No dishonest dealing in our sales reports, says Alexion
Rare disease specialist Alexion has said it will not need to restate third quarter financial results, following allegations from a former employee concerning sales practices for its hugely expensive kidney drug, Soliris.
The company said it had found no evidence of sales practices that broke accountancy rules – but pointed the finger at its former senior management team for failing to keep an eye on financial reporting.
Shares rose 3.65% to $127.11 on the NASDAQ stock exchange following the announcement.
The news is indeed welcome for the company, but it remains badly damaged by the departure of its top two executives, and mixed news from its pipeline.
David Hallal quit as CEO in early December citing ‘personal reasons’, along with chief financial officer Vikas Sinha, who left to pursue other opportunities.
Former AstraZeneca chief executive David Brennan has taken over the helm from Hallal on an interim basis, while David Anderson has taken over as CFO.
Connecticut-based Alexion had delayed officially filing its Q3 results with the US Securities and Exchange Commission, pending an internal investigation into allegations made by the whistleblower.
But Alexion’s Audit and Finance Committee concluded that based on the facts of the investigation, the company’s previously issued financial results will not require restatement. The figures are now officially filed with the SEC, Alexion said.
It also found no instance of improper revenue recognition, and said all Soliris (eculizumab) orders were valid and placed by customers for patients in order to fulfil an actual need.
There were no instances where Soliris was sold to build stock of unwanted product.
However the committee did find controls over financial reporting were weak from December 31 2015 onwards and subsequent quarters.
This was down to senior management “not setting an appropriate tone at the top for an effective control environment,” according to a company statement.
Brennan said: “We have already initiated remedial actions to maintain a strong internal control environment and are committed to setting a tone at the top that is fully aligned with our ethical standards and values.”
Providing more detail, the company said the investigation centred on “pull-in” sales – where sales staff encourage customers to place orders before patients usually need them.
This means the sales are recognised in an earlier financial quarter, and the practice is accepted under accounting rules.
However some revenue pulled in from the first quarter of 2016 into Q4 2015 did violate the company’s own rules and procedures.
Sales pulled into 2015 represented less than 1% of total revenue for that year. Alexion said it will improve training, financial reporting and compliance so that the issues are resolved this year.
Revenues for 2016 will be within a previously stated range and the company will give guidance on 2017 expectations next month.
While this clean bill of health is a relief, Alexion’s strategy of broadening the use of Soliris has suffered a setback late last month. On 21 December, the company reported that the drug had failed to show efficacy in delayed graft function, and just yesterday.
Soliris also narrowly failed to hit its primary endpoint in a phase 3 trial in neuromuscular disorder myasthenia gravis, first reported in June. Nevertheless, regulators are expected to give the drug the benefit of the doubt, with US and European approvals in this use anticipated in the first quarter of 2017.
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