NEW YORK – Chinese cancer molecular diagnostics firm New Horizon Health disclosed last week that its auditor, Deloitte Touche Tohmatsu, as well as its CFO have resigned as the company faces allegations of accounting fraud.
According to a filing with the Hong Kong Stock Exchange, where New Horizon was publicly traded until this spring, the firm had discussed a tentative timetable with Deloitte to complete the audit of its 2023 financial results, which Deloitte could not commit to.
"With a view to ensuring the 2023 annual results could be published as early as possible, the board believed that it would be in the best interest of the company and its shareholders as a whole to replace [Deloitte] as auditor of the company and engage another audit firm so as to complete the 2023 audit as soon as practicable," New Horizon noted in the filling.
Since the company was unable to publish its 2023 financial results within the time frame required by local law, trading of its stock on the Hong Kong Stock Exchange was suspended on March 28.
In a letter to New Horizon's management, Deloitte said the firm's decision to appoint another auditor made its professional relationship with the company "untenable," leading to its resignation, according to the filing.
In a separate filing, New Horizon announced the resignation of its CFO, Yu Gao, who also served as joint secretary for the firm, noting that he had "no disagreement" with the company.
Deloitte's resignation further dampened investors' confidence in the Chinese MDx company, which has been mired in allegations of accounting fraud regarding its financial results.
Based in the eastern Chinese city of Hangzhou, New Horizon went public on the Hong Kong Stock Exchange in February 2021. The company has been developing cancer screening tests and offers two fecal immunochemical tests approved in China: ColoClear for individuals at high risk for colorectal cancer, Pupu Tube for general colorectal cancer screening, and UU Tube, a direct-to-consumer test for Helicobacter pylori.
In August 2023, a short seller report published by market analysis company CapitalWatch alleged that New Horizon's reported financial figures were "far off" from reality. According to the report, which CapitalWatch said was based on its market surveys and research, New Horizon's 2022 revenues were estimated to be RMB 77.0 million ($10.9 million), much less than the RMB 765.0 million reported by the company. In addition, the report alleged that New Horizon's 2022 revenues from ColoClear were RMB 39.4 million, compared to the RMB 360.0 million reported by New Horizon.
New Horizon said in a statement at the time that the report was "blatantly false" and was "designed to negatively impact the company’s share price for the short seller’s own benefit." It also reaffirmed its reported revenues for 2022.
However, in March of this year, New Horizon disclosed that it would not be able to publish its 2023 earnings report as it was still in the process of addressing concerns raised by Deloitte, including regarding its sales of ColoClear, Pupu Tube, and UU Tube. Deloitte also said New Horizon needed to form an audit committee to conduct an independent investigation of its 2023 financial results.
New Horizon previously emphasized that its operations "remain normal," despite the trading halt. In early April, the company also established an independent committee to help with the internal investigation into its financial results.