KV Pharmaceuticals Facing Difficulty Overcoming Negative Sentiment Even With A New FDA Investigation

| About: K-V Pharmaceutical (KVPBQ)
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Shares of KV Pharmaceutical Co. (KV.A) shot up last week and posted their biggest gain in the last nine months after U.S. regulators said they are investigating pharmacies that make low-cost versions of the company’s drug which prevents premature births.

Shares of the company which offers Makena (a hydroxyprogesterone caproate injection, which reduces the risk of preterm birth in women with a singleton pregnancy, who have a history of singleton spontaneous preterm birth) rose 61 percent to $1.44 at 3:23 p.m (EST). That was the firm's biggest intraday rise since Feb. 4 when the drug was approved.

Bloomberg reported that the investigation is based on information from KV regarding the potency and purity of samples of the bulk active ingredient and compounded finished product. Pharmacies make, or compound, their own versions of Bridgeton, Missouri-based KV’s drug. The Food and Drug Administration tends to allow compounding pharmacists to operate outside the normal rules at its discretion, the agency said in a March 30 statement on Makena.

After the drug was approved, the agency decided to allow compounding pharmacies to continue providing the medicine, also known as 17-P.

“FDA has begun its own sampling and analysis of compounded hydroxprogesterone caproate products” and the active ingredients “used to make them,” the FDA said in a statement.

The company issued a news statement regarding recent testing conducted by independent laboratories, commissioned by Ther-Rx Corporation, a subsidiary of K-V Pharmaceutical Company shows that multiple samples of both compounded 17P drug formulations and active pharmaceutical ingredient that may be used in compounded 17P failed to meet certain established standards for potency and purity.

"We commissioned this research because moms and healthcare providers deserve to know whether medications prescribed during pregnancy meet FDA's quality standards," said Greg Divis, President and CEO of K-V Pharmaceutical Company. "This research demonstrates important differences in product quality between FDA-approved Makena and these compounded 17P formulations. Healthcare providers and patients have no practical way of ensuring that compounded 17P formulations meet FDA's quality standards. Now that FDA-approved Makena is available, America's high-risk moms deserve a product that consistently meets FDA's standards."

On Nov. 8, 2011, the FDA issued a statement on Makena acknowledging it has received information from the Company regarding the potency and purity of samples of bulk hydroxyprogesterone caproate APIs and compounded hydroxyprogesterone caproate products. FDA stated, "According to the analysis of this information provided by K-V, there is variability in the purity and potency of both the bulk APIs and compounded hydroxyprogesterone caproate products that were tested."

U.S. Regulators began their own sampling and analysis of compounded hydroxyprogesterone products and the bulk APIs used to make them. In FDA's statement, the agency "reminds healthcare providers and patients that before approving the Makena new drug application, FDA reviewed manufacturing information, such as the source of the API used by the manufacturer, proposed manufacturing processes and the firm's adherence to current good manufacturing practice. Therefore, as with other approved drugs, greater assurance of safety and effectiveness is generally provided by the approved product than by a compounded product."

Several proposed class-action lawsuits against KV Pharmaceutical Co. claim the Bridgeton-based drug company misled investors about its pregnancy drug Makena and made public statements that resulted in artificially inflated prices of KV stock.

After KV was granted FDA approval to market the drug in February the company shocked patients by immediately raising the price on the series of Makena injections to somewhere between $15,000 to $30,000.

The St. Louis Business Journal reported that the cost of a series of treatments with the generic formulation of Makena, called 17P, previously cost about $200 to $400. If successful, the lawsuits could be another setback for a company that has seen mass layoffs, criminal convictions and the removal of CEO Marc Hermelin in the last several years.

Like other recent spikes, this one didn't hold either. Pre-market trading the day after the news was considerably lower even as message boards and social media sites were buzzing about the development. Perhaps there is simply too much of a dark cloud cover here to hope that shares will be able to sustain their climbs. In fact, about 8.6M of the firm's 59.88M outstanding shares are short.

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The company also issued some new performance metrics for Makena and said that their fiscal 2012 Second Quarter Form 10-Q was delayed due to restatement of prior financial statements which should have no impact on cash positions or losses from operations.

"Our commercialization efforts remain centered on communicating the important differences between FDA-approved Makena and compounded 17P formulations," said Greg Divis, President and CEO of K-V Pharmaceutical and President of Ther-Rx. "We are actively engaging the physician and payer communities and the success of our focused outreach is evidenced by Makena's improving performance metrics. We believe our efforts are driving expanded access to Makena while we are also successfully maintaining low out-of-pocket costs for patients."

The firm tried their best to bring more attention to these news developments and hosted an informative, yet somewhat uneventful investor conference call last Thursday. An archived version of the call is accessible for 30 days at the company's website.

In today's economy, it's not hard to see why so many are still opting for the compounded alternatives to Makena. Until some of the bad karma works itself out or a major financial dent is made against some of the competitors selling the compounded 17P drug formulations, it's going to be hard for K-V Pharmaceutical shares to build any real momentum.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.