phillip kim (prosecurities.stanford.edu/filings-documents/1053/adi00_01/2015623_r01c... · 4. this...

Case 2:15cv00504SPL Document 31 Filed 06/23/15 of 25

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TIFFANY & BOSCO, P.A. Richard G. Himeirick (#004738) J. James Christian (#023614) Seventh Floor Camelback Esplanade II 2525 East Camelback Road Phoenix, Arizona 85016 Telephone: (602) 255-6000 Fax: (602) 255-0103

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Liaison Counsel for Lead Plaintiff and the Class

THE ROSEN LAW FIRM P.A. Phillip Kim (pro hac vice) 275 Madison Avenue, 34 th Floor New York, NY 10016 Telephone: (212) 686-1060 Fax: (212) 202-3827 pki.m.(ärosen legal. com

Lead Counsel for Lead Plaintiff and the Class

LIJIfl MIS tUI4tUhI3Ut1[SItSIS1IJtII

Brian Rapp, individually and on behalf of Case No. 2: 15-cv-00504-SPL all others similarly situated,

CLASS ACTION Plaintiff,

FIRST AMENDED CLASS ACTION vs. COMPLAINT FOR VIOLATIONS OF

THE FEDERAL SECURITIES LAWS Accelerate Diagnostics, Inc.; Lawrence Mehren; and Steve Reichling, JURY TRIAL DEMANDED

Defendants.

FIRST AMENDED COMPLAINT FOR VIOLATIONS OF THE SECURITIES LAWS

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Lead Plaintiff Julia Chang, individually and on behalf of all other persons

2 similarly situated, by her undersigned attorneys, alleges in this Class Action Complaint

3 ("Complaint") the following upon knowledge with respect to her own acts, and upon

4 facts obtained through an investigation conducted by her counsel, which included, inter

5 a/ia: (a) review and analysis of relevant filings made by Accelerate Diagnostics, Inc.,

6 ("AXDX" or the "Company") with the United States Securities and Exchange

7 Commission (the "SEC"); (b) review and analysis of Defendants' public documents and

8 press releases; (d) Lead Plaintiffs independent investigation; and (d) information

9 readily obtainable on the Internet.

10

Plaintiff believes that further substantial evidentiary support will exist for the

11 allegations set forth herein after a reasonable opportunity for discovery. Most of the

12 facts supporting the allegations contained herein are known only to the Defendants or

13 are exclusively within their control.

14

NATURE OF THE ACTION

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1. This is a securities class action on behalf of all persons and entities other

16 than Defendants who purchased AXDX securities during the period between March 7,

17 2014 and February 17, 2015, inclusive (the "Class Period"), seeking to recover damages

18 caused by Defendants' violation of the Sections 10(b) and 20(a), and Rule lOb-S

19 thereunder, of the Securities Exchange Act of 1934.

20

2. Defendants perpetrated a fraud during the Class Period by issuing

21 materially misleading public statements to investors with the purpose and effect of

22 artificially inflating the market price of AXDX common stock. AXDX's sole activity is

23 developing a tool for rapid diagnosis of hospital acquired bacterial infections. It told

24 investors that unlike all products on the market, AXDX' s could reduce the turnaround

25 time for testing from days to hours by eliminating the need for bacterial blood culturing,

26 which is a time consuming process. In reality, AXDX's product still required that

27 blood be cultured in order to work, so AXDX's process is significantly less rapid than

28 they claim. Therefore Defendants have grossly exaggerated the value of their product.

1 FIRST AMENDED COMPLAINT FOR VIOLATIONS OF THE SECURITIES LAWS

Case 2:15-cv-00504-SPL Document 31 Filed 06/23/15 of 25

1

JURISDICTION AND VENUE

2

3. The claims asserted herein arise under and pursuant to Sections 10(b) and

3 20(a) of the Exchange Act, (15 U.S.C. §78j(b) and 78t(a)), and Rule lob-S promulgated

4 thereunder (17 C.F.R. §240.10b-5).

5

4. This Court has jurisdiction over the subject mailer pursuant to §27 of

6 Exchange Act (15 U.S.C. §78aa) and 28 U.S.C. §1331 as AXDX conducts business and

7 maintains an office in this District.

8

5. In connection with the acts, conduct and other wrongs alleged in this

9 Complaint, Defendants, directly or indirectly, used the means and instrumentalities of

10 interstate commerce, including but not limited to, the United States mails, interstate

11 telephone communications and the facilities of the national securities exchange.

12

PARTIES

13

6. Plaintiff Julia Chang purchased AXDX securities during the Class Period

14 during the Class Period and has suffered damages as set forth in the certification filed

15 with the Court on May 18, 2015 (Docket No. 21-1, pp. 5-6).

