"Physician, heal thyself."
Seems like that biblical quote should be uppermost in the minds of executives at aaiPharma (NASDAQ:AAII), a pain management pharmaceutical company.
Under a cloud of controversy following revelations of channel stuffing, executive defections, SEC investigations, and a possible Nasdaq delisting, aaiPharma, with some well-known brands such as Darvon and Darvocet, took to alleviating at least one of its own headaches: It got its ticker symbol back.
The company had been on double, not-so-secret probation with Nasdaq for failing to file an annual report and was forced to trade for several months on the exchange as AAIIE. Sounds like the sounds shareholders have been screaming over the company's troubles: Aaiiieee! Now that it's back in compliance, it can once again trade as AAII.
Still, that seems to be the least of the company's problems. Or should be. Immediately after it filed its financials, another brouhaha erupted when it revealed that two former executives at the heart of the company's accounting woes are being paid nearly $1 million to stay on as consultants. Former CEO Philip Tabbiner bolted after the company launched an internal investigation into allegations of channel stuffing, but he is still being paid $10,615 a week -- more than $635,000 for the term of the 15-month contract. William Ginna, who was replaced as the CFO in May but is also still on board as a "consultant," gets $6,173 a week for the next year, or more than $320,000.
Apparently, the stellar financial progress over the past two years merited such compensation, since the pharmaceutical company also doled out pay raises to founder Fred Sancilio and former COO David Hurley. At a time when the company swung from a net profit of $67 million to a $33 million loss, Sancilio received an almost $30,000 raise and a $100,000 bonus, while Hurley, who was the first executive to jump ship this year, received a raise of almost $65,000.
To fill in the blanks after the management desertions, the company hired executives from forensics accounting firm FTI Consulting (NYSE:FCN), a company besotted by its own spate of defections.
aaiPharma has more than $300 million in debt and only $3 million in cash. Its substitution of Generally Accepted Accounting Principles (GAAP) for Clearly Ridiculous Accounting Principles (CRAP) forced the company to restate earnings for the first three quarters of 2003 and revised earnings for 2002, from $.61 down to $.46 per share.
With its top drug Brethine showing a sales decline of 64% in May and the company facing a raft of class action lawsuits, shareholders may wonder whether samples of painkiller Darvon will be included with their annual reports to deaden the pain of headaches of biblical proportions.
Motley Fool contributor Rich Duprey often finds solace in a Krispy Kreme doughnut. He does not own any of the stocks mentioned in this article.
