Skip to Content

KV Faces Setback After FDA Delays Approval of Key Drug

From St. Louis Post-Dispatch (MO) (January 13, 2011)

Jan. 13--KV Pharmaceutical, the Bridgeton-based drug company convicted of criminal charges earlier this year, was dealt another blow Wednesday by federal regulators who postponed their decision on whether to approve a new drug the ailing company hopes to market.

The Food and Drug Administration's decision to delay its ruling on the drug Gestiva, a treatment for the prevention of premature birth, has apparently sent the drugmaker further scrambling for cash to meet its obligations.

It's the latest in a growing string of misfortunes for KV, which as recently as 2008 was considered one of the most successful publicly traded companies in the St. Louis region, posting nearly $600 million in revenue and employing 1,700 people.

After product recalls and a federal investigation that began that year, KV stopped producing drugs for about 18 months and laid off three-quarters of its work force. KV executives have banked heavily on a favorable decision on Gestiva to pull the company out of a deep ditch.

The company also announced Wednesday that, given the FDA's postponement, it was "evaluating its liquidity outlook" and would issue a public update once that evaluation has taken place.

"We're just trying to be good citizens here," said Tom McHugh, KV's chief financial officer. "A lot of people are following this company."

He would not discuss potential next steps. But a Wall Street analyst said the company's evaluation could include various options such as taking on new equity partners, asset sales, new loans if possible, and -- if necessary -- filing for bankruptcy protection.

"They've been in a liquidity crisis mode for awhile," said Kevin Kedra, an analyst at Gabelli & Co., an investment management firm in Rye, New York. "They've got to raise capital, (but) they're a huge credit risk. It's difficult to know exactly what moves they can make from here to get this company going."

In November, the company entered into an agreement with lenders to borrow as much as $120 million at an annual interest rate of 16.5 percent. But the bulk of that debt financing package is contingent on KV's meeting certain milestones related to FDA approvals for Gestiva and other drugs that KV hopes to either manufacture or market.

"There is substantial doubt about our ability to continue as a going concern," KV stated in a Securities and Exchange filing in late December. "We expect significant losses to continue because we are unable to generate any significant revenues from our own manufactured products until we are able to resume shipping more of our approved products and until after Gestiva is approved."

In March 2010, a wholly owned subsidiary of KV Pharmaceutical, Ethex Corp., pleaded guilty to two felony counts of criminal fraud for failing to report to the FDA that it was making oversize tablets, including powerful painkillers that could be harmful to patients.

On Wednesday, KV's public disclosure of the FDA's 3-month postponement, along with its expected impact on the company's cash flow, caused the drugmaker's Class A share price to tumble by 20 percent in trading on the New York Stock Exchange. The Class A stock fell 45 cents to $1.83 per share.

The pending application for Gestiva is sponsored by Hologic Inc., a Massachusetts-based women's health company that has agreed to transfer to KV its rights to Gestiva once Hologic obtains FDA approval and a $25 million payment from KV.

If FDA approval for Gestiva is obtained, KV plans to retain a third party to manufacture the drug, but would use its own sales force to market it. The drug has been touted as a treatment for "the prevention of preterm birth in women with a singleton (one fetus) pregnancy who have a history of spontaneous singleton preterm birth."

The FDA has requested additional information from Hologic related to Gestiva, and plans to rule on the application by April 13.

Meanwhile, KV's cash flow continues to erode. The company reported a net loss of $313.6 million in fiscal year 2009, and a net loss of $283.6 million in fiscal year 2010.

In September, the company received FDA approval to resume shipment of extended-release potassium chloride capsules -- its first product under a federal consent decree. But that product alone is not expected to bail out the drugmaker.

The company’s SEC filing stated that, if significant delays occur in bringing its products to the market and otherwise raising capital, KV may need to reduce its operations further and decrease its work force.

According to its December filing, KV's ability to move forward could also be significantly affected by the outcome of litigation. KV and its subsidiaries have been named as a defendant in dozens of patent infringement, securities fraud and products liability cases including 37 wrongful death actions and 28 pre-litigation claims alleging that a death occurred from the ingestion of one of its recalled products. Twenty-two additional pre-litigation death claims have recently settled.

To raise capital, KV in June 2010 sold its wholly owned subsidiary PDI, which produces raw materials used by the pharmaceutical industry. KV also formed a new subsidiary in March 2010 called Nesher as a sales and marketing company for its generic products. KV is considering selling Nesher to a third party or lenders.

For now, KV's future relies heavily on the fate of Gestiva, both in the regulatory process and the marketplace. In Wednesday's news release, the company said it "remains confident in the approval of Gestiva and believes a positive action by the FDA is likely."

To see more of the St. Louis Post-Dispatch, or to subscribe to the newspaper, go to

Copyright (c) 2011, St. Louis Post-Dispatch

Distributed by McClatchy-Tribune Information Services.

For more information about the content services offered by McClatchy-Tribune Information Services (MCT), visit, e-mail, or call 866-280-5210 (outside the United States, call +1 312-222-4544)


Posted: January 2011