Dive Brief:

• The Department of Justice has charged the president of Sunnyvale, California-based Arrayit Corporation with the alleged submission of $69 million in false claims for COVID-19 and allergy tests.

• In a complaint unsealed Tuesday, DOJ accused Arrayit of claiming it could detect the coronavirus in dried blood samples and telling clinics to bundle the test with its allergy diagnostic, regardless of medical need. In a statement, DOJ said in the affidavit supporting the complaint the company's president said it could test for COVID-19 and allergies with a blood sample far smaller than was that touted by fraudulent blood testing wunderkind Theranos.

• The medtech's approach allegedly led to the filing of “false and fraudulent claims for an unrelated and far more expensive allergy test for 120 allergens” using Medicare beneficiary information obtained through the COVID-19 test, according to the complaint.

Dive Insight:

DOJ said the case is the first criminal securities fraud prosecution it has brought in relation to the COVID-19 pandemic.

However, the origins of the case against Mark Schena, the president of Arrayit, date back two years. Since 2018, Arrayit has allegedly submitted, or caused the submission, of $5.9 million in claims to Medicare, and claims of $63 million to private insurers, through means including the payment of kickbacks and bribes. The complaint also features social media posts Schena made as far back as 2018, such as one falsely claiming Arrayit had received a $2.5 million government contract request.

The COVID-19 aspect of the case against Schena begins in mid-March, when the Arrayit president is said to have emailed clinics about the development of a COVID-19 test based on “finger stick blood collection.” According to DOJ, Schena only ordered COVID-19 antigens on the day he sent the emails, suggesting Arrayit was yet to develop, validate or make a test at that time.

"Schena and others represented that Arrayit’s test was accurate at a time when no Arrayit test existed, such as in an email sent by Arrayit’s Vice President, copying Schena, that claimed that the accuracy of Arrayit’s serological test 'was comparable or better' than a COVID-19 PCR test. In addition, after Schena developed a purported test, Schena and others failed to disclose that it failed to satisfy FDA performance standards for obtaining an emergency use authorization," DOJ said.

According to DOJ, the promotion of the COVID-19 test was intended to “increase revenue from Arrayit’s expensive and medically unnecessary allergy test.” Starting in mid-March, Arrayit allegedly began claiming that in bundling its COVID-19 and allergy tests it “was following CDC and NIAID directives in eliminating both allergies and the common flu whenever possible.”

A consultant who provided evidence cited in the complaint raised concerns “Arrayit was billing for allergy testing that doctors had not ordered.”

The complaint also covers information Arrayit and Schena communicated to investors regarding their COVID-19 test. In March, Schena sent emails stating Arrayit had a test and had received 50,000 requests for it, but later told investigators the company only began running tests in April.

In explaining the March emails, Schena said it is trivial to adapt the allergy test to COVID-19, likening the process to a pastry chef who switches from selling “strawberry pies” to selling “rhubarb and strawberry pies.” An email between FDA and Arrayit from April shows the test failed to achieve the level of specificity and sensitivity needed to receive emergency use authorization.

Based on the evidence, DOJ thinks there is probable cause that Schena engaged in securities fraud and conspiracy to commit healthcare fraud. 

In a separate action, the Securities and Exchange Commission charged penny stock trader Jason Nielsen with falsely claiming Arrayit had an approved COVID-19 test. SEC said Nielsen made the claim to drive up the share price of Arrayit, without disclosing his stake in the company. Nielsen allegedly made $137,000 in six weeks.