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Pacific Biosciences gets sued – and that’s just business as usual

Posted on behalf of Erika Check Hayden

Biotechnology lawyers seem unsurprised by a class-action lawsuit filed last month against Pacific Biosciences, the Menlo Park, California-based gene-sequencing technology company that has seen its fortunes decline dramatically over the past year.

The suit was filed on 21 December in the US District Court for Northern California on behalf of people and companies who bought stock in PacBio between 27 October 2010 — when the company made its initial public offering — and 20 September 2011.

According to the online industry newsletter GenomeWeb, the plaintiff, Thomas J. Primo, alleges that the company made “materially false and misleading statements” in the prospectus materials shown to potential investors before the company went public. For instance, the company said that it could achieve “99.99 [%] accuracy at single molecule resolution from a single DNA strand” in those materials, but then said in a press release in November 2010 that its machine was achieving “80% to 85% single molecule raw read accuracy,” according to GenomeWeb.

Biotech lawyers said that shareholder lawsuits often follow when companies’ fortunes decline, as have PacBio’s over the past year. PacBio’s stock price fell 82% in 2011, driven by lower-than-expected demand for its machines in a market that saw other products debut, and that had softened due to the dismal economic situation in the United States and Europe. The company laid off 130 people — 28% of its staff — in September. Although it is not alone among gene-sequencing companies in feeling the economic pinch, it has been among the hardest hit.

“It’s very common for plaintiffs’ class action lawyers to file a suit whenever a company’s stock tanks,” says lawyer John Conley of the University of North Carolina, Chapel Hill.

Deciding whether PacBio’s claims were false depends on how exactly the statements were made in its prospectuses — for instance, on whether the company was claiming its platform could reach 99.99% accuracy or whether this just applied to some sequenced molecules of DNA. However, the plaintiffs have to do a lot more than prove falsehood to win the case, says Conley: “They have to prove that the statements were intentional and misleading, and that investors reasonably relied on them. That’s tough.”

Allison Williams Dobson, who is both an attorney and a PhD toxicologist at Chapel Hill, adds, “The take-home message for the biotech world, in my mind, is just be truthful about what you’ve already achieved, and what is really just a goal.”

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