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Class-action suit filed against TomoTherapy

Kevin Murphy  —  6/02/2008 5:21 pm

A 32 percent plunge in TomoTherapy's stock price in April, after the Madison radiation therapy device maker announced substantially lower first quarter 2008 sales and revenue projections, has prompted an investor to file a class-action lawsuit.

According to the complaint filed Friday in federal court:

In February, Tomo reported a record $248 million in backorders for its multi-unit Hi-Art Systems, a 51 percent increase from the fourth quarter in 2006. Tomo also reported new sales orders of $92 million in the fourth quarter of 2007, a 25 percent increase from fourth quarter 2006.

On April 17, Tomo disclosed that First Quarter revenues would fall 24 percent to $39 million and it would have First Quarter net loss of $0.12 per diluted shared compared to a net income of $0.12 a year ago. The revised outlook was based on revenues projected to decrease in 2008 to $255 million from $290 million in 2007.

At this time Tomo also reported that a greater percentage of its backlogged Hi-Art units ordered between Dec. 31 and Feb. 13 were from for-profit entities, which the company doesn't record as revenue until a month after they have been delivered.

Tomo knew but didn't disclose in February that the delivery of the backlogged Hi-Art units would be spread out during 2008 and into 2009. Instead, Tomo reported in February that revenue from the backlogged orders would be recorded within months.

Because the company has large fixed costs regardless of sales volume, the timing of the delivered Hi-Art units have a significant impact on company earnings.

Tomo had only recently begun to sell multi-unit Hi-Art Systems in addition to single-unit systems and had no established history on which to base how a multi-unit system would take to translate in recorded revenue.

The Hi-Art units were also selling for approximately 11 percent less in the first quarter 2008 due mainly due to Tomo's reliance on international sales, where First Quarter sales were off. International sales contributed 50 percent of total sales in 2007.

"As a result the defendant knew but did not disclose that Tomo's first quarter revenues would be negatively impacted and would not be in line with the historical growth (it) led the market to believe," according to the 17-page complaint.

Shortly after the bright prospects the company touted in February, Tomo director John Neis sold approximately 917,621 shares of his common stock between Feb. 26, and March 14. Neis has been a director since 1999 and is a member of the Audit, Compensation and Nominating and Governance committees of the Board.

The market quickly responded to Tomo's April 15 announcement with the value of common stock dropping 32 percent to close at $9.10 per share on April 17, on an extraordinary trading volume in excess of eight million of the 10 million outstanding shares.

The suit filed by shareholder Michael Schultz further alleges that Tomo's false and misleading statements misled the investing public and inflated the stock's price.

Calls to Tomo and the investor's lead attorney seeking comment on the suit's allegations weren't immediately returned.

The suit seeks class action status and recovery of investment losses for what could be thousands of persons who bought Tomo common stock between Feb. 13 and April 17.

Tomo stock is traded on the NASDAQ index (TOMO). On Monday it sold at $8.85 per share. Its 52-week high was $27.58 and its low was $8.31

Kevin Murphy  —  6/02/2008 5:21 pm