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Arrayit Ends Investor Lawsuit, Strikes Deal with Array Molecular for Food Diagnostics Venture


NEW YORK (GenomeWeb) – Arrayit disclosed in a regulatory filing this week that a lawsuit filed by an investor against several members of its management team has recently been dismissed.

In addition, Sunnyale, Calif.-based Arrayit announced an agreement under which it will supply microarray technology to Array Molecular, a newly formed company that is focused on food pathogen detection and is owned in part by the plaintiff in the dismissed lawsuit.

According to information disclosed in a Sept. 15 8-K filing with the US Securities and Exchange Commission, as well as Arrayit's most recent 10-Q,
the lawsuit, filed on Aug. 11 in the Supreme Court of the State of New York by investor Reuben Taub against Arrayit CEO Rene Schena, President Mark Schena, and Executive Vice President Todd Martinsky, and "John Does 1-10," was dismissed as of August 25.

Taub had argued that he had lost his investment in Arrayit due to the defendants' "fraud and failure to properly disclose withholding and other tax liabilities of the company" as well as "misrepresentations concerning the development costs for and company's ownership interest in OvaDx," the microarray-based test for early stage ovarian cancer that Arrayit has been developing with Avant Diagnostics, which spun off from Arrayit in 2011.

According to the regulatory filings, Taub had been seeking damages of $500,000 plus interest costs, disbursements, and attorney's fees. Paul Haje, director of sales and marketing at Arrayit, confirmed with BioArray News this week that the case had been dismissed with prejudice but declined to further elaborate.

Of note, Arrayit also said in its SEC filing this week that it signed a contract last month providing for the supply of technology to Array Molecular, which is owned by certain individual investors of Arrayit, including Taub.

Specifically, Array Molecular, which is focused on food pathogen detection and is also based in Sunnyvale, is providing a license to its IP in exchange for 24 percent of the outstanding shares of Array Molecular. The contract also stipulates that Array Molecular will provide at least $2 million toward commercializing a food pathogen test based on the firm's technology, according to the filing.

It is unclear whether the new licensing deal is connected to Arrayit's recent legal dispute with Taub, who in his LinkedIn profile describes himself as having served as vice president of business development for Array Molecular since August. Array Molecular is also owned by Arrayit investor Irwin Zalcberg, a small cap investor who in 2013 made several investments in the company, making him owner of 4,634,890 common shares of Arrayit stock and 3,490,000 warrants.

Arrayit noted in its 8-K that on or about Sept. 19 it intends to register up to 6.6 million shares in connection with last year's private placement. According to the company, the shares "may be issued upon exercise of certain warrants to purchase common shares of Arrayit."

Arrayit's Haje told BioArray News that his company is an investor in Array Molecular, as are a number of other investors who also hold stakes in Arrayit.

He said that the "Array Molecular project is associated with a deal Arrayit is involved in with the US government," but declined to provide further comment on the nature of the test in development. According to Haje, Arrayit will supply Array Molecular with instruments and consumables as part of its agreement.

The recent resolution of the lawsuit between Taub and the Arrayit executives is the third legal dispute that the company's management has settled recently. According to its most recent 10-Q, the company on Aug. 6 settled a suit brought by Avant Diagnostics earlier this year in the State Court in the State of Arizona.

In that suit, filed March 31, Avant accused Arrayit of breach of contract, fraud, negligent misrepresentation, and other cases of action. The terms of the recent settlement include Rene and Mark Schena joining Avant's board of directors, Arrayit retaining the right to manufacture the OvaDx test, and Avant retaining its right to sell and market OvaDx upon US Food and Drug Administration clearance.

Arrayit was also named as a defendant in a Jan. 13 wrongful termination suit brought by Tamarin Lindenberg in the Superior Court of New Jersey that was later moved to the US District Court for the District of New Jersey. In the case, Lindenberg, who had been an employee at Avant Diagnostics, alleged that Avant, current Avant CEO Steven Scott, former Avant CEO John Howell, Arrayit, and other plaintiffs, had violated the New Jersey Conscientious Employee Protection Act, and accused the plaintiffs of breach of contract, economic duress, and intentional infliction of emotional distress.

Arrayit in February filed a motion with the court to dismiss the case against it, and on Aug. 6, the motion to dismiss was granted. On the same date, the court also granted Howell's motion that the case against him be dismissed, citing a lack of jurisdiction over the former Avant CEO, who resides in Oregon. According to the court documents, Howell resigned from Avant in November 2012.