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7. Defendant AXDX is a Delaware corporation with its principal executive

17 offices located at 3950 South Country Club, Suite 470, Tucson, Arizona 85714. AXDX

18 purportedly develops and commercializes solutions for the diagnosis of serious

19 infections. During the Class Period AXDX securities were actively traded on the

20 NASDAQ under the ticker "AXDX."

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8. Defendant Lawrence Mehren ("Mehren") has served as the Company's

22 Chief Executive Officer and a member of the board of directors from June 26, 2012 to

23 the present. Prior to that time, Mehren served as Senior Vice President and Chief

24 Financial Officer of Ventana Medical Systems from 2007 until 2008, Senior Vice

25 President of Emerging Businesses from 2008 until 2009 and as Head of Global

26 Business from 2009 until 2011. Previously, he was Managing Director, Partner and

27 head of P&M Corporate Finance's life sciences practice. As of March 19, 2015,

28 Mehren owned 3,707,021 shares of AXDX stock, for 7.9% of the company.



1

9. Defendant Steve Reichling ("Reichling") has served as the Company's

2 Chief Financial Officer from September 10, 2012 to the present. Prior to that time, Mr.

3 Reichling served as general manager of Spring Bioscience Corp., an R&D and research

4 products subsidiary of Roche Tissue Diagnostics. From January 2003 to December

5 2009, Mr. Reichling held various finance, accounting and operations leadership roles at

6 Roche Tissue Diagnostics and Ventana Medical Systems, Inc., including director of

7 finance and operations, manager of business development finance, and head of Internal

8 Audit and Sarbanes Oxley Compliance. From October 2002 to January 2003, Mr.

9 Reichling was an auditor at Ernst & Young LLP. Mr. Reichling received his B.A. in

10 accounting and entrepreneurship from the University of Arizona and is a Certified

11 Public Accountant. As of March 19, 2015, Reichling owned 122,928 shares of AXDX

12 stock.

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10. Defendants Mehren and Reichling are collectively referred to hereinafter

14 as the "Individual Defendants."

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11. AXDX, Mehren, and Reichling are collectively referred to hereinafter as

16 "Defendants."

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12. Each of the Individual Defendants:

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(a) directly participated in the management of the Company;

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(b) was directly involved in the day-to-day operations of the Company

20 at the highest levels;

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(c) was privy to confidential proprietary information concerning the

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Company and its business and operations;

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(d) was involved in drafting, producing, reviewing and/or

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disseminating the misleading statements and information alleged herein;

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(e) was aware of or recklessly disregarded the fact that the misleading

26 statements were being issued concerning the Company; and

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(1) approved or ratified these statements in violation of the federal

28 securities laws.



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13. As officers, directors, and controlling persons of a publicly-held company

2 whose common stock is and was registered with the SEC pursuant to the Exchange Act,

3 and was traded on NASDAQ and governed by the provisions of the federal securities

4 laws, the Individual Defendants each had a duty to disseminate accurate and truthful

5 information promptly with respect to the Company's financial condition and to correct

6 any previously-issued statements that had become materially misleading or untrue to

7 allow the market price of the Company's publicly-traded stock to reflect truthful and

8 accurate information.

9

14. AXDX is liable for the acts of the Individual Defendants and its

10 employees under the doctrine of respondeat superior and common law principles of

11 agency as all of the wrongful acts complained of herein were carried out within the

12 scope of their employment with authorization.

13

15. The scienter of the Individual Defendants and other employees and agents

14 of the Company is similarly imputed to AXDX under respondeat superior and agency

15 principles.

16

BACKGROUND

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16. Hospital-acquired bacterial infections are a serious concern to hospitals.

18 As a result, whenever patients show symptoms that are consistent with hospital

19 acquired infections ("HAIs"), they are immediately placed on broad spectrum

20 antibiotics, and are tested for bacterial infection. Until a diagnosis can be made, it is

21 necessary to apply "broad spectrum" antibiotic treatment, which consists of giving

22 patients multiple medications at once. This is necessary because different bacteria,

23 though they manifest themselves through similar symptoms, are susceptible to different

24 antibiotics. Once a diagnosis has been made, doctors can switch to a targeted treatment

25 of a single antibiotic. The use of broad spectrum antibiotics is expensive, and also

26 accelerates the phenomenon of antibiotic resistance. Therefore, obtaining faster

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diagnoses for hospital acquired infections would be beneficial to hospitals. 1

17. Traditional testing for bacterial infection requires two types of culturing,

which AXDX refers to as "blood culturing" and "isolate culturing". According to

AXDX, Blood culturing is "the analytical process of growing bacteria from a patient

specimen (blood, sputum, etc.) to a quantity suitable for isolation and analysis." (10-K,

2008). In other words, a blood culture is a process where a medical professional places

a sample of the patient's tissue, such as blood, in a growing medium, and then allows

bacteria to grow. Blood culturing is necessary because presently existing lab tests

cannot detect the small concentrations of bacteria present in a patient's blood.

Culturing is the process that allows the growth of more bacteria so that testing can be

performed. After blood culturing is completed, it is possible to determine whether a

bacterial infection is present in the blood, and if there is, the culture is referred to as a

positive blood culture. An additional culturing process, which AXDX refers to as

"isolate culturing" is then performed on the product of a positive blood culture, and

allows a medical professional to identify what type of bacteria are present, and what

antibiotics the bacteria are susceptible to. According to AXDX, the time needed to

conduct culturing is what causes bacterial testing to take two to three days.

