Cancer Genetics, Inc.
- Company Name
- Cancer Genetics, Inc.
- Stock Symbol
- Class Period
- March 23, 2017 to April 2, 2018
- Motion Deadline
- June 4, 2018
The complaint charges Cancer Genetics and certain of its officers with violations of the Securities Exchange Act of 1934. Cancer Genetics is an emerging leader in the field of personalized medicine, offering diagnostic products and services that enable precision medicine in the field of oncology. On October 12, 2015, Cancer Genetics announced that it had finalized the purchase of Los Angeles-based molecular profiling laboratory Response Genetics, Inc., which it said would add $10 to $12 million in annual revenue and establish a national clinical sales footprint.
The complaint alleges that, despite defendants’ assurances during the Class Period that the Company’s disclosure controls and procedures were effective, on April 2, 2018, the Company reported in its annual report on Form 10-K that its “disclosure controls and procedures were not effective,” and that it had “identified a material weakness . . . in [its] internal control over financial reporting.” According to the Form 10-K, during “the fourth quarter management revised its estimation process and as a result of the low collection patterns during the fourth quarter principally related to clinical service revenues from claims generated by the Los Angeles location, a determination was made to significantly increase the allowance for doubtful accounts to reflect this change in estimate,” which the Company’s management had “determined [was] a control deficiency [that] constitutes a material weakness.” The Form 10-K further stated that the Company’s failure “to identify that adjustments which pertained to contractual allowances and reduced expected collections of current quarter revenues should have been recorded as reductions in net revenue rather than bad debt expense.”
In addition, the Company issued a press release on April 2, 2018 providing an update on its fourth quarter and full year 2017 financial results, which stated that the Company’s focus in the first quarter of 2018 was “the careful evaluation of the Company’s accounts receivable, which had increased to approximately $16 million on the balance sheet.” The release attributed the increase to “disruptions in collections in its Clinical Services business.” The Company further stated that “it recorded a bad debt expense of $4.4 million and wrote off $1.8 million of its accounts receivable, with a significant portion of the bad debt expense and write off related to collection issues with respect to the accounts receivable recorded subsequent to the 2015 acquisition of Response Genetics.” On this news, the price of Cancer Genetics shares fell over 33% to close at $1.10 per share on April 3, 2018.