Caraco has had issues with the US Food and Drug Administration (FDA) for the past 12 months, with last month’s seizure by US Marshals following earlier voluntary recalls and a warning letter.
Due to the uncertainty that surrounds these issues Caraco stated there can be no assurances that the company will have sufficient money to support ongoing business requirements. However, it believes that it will manage with its current cash reserve and income from operations.
This has resulted in net sales being cut in half, down from $108.3m to $48.1m, with the cessation of manufacturing at its facilities in Michigan reducing the company’s output.
Dan Movens, CEO at Caraco, explained that the company is working with the FDA to resolve these issues and that it “believes that corrective actions have been made and continual improvements are in process”.
The Michigan facilities were the target of the seizures, which resulted in products and ingredients worth $22.9m being taken.
Caraco has created a partial reserve of $8.4m consisting of materials in various stages of manufacture, finished goods with less than 12 months shelf life and products that will be difficult to recondition.
However, the reserve may be adjusted when Caraco has a clearer understanding from the FDA regarding the status of the entire inventory.
A knock-on effect of the issues with the FDA is that Caraco does not expect any of its 29 pending abbreviated new drug applications (ANDAs) to be approved until the concerns are resolved.
Despite this the company’s R&D spend rose in Q1, from $5.5m in the corresponding period of fiscal 2009 to $7.1m this quarter. This increase was attributed to a rise in expenditure for bio-equivalency studies for certain products in development and higher patent related costs.