18. In its public statements, AXDX told investors that it was developing a

process for identifying bacteria, and their antibiotic susceptibility, without the need for

any culturing at all. Their main product is their ID/AST system—formerly called the

BACce1 system.

19. AXDX has stated that "[o]ur goal is to reduce the failure rate of initial

therapy by shortening the lab turnaround time to less than eight hours, rather than the 2-

Although Defendants suggest in their SEC filings that a failure to make a fast diagnosis can frequently be fatal for patients, in reality broad spectrum antibiotic treatment can effectively treat bacterial infections. Therefore, while faster diagnostic tools are of use to hospitals, they do not have the immediate life saving effects that Defendants suggest.



1 3 days now required. Rapid testing would provide guidance in time to influence initial

2 therapy."

3

20. ID/AST stands for identification/antibiotic susceptibility testing.

4 Identification refers to the process of determining what bacteria have infected a patient.

5 Antibiotic susceptibility testing refers to the process of determining what drugs a

6 bacterium is resistant to so that appropriate antibiotics can be prescribed.

7

21. AXDX repeatedly told investors that ID/AST was a "culture free" process

8 that tests bacteria "directly" from a "patient specimen." AXDX has claimed that "[t]he

9 Company's BACce1TM platform utilizes a proprietary culture-free process with both

10 genomic and phenotypic detection technologies that decrease time to result while

11 maintaining high sensitivity and specificity."

12

22. AXDX has also claimed that "[t]he BACce1TM system applies our

13 proprietary technology to eliminate time-consuming bacterial culturing, thus

14 eliminating the major source of delay with current testing methods." (emphasis added).

15 Because it does not rely on blood cultures, according to AXDX, "BACce1TM uses long-

16 accepted bacteriological testing principles, but applies our proprietary technology to

17 adapt them to analyze live bacteria."

18

23. AXDX's claim, however, that ID/AST. or BACce1. is a "culture free"

19 process that could directly test a patient's specimen was false, because the system can

20 only eliminate isolate culturing, not the initial blood culturing.

21

24. As AXDX admitted in its 2015 10-K, ID/AST first required a "positive

22 blood culture" in order to work. Accelerate Diagnostics states that to operate the

23 ID/AST system, "a positive blood culture sample is introduced to the system through

24 pipetting directly from the blood culture bottle into our test kit." According to AXDX,

25 this culturing takes on average 8 hours to complete. Only after this eight hour blood

26 culturing is complete can a sample be introduced to the ID/AST system. Then, "[a]fter

27 approximately one hour from sample introduction, an ID result would be available, and

28 after an additional four hours the AST would also be complete."



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25. During the class period, AXDX was unambiguous in its SEC filings that

BACce1 would eliminate culturing, and did not acknowledge that BACce1 required a

positive blood culture in order to work. The SEC was also misled into believing that

AXDX claimed that BACce1 required no culture in order to work, and sent a letter to

AXDX dated August 14, 2014. The SEC's letter contained the following comment:

We note from the study available on your website entitled "Rapid simultaneous identification and quantitation of Staphylococcus aureus and Pseudomonas aeruginosa directly from bronchoalveolar lavage specimens using automated microscopy" that part of your image analysis relied upon progenitor cell growth into a clone of daughter cells. We also note that your system uses a "culture-free process." Please tell us and in future filings disclose how you achieve cell growth without a culture. We note in this regard that your study indicates that certain of the bacteria being studied were subcultured on sheep's blood agar.

26. On September 9, 2014, the Company responded, stating:

When we state that the ID/AST System uses a "culture-free process," we are referring to our system's ability to directly process a positive blood culture, respiratory, or other specimen without first undergoing a manual culture and isolation process. This contrasts with conventional identification and susceptibility testing methods that require overnight culturing to produce a pure isolate prior to testing.

For example, the culturing process for a positive blood culture or respiratory sample typically begins with "streaking" (controlled smearing) a patient sample onto the surface of several types of culture media in petri dishes. These petri dishes are then incubated, usually overnight, and then examined. This examination looks for the presence of bacteria as indicated by the growth of bacterial "colonies," similar in appearance to what one might find on moldy cheese. If more than one type of bacteria is present, as determined by different appearance, each colony is then "plucked" and streaked onto separate petri dishes, sometimes with different growth media. These specimens are then incubated, again usually overnight, after which they are examined. If the appearance of the growth within each plate is the same, this is now deemed an isolated culture of bacteria. At this point, often 48 hours after the sample has first been obtained, analysis can begin on these isolated cultures.

This analysis can take numerous forms, with the most common automated method being an identification and susceptibility instrument. While these instruments vary in terms of features, they all require the aforementioned



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"isolated culture" and millions of bacteria to perform both ID and AST. The reason for this is that they all use similar sensors to measure turbidity, pH changes or enzymatic reactions, in order to determine the identification of bacteria and determine AST. Simply stated, these measurements work by determining the cloudiness of a particular liquid or biochemical reaction. When used to determine an AST by turbidity, if the liquid becomes cloudier due to growth in the presence of an antibiotic, it is deemed "resistant." If the liquid becomes clearer due to the lack of growth or bacterial death it is deemed "susceptible."

