Business Context and Reporting Period
This Form 8-K is filed by AmerisourceBergen Corporation (now Cencora, Inc.) on November 21, 2017. The report addresses ongoing legal proceedings with the U.S. Attorney's Office for the Eastern District of New York (USAO-EDNY) concerning the pre-filled syringe program of its subsidiary, AmerisourceBergen Specialty Group (ABSG), and its former subsidiary Medical Initiatives, Inc.
Key Financial Metrics and Settlement Costs
- Criminal Fine and Forfeiture: ABSG paid a total of $260.0 million in fiscal 2017 under a plea agreement for a misdemeanor violation of the Federal Food, Drug and Cosmetic Act.
- Civil Settlement Reserve: The Company increased its reserve accrual to $625.0 million to resolve alleged civil claims under the False Claims Act.
- Previous Accrual: A $575.0 million reserve was previously accrued on November 2, 2017, based on advanced settlement discussions.
- Financial Statement Impact: The $260.0 million criminal settlement was recognized in "Employee Severance, Litigation, and Other" on the Consolidated Statements of Operations for the year ended September 30, 2017.
Material Changes and Legal Developments
On September 27, 2017, ABSG entered a guilty plea to a one-count strict-liability misdemeanor regarding the failure of Medical Initiatives, Inc. to register with the FDA. This resolved the federal criminal investigation. Subsequently, ABSG reached an agreement in principle with the USAO-EDNY to resolve alleged civil claims in their entirety. This agreement requires a payment of $625.0 million, representing a $50.0 million increase over the reserve previously disclosed in the fourth-quarter results.
Outlook, Risks, and Contingencies
- Compliance Agreement: The Company entered into a three-year Compliance Agreement with the U.S. Department of Justice.
- Contingencies: The civil settlement agreement is subject to final negotiation, execution of definitive documents, resolution of related issues with other interested parties (including potential administrative action by the Office of Inspector General), and Court approval.
- Risk Status: While the criminal matter is resolved, the civil settlement remains pending final approval and execution.
Investor Verification Checklist
- Verify the final execution and Court approval of the $625.0 million civil settlement agreement.
- Confirm the resolution of any potential administrative actions by the Office of Inspector General of the U.S. Department of Health and Human Services.
- Review the Company's Form 10-K for the fiscal year ended September 30, 2017, to confirm the updated reserve accrual of $625.0 million.
- Monitor the terms and duration of the three-year Compliance Agreement with the Department of Justice.