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Sequenom Hammered by Market, Analysts

NEW YORK (GenomeWeb News) – The day after Sequenom's board of directors fired the firm's CEO and its senior VP of R&D, its shares tumbled 39 percent, and analysts who cover the firm noted a lack of clarity surrounding the investigation that led to the firing of those employees and surrounding the firm's technology.

After the close of the market Monday, Sequenom's board of directors issued a statement saying that it had fired President and CEO Harry Stylli, Senior VP of R&D Elizabeth Dragon, and three other unidentified employees. In addition, CFO Paul Hawran and Steve Owings, vice president of commercial development for prenatal diagnostics, resigned from the company.

The shakeup comes following the completion of an investigation into the mishandling of R&D test data and results from studies on the firm's SEQureDx Down syndrome test. Sequenom initially announced the wrongdoing in April, and at the time promised a full investigation.

The investigation has culminated in the firings and resignations, and a number of remedial measures aimed at ensuring the integrity of future clinical studies on the firm's RNA- and DNA-based tests for Trisomy 21.

Sequenom Chairman Harry Hixson, a former president and chief operating officer of Amgen, has taken on the role of interim CEO. He addressed investors and analysts during a conference call yesterday following the release of the news.

However, Hixson declined to discuss details of the investigation or give an update on progress for the non-invasive, molecular diagnostic tests. When asked whether Sequenom would seek to have criminal charges brought against any of the dismissed employees or those who resigned, Hixson replied, "We're fully cooperating with the SEC, [and] that's all I think I should say there."

The lack of clarity and management clear out led to a sharp drop in Sequenom's stock. It closed down 39 percent at $3.46 in Tuesday trade on the Nasdaq.

Management's comments during the call also brought criticism from Caris & Co. analyst Zarak Khurshid, who wrote in a research note that the firm's comments in its press release and conference call "failed to provide substantial color as to what actually happened rather describing vaguely from the investigation that inadequate protocols, controls, and supervision led to inadequately substantiated claims, inconsistencies, and errors." He called it "one of the worst possible outcomes from the investigation."

Khurshid cut his price target on Sequenom's stock to $.50.

Meanwhile, investment bank Leerink Swann dropped its coverage altogether due to the changes in management and uncertain future. Analyst John Sullivan wrote that investors "gained only marginal insight regarding how the fraudulent T21 test data were generated."

He also wrote that "near-term concerns over the balance sheet and management credibility will weigh heavily on [Sequenom's] shares."

Leerink Swann previously had a $5-$6 valuation of the firm's shares.