Using this method for AST requires that the operator prepare what is referred to as a ".5 McFarland," or "inoculum." This process basically dilutes the concentrated culture of bacteria from the petri dish into a fluid that that the system can process. Once this process is complete, the technologist then uses this solution to inoculate a testing plate or card which is introduced into the system. The system then uses its turbidimeter and software algorithms to determine the susceptibility profile, a process that takes approximately 10 hours with the entire process from beginning to end often taking multiple days.

In contrast, the ID/AST system eliminates the need to produce an isolated culture and corresponding inoculum. Instead, we plan for the operator to introduce a patient positive blood culture, respiratory, or other sample directly into our system. Once introduced the ID/AST system automatically processes the sample using our proprietary sample preparation method. Once this sample preparation process is complete, our system uses a proprietary high speed imaging system, instead of a turbidimeter, to analyze the bacteria in real time. The benefits of this approach are significant, as it allows the system to analyze each individual bacterial cell over a four-hour period to determine its susceptibility profile. This greatly decreases the time of analysis and eliminates the need for a standardized, cultured inoculum, resulting in a process that takes approximately five hours, instead of days for the standard "culture-based method."

We do not believe that the level of detail requested by the Staff is material to our investors, so the Company respectfully requests to not include such disclosure in its future filings.

27. This language again created confusion and did not make clear that the

ID/AST system could never function as a blood test without a prior positive blood

culture. The language above confused even the SEC which still wasn't certain whether

FIRST AMENDED COMPLAINT FOR VIOLATIONS OF THE SECURITIES LAWS

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Case 2:15-cv-00504-SPL Document 31 fled 06/23115 of 25

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or not the ID/AST system was culture free. The SEC responded in a letter dated

October 3, 2014 by asking:

Our prior comment 3 noted that your study indicated that certain of the bacteria being studied were subcultured on sheep's blood agar. With a view towards revised future disclosure, please tell us whether your system uses a culture, or a growth medium, and how your system is able to use the different growth media for the different types of bacteria you are trying to identify.

28. Rather than clarify for the SEC that for blood testing, ID/AST always

requires a blood culture, AXDX continued to obfuscate the issue, stating in a letter to

the SEC dated October 24, 2014 that:

The Accelerate ID/AST System first identifies pathogens in a sample using FISH and then determines the pathogen's susceptibility profile using phenotypic analysis, also called AST. Prior to beginning AST, the appropriate media condition is selected by the system's software based on the pathogen identified using FISH in the first step. AST is then performed using media that optimizes growth conditions for that pathogen.

29. This statement created further confusion and failed to make clear that the

ID/AST could never function without a prior blood culture.

FALSE STATEMENTS

30. The Class Period begins on March 7, 2014, when AXDX filed its Form

10-K for the fiscal year ending December 31, 2013 (the "2013 Form 10-K") with the

SEC. The 2013 Form 10-K stated the following with regards to AXDX's BACce1

system:

The Company's BACce1TM platform utilizes a proprietary culture-free process with both genomic and phenotypic detection technologies that decrease time to result while maintaining high sensitivity and specificity.

The BACce1TM system applies our proprietary technology to eliminate time-consuming bacterial culturing, thus eliminating the major source of delay with current testing methods.


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1 BACce1TM uses long-accepted bacteriological testing principles, but applies our proprietary technology to adapt them to analyze live bacteria extracted directly from a patient specimen.

Based on internal lab data, we believe that the BACce1TM system will identify the organisms present in a patient's specimen and count the number of organisms of each type in less than one hour after receiving a specimen. We believe that the BACce1TM system will then additionally report antibiotic susceptibility for each type of organism in less than 7 hours after receiving a specimen.

[Emphasis added].

31. The 2013 Form 10-K was signed by Defendants Mehren and Reichling.

lAftached to the 2013 Form 10-K were Sarbanes-Oxley Act of 2002 ("SOX")

certifications signed by Defendants Mehren and Reichling attesting to the accuracy of

the 2013 Form 10-K.

32. The statements referenced in 730-3 1 above were materially false and

misleading because they failed to disclose that, in reality, the ID/AST system did not

directly test a patient specimen, but actually required a positive blood culture in order to

work. The Statement "[w]e believe that the BACce1TM system will then additionally

report antibiotic susceptibility for each type of organism in less than 7 hours after

receiving a specimen" was misleading because it implied that the BACce1 system could

receive antibiotic susceptibility results within 7 hours of obtaining blood from a patient,

when Defendants knew that in reality, the BACce1 system first required a positive blood

culture, meaning that the system took more than 13 hours from the initial drawing of

blood to yield a susceptibility result.

