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Troubled KV Sells Unit For $24 Million

Troubled KV Sells Unit For $24 Million [St. Louis Post-Dispatch]

From St. Louis Post-Dispatch (MO) (June 4, 2010)

Jun. 4--KV Pharmaceutical Company sold its Particle Dynamics subsidiary to an Ohio investment fund, but the divested company plans to remain in the St. Louis area.

As part of the asset sale, Bridgeton-based KV received $24.6 million, company officials announced Thursday. That money was needed to provide sufficient liquidity to keep KV afloat until its production resumes.

For the past 18 months, the ailing pharmaceutical firm’s production plants have been closed in large part because of an ongoing criminal investigation by the Food and Drug Administration.

This year, another KV subsidiary -- Ethex Corp. -- pleaded guilty to federal charges of failing to inform the FDA that it was manufacturing oversized tablets that could be harmful to patients.

Particle Dynamics was purchased by a private equity group led by Edgewater Capital Partners of Woodmere, Ohio. Edgewater’s investments include other specialty chemical companies and auto parts makers.

The deal was engineered by Paul Brady, who served as KV’s vice president of corporate development as well president of Particle Dynamics Inc.

"I felt there was a great opportunity here to not only keep the business in St. Louis, but also grow the business," said Brady, who moves on as an investor and chief executive of the divested firm, now called Particle Dynamics International LLC.

Particle Dynamics, which processes raw materials that are used in the pharmaceutical industry and other markets, managed to retain its FDA certification and remain profitable.

Its facility on Hanley Road in Brentwood was rebuilt after it burned down a year ago. It has about 30 employees.

Specifically, the company makes "micro-encapsulated particles" consisting of drug active ingredients and vitamins that are sold to branded pharmaceutical companies and companies that make over-the-counter medicines.

One of Particle Dynamics’ leading products is a granulated calcium for osteoporosis treatments.

"I believe that the outlook is very strong," Brady said. "Suppliers like PDI are becoming even more important because of our exemplary record of good manufacturing."

Meanwhile, the asset sale helps breathes life into KV, which hopes to obtain FDA approval to restart its production later this year.

"We’ve been talking about the sale of PDI for some time," KV spokeswoman Brooke Eiler said. "It means that we have an additional $24.6 million to ease our liquidity situation going forward."

Under the terms of the sale, KV could also receive up to $5.5 million in additional "earn out payments" if Particle Dynamics meets certain income levels.

Eiler said the pharmaceutical company’s cash burn for the first quarter of this year ran about $35 million, but that recent layoffs should help ease its cash-flow problems. The company employed 1,700 workers as recently as 2008; now that total is less than 400.

The sale of Particle Dynamics "provides a little bit of operating room, but it’s not the solution," Eiler said. "We need to get back into business. ... Obviously, there are ongoing efforts to find cash."

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Posted: June 2010