SEQUENOM, Inc. (NASDAQ: SQNM) looks like the newest implosion of a hopeful company.  The company was supposed to have the Holy Grail for detection of Down syndrome.  After yesterday’s close, the company announced that its expected launch of its SEQureDx™ Down syndrome test was delayed.   The net effect is far worse than that.  And then some.

We do not want to make accusations here over fraud, but it is very hard not to.  The reason was explained as being “due to the discovery by company officials of employee mishandling of R&D test data and results. Accordingly the company is no longer relying on the previously announced R&D test data and results.”

The company claimed that it has not changed plans to develop its RNA- and DNA-based methods for the Down syndrome test, and it said that it will “endeavor to have a validated test in the fourth quarter of 2009.”  It now intends to launch the Down syndrome test upon publication in a peer-reviewed journal of the results from the on-going large, independent clinical studies.

SEQUENOM’s board of directors has formed a special committee of independent directors to oversee an independent investigation of the employees’ activity related to the test data and results; and the committee engaged independent counsel to assist the committee in the conduct of the investigation.

Although the company is not aware of any potentially inappropriate activity related to the reported results of its other tests under development, the company is currently reviewing the data for all tests. As a result of this ongoing review the Rhesus D, Cystic Fibrosis and Fetalxy tests are now anticipated to begin launching in the third quarter of this year.

The explanation here is odd, or maybe more than odd.  The company said it “believes that its Down syndrome program has suffered a temporary setback but that the SEQureDx technology is scientifically and technically sound… and believes that it has the financial resources to commercialize its test for Down syndrome and other prenatal disorders.”

The new developments effectively eliminate all prior announcements about how well the tests were showing results.  There is a serious problem here.  This test is not the determination of a cold.  It is for Down syndrome.  The company was supposed to be the Holy Grail of testing for first trimester pregnancies.  But now you can imagine the problems that are there even if the company can rectify this situation.  Imagine if you are a “parent-in-waiting” and you get a test result back with a “positive” test for Down syndrome.  Or worse yet, imagine if they tell you your baby is healthy and then it is born and you had no idea the baby had Down syndrome.  The long and short is that the credibility here is severely damaged, at best.

You are free to look over the balance sheet to evaluate its cash and cash burn rates, but there is no point.  That cash will be used much more aggressively now that it will have much larger legal fees and now that it has to ramp up its study efforts.

We were concerned over the company’s layoff announcement last week.  We suspected something more sinister than “cutting expenses” was in the works over the medical equipment spending trends in America during the recession.

This news is so bad at SEQUENOM that shares are at new recent lows.  Shares closed yesterday at $14.91 and the prior 52-week trading range was $6.10 to $29.14.  Shares are down about 76% at $3.48 this morning. This stock also had some 30% of its float, or some 15.74 million shares, listed in its most recent short interest.

JON C. OGG

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.