33. On May 2, 2014 AXDX filed its Form 10-Q with the SEC for the first

quarter of 2014 ending March 31, 2014 (the pt Quarter 2014 10-Q"). The Pt Quarter

2014 10-Q stated the following about AXDX's ID/AST system:

The Company's ID/AST instrument utilizes a proprietary culture-free process with both genomic and phenotypic detection technologies that

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1 decrease time to result while maintaining high sensitivity and specificity.

2 [Emphasis added].

3

34. The Pt Quarter 2014 10-Q was signed by Defendants Mehren and

4 Reichling. Attached to the 1 st Quarter 2014 10-Q were SOX certifications signed by

5 Defendants Mehren and Reichling attesting to the accuracy of the Pt Quarter 2014

6

10-Q.

7

35. The statements referenced in 733-34 above were materially false and

8 misleading because they failed to disclose that, in reality, the ID/AST system did not

9 directly test a patient specimen, but actually required a positive blood culture in order to

10 work.

11

36. On August 1, 2014 AXDX filed its Form 10-Q with the SEC for the

12 second quarter of 2014 ending on June 30, 2014 (the 2nd Quarter 2014 10-Q"). The 2nd

13 Quarter 2014 10-Q stated the following with regards to AXDX's ID/AST system:

14 The Company's ID/AST instrument utilizes a proprietary culture-free

15 process with both genomic and phenotypic detection technologies that

decrease time to result while maintaining high sensitivity and specificity. 16

17 [Emphasis added].

18

37. The 2nd Quarter 2014 10-Q was signed by Defendants Mehren and

19 Reichling. Attached to the 2nd Quarter 2014 10-Q were SOX certifications signed by

20 Defendants Mehren and Reichling attesting to the accuracy of the 2nd Quarter 2014

21

10-Q.

22




25 work.

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39. On September 4, 2014, AXDX released a presentation, which is posted on

27 their website, which includes the following slide - which states that no culture is

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1 required for BACce1:

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40. The foregoing statement was false and misleading because AXDX

14 required a positive blood culture to work.

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41. That same presentation also included the following slide, which states that

16 "Our discovery eliminates the need for cell culture":

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1

42. The foregoing statement was false and misleading because AXDX

2 required a positive blood culture to work.

3

43. On November 4, 2014 AXDX filed its Form 10-Q with the SEC for the

4 third quarter 2014 ending on September 30, 2014 (the 3rd Quarter 2014 10-Q"). The 3rd

5 Quarter 2014 10-Q stated the following with regards to AXDX's ID/AST system:

6 The Company's ID/AST instrument utilizes a proprietary culture-free

7 process with both genomic and phenotypic detection technologies that

decrease time to result while maintaining high sensitivity and specificity. 8

9 [Emphasis added].

10

44. The 3rd Quarter 2014 10-Q was signed by Defendants Mehren and

11 Reichling. Attached to the 3rd Quarter 2014 10-Q were SOX certifications signed by

12 Defendants Mehren and Reichling attesting to the accuracy of the 3rd Quarter 2014

13

10-Q.

14




17 work.

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46. Thus, by misrepresenting that the process was "culture free" AXDX

19 misled investors to believe that the test worked to produce results in half the time that

20 was truly required.

21

lUll DUN till 0 U DLYJ I DI till DO

22

47. On February 18, 2015, analyst Shareholder Watchdog published an article

23 on SeekingAlpha.com entitled "Accelerate Diagnostics- A Misleading Story Ripe For

24 Decline." (the "Shareholder Watchdog Report") The article revealed that the most

25 likely use of the BACce1 or ID/AST System requires a positive blood culture.

26

48. The Shareholder Watchdog Report stated that "A 'direct from sample'

27 methodology implies that a positive blood culture is not required. Given the limitations

28



1 and slow pace of blood cultures, it is not a surprise that a direct approach is the 'holy

2 grail' of diagnostics. We believe AXDX management has potentially misled investors

3 by repeatedly implying their technology enables direct detection." The Shareholder

4 Watchdog Report also noted that AXDX claims that their technology "eliminates 'the

5 need for culture" which the Shareholder Watchdog Report noted is highly misleading.

6 "They claim that their process can eliminate the need for a culture is brazen and appears

7 untrue, in our opinion."

8

49. On this news, the Company's stock fell $4.91 per share or over 21% over

9 the next three days to close at $18.05 per share on February 20, 2015, damaging

10 investors.

11

ADDITIONAL SCIENTER ALLEGATIONS

12

50. The fraud alleged herein involved the Company's core operations, as

13 ID/AST was the Company's only product.

14

51. The small size of the Company supports a strong inference of scienter.

15 AXDX was at all relevant times a small company with 73 employees as of the

16 December 31, 2014, per the Company's most recent 10-K. As a result, Defendant

17 Mehren, as CEO, was easily able to monitor the activities of his employees and be fully

18 familiar with the operations of the Company. Similarly, as CFO, Defendant Reichling

19 had access to the same sources of information.

