Alexion says its top brass inappropriately pressed staff to pad Soliris sales

Soliris
The Connecticut-based company said it now plans to funnel its efforts into a remediation plan.

Alexion has wrapped up its investigation into allegations of sales fraud concerning its lead drug, Soliris. Its conclusion? Senior management improperly pressured employees in order to bump up quarterly revenue.

To hit financial targets, executives pressed staffers to get customers to place their Soliris orders earlier than they would have otherwise, according to a delayed third-quarter report Alexion filed Wednesday. Extra sales generated through the process—known as “pull-in sales”—peaked in the fourth quarter of 2015, when the Connecticut drugmaker estimates they tallied between $10 million and $17 million.

The practice isn’t “inherently problematic or impermissible” as long as it doesn’t violate U.S. accounting rules, Alexion said, and its audit committee concluded that previously issued financial results don’t need to be restated. Top employees did violate Alexion’s own company policies and procedures, however, and the company blamed the bad behavior on senior management’s failure to “set an appropriate ‘tone at the top’ for an effective control environment.”

Alexion’s topmost brass, of course, has already paid the price. After acknowledging in November that it was looking into sales fraud claims from a former employee, the company announced last month that former AstraZeneca chief David Brennan would take the CEO reins from skipper David Hallal, and one-time Honeywell CFO David Anderson would step into the CFO role in place of Vikas Sinha.

Now, the New Haven-based company said it plans to funnel its efforts into a remediation plan. Alexion will increase employee communication and training on ethics and compliance and take a hard look at its planning and forecasting procedures, among other steps.

The way Leerink Partners analyst Geoffrey Porges sees it, the damage could have been worse. “The outcome from the investigation is very much consistent with our expectations, and is materially less than the ‘worst case scenarios' imagined by many investors,” he wrote in a note to clients.

Events at the company do represent a “warning shot” to the rest of the industry, though, he cautioned. They’re “likely to provide an important ‘case study’” for fellow pharma management teams, which he thinks will now “‘sharpen their pencils' in terms of the reliability of their financial results, and the accountability of management for those results.”

Meanwhile, Alexion’s not totally out of the woods. Porges, in response to “recent turmoil,” had previously tabbed Alexion as “one of the rare, once or twice per decade, activist investment situations in the biopharmaceutical industry,” and as he wrote Thursday, “we do not believe the activist opportunity is over.”