KV Emerging From Bankruptcy As Makena Sales Pick Up Steam

KV clears major hurdle as court okays its chapter 11 reorganization plan, which provides for payment of $23.4 million owed under 2010 Department of Justice settlement and $231.4 million for senior notes; firm’s future remains tied to Makena.

Eighteen months ago, Lumara Health Inc.acknowledged there was “substantial doubt” about its ability to survive. But its future now looks far more positive as sales of its top product, the preterm birth drug Makena (hydroxyprogesterone caproate), have continued to grow and a court has accepted its Chapter 11 reorganization plan.

U.S. Bankruptcy Judge Allan Gropper, of the Southern District of New York, issued an order on Aug. 29 confirming the plan. It calls for KV to pay $23.4 million to the federal government and states, which it owes under a 2010 settlement with the Department of Justice. The plan also provides $231.4 million in cash to holders of senior secured notes. In addition, $201.1 million in convertible subordinated notes claims are being exchanged for 7% of new stock and $10.25 million is being provided for general unsecured claims.

“Confirmation of our plan of reorganization allows us to move forward with the final steps necessary to emerge as a financially stronger company, fully focused on providing women’s healthcare products and services that meet the needs of our customers,” a company spokesperson said. The reorganization will be complete once elements of the plan are implemented.

KV and its subsidiaries filed voluntary Chapter 11 petitions for reorganization in August 2012 due to problems marketing Makena. At the time of the filing, KV said it was “unable to realize the full value of its most important product” because the FDA did not enforce the orphan drug exclusivity it had awarded Makena. As a result, the company said that certain state Medicaid agencies imposed reimbursement restrictions. The company also was unable to renegotiate milestone payments to Hologic Inc., from which it purchased all rights to Makena.

Makena Revenues Continue To Rise

During the Chapter 11 proceedings, Makena sales have steadily risen. Makena had gross revenues of $41.5 million for the three months ended July 31, up from $23.5 million for the three months ended Dec. 31, 2012. Total prescriptions increased from 3,452 for the three months ended Dec. 31 to 4,715 for the three months ended July 31.

KV had a bleak outlook in February 2012, when it submitted its 10-Q filing for the period ending Dec. 31, 2011. “There is substantial doubt about the company’s ability to continue as a going concern,” the filing stated.

But the company seems to have cleared roadblocks to Makena marketing. And concerns about compounded products triggered by last year’s meningitis outbreak caused by products from the New England Compounding Center may also have helped it compete against cheaper compounded versions of the product.

However, KV said in a March 15, 2013 SEC filing that further commercialization will depend upon obtaining agreements for coverage and reimbursement rates with third party payors; the extent to which pharmaceutical compounders continue to produce non-FDA approved substitute products; the potential threat of competition from off-label use of other products; and the ability to maintain certain net pricing levels and increase unit sales for Makena.

Approved in February 2011, Makena is indicated to reduce the risk of preterm birth in certain women. KV initially priced the drug at $1,500 per injection, or up to $30,000 for a course of treatment, while compounded products of the active ingredients cost about $300 for a course of treatment. Following critical press reports, FDA issued a statement saying it did not intend to take enforcement actions against pharmacies that compound hydroxyprogesterone unless the product was unsafe or not being produced in accordance with appropriate standards. KV subsequently reduced the list price of Makena to $690 per injection and then sued FDA to try to force it to take enforcement action against compounded versions of the product (Also see "Makena’s Orphan Exclusivity Is “Nullified” By FDA’s Compounding Policy, KV Suit Says" - Pink Sheet, 6 Jul, 2012.). The court dismissed the complaint.

Prior to its Makena marketing troubles, KV faced FDA and DoJ enforcement actions. In March 2009, it reached a consent decree with FDA that kept its products off the market for more than a year (Also see "KV Pharmaceutical Cleared To Resume Some Drug Shipments, But Cash Crisis Looms" - Pink Sheet, 10 Sep, 2010.).

The following year KV’s now-defunct generics subsidiary Ethex Corp. pled guilty to failing to inform FDA of drug manufacturing problems with two prescription drugs, dextroamphetamine and propafenone, that led to the production of oversized tablets. The company agreed to pay a fine of $23.4 million plus $2.3 million in restitution to Medicare and Medicaid and to take an administrative forfeiture of $1.8 million (Also see "KV Pharmaceutical To Decide Whether To Retain Generics Business After Settling Manufacturing Cover-up Charges With DoJ" - Pink Sheet, 8 Mar, 2010.).

KV’s former Chairman and CEO Marc Hermelin subsequently pled guilty to producing and distributing oversized morphine sulfate tablets and was sentenced to 30 days in jail and ordered to pay a $1 million fine and forfeit $900,000 (Also see "Former KV Pharmaceutical CEO Sentenced To 30 Days In Jail" - Pink Sheet, 10 Mar, 2011.). The reorganization plan says Hermelin’s indemnification claims have been withdrawn and that he is barred from pursuing any future claims against KV.

Hedge Fund Briefly Held Stake In KV

The reorganization plan also provides for the settlement of the Ethex criminal fine and civil qui tam claims. In a separate court filing, KV agreed to pay the U.S. government $5.4 million remaining on the criminal fine and $18.4 million to the U.S. and Medicaid participating states related to the civil settlement.

KV announced in December that it had reached a settlement with Hologic and was using a portion of an $85 million loan it received to satisfy the terms of the agreement.

After filing for bankruptcy, the New York Stock Exchange delisted KV’s common stock. The stock is currently quoted on the over the counter market. On Sept. 3, the stock opened at $.10.

One hedge fund briefly took a stake in KV. StreetInsider.com reported on Aug. 5 that Glenview Capital, which held no shares of the company at the end of June, had disclosed a 13.59% stake in the company in an SEC filing. A spokesperson for Glenview said the fund no longer has a position in KV.