20

52. Mehren had access to sources of information that would have revealed the

21 fraud, including "thousands" of tests on ID/AST prototype systems and the final

22 product that were conducted by AXDX's own internal laboratories and pilot studies

23 conducted both internally and with clinical partners, as described in the Company's

24 10-K. Defendant Reichling also had access to this information.

25

53. Mehren also was aware of red flags that put him on notice of the

26 misstatements. The SEC sent a letter to the Company, on August 14, 2014 that asked

27 for clarification regarding the Company's use of the term "culture free" The SEC

28 stated: "We also note that your system uses a 'culture-free process.' Please tell us and



1 in future filings disclose how you achieve cell growth without a culture." On October

2 3, 2014, the SEC stated directly "With a view towards revised future disclosure, please

3 tell us whether your system uses a culture, or a growth medium." These letters were

4 addressed directly to Defendant Mehren, and put him on notice of the misleading nature

5 of his Company's statements. Defendant Reichling was the individual who answered

6 the SEC's letters, pulling him directly on notice of the Company's misleading

7 statements.

8

54. As CEO and CFO, Mehren and Reichling were responsible for preparing

9 and delivering the investor presentations to analysts and other investor groups.

10

55. The Company also specifically stated that Mehren was a "hands on" CEO

11 whose expertise was critical to the success of the Company's operations. "Because of

12 the complex and technical nature of our products and the dynamic market in which we

13 compete, our future success depends on our ability to recruit, train and retain key

14 personnel, including our senior management, research and development, science and

15 engineering, manufacturing and sales and marketing personnel. In particular, we are

16 highly dependent on the management and business expertise of Lawrence Mehren, our

17 President and Chief Executive Officer." CW1, who was a Principal Design Engineer

18 from June to November 2013, and who worked as a packaging engineer, stated that

19 Mehren was very passionate and engaged in many aspects of the company. CW 1 stated

20 that all employees participated in companywide meetings every Monday and Friday.

21 APPLICABILITY OF PRESUMPTION OF RELIANCE: AFFILIATED UTE

22

56. Neither Plaintiff nor the Class need prove reliance - either individually or

23 as a class - because under the circumstances of this case, which involve omissions of

24 material fact as described above, positive proof of reliance is not a prerequisite to

25 recovery, pursuant to the ruling of the United States Supreme Court in Affiliated Ute

26 Citizens of Utah v. United States, 406 U.S. 128, 92 S. Ct. 1456, 31 L. Ed. 2d 741

27 (1972). All that is necessary is that the facts withheld be material in the sense that a

28 reasonable investor might have considered the omitted information important in



1 deciding whether to buy or sell the subject security.

2

FRAUD-ON-THE-MARKET DOCTRINE

3

57. Plaintiff will rely upon the presumption of reliance established by the

4 fraud on the market doctrine in that, among other things:

5

(a) Defendants made public misrepresentations or failed to disclose

6 material facts during the Class Period;

7

(b)

The omissions and misrepresentations were material;

8

(c)

The Company's stock traded in an efficient market;

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(d) The misrepresentations alleged would tend to induce a reasonable

10

investor to misjudge the value of the Company's stock; and

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(e) Plaintiff and other members of the Class purchased AXDX

12 common stock between the time defendants misrepresented or failed to

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disclose material facts and the time the true facts were disclosed, without

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knowledge of the misrepresented or omitted facts.

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58. At all relevant times, the market for AXDX common stock was efficient

16 for the following reasons, among others:

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(a) As a regulated issuer, AXDX filed periodic public reports with the

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SEC. AXDX met the requirements for listing, and was actively traded on

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the NASDAQ, under ticker AXDX;

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(b) On March 7, 2014, there were 21.174 million shares in AXDX's

21 public float, and 41.905 million AXDX shares outstanding;

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(c) During the Class Period, an average of 935,636 AXDX shares

23 were traded weekly, or about 4.1% of AXDX's publicly traded float and

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2.2% of AXDX's total shares outstanding;

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(d) AXDX regularly communicated with public investors via

26 established market communication mechanisms, including through

27 regular disseminations of press releases on the major news wire services

28 and through other wide-ranging public disclosures, such as



1 communications with the financial press, securities analysts, and other

2 similar reporting services;

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(e) AXDX was eligible to file short-form registration statements with

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the SEC on Form S-3;

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(1) AXDX was followed by numerous analysts that issued reports

6 about it;

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(g) New company specific information was rapidly reflected in the

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Company's stock price; and

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(h) More than 10 firms made a market in the Company's stock on the

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NASDAQ.

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PLAINTIFF'S CLASS ACTION ALLEGATIONS

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59. Plaintiff brings this action as a class action pursuant to Federal Rules of

13 Civil Procedure 23(a) and (b)(3) on behalf of all persons and entities other than

14 Defendants who purchased AXDX securities during the period between March 7, 2014

15 and February 17, 2015, inclusive (the "Class").

