Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares in the Akorn (AKRX) tumbled by more than 10% today after the company reported that it is delaying the filing of its annual 10-K report with the SEC.
So what: Last week, shares in Akorn jumped following fourth quarter and full year financial results that generally impressed investors.
Today, however, the company's admission that it will delay the filing of its annual report with the SEC questions whether or not those previously reported financials will need to be changed.
According to Akorn, the reason for the late filing stems from challenges in collecting and compiling data relating to VersaPharm and Hi-Tech Pharmacel. Akorn had previously acquired those two companies, but had not yet fully integrated them into its centralized accounting operations.
At this point, Akorn doesn't expect that the finalizing of the financial information necessary to complete the 10-K will result in any material changes to its previously reported results.
Those results include a 168% increase in sales to $227.8 million and a 257% increase in EPS to $0.50 per share during the fourth quarter. Akorn had also previously reported that its full year sales were $601.9 million and that its adjusted EPS was $1.16.
Now What: If the company is correct and no material changes to its financials will be necessary, then investors will eventually breathe a deep sigh of relief. After all, those acquisitions are a big reason for the company's sales and profit growth.
However, there's nothing to like about the company's admission that it has material weaknesses in its accounting operations. In its SEC filing for its delay, Akorn conceded that it "believes that material weaknesses exist as of December 31, 2014 relating to the completeness and accuracy of underlying data used in the determination of significant estimates and accounting transactions and accurate and timely reporting of its financial results and disclosures in its Form 10-K. There is a possibility that upon completion of its assessment, the Company may determine that there are additional material weaknesses as of December 31, 2014." That wording appears to leave the door open for changes, and for that reason, I think its best to approach this one cautiously, at least until after the 10-K is filed. Fortunately, investors won't have to wait too long for that to happen. Akorn believes that it will be able to file within the 15 day extension period.
