Case 1:21-cv-OO496-UNA Document 1 Filed 04/05/21 Page 1 of 13 PageID #: 1
`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 1 of 13 PageID #: 1
`
`UNITED STATES DISTRICT COURT
`
`DISTRICT OF DELAWARE
`
`ANTHONY FRANCHI,
`
`)
`
`Plaintiff,
`
`;
`; Case No.
`v.
`GENMARK DIAGNOSTICS, INC., KEVIN )
`C. O’BOYLE, DARYL J. FAULKNER,
`)
`JAMES FOX, LISA M. GILES, and
`) COMPLAINT FOR VIOLATIONS OF
`MICHAEL s. KAGNOFF,
`) THE FEDERAL SECURITIES LAWS
`)
`)
`)
`
`Defendants-
`
`JURY TRIAL DEMANDED
`
`Plaintiff Anthony Franchi (“Plaintiff”), by and through his undersigned counsel, for his
`
`complaint against defendants, alleges upon personal knowledge with respect to himself, and upon
`
`information and belief based upon, inter alia, the investigation of counsel as to all other allegations
`
`herein, as follows:
`
`NATURE OF THE ACTION
`
`1.
`
`Plaintiff brings this action against GenMark Diagnostics, Inc. (“GenMark” or the
`
`“Company”) and the members of its Board of Directors (the “Board” or the “Individual
`
`Defendants”) for their violations of Sections 14(d)(4), 14(e) and 20(a) of the Securities Exchange
`
`Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78n(d)(4), 78n(e), 78t(a), and U.S. Securities and
`
`Exchange Commission (“SEC”) Rule 14d-9, 17 CPR. §240.14d-9(d) (“Rule 14d-9”). By the
`
`Action, Plaintiff seeks to enjoin the expiration of a tender offer (the “Tender Offer”) on a proposed
`
`transaction, pursuant to which GenMark will be acquired by Roche Holdings, Inc. (“Roche”),
`
`through Roche’s wholly-owned subsidiary Geronimo Acquisition Corp. (“Merger Sub”) (the
`
`“Proposed Transaction”). ‘
`
`1 Non-party Roche is a Delaware corporation affiliated with The Roche Group, which is
`
`

`

`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 2 of 13 PageID #: 2
`
`

`

`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 3 of 13 PagelD #: 3
`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 3 of 13 PageID #: 3
`
`5.
`
`For these reasons and as set forth in detail herein, Plaintiff seeks to enjoin
`
`Defendants from taking any steps to consummate the Proposed Transaction unless and until the
`
`material information discussed below is disclosed to the Company’s stockholders or, in the event
`
`the Proposed Transaction is consummated, to recover damages resulting from the defendants’
`
`violations of the Exchange Act.
`
`JURISDICTION AND VENUE
`
`6.
`
`This Court has jurisdiction over the claims asserted herein for violations of Sections
`
`14(e) and 20(a) of the Exchange Act pursuant to Section 27 of the Exchange Act, 15 U.S.C. §
`
`78aa, and 28 U.S.C. § 1331 (federal question jurisdiction).
`
`7.
`
`This Court has jurisdiction over the defendants because each defendant is either a
`
`corporation that conducts business in and maintains operations within this District, or is an
`
`individual with sufficient minimum contacts with this District so as to make the exercise of
`
`jurisdiction by this Court permissible under traditional notions of fair play and substantial justice.
`
`8.
`
`Venue is proper in this District pursuant to 28 U.S.C. § 1391 because defendants
`
`are found or are inhabitants or transact business in this District.
`
`Mimi—S
`
`9.
`
`Plaintiff is, and has been at all times relevant hereto, a continuous stockholder of
`
`GenMark.
`
`10.
`
`Defendant GenMark is a Delaware corporation with its principal executive offices
`
`located at 5964 La Place Court, Carlsbad, California 92008. GenMark provides multiplex
`
`molecular diagnostic solutions designed to enhance patient care, improve key quality metrics and
`
`reduce the total cost-of-care. GenMark’s common stock is traded on the NASDAQ Global Market
`
`under the ticker symbol “GNMK.”
`
`