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60. The members of the Class are so numerous that joinder of all members is

17 impracticable. Throughout the Class Period, AXDX's securities were actively traded on

18 the NASDAQ. While the exact number of Class members is unknown to Plaintiff at this

19 time and can only be ascertained through appropriate discovery, Plaintiff believes that

20 there are at least thousands members in the proposed Classes. Members of the Class

21 may be identified from records maintained by AXDX or its transfer agent and may be

22 notified of the pendency of this action by mail, using a form of notice customarily used

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in securities class actions.

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61. Plaintiff's claims are typical of the claims of the members of the Class, as

25 all members of the Class are similarly affected by Defendants' wrongful conduct in

26 violation of federal law that is complained of herein.

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62. Plaintiff will fairly and adequately protect the interests of the members of

28 the Class and has retained counsel competent and experienced in class and securities



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litigation.

63. Common questions of law and fact exist as to all members of the Class

and predominate over any questions solely affecting individual members of the Class.

Among the questions of law and fact common to the Class are:

(a) whether the federal securities laws were violated by Defendants'

acts as alleged herein;

(b) whether statements made by Defendants to the investing public

during the Class Period misrepresented material facts about the business,

operations and management of AXDX; and

(c) to what extent the members of the Class have sustained damages

and the proper measure of damages.

64. A class action is superior to all other available methods for the fair and

efficient adjudication of this controversy since joinder of all members is impracticable.

Furthermore, as the damages suffered by individual Class members may be relatively

small, the expense and burden of individual litigation make it impossible for members

of the Class to redress individually the wrongs done to them. There will be no difficulty

in the management of this action as a class action.

FIRST CLAIM Violation of Section 10(b) of

The Exchange Act Against and Rule lOb-5 Promulgated Thereunder Against All Defendants

65. Plaintiff repeats and realleges each and every allegation contained above

as if fully set forth herein.

66. During the Class Period, Defendants carried out a plan, scheme and

course of conduct which was intended to and, throughout the Class Period, did: (1)

deceive the investing public, including Plaintiff and other Class members, as alleged

herein and (2) cause Plaintiff and other members of the Class to purchase and sell

AXDX securities at artificially inflated and distorted prices. In furtherance of this


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1 unlawful scheme, plan and course of conduct, Defendants, and each of them, took the

2 actions set forth herein.

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67. Defendants (a) employed devices, schemes, and artifices to defraud; (b)

4 omitted material facts necessary to make the statements not misleading; and (c)

5 engaged in acts, practices, and a course of business that operated as a fraud and deceit

6 upon the purchasers of the Company's securities in an effort to maintain artificially

7 high market prices for AXDX securities in violation of Section 10(b) of the Exchange

8 Act and Rule lOb-S thereunder. All Defendants are sued either as primary participants

9 in the wrongful and illegal conduct charged herein or as controlling persons as alleged

10 below.

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68. Defendants, individually and in concert, directly and indirectly, by the

12 use, means or instrumentalities of interstate commerce and/or of the mails, engaged and

13 participated in a continuous course of conduct to conceal adverse material information

14 about the business, operations and future prospects of AXDX as specified herein.

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69. These Defendants employed devices, schemes and artifices to defraud

16 while in possession of material adverse non-public information and engaged in acts,

17 practices, and a course of conduct as alleged herein in an effort to assure investors of

18 AXDX's value and performance and continued substantial growth, which included the

19 making of, or participation in the making of, untrue statements of material facts and

20 omitting to state material facts necessary in order to make the statements made about

21 AXDX and its business operations and future prospects in the light of the circumstances

22 under which they were made, not misleading, as set forth more particularly herein, and

23 engaging in transactions, practices and a course of business that operated as a fraud and

24 deceit upon the purchasers of AXDX's securities during the Class Period.

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70. Each of the Individual Defendants' primary liability, and controlling

26 person liability, arises from the following facts: (1) the Individual Defendants were

27 high-level executives, directors, and/or agents at the Company during the Class Period

28 and members of the Company's management team or had control thereof; (2) each of



1 these Defendants, by virtue of his responsibilities and activities as a senior officer

2 and/or director of the Company, was privy to and participated in the creation,

3 development and reporting of the Company's public statements; (3) each of these

4 defendants enjoyed significant personal contact and familiarity with the other

5 Defendants and was advised of and had access to other members of the Company's

6 management team, internal reports and other data and information about the Company's

7 products at all relevant times; and (4) each of these Defendants was aware of the

8 Company's dissemination to the investing public of information that they knew or

9 recklessly disregarded to be materially misleading.

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71. Defendants had actual knowledge of the omissions of material facts set

11 forth herein, or acted with reckless disregard for the truth in that they failed to ascertain

12 and to disclose such facts, even though such facts were available to them. Such

13 Defendants' material omissions were done knowingly or recklessly and for the purpose

14 and effect of concealing from the investing public AXDX's operating condition and

15 future business prospects and supporting the artificially inflated price of its securities.

16 Defendants, if they did not have actual knowledge of the omissions alleged, were

17 reckless in failing to obtain such knowledge by deliberately refraining from taking

18 those steps necessary to discover whether those omissions were misleading.

