless success of the Down syndrome test were misleading.

Early results that showed the Down syndrome test offered stunning accuracy drew investment in Sequenom from several hedge funds that specialize in the biotechnology arena.

Ridgeback Capital Investments of New York owned 17.4 percent of Sequenom’s common stock, Securities and Exchange Commission filings showed, and TheStreet.com reported that it represented 92 percent of its portfolio. RA Capital Management of Boston, whose portfolio manager is a Harvard University-trained virologist, owned 9.7 percent of Sequenom stock, representing half of its portfolio, TheStreet.com reported. Another filing with the SEC showed that Ridgeback immediately sold about half of its stock.

The funds’ large holdings in Sequenom caused investors to back off stock in other biotech companies they held, according to TheStreet.com.

Representatives from Spectrum Health and the Van Andel Institute did not respond to requests for comment.

In a filing with the SEC, Sequenom last week acknowledged that the half-dozen lawsuits could have a material impact and said they would be turned over to the firm’s insurance company.

Sequenom received approval last year for $20 million worth of Michigan and Grand Rapids tax incentives over 12 years, in exchange for a $20.2 million investment and the creation of 523 jobs through 2013. Sequonom said it intends to expand the laboratory to handle development, testing and analysis of the tests once they are commercially available. Clements said the company employs 238 people worldwide, including 160 at its headquarters in San Diego, which also has a laboratory, although it does not bear CLIA certification.

Sequenom’s stock was trading on the NASDAQ at under $4 last week, after hitting a 52-week high of $29.14.

Crain’s Detroit Business contributed to this report.

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