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PHARMACEUTICAL RESOURCES SHUTTING DOWN QUAD PHARMACEUTICALS

Executive Summary

PHARMACEUTICAL RESOURCES SHUTTING DOWN QUAD PHARMACEUTICALS, the recently-formed holding company for the Par oral solid dose and Quad injectable generics businesses announced Sept. 25. "This action was taken because the time and financial commitment required to rehabilitate Quad would be too great for us to pursue," Pharmaceutical Resources President Kenneth Sawyer said. Quad had accounted for $ 10 mil. of Pharmaceutical Resources' $ 13.1 mil. loss through three quarters, the company said. Quad had been manufacturing 20 products, the majority of which were "grandfathered" drugs not requiring ANDAs, Pharmaceutical Resources said. "The sale and distribution of Quad products will continue from existing inventories," the company added. Quad employed about 70 people at the time operations were discontinued, Pharmaceutical Resources said. Half of those employees are being laid off immediately, with the rest to follow as all Quad operations are phased out. "Pharmaceutical Resources is continuing to seek a buyer for all or part of Quad or its assets," the company said. "We continue to believe that, under appropriate circumstances, Quad's business has the potential to again be a significant force in the injectable drug market." Quad still holds over 100 ANDAs, Pharmaceutical Resources noted, although less than 10 were actively being manufactured. ANDAs that were active were those that had cleared an independent audit that began in March 1990 after Par took over the remaining outstanding shares of Quad and temporarily shut down the subsidiary. The shutdown occurred after internal and external audits uncovered unapproved manufacturing changes for a number of the company's products ("The Pink Sheet" March 19, 1990, T&G-3). For many Quad ANDAs reviewed, the auditor could not confirm the accuracy of the basis for approval, Pharmaceutical Resources said. The audit has stopped with the discontinuance of manufacturing although not all of Quad's ANDAs had been audited, the company said. Quad has conducted two recalls stemming from its audits: one in March 1990 and a second in February 1991 ("The Pink Sheet" Feb. 11, T&G-13). Neither FDA nor the company has initiated proceedings to withdraw any of the ANDAs, Pharmaceutical Resources said, although the company is considering whether to do so. As a result of the shutdown, Pharmaceutical Resources will "record a charge to operations of approximately $ 13 mil.," the company said. "Approximately $ 8 mil. of the charge represents the writedown of noncurrent assets." Pharmaceutical Resources had expected to report a loss for the fourth quarter (ending Sept. 28) before adding in the charge for the shutdown of Quad. The discontinuance of Quad is the latest in a series of moves made by the new management of Par (now Pharmaceutical Resources) to rehabilitate the company's image following resolution of its own regulatory problems. "This is another step in the effort to return our business to a growing and profitable enterprise," Sawyer said. Par's regulatory problems are not yet over, however. The company is still under criminal investigation by the U.S. Attorney's office in Maryland. The company told shareholders in April that it was "responding to certain questions raised by the U.S. Attorney with respect to the sufficiency of the independent audit of certain of Par's products." Par also has not agreed to withdraw the ANDAs for which FDA has initiated proceedings, although the company said it no longer manufactures any of the products in question. Par shut down its own facilities in August 1989 after an FDA inspection discovered manufacturing deficiencies and data falsification. Two former executives, one from Par and one from Quad, pled guilty to bribing FDA officials. FDA also initiated proceedings to withdraw several Par ANDAs on suspicion of fraud. By October 1990, however, Par had reintroduced 75% (or about 110) of its old oral-dose product line after an audit by its new management ("The Pink Sheet" Oct. 1, 1990, T&G-1). On Sept. 27, Pharmaceutical Resources announced that it had reached an agreement to settle all shareholder suits pending against Par and Quad. The company will issue 2 mil. shares of preferred stock and 375,000 shares of common stock if the settlement agreement is approved. The agreement, Sawyer noted, will help "to preserve the company's working capital." The agreement does not cover suits against three former officers of Par and Quad. The company also announced that "in the course of the settlement negotiations" it was informed by "the Securities and Exchange Commission that the Commission has been, since April 1991, conducting a formal private investigation relating to certain of the issues raised in the litigation being settled."

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