Lax Drugmaker Computer Security Linked to Deal Cancellation

(Bloomberg) -- A review of Akorn Inc.’s computer system found its security was so lax any employee or vendor could review or change the firm’s drug-testing data, according to a lawyer for a company that pulled out of a $4.3 billion deal to buy the generic drugmaker

John Avellanet, a consultant Akorn hired in 2016 after regulators questioned its operational procedures, discovered executives had little security control over the pharma company’s computer system and that raised doubts about the integrity of its record-keeping, said Lewis Clayton, a lawyer representing Fresenius SE in a trial over the failed merger.

Akorn shares fell as much as 4.6 percent, the most intraday since May 3. The shares had climbed 2.8 percent Monday. Fresenius fell 0.8 percent.

Fresenius officials say Akorn’s testing miscues, along with a history of operational problems that drew warnings from the U.S. Food and Drug Administration, justified canceling the $34-per-share deal. Akorn counters Fresenius is blowing minor mistakes out of proportion to create a pretext for backing out of the deal.

Avellanet concluded “anyone in the company could get into that system and modify the records with no accountability?” Clayton asked Zena Kaufman, an expert Akorn hired to testify about its data integrity and security issues in the Delaware Chancery Court case.

“The problem is the lack of control over the system,” Kaufman said during Monday’s testimony.

Test Issues

Fresenius claims Akorn officials sought to cover up that rogue employees falsified test results and the company’s executives submitted the phony findings in three FDA drug applications. Akorn’s former head of quality control was fired over the scandal and the company is still investigating the testing failures.

On cross-examination Monday, Kaufman said the level of computer-security lapses at Akorn were worse than any she had seen in the pharmaceutical industry. She also acknowledged FDA officials were “very concerned” once they learned about about Akorn’s computer shortfalls.

Kaufman, a former head of quality control at Hospira Inc., acknowledged Tuesday that reviews of Akorn’s laboratory operations found evidence that test results were backdated. Some of the backdating stretched back at least a year, Clayton noted.

“It may have been a lack of discipline” that led to the backdating rather than a more nefarious motive, Kaufman added.

Chancery Judge Travis Laster will decide whether Fresenius properly walked away from the Akorn deal in April. Some analysts have predicted the deal could still close at a lower price.

The case is Akorn Inc. v. Fresenius Kabi AG, 2018-0300, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Paul Cox, Joe Schneider

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