Leiner Halts OTC Production After FDA Facility Inspection

CARSON, Calif.Leiner Health Products Inc., the leading manufacturer of store brand vitamins, minerals and nutritional supplements, and the second largest supplier of over-the-counter (OTC) pharmaceuticals in the food, drug, mass merchant and warehouse club (FDMC) retail market, has voluntarily suspended production and distribution of its OTC drug products manufactured, packaged or tested at its facilities in the United States in response to a list of inspection observations received from Food and Drug Administration (FDA) March 16, following the inspection of the companys Ft. Mill, S.C., facility. While the S.C. plant, as well as others used by the company, also manufactures Leiners vitamin and mineral supplement (VMS) lines, the FDA concerns and production stoppage do not affect VMS lines.

In a conference call to its investors, Leiner management placed the value of its affected OTC products around $184 million and noted there is around $19 million of finished OTC product in its inventory. They further clarified any finished OTC product already in retail channels will continue to be sold until any recalls are established. They stressed there is a consensus among the parties involved, including FDA and third party consultants, Leiners OTC products pose no safety concerns, but the observations submitted on March 16 by FDA, via Form 483, relate to quality controls and good manufacturing practices (GMP)s. While the specifics of the Form 483 observations were not disclosed, management did say there is a need to ensure product specifications are convincing on the subject of shelf life of OTC products. The lack of GMPs for supplements is partially responsible for exempting VMS products, which are 75 percent of Leiners business, from the recall.

The company is working closely with its partners, including North Castle Partners, and FDA to pinpoint the problems relative to the Form 483 observations and expects to submit a formal response to FDA on the inspection findings on April 9. While FDA is not expected to revalidate the OTC production after Leiner makes any necessary adjustments, management noted production of the OTC line will not resume until it is satisfied FDA is comfortable with the companys quality controls and specifications.

Leiner has hired consultants, including regulatory compliance experts Lachman Consultant Services, and is supporting assessments of unexpired products in distribution channels and the adequacy of quality controls. Management noted its facilities passed a similar inspection in January 2007.They said more details on the Form 483 observations and remedies will come out over the course of the next few months.

Leiner, which counts Wal-mart and Costco among its largest customers, reported reactions from its customers consistently indicated the OTC retail segment needs Leiner, as these customers have very limited options for sourcing these goods.

In addition to exploring the issues presented by FDA inspectors and conducting evaluations of potential recalls and cGMP changes, Leiner is assessing the potential financial implications of this situation, including lost sales, potential recall costs, inventory write-downs and all the incremental costs involved in pinpointing any problems and implementing any changes.

Management could not provide any timetable for any relaunch of OTC production, which is likely to come on a product-by-product basis, rather than as a whole segment.