`

`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 4 of 13 PagelD #: 4
`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 4 of 13 PageID #: 4
`
`11.
`
`Defendant Kevin C. O’Boyle (“O’Boyle”) has been Chairman of the Board since
`
`February 2020 and a director of the Company since March 2010.
`
`12.
`
`Defendant Daryl J. Faulkner (“Faulkner”) has been a director of the Company since
`
`March 2010.
`
`13.
`
`Defendant James Fox (“Fox”) has been a director of the Company since September
`
`2010. Defendant Fox previously served as Chairman of the Board from August 2014 to February
`
`2020.
`
`201 5.
`
`14.
`
`Defendant Lisa M. Giles (“Giles”) has been a director of the Company since March
`
`15.
`
`Defendant Michael S. Kagnoff (“Kagnoff’) has been a director of the Company
`
`since March 2015.
`
`16.
`
`Defendants identified in paragraphs 11 to 15 are collectively referred to herein as
`
`the “Board” or the “Individual Defendants.”
`
`The Proposed Transaction
`
`17.
`
`On March 15, 2021 , GenMark and Roche jointly announced, in relevant part:
`
`Basel, 15 March 2021 - Roche (SIX: RO, ROG; OTCQX: RHHBY) and GenMark
`Diagnostics (NASDAQ: GNMK) today announced that they have entered into a
`definitive merger agreement for Roche to fully acquire GenMark at a price of US$
`24.05 per share in an all-cash transaction. This corresponds to a total transaction
`value of approximately US$ 1.8 billion on a fully diluted basis. This price
`represents a premium of approximately 43% to GenMark’s unaffected closing share
`price on February 10, 2021, the last trading day before a media report was published
`speculating about a potential sale process. The merger agreement has been
`unanimously approved by the boards of directors of GenMark and Roche. Once
`the acquisition is completed, GenMark’s principal operations will continue at its
`current location in Carlsbad, California, USA.
`
`Under the terms of the merger agreement, Roche will promptly commence a tender
`offer to acquire all outstanding shares of GenMark’s common stock, and GenMark
`will file a recommendation statement containing the unanimous recommendation
`of the GenMark board that GenMark stockholders tender their shares to Roche.
`
`

`

`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 5 of 13 PageID #: 5
`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 5 of 13 PageID #: 5
`
`GenMark’s syndromic panel testing portfolio will complement Roche’s current
`molecular diagnostics portfolio and the Roche global network will enable expanded
`reach for GenMark’s products. GenMark’s ePlex system drives lab efficiency
`through streamlined order-to-reporting workflow and enables better patient
`outcomes by rapidly diagnosing a patient’s symptoms.
`Infectious diseases are a
`leading cause of death globally, and earlier detection of the cause of an infection
`has been shown to improve patient outcomes and improve key hospital initiatives
`such as antibiotic stewardship and length of stay.
`
`“Acquiring GenMark Diagnostics will broaden our molecular diagnostics portfolio
`to include solutions that can provide lifesaving information quickly to patients and
`their healthcare providers in the fight against infectious diseases,” said Thomas
`Schinecker, CEO Roche Diagnostics. “Their proven expertise in syndromic panel
`testing provides faster targeted therapeutic intervention, resulting in improved
`patient outcomes and reduced hospital stays, and will contribute to Roche’s
`commitment to helping control infectious diseases and antibiotic resistance. The
`rapid identification of bloodstream infections and the detection of antimicrobial
`resistance genes are more essential than ever for hospitals and their patients.”
`
`“As a part of Roche, we can accelerate our mission to enable rapid diagnosis of
`infectious disease to improve patient outcomes. Together with Roche’s diagnostics
`healthcare solutions, we will be able to provide a full suite of molecular diagnostic
`solutions to customers around the world,” said Scott Mendel, CEO of GenMark
`Diagnostics. “We are thrilled to become a part of Roche and are confident that this
`is the right path forward for GenMark and our customers.”
`
`GenMark’s Respiratory Pathogen Panels identify the most common viral and
`bacterial organisms associated with upper respiratory infection, including SARS-
`CoV-2, complementing Roche’s extensive portfolio of COVID-19 diagnostics
`solutions.
`
`Terms of the Agreement
`Under the terms of the merger agreement, Roche will promptly commence a tender
`offer to acquire all of the outstanding shares of GenMark’s common stock for US$
`24.05 per share in cash. Following the completion of the tender offer, Roche will
`acquire all remaining shares at the same price of US$ 24.05 per share in cash
`through a second step merger.
`
`The transaction is expected to close in the 2nd quarter of 2021 and is subject to
`customary closing conditions, including the tender of at least a majority of the
`outstanding shares of GenMark’s common stock and the expiration or termination
`of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
`1976.
`
`The Recommendation Statement Contains Material Misstatements or Omissions
`
`

