NEW YORK (GenomeWeb News) – Sequenom shareholders this week filed suit against the company and several individual current and former executives in relation to the company's mishandling of data surrounding its non-invasive test for fetal gene and chromosome abnormalities.
The complaint, filed Monday in the US District Court for the Southern District of California, alleges breach of fiduciary duties against a number of current and ex-officials, and levels charges of insider stock trading against one of the former officials.
Sequenom stockholders Leon Ries and Michelle Finlayson filed the suit on behalf of other company shareholders.
Named as defendants are Harry Styli, former president and CEO; Paul Hawran, former CFO; Elizabeth Dragon, former senior vice president of R&D; Robert Di Tullio, former vice president of regulatory affairs, quality, and clinical affairs; and Steven Owings, former vice president of commercial development.
The suit also names as defendants current CSO and SAB chair Charles Cantor; current chairman and CEO Harry Hixson; and several other current employees, including members of a committee of independent company directors appointed by Sequenom to oversee an investigation of the data mishandling.
The complaint outlines the history of the development of Sequenom's SEQureDx non-invasive genetic test for fetal gene and chromosome abnormalities such as Down syndrome, RhD blood antigen, and fetal sex determination.
The success of SEQureDx, which would potentially penetrate an approximately $2 billion-a-year prenatal testing market, depended on the company's ability to handle the product's R&D test data, "however, the individual defendants knew that the data was in fact grossly mishandled," the complaint alleges.
"Unbeknownst to the company's shareholders, but well known to the individual defendants, the company lacked adequate internal controls regarding the test data related to SEQureDx," and "failed to exercise sufficient oversight of the employees handling the SEQureDx testing process."
The complaint goes on to cite some 14 instances of company press releases, stockholder conference calls, or other presentations between June 2008 and March 2009, in which the defendants allegedly provided false information about the progress of the test and about positive scientific data surrounding the test.
Throughout that period of time, "unbeknownst to the company's shareholders … the individual defendants knew that the data being released about SEQureDx was unreliable and that SEQureDx was not going to be launched on time as defendant Stylli and certain other Sequenom agents were claiming," the complaint states.
On April 29 of this year, Sequenom publicly disclosed the mishandling of data and announced that it would delay the launch of SEQureDx until the third quarter after having targeted a launch for the first half of 2009 for almost two years.
That revelation caused Sequenom's stock price to plunge to $3.62 per share from $14.91 per share, an approximate market capitalization loss of $687 million, the suit claims.
In September the company terminated the employment of Stylli, Dragon, and three other employees, and announced the resignation of Hawran and Owings. According to the suit, Sequenom's stock plunged 43 percent to $3.22 from $5.69 as a result of the announcement.
In addition, the suit alleges that in March Owings sold more than 22,000 shares of his personally held Sequenom stock, netting him approximately $366,000.
"Defendant Owings' sales are enormous and suspiciously timed because he sold all of his shares mere weeks before Sequenom's April 29, 2009, press release announcing the 'employee mishandling' and the subsequent delay of SEQureDx," the plaintiffs allege in their suit.
The plaintiffs are alleging breach of fiduciary duties against each individual defendant; as well as breach of fiduciary duty of loyalty and good faith in connection with insider stock sales against Owings.
They are asking the court to award shareholders "the amount of damages sustained by the company as a result of the … breaches of fiduciary duties; imposing a constructive trust in favor of the company for the amount of proceeds defendant Owings received" from his sale of stock; and "appropriate equitable relief" and legal fees.
In addition, the plaintiffs are asking the court to order Owings to "disgorge the company all proceeds derived from his sales of Sequenom stock."
The suit was filed earlier this week on the same day that Sequenom released its third-quarter earnings. In a conference call following the Q3 earnings release, Hixson clarified statements he had made in the company's Q2 earnings conference call that no Sequenom officers had sold any stock in the company. In this week's call, Hixson said that in September, one member of upper management and two other employees sold stock, but did not elaborate.
In its Q3 conference call, Sequenom also said that it recently amended its license with Isis Innovation, the tech-transfer company of the University of Oxford, regarding IP underlying the SEQureDx test, as it still plans to pursue commercialization of the test.