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Power3 Asks Court to Dismiss Fraud Claim in Suit Filed by Transgenomic


The story originally ran on April 13 and has been updated.

By Tony Fong

Power3 Medical Products this week asked a court to dismiss a claim of fraud in a lawsuit filed by Transgenomic in February.

The lawsuit also accuses Power3 of libel, slander, and breach of contract. The biomarker-based diagnostic firm has not responded yet to those claims.

In the motion, filed with the US District Court in Nebraska, The Woodlands, Texas-based Power3 said Transgenomic failed to "plead fraud with particularity and … to state a claim of fraud upon which relief can be granted."

Power3 backed up this claim by saying Transgenomic has not alleged that any claims made by Power3 were false, or that when the claims were made that Power3 made them knowing they were false or "without knowledge of its truth as a positive assertion."

Without these elements Transgenomic has no claim for fraudulent misrepresentation, Power3 said in its motion.

In a separate motion, Power3 petitioned the court to seal documents in support of its motion to dismiss Transgenomic's fraud claim because the documents contain and refer to information that has been redacted in Transgenomic's amended complaint.

"The referenced information in Power3's brief will need to be viewed by this court in order to resolve" its motion to dismiss the fraud claim, the court said. "Thus redaction would not eliminate or reduce the need for sealing."

On Tuesday, the court granted the motion.

Power3's moves follow Transgenomic's decision to sue the company after it terminated a marketing agreement they signed in 2009. Terms of that deal granted Transgenomic exclusive rights to certain protein biomarkers, including those used for Power3's NuroPro test for Alzheimer's and Parkinson's diseases (PM 02/26/10).

Power3 terminated the deal after accusing Omaha, Neb.-based Transgenomic of breach of contract and breach of confidentiality. Transgenomic responded by filing its suit.

In its complaint, the company accused Power3 of making "false representations" about its tests in order to entice Transgenomic into the marketing agreement.

Shortly after filing its lawsuit, Transgenomic petitioned the court to seal its original complaint in its entirety, saying it contained "private and confidential information" material to the case, and whose disclosure would be detrimental to both itself and Power3.

The court originally denied that request, saying that most of the information that Transgenomic considers confidential is already in the public domain. The company then amended its complaint by redacting large chunks of information, including details pertaining to its allegations of fraud, and the court then sealed the original complaint.

The core of Transgenomic's fraud claim comprises "false representations" Power3 allegedly made to Transgenomic regarding the performance and results of its neurodegenerative test in hopes of inducing Transgenomic to enter into the marketing agreement.

According to the suit, Power3 presented "fraudulent" data to Transgenomic that suggested NuroPro's sensitivity and specificity were higher than they actually were at the time: Power3 claimed NuroPro's sensitivity and specificity for Alzheimer's to be 100 percent, while for Parkinson's disease the company said the test achieved a sensitivity of 94.9 percent and a specificity of 95.5 percent.

Transgenomic tried to validate Power3's results but could not. In its original complaint, Transgenomic said that it used Power3's database and attained a "clinically relevant performance result" of 80 percent sensitivity and 70 percent specificity for Parkinson's, and 61 percent sensitivity and 72 percent specificity for Alzheimer's.

Those figures are redacted from the amended complaint.

The results portrayed by Power3 were "crucial" in Transgenomics' decision to partner with Power3 to market the test, the company said in the suit.

Transgenomic claimed in its original complaint that the data from Power3 were not from cross-validation but from resubstitution results, attained by analyzing "each member of the database against the entire database." Cross validation data is more clinically relevant than resubstitution results because the latter "typically underestimates error rates, whereas cross-validation produces an unbiased error estimate of test performance in a clinical setting."

The suit also claims that Ira Goldknopf, Power3's president and chief scientific officer, "had failed to disclose that the results he reported were, in fact, resubstitution results, not cross-validation results, and thus not a reflection of true test performance."

Such representations, Transgenomic said, were "material. At such time Power3 knew or should have known such representations were false and Transgenomic would rely upon them to enter into the [marketing agreement] to its detriment."

Transgenomic had no way of independently verifying Power3's data before entering into the agreement, it added, and as a result of the alleged misrepresentations, Transgenomic claims it incurred more than $520,000 in damages. The actual amount is to be determined during trial.

Transgenomic is seeking damages, attorney's fees, and other expenses.

Lawyers for Transgenomic and Power3 did not respond to requests for comment.

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