Everything looked rosy for generic drugmaker Akorn ($AKRX) back in early March, when it announced double-digit 2014 growth coming partly from its newly bulked-up animal health business--news that caused its shares to shoot up 14% to nearly $56. That all came crashing down last week, after the Illinois company said it had likely overstated its financial results for the last three quarters of 2014. The stock plunged to $43.10 by the end of the day on April 27, and a half-dozen class-action shareholder lawsuits had been filed.
What happened? Akorn determined that its results for those quarters and all of 2014, as well as its report on internal financial reporting controls and that of its outside auditor, KPMG, "should no longer be relied upon," according to a press release the company issued after the market closed April 27. During a review, Akorn identified errors related to companies it acquired in 2014, including understatements of rebates, the release states.
Among the companies Akorn acquired in 2014 was Lloyd, which added 5 veterinary products to its product mix and four experimental drugs to the pipeline. Akorn's catalogue includes eye-care products for farm and companion animals.
Akorn had initially announced that its pretax income from continuing operations was $59 million on $593 million in revenues in 2014, but now the company is saying that might have been a massive overstatement. The errors it discovered "resulted in an overstatement to net revenue and pretax income from continuing operations of $20 million to $35 million for the year," according to the release.
Akorn affirmed its 2015 earnings-per-share guidance of $1.88 to $1.98 per share, but that hasn't done much to appease stockholders. The fact that Akorn is blaming the mishap on acquisitions is likely agitating investors even more, since it was precisely those additions that fueled the company's growth. Before the restatements, Akorn's assets grew fourfold in 2014 to $1.9 billion, The Wall Street Journal points out. And investors rewarded the growth: Akorn's stock more than doubled in the 12 months leading up to the restatement announcement.
On Monday, Akorn did what it could to signal a major cleanup, announcing four new executive appointments. They include an executive vice president of sales and marketing, who will oversee all of the business units, and a new corporate controller to manage the company's accounting and financial reporting going forward.