Sequenom Fallout Hits Hedge Funds

Updated from 1 p.m. EDT

Investors Thursday were selling biotech stocks owned by two hedge funds that took highly concentrated positions in Sequenom(SQNM Quote) on fears that they may be forced to liquidate their other holdings.

Ridgeback Capital Investments of New York and Boston-based RA Capital Management are owners of 17.4% and 9.7% of Sequenom, respectively, according to SEC records.

Shares of the San Diego-based company plunged 75% Thursday after the company said clinical data supporting its prenatal genetic test for Down syndrome was unreliable to due "employee mishandling" of test data.

According to SEC filings, almost 92% of Ridgeback's portfolio is invested in Sequenom; while RA Capital also had an outsized chunk of its portfolio -- about 50% -- invested in the company.

Worries that stinging losses from such a highly concentrated bet on a single company in serious trouble have investors broadly selling other biotech stocks owned by the two funds.

Ridgeback's biotech portfolio includes Acorda Therapeutics(ACOR Quote), Chelsea Therapeutics(CHTP Quote), Incyte(INCY Quote) and Poniard Pharmaceuticals(PARD Quote).

RA Capital's other top positions include Pharmasset(VRUS Quote), Ardea Biosciences(RDEA Quote), AMAG Pharmaceuticals(AMAG Quote) and Vertex Pharmaceuticals(VRTX Quote).

RA Capital's portfolio manager Peter Kolchinksy, reached for comment by phone, said, "We know what's publicly available about Sequenom, and we're not going to comment beyond that."

A phone message left for Wayne Holman, portfolio manager at Ridgeback and an acolyte of hedge fund legend Steve Cohen, has not been returned.

Kolchinsky, who earned a Ph.D. in virology from Harvard University before jumping into the hedge fund world, is known in Wall Street's biotech investment circles as an ardent proponent of Sequenom and its genetic testing technology.