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This article was originally published in The Tan Sheet

Executive Summary

REXALL SUNDOWN TO PURCHASE PENNEX' VERONA, PENN. FACILITY FOR $ 3 MIL. in cash under a preliminary agreement announced Aug. 12. Pennex Products concurrently filed a Chapter 11 petition in U.S. Bankruptcy Court in Pittsburgh. Rexall said that completion of the acquisition remains subject to "satisfactory completion of due diligence reviews, approval of the bankruptcy court and the receipt of any regulatory approvals." Rexall is also interested in reviewing Pennex' customer base before declaring the deal final. Fort Lauderdale-based Rexall expects the deal to close in 30 to 60 days. The OTC/dietary supplement company will fund the purchase of the Pennex plant with proceeds from its June 18 initial public offering ("The Tan Sheet" May 3, p. 4). The Verona facility is the company's first manufacturing plant. The Pennex bankruptcy filing "was fully anticipated . . . to ensure that Pennex has sufficient financial resources to provide" a smooth transition and "timely flow of merchandise to its customers," Rexall said. To this end, Rexall will provide debtor- in-possession financing in an amount "not to exceed $ 2 mil.," Rexall stated. Pennex continues to operate its Morton Grove, Ill. facility under the Pennex Pharmaceuticals name and expects to resume shipping products from the closed plant "soon." The pharmaceutical manufacturer is currently enjoined from shipping any products as a result of a consent order filed July 23 in Chicago federal court. The agreement was filed by the court on behalf of FDA as a mass seizure action which was waived upon Pennex' agreement to the consent order. Under the terms of the agreement, Pennex is "permanently restrained and enjoined" from shipping any product that has been "manufactured, processed, packed, labeled, stored or held" at the Morton Grove plant "except for manufacturing solely for the purpose of attempting prospective validation of processes" until FDA is satisfied that the facility is in compliance. Pennex will also pay the cost of validation inspections and court costs. Pennex said that it discontinued shipping product on July 17. According to the terms of the agreement, Pennex must retain an independent investigator in order to "determine whether the methods, facilities and controls are operated and administered in conformity with . . . GMP regulations for drugs." Pennex said it hired an independent consultant who is qualified to conduct these investigations in March, when the firm purchased the facility from Pharmaceutical Basics, Inc. The complaint, U.S. v. Multi-Vita Drops with fluoride . . . and all other finished dosage form prescription and over-the- counter drugs located on the premises of Pennex Pharmaceuticals, alleges that the articles in question are "adulterated . . . in that the methods used in, and the facilities and controls used for their manufacture, processing, packing and holding do not conform to and are not operated and administered in conformity with the current good manufacturing practices requirements." Pennex indicated that one issue at the Morton Grove facility involved concerns with the water system. At least two recalls have occurred at the Morton Grove facilities since it changed corporate hands in March. The company conducted a nationwide recall of 315,771 units of promethazine- containing prescription oral liquid cough and cold preparations due to subpotency. On June 4, Pennex initiated a nationwide recall of 90,371 units of lidocaine oral topical solution due to subpotency. Both recalls involved product that was manufactured by PBI. Pennex purchased the Morton Grove facility on March 22, to pursue its development "from a solely OTC drug manufacturer into a prescription drug manufacturer," Pennex said. Pennex President Jack Van Hulst said that the company does not plan to retain the Pennex name for the Morton Grove facility. Van Hulst previously served as president of PBI. During his tenure at PBI, he negotiated the purchase of the Morton Grove facility (then My-K Labs) from Kun Chae Bae in 1988. Several employees working under Van Hulst at PBI followed him to his new job at Pennex in 1992.

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