By Julia Karow
Two investors in Pacific Biosciences who lost money in the firm's initial public offering have separately filed securities class action lawsuits against several PacBio executives, directors, and underwriters of the IPO, claiming that they misled investors prior to the IPO by not disclosing certain information about the PacBio RS instrument.
Shortly after its IPO in October 2010, PacBio's shares traded at $16.50. Since then, the company's stock has taken a plunge as orders for the instrument have come in more slowly than expected, trading at $2.58 early this week.
The investors, Greg Young and Matthew Sandnas, who both purchased PacBio stock in conjunction with the IPO, filed their complaints with the Superior Court of the State of California, County of San Mateo, in late October. Last month, the action was moved to the US District Court for the Northern District of California.
In their near-identical complaints, the plaintiffs claim that the defendants violated several sections of the Securities Act because PacBio's registration statement was inaccurate and misleading, contained untrue statements of material facts, and omitted others facts.
In particular, they argued that the statement "materially overstated the status of the RS system's development at the time of the IPO" and omitted facts about its relatively low raw-read accuracy — initially on the order of 80 to 84 percent — and low throughput that "would be significant" to potential purchasers.
PacBio's registration statement said that the system demonstrated a consensus accuracy of 99.99 percent using circular consensus sequencing. The company noted in the document that "there are two principal forms of accuracy that are commonly cited, referred to as raw read accuracy and finished or consensus accuracy. The former can be a platform-specific performance metric while consensus accuracy is critical to successful reassembly," but it did not disclose the raw read accuracy for the system.
The investors further claim that the document did not mention "bugs" in the beta systems that were shipped to early-access customers prior to the IPO, and the "negative feedback" these customers were providing to the company at the time. They also said that the statement did not disclose that in order to increase accuracy through repeated sequencing of the same DNA molecule, customers would have to compromise read length.
Additionally, the plaintiffs claim that participants in PacBio's early-access program had been promised a 50 percent discount on their purchase price, "providing them with significant disincentive to go public with their complaints about the RS system until their final sales transactions were complete." This is in contrast to PacBio's own statements that under the terms of the beta program, customers would have to pay 50 percent of the $695,000 list price upon acceptance of the beta unit, and the full sales price after the instrument was upgraded to commercial release specifications (IS 12/7/2010).
Finally, the investors claim that Gen-Probe's $50 million investment in PacBio prior to the IPO "was in reality a down payment for a system that would allow Gen-Probe to obtain the 50 percent discount." They did not explain how they came to that conclusion.
The plaintiffs asked for a jury trial and for the suit to be declared a class action. They further requested the court to award them and other members of the class compensatory damages of an unspecified amount, in addition to attorneys' fees and other costs.
PacBio declined to comment on the suits, citing its policy not to comment on ongoing litigation.
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