Last Updated Sep 29, 2009 3:11 PM EDT
We all know that drug companies spin data and stretch claims. But trying to get a product approved based on flawed data crosses a line never previously breached. The SEC is already investigating, and criminal charges are a distinct possibility. Shareholder lawsuits are guaranteed. It will be grim.
Here's what we know so far:
The board fired CEO Harry Stylli (pictured) and Elizabeth Dragon, the company's R&D chief. CFO Paul Hawran and one other unidentified officer "resigned." Three other employees were also terminated. Each has denied wrongdoing. (It later emerged on a conference call that the unidentified officer was Steve Owens Owings, vp commercial development.) The fact that the chief, R&D, commercial development and the CFO were all involved suggests that the rot was company-wide.
Chairman Harry Hixson, 71, the former president of Amgen, has assumed the role of interim CEO. The company is cooperating with the SEC.
The data mishandling emerged after an internal probe of 40 witnesses and more than 300,000 documents and emails. The company gave these details:
... the company failed to put in place adequate protocols and controls for the conduct of studies in the Trisomy 21 program at the company. Certain of the company's employees also failed to provide adequate supervision. In the absence of such protocols, controls and supervision, the test data and results in the company's Trisomy 21 program included inadequately substantiated claims, inconsistencies and errors.
The company reiterates that it is no longer relying on, and the public should no longer rely on, any of the previously announced test data and results for the company's noninvasive prenatal test for Trisomy 21.Sequenom said it believed that ultimately the Trisomy 21 test will prove valid.
Earlier in the year, Sequenom traded at $25, but plunged to around $5 when it announced the probe in spring. Ironically, the stock seems to be trending up despite the news:
(Click to enlarge.) T-21 -- a potential blockbuster because it is less invasive than amniocentesis -- will now not be available until 2011:
"Everything now has to be completely redone," said Elemer Piros, an analyst at Rodman & Renshaw in New York, in a telephone interview yesterday. "We may not see a launch for the Down test before 2011."Note that Piros owned shares personally. Investors are, obviously, livid:
"The company's press release and Q&A commentary failed to provide substantial color as to what actually happened... We feel this is one of the worst possible outcomes from the investigation and investors continue to be in the dark," Caris & Co analyst Zarak Khurshid said.(Although Barclays Capital feels it's a speculative buying opportunity.)
And finally: I'm not in favor of conference call theatrics, but this was one occasion where righteous fury is entirely appropriate. Wall Street, however, seems to disagree. The majority of the analysts who asked questions on Sequenom's call yesterday sounded as if they were hardly bothered, and asked softball questions about "the future" and "the strategy." Hixson was clearly making the best of a bad job but at one point was clearly being "helped" with his answers via stage whispers from his staff.
The only analyst who didn't behave like a total wimp was Mark Stackman (sp?) of RBC Capital. Here's what he said:
Stackman: You guys are dancing around what happened in the past. Part of your future is your past. If you're not going to be clear about it ... I think that presents a problem for your future. We represent at least 10,000 shares of Sequenom ... I'm hearing the future with the same confidence I heard with your last president or CEO, and I'm frankly not convinced unless we know what happened ... We were promised we were going to get the results of that investigation ... it's not just employee mishandling. Executives have resigned. ... We feel as investors we're entitled to know what did happen.
Hixson: Well OK, um, as I previously stated, the one thing we can't say is that in the laboratory, adequate protocols were lacking, and adequate procedures were lacking as well. This led to results, errors and inconsistencies in our data and results. We are subject to an ongoing investigation by the SEC. We have class action litigation from shareholders. We're fully cooperating. So I really can't go beyond [that].A few minutes later, Hixson thanked the listeners for their interest in his company and ended the call.