Item 4. Controls and Procedures
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management, with the supervision of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(b) and 15d-15(e)) as of March 31, 2024. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act has been appropriately recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
At the time our Original Form 10-Q for the quarterly period ended March 31, 2024 was filed on May 9, 2024 our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to a material weakness in our internal control over financial reporting as discussed below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. Based on our assessment as of March 31, 2024, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was not effective due to material weakness related to the design and operating deficiencies in the impairment analysis of our equity investment in Zenas specifically related to securities without a readily determinable fair value.
Subsequent to the original evaluation, our Chief Executive Officer and Chief Financial Officer further concluded that, as of March 31, 2024, our internal control over financial reporting was not effective due to material weaknesses relating to the design of controls related to the review of the accounting treatment of the proceeds from the sale of future royalties pursuant to the Ultomiris Royalty Sale Agreement as part of our non-routine transactions and the design of controls related to the evaluation of certain tax legislation, which led to the restatement of our audited financial statements for the year ended December 31, 2023 and the unaudited financial statements for the three months ended March 31, 2024. For additional information see the Explanatory Note in this Form 10-Q/A.
Notwithstanding these material weaknesses and after completion of additional procedures prior to the filing of this Form 10-Q/A, our management, including our chief executive officer and chief financial officer, has concluded that our financial statements in this Form 10-Q/A represent fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America. The material weaknesses did result in a restatement of consolidated financial statements previously reported by us, which are included within this Form 10-Q/A.
Management’s Plan for Remediation of Material Weaknesses
As management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, we understand the importance of developing a resolution plan aligned with management and overseen by the Audit Committee of our Board of Directors. Since the material weaknesses were identified, management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively.
Our plan related to the design and operating deficiencies in the impairment analysis of our equity investment in Zenas specifically related to securities without a readily determinable fair value includes the following: (1) expand management’s oversight of the impairment analysis of its equity investments in securities without a readily determinable fair value, (2) continue to implement improved processes and controls for documenting the impairment valuation process of securities without a readily determinable fair value, (3) engage external resources when required to assist with the assessment of valuation methodologies for securities without a readily determinable fair value and (4) continue to formalize
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and communicate policies related to the evaluation of early indicators of impairment of securities without a readily determinable fair value.
Our plan to address the material weakness related to the design of controls related to the review of the accounting treatment of the proceeds from the sale of future royalties pursuant to the Ultomiris Royalty Sale Agreement , includes the following: (1) implement a more rigorous analysis of non-routine transactions, (2) on highly technical and complex accounting transactions, improve our process to identify and select qualified third-party advisors and (3) enhance our review of capabilities and work performed by the third-party advisors specifically related to the review of accounting guidance for complex non-routine transactions.
Our plan to address the material weakness related to the design of controls related to the evaluation of certain tax legislation includes: (1) enhance our review of capabilities and work performed by third-party advisors related to the review of tax advice and (2) on a quarterly basis, review income tax legislative changes and their impact to our financial statements with our tax expert.
Management is committed to maintaining an effective internal control environment and remediating the identified material weaknesses in a timely manner, with appropriate oversight from our Audit Committee. We recognize that the material weaknesses in our internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and can be tested and concluded by management to be designed and operating effectively. We continue to evaluate and work to improve our internal control over financial reporting related to the identified material weaknesses and management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above. In addition, we report the progress and status of the above remediation efforts to the Audit Committee on a periodic basis.
Changes in Internal Control
Other than the remediation actions described above, there were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.