`

`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 6 of 13 PageID #: 6
`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 6 of 13 PageID #: 6
`
`28.
`
`The defendants filed a materially incomplete and misleading Recommendation
`
`Statement with the SEC and disseminated it to GenMark’s stockholders. The Recommendation
`
`Statement misrepresents or omits material
`
`information that is necessary for the Company’s
`
`stockholders to make an informed decision whether to tender their shares in the Proposed
`
`Transaction or seek appraisal.
`
`29.
`
`Specifically, as set forth below, the Recommendation Statement fails to provide
`
`Company stockholders with material information or provides them with materially misleading
`
`information concerning: (a) GenMark’s financial projections and the data and inputs underlying
`
`the financial valuation analyses that support the fairness opinion provided by J.P. Morgan; (b) the
`
`background leading to the Proposed Transaction and (c) Company insiders’ potential conflicts of
`
`interest.
`
`Material Omissions Concerning GenMark’s Financial Projections and J.P. Morgan ’s
`Financial Analyses
`
`30.
`
`The Recommendation Statement omits material
`
`information regarding the
`
`Company’s financial projections.
`
`31.
`
`For example, the Recommendation Statement discloses “risk-adjusted summary
`
`selected unaudited projected financial information for the Company on a standalone basis for
`
`calendar years 2021 through 2030 prepared by management. .
`
`. .” Recommendation Statement at
`
`26. The Recommendation Statement, however, fails to disclose: (a) the specific risk adjustments
`
`Company management made to derive the risk-adjusted projections; (b) Company management’s
`
`basis and assumptions underlying the risk adjustments; and (c) the non-risk-adjusted projections
`
`so GenMark stockholders can evaluate the financial impact the Company’s risk-adjustments had
`
`on the projections.
`
`

`

`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 7 of 13 PageID #: 7
`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 7 of 13 PageID #: 7
`
`32.
`
`The Recommendation Statement also describes J.P. Morgan’s fairness opinion and
`
`the various valuation analyses performed in support of its opinion. However, the description of
`
`J.P. Morgan’s fairness opinion and analyses fails to include key inputs and assumptions underlying
`
`these analyses. Without this information, as described below, GenMark’s public stockholders are
`
`unable to fiilly understand these analyses and, thus, are unable to determine what weight, if any,
`
`to place on J.P. Morgan’s fairness opinion in determining whether to tender their shares in the
`
`Proposed Transaction or seek appraisal.
`
`33. With respect to J.P. Morgan’s Public Trading Multiples analysis and Selected
`
`Transaction Analysis, the Recommendation Statement fails to disclose the individual multiples
`
`and financial metrics for each of the companies and transactions analyzed, respectively, or, at a
`
`minimum, the mean, median, high and low multiples observed.
`
`34. With respect
`
`to
`
`J.P. Morgan’s Discounted Cash Flow Analysis,
`
`the
`
`Recommendation Statement fails to disclose: (a) the unlevered free cash flow (“UFCF”) the
`
`Company is expected to generate during calendar years 2021 through 2030, as well as the
`
`definition of UFCF and all underlying line items; (b) the terminal value of the Company; (c)
`
`quantification ofthe inputs and assumptions underlying the discount rate range of 10.0% to 12.0%;
`
`(d) the Company’s net cash as of December 31, 2020; and (e) the number of GenMark’s
`
`outstanding shares.
`
`35.
`
`The omission of this information renders the statements in the “Company
`
`Management’s Unaudited Prospective Financial Information” and “Opinion of the Company’s
`
`Financial Adviser” sections of the Recommendation Statement false and/or materially misleading
`
`in contravention of the Exchange Act.
`
`Material Omissions Concerning the Background ofthe Proposed Transaction
`
`

