Sequenom: Mishandling of results delays launch of Down Syndrome tests

Sequenom's (SQNM) announcement Wednesday after the close regarding its Down syndrome test highlights the risks facing pharmaceutical investors and pharmaceutical companies when developing, researching and testing drugs.

Sequenom said its SEQureDx Down syndrome test, which was scheduled for commercial launch in June, would be delayed because of employee mishandling of the data. Sequenom's stock, which closed Wednesday at $14.91, opened today at $3.30, plunging . As the stock plunges 75 percent this morning, it's interesting to get a glimpse into the world of pharmaceutical testing where integrity and accuracy matter no less than the validity of the science.

Down syndrome, identified by one extra chromosome, is one of many disorders that can be discovered by prenatal testing. It causes developmental and mental disabilities and abnormal facial appearances in those affected. Today, higher risk pregnant women need to undergo invasive procedures to test for the disorder. Sequenom's SEQureDx Down syndrome test was supposed to be a safer non-invasive procedure, testing the DNA of a fetus by detecting it in minute amounts in the mother's blood and isolating fetal RNA or DNA to determine how many copies of chromosome the fetus has. It also showed promise to be far more accurate than other methods, not to mention less expensive than amniocentesis and chorionic villus sampling -- the two current methods.

Early studies of the test were very positive and Sequenom was betting its entire future on this and other genetic tests for other infant disorders. If SEQureDx was all that it should have been, and other tests Sequenom developed followed in its footsteps, then analysts expected the company to claim $2 billion-a-year in the prenatal testing market.

After all these data and promises, suddenly Sequenom said the launch of the test is to be delayed because the company discovered "employee mishandling of R&D test data and results." It is unclear what the company means by that and CEO Harry Stylli said in a conference call he couldn't expand much more due to ongoing independent investigation. But it's sufficient to note that Stylli said that "This raises significant concerns regarding the integrity of that data."

In order to launch the test now, Sequenom said will obtain new patient samples to validate the test all over again, which may occur in the fourth quarter. But if before it had 858 samples, now it means to involve about 15,000 women. Upon publication in a peer-reviewed journal of the results from the independent clinical studies, a commercial launch will not take place until next year.

Interestingly, Sequenom also said its SEQureDx technology remained scientifically and technically sound. Was the mishandling then not directly related to the data but "issues internal to Sequenom?" For now, Sequenom said the company has not changed its plans to develop in parallel its RNA- and DNA-based methods for the Down Syndrome test and will endeavor to have a validated test in the fourth quarter of 2009.

But the apparent contradictions are baffling investors and put the company and its ability to turn SEQureDx into a viable commercial test into question. Why the need for such large trials, so long? It is unclear why all this is needed to determine if these tests work or not.

To allay some concerns, Sequenom said it believes it has the financial resources to commercialize its test for Down syndrome in the timeframe given and that it is not aware of any potentially inappropriate activity related to the reported results of its other tests under development. But those will be reviewed nonetheless and therefore the other tests are now anticipated to begin launching in the third quarter of this year.

If the potential large market investors counted on is now questionable and as the company lost some credibility, it's not surprising then that one after another analysts lined up to downgrade Sequenom.

Separately, Sequenom reported a wider first-quarter loss of $17.5 million, or 29 cents per share, on higher expenses due to research and development spending. Revenue fell 18 percent to $8.7 million from $10.6 million. This was below analyst expectations of a loss of 24 cents per share on revenue of $11.2 million. Guidance, too was below estimates as the company forecast 2009 revenue in the range of $32 million and $35 million, compared with the Wall Street consensus of $55.2 million.

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