b'On June 11, 2018, an investor filed a putative class actionstatement. The court indicated that plaintiffs allegation of against Switch, its officers, its directors, and its IPOwidespread surprise that followed Switchs August 13, underwriters, alleging violations of Sections 11 and 152018 announcement, further supported this conclusion. of the 1933 Act on the grounds that defendants owed a duty to disclose to investors that Switch was changing its sales strategy and that new data centers it planned toCity of Warren Police and Fire Retirement open lacked the unique market advantages that madeSystem v. Natera Inc., Case No. A155613, Switchs first location so successful. That initial complaint46 Cal. App. 5th 946 (Cal. Ct. App., based its theories on purported corrective disclosuresFeb. 28, 2020) associated with earnings and guidance announcementsSlowed Growth Pre-IPOon November 13, 2017 and April 2, 2018.On August 13, 2018, Switch lowered its revenueNatera Inc. is a publicly traded genetic testing company guidance for the rest of the year, which it attributed tothat develops and commercializes noninvasive methods its shift in sales strategy. The next day, Switchs stockfor analyzing DNA. Its primary product, Panorama, dropped 22.3%, and was cumulatively down 47% since itsis a prenatal screening test for fetal chromosomal IPO. Plaintiff filed an amended complaint on October 18,abnormalities that is based on blood draw, rather 2018, removing challenges to the November 13, 2017 andthan amniocentesis. April 2, 2018 announcements altogether, and insteadNatera filed its first draft Registration Statement with the focusing entirely on the August 13, 2018 announcementSEC, which was finalized on July 1, 2015, in anticipation as the purported corrective disclosure.of its IPO, which included certain financial data for fiscal Defendants moved to dismiss, and the court denied inyears 2013, 2014, and 2015, and quarterly financial results part and granted in part defendants motion, holding thatfrom the 2Q 2013 through 1Q 2015. On July 2, 2015, two of three allegedly misleading statements or omissionsNatera completed its IPO and issued approximatelywere inactionable, but allowing the case to proceed10.9 million shares of common stock at $18 per share. based on alleged omissions in Switchs RegistrationAlthough Natera completed its IPO two days after the Statement regarding Switchs shift in sales strategy. Onclose of 2Q 2015, the most recent financial results that December 20, 2019, defendants moved for judgment onwere available to investors in the Registration Statement the pleadings based on a negative causation defense,were from 1Q 2015.contending that it was evident on the face of the operativeThe Registration Statement characterized Natera as a complaint that the stock drop resulted from somethingrapidly growing company, citing its revenue growth other than the alleged omission in the Registrationfrom $4.3 million in 2010 to $159.3 million in 2014 and its Statement. The court agreed and granted the motion,decrease in net losses from $37.1 million in 2013 todismissing the case with prejudice.$5.2 million in 2014. The Registration Statement also Pointing to the statutory damages mandated by theidentified certain risk factors, including that Natera Securities Act, the court reasoned it was required toderived most of its revenue from Panorama, noting its measure damages as the difference between the amountneed for continued expansion of insurance coverage and paid for the security and the value of the security at thereimbursements for Panorama and its other tests.time the suit was filedthat is, the delta between the IPOOn July 24, 2015, Natera released its preliminary financial price of $17.00 per share, and the market price of $12.96guidance for 2015, and on August 12, 2015 it released per share on June 11, 2018 when the complaint was filed.its 2Q 2015 financial results, reporting revenues of The court rejected plaintiffs theory that value means the$45.1 million compared to $35.8 million in 2Q 2014, and securitys true value after the alleged misrepresentationsloss from operations of $15.5 million compared toare made public rather than the stock price when the$1.2 million in 2Q 2014. Natera also reported a $19.7 action was filed, explaining that this theory was difficult tomillion net loss and a $29.7 million net loss for the first six square with the statutes language on timing and wouldmonths of 2015. Natera reported these losses were the require the court to divine the price of Switchs stock inresult of increased research, development, selling, and an alternate reality where the relevant information wasgeneral and administrative expenses due to an increase divulged. The court further explained that the statutoryin research and development and direct sales headcount formula on damages exists to avoid this breed of judicialas Natera increased its focus on a direct sales model in analysis. In assessing those damages based on thethe U.S. statutory language, the court reasoned the delta wasInvestors filed putative class actions in California state indisputably not caused by Switchs alleged omissioncourt alleging violations of Sections 11 and 12 of the in its registration statement of its hybrid cloud solution1933 Securities Act against Natera, certain of its officers sales technique because the stock price on June 11, 2018and directors, and its IPO underwriters, as well as could not have been impacted by an August 13, 2018violations of Section 15 against various venture capital 51'