Pharma company pays $30m for accounting disclosure failures
1 Oct 2019
Global pharmaceutical company Mylan is to pay $30m (£24m) to settle allegations from the Securities and Exchange Commission (SEC) that it failed to report details of a scandal involving sales of its EpiPen product in accordance with accounting rules, thereby misleading investors
1 Oct 2019
The US regulator’s investigation followed a Department of Justice (DOJ) probe into whether Mylan overcharged Medicaid by hundreds of millions of dollars for anti-allergy medicine EpiPen, its largest revenue and profit generating product.
Mylan classified EpiPen as a ‘generic’ drug, which resulted in Mylan paying much lower rebates to the government than if EpiPen had been classified as a ‘branded’ drug.
In October 2014, the Centers for Medicare and Medicaid Services (CMS) informed Mylan that EpiPen was misclassified, and the DOJ subsequently conducted a two year civil investigation into the company had overcharged the government for EpiPen sales to Medicaid patients.
During the investigation, DOJ issued multiple subpoenas and investigative demands, rejected Mylan’s arguments to close the investigation, and indicated its intent to sue Mylan if Mylan failed to make a settlement offer. Mylan produced documents and other information to DOJ, including providing potential damages calculations and making offers of settlement.
However, the pharmaceutical giant failed to reflect these developments in its public reporting as required. Public companies facing possible material losses from a lawsuit or government investigation must disclose the loss contingency if a loss is reasonably possible; and record an accrual for the estimated loss if the loss is probable and reasonably estimable.
Mylan failed to disclose or accrue for the loss relating to the DOJ investigation before October 2016, when it announced a $465m settlement with DOJ.
As a result, Mylan's public filings were false and misleading, the SEC said. Further, Mylan's 2014 and 2015 risk factor disclosures that a governmental authority may take a contrary position on Mylan's Medicaid submissions were also misleading, as CMS had already informed Mylan that EpiPen was misclassified,.
Antonia Chion, associate director in the SEC's division of enforcement, said: ‘As alleged in our complaint, investors were kept in the dark about Mylan's EpiPen misclassification and the potential loss Mylan faced as a result of the pending investigation into the misclassification.
‘It is critical that public companies accurately disclose material business risks and timely disclose and account for loss contingencies that can materially affect their bottom line.’
In a statement, Mylan said the matter primarily concerned historical disclosures and accrual and noted the settlement full resolves the SEC’s investigation.
Mylan said: ‘pursuant to the agreement with the SEC, Mylan neither admits nor denies the SEC's allegations, has consented to the entry of a final judgment, and will pay $30 million, which previously has been fully reserved.
‘Mylan believes at this time, taking all other matters into consideration, that this settlement is the right course of action for the company. The company continues to be committed to the highest levels of integrity with respect to all aspects of its business operations, including its public filing disclosures and communications with investors.’