Pharmaceutical company Mallinckrodt, fresh out of its second bankruptcy, was spared having to pay a $40 million penalty levied by the Securities and Exchange Commission (SEC) for alleged disclosure and accounting failures related to its underpaying of Medicaid rebates regarding its drug Acthar.
The SEC said in an administrative proceeding Thursday it considered Mallinckrodt’s financial condition and agreement to retain an independent compliance consultant in determining not to impose a penalty. On Nov. 14, Mallinckrodt announced the completion of its financial restructuring to emerge from Chapter 11 proceedings.
Mallinckrodt had also filed for bankruptcy in October 2020, the same year the U.S. government filed a complaint alleging the company knowingly underpaid rebates due for Acthar from 2013-20. In March 2022, the Department of Justice announced the company agreed to pay approximately $260 million for violating the False Claims Act.
The details: In November 2018, Mallinckrodt was informed by the Centers for Medicare and Medicaid Services (CMS) it needed to correct the underpaid Medicaid rebate rate or no longer be allowed to sell Acthar. The claims by the CMS led to a material loss contingency for the company that was reasonably possible, according to the SEC’s order.
Mallinckrodt did not disclose the loss contingency, which surpassed $500 million, in its February 2019 annual report or May 2019 quarterly report, the SEC said. The company’s stock price dropped when it disclosed its dispute with the CMS in May 2019, and it ultimately recorded a $640 million liability in June 2020 after losing its lawsuit against the CMS.
The SEC found Mallinckrodt did not have sufficient accounting controls or disclosure controls for loss contingencies.
Compliance considerations: The monitor Mallinckrodt retains will conduct a comprehensive review of the company’s disclosure and internal accounting controls, including regarding collection and assessment of information concerning potential risks, contingencies, trends, and uncertainties. The monitor’s recommendations must be implemented by the company within 180 days, the SEC said.
Mallinckrodt acknowledged the settlement in a regulatory filing. The company neither admitted nor denied the SEC’s findings.
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