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72. As a result of the dissemination of the materially misleading information

20 and failure to disclose material facts, as set forth above, the market price of AXDX

21 securities was artificially inflated during the Class Period. In ignorance of the fact that

22 market prices of AXDX's publicly-traded securities were artificially inflated, and

23 relying directly or indirectly on the misleading statements made by Defendants, or upon

24 the integrity of the market in which the securities trade, and/or on the absence of

25 material adverse information that was known to or recklessly disregarded by

26 Defendants but not disclosed in public statements by Defendants during the Class

27 Period, Plaintiff and the other members of the Class acquired AXDX securities during

28 the Class Period at artificially high prices and were or will be damaged thereby.



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73. At the time of said omissions, Plaintiff and other members of the Class

2 were ignorant of their falsity, and believed them to be true. Had Plaintiff and the other

3 members of the Class and the marketplace known the truth regarding AXDX' s financial

4 results, which were not disclosed by Defendants, Plaintiff and other members of the

5 Class would not have purchased or otherwise acquired their AXDX securities, or, if

6 they had acquired such securities during the Class Period, they would not have done so

7 at the artificially inflated prices that they paid.

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74. By virtue of the foregoing, Defendants have violated Section 10(b) of the

9 Exchange Act, and Rule lOb-S promulgated thereunder.

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75. As a direct and proximate result of Defendants' wrongful conduct,

11 Plaintiff and the other members of the Class suffered damages in connection with their

12 respective purchases and sales of the Company's securities during the Class Period.

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76. This action was filed within two years of discovery of the fraud and

14 within five years of Plaintiff's purchase of securities giving rise to the cause of action.

15 SECOND CLAIM

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Violation of Section 20(a) of The Exchange Act Against the Individual Defendants

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77. Plaintiff repeats and realleges each and every allegation contained above

19 as if fully set forth herein.

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78. The Individual Defendants acted as controlling persons of AXDX within

21 the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their

22 high-level positions, agency, and their ownership and contractual rights, participation in

23 and/or awareness of the Company's operations and/or intimate knowledge about

24 statements made by the Company disseminated to the investing public, the Individual

25 Defendants had the power to influence and control, and did influence and control,

26 directly or indirectly, the decision-making of the Company, including the content and

27 dissemination of the various statements that Plaintiff contend are misleading. The

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1 Individual Defendants were provided with or had unlimited access to copies of the

2 Company's reports, press releases, public filings and other statements alleged by

3 Plaintiff to have been misleading prior to and/or shortly after these statements were

4 issued and had the ability to prevent the issuance of the statements or to cause the

5 statements to be corrected.

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79. In particular, each of these Defendants had direct and supervisory

7 involvement in the day-to-day operations of the Company and, therefore, is presumed

8 to have had the power to control or influence the particular transactions giving rise to

9 the securities violations as alleged herein, and exercised the same.

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80. As set forth above, AXDX and the Individual Defendants each violated

11 Section 10(b) and Rule lOb-S by their omissions as alleged in this Complaint.

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81. By virtue of their positions as controlling persons, the Individual

13 Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and

14 proximate result of Defendants' wrongful conduct, Plaintiff and other members of the

15 Class suffered damages in connection with their purchases of the Company's securities

16 during the Class Period.

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82. This action was filed within two years of discovery of the fraud and

18 within five years of Plaintiff's purchase of securities giving rise to the cause of action.

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WHEREFORE, Plaintiff prays for relief and judgment, as follows:

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(a) Determining that this action is a proper class action, designating Plaintiff

21 as a class representative under Rule 23 of the Federal Rules of Civil Procedure and

22 Plaintiff's counsel as Class Counsel;

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(b) Awarding compensatory damages in favor of Plaintiff and Class members

24 against all Defendants, jointly and severally, for all damages sustained as a result of

25 Defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;

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(c) Awarding Plaintiff and the Class their reasonable costs and expenses

27 incurred in this action, including counsel fees and expert fees; and

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(d) Such other and further relief as the Court may deem just and proper.



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JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.

Dated: June 23, 2015.

TIFFANY & BOSCO, P.A.

By: /s/Richard U. Hitneirick Richard G. Himelrick J. James Christian Seventh Floor Camelback Esplanade II 2525 East Camelback Road Phoenix, AZ 85016

Liaison Counsel for Lead Plaintiff and the Class

THE ROSEN LAW FIRM P.A. Phillip Kim (pro hac vice) 275 Madison Avenue, 34 th Floor New York, NY 10016

Lead Counsel for Lead Plaintiff and the Class


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CERTIFICATE OF SERVICE

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I hereby certify that on June 23, 2015, I electronically filed the foregoing with

3 the Clerk of the Court using the CM/ECF system which will send notification of such

4 filing to the e-mail addresses denoted on the Electronic Mail notice list, and I hereby

5 certify that I have mailed the foregoing document or paper via the United States Postal

6 Service to the non-CM/ECF participants indicated on the Manual Notice list.

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I certify under penalty of perjury under the laws of the United States of America

8 that the foregoing is true and correct.

9 s/ Shelley Boettze

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Shelley Boettge

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