New York Biotech Sues Sequenom for Fraud

Xconomy San Diego — 

Xenomics, a New York-based developer of molecular diagnostic technologies, says it has filed a suit in New York state court alleging that San Diego’s Sequenom fraudulently misrepresented the status of its prenatal Down syndrome test. Xenomics alleges the fraud induced them to exclusively license valuable patent rights to Sequenom.

According to a licensing agreement announced last October, Xenomics granted Sequenom (NASDAQ: SQMN) a worldwide license to its patents for development of prenatal and diagnostic products in return for an upfront payment of $1 million and royalties on sales. Xenomics also granted Sequenom negotiation rights to use its patents in cancer-related products. Xenomics, which trades on the pink sheets under the symbol XNOM.PNK, says is seeking compensatory and punitive damages not to exceed $300 million, and the termination of the license between the companies. A Sequenom representative declined to comment on the litigation.

The suit adds to the mounting problems facing Sequenom, which stunned investors last April 29 with an announcement that the launch of the prenatal Down syndrome test would be delayed because scientific data had been mishandled. The company’s shares lost 76 percent of their value in trading the next day and have drifted downward since. The disclosure was a shock because just six days earlier – on April 23 – the company said the Down syndrome test was on track for a June launch. The SEC has opened an investigation to the company’s mishandling of its data and the Justice Department also is asking questions. In addition, the SEC told Sequenom it wants information on another matter: Sequenom’s offer to acquire Exact Sciences in January 2009. Sequenom dropped a hostile bid for the Marlborough, MA-based company after Exact Sciences, acting to save itself, sold some assets to Genzyme. Sequenom has said it is cooperating with authorities.

Last month, Sequenom ousted CEO Harry Stylli and R&D senior vice president Elizabeth Dragon after an internal investigation. CFO Paul Hawran resigned, as did another officer who wasn’t identified. Three employees also were terminated. Each of the officers has denied wrongdoing. The company still has not given an accounting of what happened.