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KV Pharmaceutical Must Face Suit Over Quality Assurances

KV Pharmaceutical Co. (KV/A) must face an investor lawsuit claiming the company and its executives made misleading statements about its compliance with federal quality- control standards, a U.S. appeals court ruled.

Led by public employee pension plans of Boston and Norfolk County, Massachusetts, investors sued the Bridgeton, Missouri- based drugmaker in 2008, alleging it and top executives made misleading statements about compliance with U.S. quality-control regulations.

A unanimous three-judge appellate panel in St. Louis today reversed U.S. District Judge Carol E. Jackson’s 2010 order dismissing the case and directed her to let investors file a revised complaint. The appeals panel pointed to a guilty plea by a unit of the company after the original lawsuit was filed.

“The district court abused its discretion in denying the motion to amend the complaint,” the appellate panel said. “The new allegations supported the investors’ contention that KV made false and misleading statements during the class period.”

In an amended complaint filed in May 2009, KV and its officers were accused of making misleading statements between June 2004 and January 2009 in reports filed with the U.S. Securities and Exchange Commission, during which time federal Food and Drug Administration inspectors had observed manufacturing, packing and labeling without making express findings of violations, according to today’s ruling.

Suspended Shipments

In December 2008, the company issued a press release stating it was suspending shipments of FDA-approved drugs in tablet form, after which shares fell from $5.39 on Dec. 22 to 51 cents on Jan. 26, 2009.

Former Chief Executive Officer Mark Hermelin in March 2011 pleaded guilty to violating drug labeling laws and was sentenced to 30 days in prison. A year earlier, KV’s Ethex unit pleaded guilty to failing to tell the FDA about pill manufacturing problems.

Brad Edwards, a spokesman for KV with Brainerd Communicators in New York, said in an e-mail that the company “does not comment on legal matters.”

The case is Public Pension Fund Group v. KV Pharmaceutical Co., 10-3402, U.S. Court of Appeals for the Eighth Circuit (St. Louis).

To contact the reporter on this story: Andrew Harris in Chicago at aharris16@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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