Pharmaceutical Company's Regulatory Missteps Tempt Shareholder Legal Action

Posted 18 March 2013 | By

Generics pharmaceutical manufacturer Impax Laboratories hasn't had an easy last two weeks.

On 4 March 2013, it announced that the US Food and Drug Administration (FDA) had, after conducting an inspection at its California Facility, determined that the facility had 12 deficiencies, and issued it a Form 483. Those deficiencies sent the firm's shares plunging. Then, on 15 March 2013, FDA announced it would withdraw approval for the company's generic equivalent of bupropion, Budeprion XL 300 mg, after the agency's testing confirmed that the drug was not sufficiently bioequivalent to its reference listed drug, Welbutrin XL 300 mg.

Both may be just the start of the company's problems, however.

Law Firm Probes Stockholder Sentiment

In response to the Form 483, law firm Robbins Arroyo said it might sue the company on behalf of shareholders, citing repeated deficiencies found in the Form 483 that were identical to deficiencies noted by FDA during earlier inspections of the same facility.

"Robbins Arroyo LLP is investigating whether officers and directors of Impax Laboratories breached their fiduciary duties to shareholders by failing to correct the Company's inadequate quality controls and deficiencies in its manufacturing processes," the firm wrote in a press release.

The Form 483 was seen as being particularly problematic for Impax because it pertains to Current Good Manufacturing Practice (CGMP) violations, which can result in a facility not being allowed to manufacture products until the deficiencies are alleviated.

The Hayward, Calif., facility is currently awaiting pre-approval inspection for the company's Parkinson's drug Rytary (carbidopa and levodopa), which remains under FDA review. The facility was last issued a warning letter in May 2011, which noted deficiencies including a lack of written procedures to monitor output and validate performance, temperature ranges for certain tablets that were not validated, and batch failures that went uninvestigated and unrecalled. The last observation was a repeat one from an April 2010 inspection, FDA noted.

In January, FDA issued a complete response letter (CRL) for its 2011 inspection, which Impax said indicated that "FDA requires a satisfactory re-inspection of the company's Hayward facility as a result of the warning letter issued in May 2011 before the company's [New Drug Application] may be approved due to the facility's involvement in the development of Rytary, and supportive manufacturing and distribution activities."

It has since retooled its application for Rytary such that that Hayward site is no longer an alternative site for producing the drug, and Reuters reports that the company is in the midst of formally requesting that FDA treat the Hayward inspection and its Rytary application as separate entities.

Will Shareholders be Placated or Angered?

The question, now, is whether that will be enough to stave off angry investors, the likes of which Robbins Arroyo are soliciting for potential legal action. The stock is trading at close to half of what it was in October 2012 ($27.25/share), and its share price plummeted from $20 a share to as low as $14.41 a share before rebounding slightly to $15.80 a share at the time of this article's publication.

That drop was attributed directly to the March warning letter, and Arroyo said it was looking for shareholders interested in exercising their shareholder rights to "hold insider wrongdoers accountable for their actions, prevent future misconduct, and bring long-term value back to the company."

The episode may well be a warning for regulatory professionals: Regulators aren't the only people you need to worry about when it comes to maintaining compliant operations.


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