`

`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 8 of 13 PagelD #: 8
`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 8 of 13 PageID #: 8
`
`36.
`
`The Recommendation Statement fails to disclose material information concerning
`
`the background of the Proposed Transaction.
`
`37.
`
`For example, the Recommendation Statement sets forth that the Company entered
`
`into confidentiality agreements with potential bidders referred to in the Recommendation
`
`Statement as “Party A,” “Party B,” “Party C,” “Party D,” “Party F,” and “Party H.” The
`
`Recommendation Statement, however, fails to disclose whether the confidentiality agreements
`
`include “don’t-ask, don’t-waive” (“DADW”) standstill provisions that are still
`
`in effect and
`
`presently precluding any potential counterparty from submitting a topping bid for GenMark.
`
`38.
`
`The failure to disclose the existence of DADW provisions creates the false
`
`impression that a potential bidder who entered into a confidentiality agreement could make a
`
`superior proposal for GenMark. If the potential acquirer’s confidentiality agreement contains a
`
`DADW provision, then that potential bidder can only make a superior proposal by (a) breaching
`
`the confidentiality agreement—since in order to make the superior proposal, it would have to ask
`
`for a waiver, either directly or indirectly; or by (b) being released from the agreement, which if
`
`action has been done, is omitted from the Recommendation Statement.
`
`39.
`
`Any reasonable GenMark stockholder would deem the fact that a likely topping
`
`bidder may be precluded from making a topping bid for the Company to significantly alter the
`
`total mix of information.
`
`40.
`
`The omission of this information renders the statements in the “Background of the
`
`Transactions” section of the Registration Statement false and/or materially misleading in
`
`contravention of the Exchange Act.
`
`Material Omissions Concerning Company Insiders’ Potential Conflicts ofInterest
`
`

`

`Case 1:21-cv-OO496-UNA Document 1 Filed 04/05/21 Page 9 of 13 PagelD #: 9
`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 9 of 13 PageID #: 9
`
`41.
`
`The Registration Statement fails to disclose material information concerning the
`
`potential conflicts of interest faced by Company insiders.
`
`42.
`
`The Registration Statement fails to disclose whether any of GenMark’s executive
`
`officers or directors are continuing their employment following consummation of the Proposed
`
`Transaction, as well as the details of all employment and retention-related discussions and
`
`negotiations that occurred between Roche and GenMark’s executive officers, including who
`
`participated in all such communications, when they occurred and their content. The Registration
`
`Statement fiuther fails to disclose whether any of Roche’s proposals or indications of interest
`
`mentioned management retention in the combined company following the Proposed Transaction
`
`or the purchase of or participation in the equity of the surviving corporation.
`
`43.
`
`Communications regarding post-transaction employment and merger-related
`
`benefits during the negotiation of the underlying transaction must be disclosed to stockholders.
`
`This information is necessary for GenMark’s stockholders to understand potential conflicts of
`
`interest of management and the Board, as that information provides illumination concerning
`
`motivations that would prevent fiduciaries from acting solely in the best interests ofthe Company’s
`
`stockholders.
`
`44.
`
`The omission of this material
`
`information renders the statements
`
`in the
`
`“Background of the Transactions” and “Arrangements with the Company’s Executive Officers and
`
`Directors” sections of the Registration Statement
`
`false and/or materially misleading in
`
`contravention of the Exchange Act.
`
`45.
`
`The Individual Defendants were aware of their duty to disclose the above-
`
`referenced omitted information and acted negligently (if not deliberately) in failing to include this
`
`information in the Recommendation Statement. Absent disclosure of the foregoing material
`
`

`

`Case 1:21-cv-OO496-UNA Document 1 Filed 04/05/21 Page 10 of 13 PageID #: 10
`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 10 of 13 PageID #: 10
`
`information prior to the expiration of the Tender Offer, Plaintiff and the other GenMark
`
`stockholders will be unable to make an informed decision whether to tender their shares in the
`
`Proposed Transaction or seek appraisal and are thus threatened with irreparable harm warranting
`
`the injunctive relief sought herein.
`
`CLAIMS FOR RELIEF
`
`COUNT I
`
`Claims Against All Defendants for Violations
`of Section 14(d) of the Exchange Act and SEC Rule 14d-9
`
`46.
`
`Plaintiff repeats all previous allegations as if set forth in full.
`
`47.
`
`Section 14(d)(4) of the Exchange Act and SEC Rule 14d-9 promulgated thereunder
`
`require full and complete disclosure in connection with tender offers.
`
`48.
`
`The Recommendation Statement violates Section 14(d)(4) and Rule l4d—9 because
`
`it omits material
`
`facts,
`
`including those set
`
`forth above, which omission renders
`
`the
`
`Recommendation Statement false and/or misleading.
`
`49.
`
`Defendants knowingly or with deliberate recklessness omitted the material
`
`information identified above from the Recommendation Statement, causing certain statements
`
`therein to be materially incomplete and therefore misleading.
`
`Indeed, while defendants
`
`undoubtedly had access to and/or reviewed the omitted material information in connection with
`
`approving the Proposed Transaction, they allowed it to be omitted from the Recommendation
`
`Statement, rendering certain portions of the Recommendation Statement materially incomplete
`
`and therefore misleading.
`
`50.
`
`The misrepresentations and omissions in the Recommendation Statement are
`
`material to Plaintiff and the other stockholders of the Company, who will be deprived of their right
`
`to make an informed decision whether to tender their shares or seek appraisal
`
`if such
`
`10
`
`

