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Executive Summary

KV DELAYING DIVIDEND PAYMENTS TO PREFERRED SHAREHOLDERS and "restructuring the preferred stock . . . in a manner which would provide greater flexibility consistent with the company's present needs," the company explained in a March 13 filing with the Securities and Exchange Commission. St. Louis-based KV Pharmaceuticals is issuing 346,590 shares of non-dividend-paying Class A stock (valued at approximately $ 4 mil.) to its shareholders in exchange for an equal number of dividend-paying Preferred Shares that were turned in by investors last spring. The stock restructuring, which was agreed to by shareholders last June, reflects KV's need to conserve funds after spending heavily in 1990 to establish their own generics subsidiary, Ethex. In FY 1990 (ended March 30, 1990), KV's costs and expenses increased approximately 12% to over $ 32.5 mil. by the end of the fourth quarter. Earnings failed to grow apace. The company ended the 12-month period with a net lost of $ 1.4 mil., compared to a profit of $ 1.4 mil. in FY 1989. KV attributed most of the loss to "the start-up administrative and marketing costs associated with the introduction of products through Ethex," and to "the company maintaining a continuing high level of investment and expenditures related to personnel, research and product development . . . while at the same time experiencing ongoing delays in obtaining drug approvals at FDA." A 20-year old firm specializing in the development of novel delivery forms, KV decided to establish an independent corporation to distribute their line of generic products in March 1990. Bolar previously had distributed KV generic drugs under the KV/Bolar label and to 14 other generic marketers, but the two firms had a parting of ways in early 1990 after Bolar ran afoul of the generics scandal ("The Pink Sheet" June 18, T&G-7). In a bid to find a unique market niche for their subsidiary, KV has said that Ethex will market only novel delivery form generics. The three products currently marketed by the subsidiary -- generic versions of A.H. Robins' Micro-K Extencaps (potassium chloride), Searle's Norpace (disopyramide), and Key Pharmaceuticals' NitroDur (nitroglycerin) -- are all controlled- release formulations. KV reportedly has at least eight ANDAs and "numerous NDAs" awaiting approval at FDA. The company attributes the delay in approval of these products not to any problems with Ethex but to the general approval slowdown "that has been experienced by the pharmaceutical industry at large," the filing notes. KV considers the introduction of Ethex last year as only one component in a broader strategy to de-emphasize its "dependence on revenues from short-term manufacturing contracts" and is working instead to retain "significant proprietary interest in the products [the company] develops."

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