There is no place for hyperbole or fudging numbers in disclosure of investment returns. The Boston office of the Securities and Exchange Commission made that point with Aegerion Pharmaceuticals in its enforcement case.
According to the SEC complaint, Aegerion’s CEO said that the “vast majority of patients” who were given prescriptions for one of its drugs were taking the drug. However, the more accurate statement was that approximately 50% were taking it.
The problem was that in order to start the drug therapy, patients needed to maintain a low-fat diet and to seek regular liver monitoring. As for side effects, patients could experience nausea, vomiting, and stomach pain. Plus there was the enormous cost of the treatment: approximately $250,000 to $300,000 annually. Patients’ medical insurance may not agree to extend coverage.
Therefore, stock analysts covering the company were very focus on this conversion rate from prescription to treatment. On the first quarter 2013 earnings call, when asked about the conversion rate, Aegerion’s CEO said that the percentage of patients who did not convert: “[i]t’s a very small number. It’s not material.” On the second quarter 2013 earnings call, Aegerion’s CEO stated about the conversion rate: “We haven’t given that percent. It’s high. It’s very high.” He further asserted that the “vast majority of patients” who were given prescriptions actually followed through and began therapy.
I will be the first to admit that those are fuzzy statements. But I agree that saying “very high” or “vast majority” is far more than 50%. According to the SEC complaint, analysts plugged 85% or 90% into their financial analysis of the company.
Things began to fall part on the fourth quarter 2013 earnings call when Aegerion admitted that more patients were reluctant to start taking the treatment than previously anticipated. It was not until the third quarter 2014 earnings call that Aegerion was more exact and more accurate when it disclosed that the conversion rate was in the “range of 50%-60%.” It should be no surprise that Aegerion’s stock price plummeted on the next trading day after that call. Clearly, analysts thought the “vast majority” was much higher than 50%-60%.
“By no one’s math is 50 percent a vast majority,” said Paul Levenson, Director of the SEC’s Boston Regional Office. “When companies publicly discuss their financial data, they must be truthful. Whether they supply hard numbers or give broader descriptions, they cannot mislead investors.”
The SEC’s actions is just part of Aegerion’s problems. It also is pleading guilty to criminal liability under HIPPA and civil liability for make false claims to a federal program. In a deferred prosecution agreement to resolve the HIPAA violations, Aegerion admitted that it obtained patients’ personally identifiable health information, without patient authorization, for commercial gain. Under the civil false claims settlement, Aegerion is paying a civil penalty for false claims submitted to government healthcare programs arising from its promotion of its therapy without a proper diagnosis.