Sequenom’s Former R&D Chief Pleads Guilty to Securities Fraud Charge

Xconomy San Diego — 

A former senior vice president for research and development at Sequenom (NASDAQ: SQNM) admitted today that she knew “blinded” studies the company was conducting of a genetic test for Down syndrome were falsified.

Elizabeth A. Dragon, a former Sequenom senior vice president for research and development, admitted in an appearance before a federal judge this morning that scientists involved in the clinical studies either knew the outcomes before testing the samples, or had been directed to change their initial results. As part of an agreement with prosecutors, Dragon pled guilty to a single count of conspiracy to commit securities fraud.

In her guilty plea, according to a statement released in San Diego by U.S. Attorney Laura Duffy, Dragon admitted that she participated in a conspiracy to defraud Sequenom shareholders in 2008 and 2009 by disseminating false and misleading information about the screening test for Down syndrome that Sequenom had under development at that time.

Sequenom said last month it was restarting development of its prenatal test for Down syndrome after abruptly postponing the long-planned commercial introduction of the test on April 29, 2009. The diagnostics company said at that time only that the delay was due to “employee mishandling of R&D test data and results.”

Less than five months later, an internal investigation prompted a special committee formed by Sequenom’s board to fire CEO Harry Stylli, Dragon, and three other employees. Sequenom’s CFO and another executive resigned also resigned in September.

In her appearance today before U.S. Magistrate Barbara L. Major, Dragon acknowledged that she and others “caused Sequenom to falsely claim that the test’s reliability and accuracy were nearly perfect” and that she personally made such assurances to analysts and investors at meetings in San Diego, New York, and Vancouver, BC.

Sequenom agreed earlier this year to pay $14 million to settle a consolidated shareholder suit over the matter. In restarting development of the test, which screens a sample of the mother’s blood for fetal markers of Down syndrome, Sequenom raised $51.6 million in a private stock placement. At the end of March, the company’s accumulated deficit stood at $614.2 million.

Assistant U.S. Attorney Eric Beste, who has been involved in the Sequenom investigation for months, tells me that no other public charges related to the fraud at Sequenom have been brought at this time. Beste also adds, though, that Dragon “has agreed to make herself available to cooperate with our ongoing investigation.”