`

`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 11 of 13 PageID #: 11
`
`

`

`Case 1:21-cv-OO496-UNA Document 1 Filed 04/05/21 Page 12 of 13 PagelD #: 12
`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 12 of 13 PageID #: 12
`
`56.
`
`The Individual Defendants acted as controlling persons of GenMark within the
`
`meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their positions as
`
`officers or directors of GenMark and participation in or awareness of the Company’s operations
`
`or intimate knowledge of the false statements contained in the Recommendation Statement filed
`
`with the SEC, they had the power to influence and control and did influence and control, directly
`
`or indirectly, the decision-making of the Company, including the content and dissemination of the
`
`various statements which Plaintiff contends are false and misleading.
`
`57.
`
`Each of the Individual Defendants was provided with or had unlimited access to
`
`copies of the Recommendation Statement and other statements alleged by Plaintiff to be
`
`misleading prior to or shortly after these statements were issued and had the ability to prevent the
`
`issuance of the statements or cause the statements to be corrected.
`
`58.
`
`In particular, each of the Individual Defendants had direct and supervisory
`
`involvement in the day-to-day operations of the Company, and, therefore, is presumed to have had
`
`the power to control or influence the particular transactions giving rise to the securities violations
`
`as alleged herein, and exercised the same. The Recommendation Statement at issue contains the
`
`unanimous recommendation of each of the Individual Defendants to approve the Proposed
`
`Transaction. They were, thus, directly involved in the making of this document.
`
`59.
`
`In addition, as the Recommendation Statement sets forth at length, and as described
`
`herein, the Individual Defendants were each involved in negotiating, reviewing, and approving the
`
`Proposed Transaction. The Recommendation Statement purports to describe the various issues
`
`and information that they reviewed and considered — descriptions which had input from the
`
`Individual Defendants.
`
`12
`
`

`

`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 13 of 13 PageID #: 13
`Case 1:21-cv-00496-UNA Document 1 Filed 04/05/21 Page 13 of 13 PageID #: 13
`
`60.
`
`By virtue of the foregoing, the Individual Defendants have violated section 20(a)
`
`of the Exchange Act.
`
`PRAYER FOR RELIEF
`
`WHEREFORE, Plaintiff demands judgment and preliminary and permanent relief,
`
`including injunctive relief, in his favor on behalf of GenMark, and against defendants, as follows:
`
`A.
`
`Preliminarily and permanently enjoining defendants and all persons acting in
`
`concert with them from proceeding with, consummating, or closing the Proposed Transaction;
`
`B.
`
`In the event defendants consummate the Proposed Transaction, rescinding it and
`
`setting it aside or awarding rescissory damages to Plaintiff;
`
`C.
`
`Awarding Plaintiff the costs of this action, including reasonable allowance for
`
`Plaintiffs attorneys’ and experts’ fees; and
`
`D.
`
`Granting such other and further relief as this Court may deem just and proper.
`
`JURY DEMAND
`
`Plaintiff demands a trial by jury on all claims and issues so triable.
`
`Dated: April 5, 2021
`
`LONG LAW, LLC
`
`By:
`
`/s/ Brian D. Long
`Brian D. Long (#4347)
`3828 Kennett Pike, Suite 208
`Wilmington, DE 19807
`Telephone: (302) 729-9100
`Email: BDLong@longlawde.com
`
`Attorneysfor Plaintifl
`
`13
`
`