Fresenius alleges ‘blatant fraud at the very top level’ of Akorn operations

Fresenius Kabi
Germany's Fresenius Kabi has started work on a $250 million expansion of its facility in Illinois which the company says will help it grow without its buyout of U.S. sterile drug maker Akorn. (Fresenius)

Fresenius continues to hammer Akorn with allegations of fraud in its drug development and manufacturing as the German company battles to extract itself from its $4.3 billion buyout of the U.S. sterile injectables maker.

Fresenius CEO Stephan Sturm in the German company’s earnings call Friday quickly addressed the “elephant in the room” with analysts, saying that the evidence of an audit by experts it hired “reveals that Akorn repeatedly and consciously violated the FDA CGMP and data integrity requirements.

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“Let me be clear: Akorn's problems aren't just simple operating issues that can be fixed in a matter of months or quarters,” Sturm said. “These violations affect the core of Akorn's franchise, and they require a complete remediation of systems and data, and that will take years.”

While neither company had completed their investigations when the deal went south, Sturm said Fresenius had “enough information to take the conscious and rational decision that exercising our right to terminate the merger agreement is in the best interest of our shareholders.”

Sturm said Fresenius was prepared prepared to give Akorn more time to complete its investigation and present additional information, but Akorn rejected this offer. “That refusal speaks volumes,” he said.

RELATED: Fresenius dumps its $4.3B Akorn buyout, and a 'legal battle royale' could come next

But the harshest criticism from Fresenius came in response to the Akorn lawsuit filed in April trying to force Fresenius to go through with the buyout. In its suit, Akorn denied any widespread manufacturing failings and said Fresenius was simply having buyer’s remorse because the generics market has softened since the two struck their deal.

Akorn spokeswoman Jennifer Bowles said in an email that, "We categorically disagree with Fresenius’ accusations in their filing. We intend to vigorously enforce our rights, and Fresenius’ obligations, under our binding merger agreement.” 

Not so, Fresenius said in its legal response last week, claiming its investigation uncovered “blatant fraud at the very top level of Akorn’s executive team, stunning evidence of blatant and pervasive data integrity violations… and outrageous attempts by and on behalf of Akorn to cover up those violations and misrepresentations made both to Fresenius and the FDA,” the filing says.

In the court documents filed in a Delaware Court, Fresenius alleged that Akorn’s executive VP  for quality assurance directed the submission of fraudulent testing data to the FDA for its application for the antibiotic azithromycin. It said data falsification began in 2012 and involved at least five other Akorn products.

Akorn in its lawsuit did say that it had investigated claims of the use of falsified data and fired an executive who was involved. However, the company said none of the six products were ever marketed. The trial has been set for July 9.

RELATED: Akorn sterile plant in Illinois smacked again by the FDA

The FDA has already been taking a hard look at some of Akorn’s operations. It issued a Form 483 for Akorn’s Decatur, Illinois plant following an inspection in April 2017.  But Fresenius itself is not immune from manufacturing failing. The FDA in December issued a warning letter to a Fresenius plant in India that produces oncology meds.

Aside from the Akorn buyout debacle, Sturm said Fresenius Kabi, its sterile drug and infusion unit, saw Q1 sales of €1.603 billion ($1.9 billion) in constant currencies, despite a 5% hit to sales in North America where generic price erosion has roiled the market.

Sturm told analysts that was “a very strong financial performance from Fresenius Kabi in North America” with only low-single-digit price declines and no indications that more significant price pressure is forthcoming.

RELATED: Fresenius starts $250M U.S. site expansion

While the Akorn deal would have allowed Fresenius Kabi to meet growth plans in North America much sooner, Sturm said it can reach its goals through organic growth. He said the company has set aside “triple-digit-million-euro CapEx amounts” for new production in the U.S.