Stout led an audit of a branded drug acquired by a pharmaceutical company through an acquisition on behalf of a medical research institute. Our audit found multiple issues regarding the net sales (royalty base) calculation. Specifically, we found changes in interpretation of the allowable trade and quantity discounts by the licensee from its predecessor without notification of such change or the seeking of consent from the medical research institute. Furthermore, the allowable deduction for sales returns of products sold was based on forecast as opposed to the actual return according to the terms of the license agreement. Finally, we found the licensee failed to report and pay royalties on sales through its foreign distributor. The overall audit findings, including interest, totaled nearly $2 million. Because the amount of underreporting exceeded the threshold specified in the license agreement, the licensee also paid for the entire cost of the audit.

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