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Executive Summary

LYPHOMED's FIRST CLASS I RECALL IS FOR 37,000 VIALS of injectable potassium chloride manufactured in its Orlando, Fla. facility. LyphoMed initiated the Class I recall by letter on July 20 after FDA determined that samples from one lot of the potassium chloride product were nonsterile. In the letter, LyphoMed recalled from 37 direct purchasers and a small number of wholesalers all of lot 480099 of Potassium Chloride Injection, USP, 2 mEq/ml-20 mL single dose vials. The recall letter asserts that "the product when released met all USP standards, however, recent testing for sterility has demonstrated the product to be nonsterile." FDA defines a Class I recall as one in which the product represents a potentially serious, and possibly lethal, health hazard. The recall comes two weeks after an FDA seizure of 1.1 mil. units of injectable products valued at about $ 17 mil., 10% of LyphoMed's annual sales. The July 6 FDA complaint, based on LyphoMed's failure to comply with CGMPs, did not allege that the products presented a health hazard, but warned that "should FDA discover that a particular drug, in fact, is a health hazard, appropriate steps would be taken including a possible recall of the product" ("The Pink Sheet" July 11, T&G-11). On June 6, LyphoMed received an adverse findings 483 report for the Orlando plant resulting from an FDA inspection conducted in May. In response, LyphoMed indicated that it would invest $ 1.5 mil. to upgrade equipment and that "drawing upon our experience at Melrose Park [Chicago] and the enhancements in progress there, we will be able to respond quickly to the Orlando 483." The Melrose Park plant is currently operating at 50% capacity. The recall is the latest in a series of LyphoMed regulatory problems which began in November 1987. Despite these setbacks, LyphoMed maintains working capital of $ 160,000 mil., or 58% of total assets, a cash surplus of $ 83 mil., and a total debt-to-capital of 41% ("The Pink Sheet" July 11, 1988, T&G-11). In a July 22 statement of three and six months operating results, LyphoMed said a $ 9.5 mil. (after tax) special charge against operations in the quarter was "primarily due to a build-up of quarantined, unapproved and excessive inventory as a result of the FDA inspections." The company's sales in the quarter plunged 26% to $ 25.3 mil. from $ 40.7 mil. in the same period a year ago. The company lost $ 9.9 mil. in the quarter.

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