Sequenom Earnings: Now There's an SEC Probe Into a Failed Hostile Bid, Too

Last Updated Mar 16, 2010 4:23 PM EDT

Sequenom (SQNM) reported its year-end earnings on Monday and included an upbeat statement on its progress in getting its Down syndrome test back on track. The company made rather less effort, however, to draw attention to a section in its annual report -- filed today -- that says the company faces yet another SEC investigation, this time into its failed hostile takeover of Exact Sciences in January 2009.

Sequenom was already being investigated by the U.S. Attorney's office, the FBI, the SEC and NASDAQ after development of its Down syndrome test technology collapsed in September 2009 in a data corruption-cum-insider-trading scandal. The SEC's interest in Exact is brand new. This is all we know, according to Sequenom's 10-K (emphasis added):

In June 2009, we received written notification that the Enforcement staff of the SEC has initiated an investigation following our April 2009 announcement regarding our Trisomy 21 test under development. Following our September 2009 announcement, members of the special committee and its independent counsel met with the SEC staff in connection with its investigation. As part of this investigation, the SEC staff has also required us to produce information with respect to our announcement relating to our offer to acquire EXACT Sciences, Inc. in January 2009. We intend to continue to cooperate fully with the SEC in this matter.
A year ago, before the Down syndrome fiasco, Sequenom was involved in a battle for control of Exact, which also develops prenatal testing devices and had a stool-based DNA test for the early detection of colon cancer that Sequenom was interested in. The other bidder was Genzyme (GENZ). Sequenom bid $41 million but Genzyme succeeded with a lower, $24.5 million bid, when the board rejected Sequenom's offer.

Why would the SEC be interested in a failed acquisition that occured before Sequenom's first announcement, in April, that all was not well with its Down syndrome development program? Here's some wild speculation: The SEC may want to know whether executives at Sequenom knew by January that there was something wrong internally. If that's the case, then Sequenom may have made misrepresentations about the underlying value of its stock, which it offered to Exact holders at $1.50 share. Or, Sequenom's presence may have pushed up the price for Genzyme. When the explanation eventually emerges, it will be fascinating no matter what.