Obalon slips on Q4, 2017 misses; shareholders sue

Obalon Therapeutics (NSDQ:OBLN) shares are under pressure today as the market reacts to fourth-quarter and full-year results that failed to meet both its own expectations and the consensus forecast on Wall Street.

Separately, Obalon revealed in a regulatory filing that shareholders are pursing class action lawsuits alleging that the Carlsbad, Calif.-based company and its management misled investors about its accounting practices, citing a whistleblower’s allegations of improper revenue recognition that a company probe later found to be meritless. The allegations forced the company to spike a $35 million offering.

Obalon’s Q4 losses grew 34.9% to -$10.1 million, or -60¢ per share, despite sales growth of 378.2% to $3.7 million for the three months ended Dec. 31, 2017, compared with Q4 2016. Analysts on The Street were looking for losses of -46¢ on sales of $3.9 million.

Full-year losses were up 69% to -$34.8 million, or -$2.08 per share, on sales growth of 192.2% to $9.9 million, compared with 2016, the company said yesterday in its audited financial statement (Obalon put out preliminary numbers in January). The consensus forecast had losses at -$194 per share on sales of $10.1 million.

The news had pushed OBLN shares down -8.0% to $3.69 apiece today as of about 10 a.m. Eastern.

In its annual report, Obalon said investors filed a pair of purported class action suits in the U.S. District Court for Southern California regarding the book-keeping allegations. The first, brought by shareholder Michael Hustig, alleges that the company and its management recognized revenue in violation of generally accepted accounting principles and lacked adequate internal controls over its accounting and financial reporting practices, leading to financial statements and public comments that “were materially false and misleading.” The suit purports to cover owners of Obalon stock who bought between Oct. 5, 2016, and Jan. 23, according to the complaint.

The second suit, brought by investor Harold Cook, makes substantially the same accusations, but also adds claims it alleges are traceable to the company’s initial public offering documents, according to the complaint.

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