Alexion faults tone at top, management pressure in Soliris investigation
- Alexion Pharmaceuticals on Wednesday said its senior management improperly pressured staff to meet sales targets for its pricey best-seller Soliris (eculizumab), leading to a "material weakness" in the company's controls over its financial reporting.
- However, an investigation by the company's board of directors, which had delayed the filing of Alexion's financial statements with regulators last quarter, found no instances of improper revenue recognition associated with the ratcheted-up pressure to boost Soliris sales.
- Shares of Alexion spiked nearly 10% in early Thursday trading on the news of the investigation's findings. The investigation and subsequent departure of the company's former CEO and CFO had prompted questions into the company's governance and triggered sharp stock price swings.
While investors appeared cheered by the findings (and lack of widespread misconduct), Alexion's explanation doesn't paint an encouraging picture for a company now led by an interim chief executive after the unceremonious departure of now ex-CEO David Hallal and ex-CFO Vikas Sinha.
Alexion said senior management had failed to set an "appropriate tone at the top" and didn't adequately reinforce the need for compliance, leading to "inappropriate business conduct."
In this case, pressure from management led staff to encourage customers to place an order before that customer typically would do so. These so-called "pull-in" sales are not necessarily improper themselves, Alexion carefully noted, but are an issue when prompted by employee actions that violate the company's policies.
The audit committee tasked with investigating the sales practices concluded that pull-in sales were highest in the fourth quarter of 2015, totaling between $10 million and $17 million. Pull-in sales in other quarters during the past two fiscal years were much less, estimated at between $1 million and $7 million.
Fortunately for Alexion, the pull-in sales flagged didn't lead to improper revenue recognition, nor did they require any restatement of previous financial results.
Alexion plans to step up compliance training and make some revisions to the financial reporting process. The company also indicated its board of directors is evaluating the company's practices tied to compensation, planning and forecasting for possible changes to raise compliance.
"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," said David Brennan, the recently appointed interim CEO at Alexion.
Even as it sounded the (relatively speaking) all-clear on its Soliris investigation, Alexion disclosed it had received a subpoena in December from the U.S. Attorney's Office for the District of Massachusetts. The subpoena requested documents tied to Alexion's 501(c)(3) organization, which provided assistance to Medicare patients taking Alexion drugs.
Alexion said it was cooperating with that investigation.
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