Drug wholesaler AmerisourceBergen laid out $2.5 billion to buy the PharMEDium sterile drug compounding pharmacy operation, believing it will be a growth driver. But so far, the operations have become a regulatory quagmire for the company, now resulting in a DOJ investigation and gut-kick to its earnings.
AmerisourceBergen said in an SEC filing Tuesday that it has received a grand jury subpoena from the U.S. Attorney's Office for the Western District of Tennessee for documents about its lab testing of a certain type of syringe made at its PharMEDium lab in Memphis. That’s the lab where a recent FDA visit turned up so many issues that the company suspended operations and last month recalled all of the products from there that had yet to expire.
In its earnings call with analysts, CFO Tim Guttman told them that while the company had been “optimistic that Memphis operations would restart in early January,” the facility remains closed but is expected to resume operations this quarter.
The Memphis facility is PharMEDium’s largest and most automated, accounting for roughly half of its sales. “We fully expect to ramp production through the second half of the fiscal year and exit the year at full production,” Guttman said.
But the financial impact in 2018 will be significant, amounting to about a $60 million drag on earnings for the year, he acknowledged.
Guttman said that FDA inspections of PharMEDium’s other three sites have been completed and that they are operating. The FDA has found issues with those in previous visits.
The company still had a strong quarter, with $1.55 adjusted EPS, while revenue was about $40.5 billion, up 6%. But sales in the drug distribution unit, while coming in at nearly $39 billion, "were negatively impacted by PharMEDium, where we had lower-than-expected revenues and profit contribution," because of the FDA problems.
RELATED: AmerisourceBergen says civil penalty to resolve DOJ probe now at $625M
Just last year, AmerisourceBergen resolved issues over an older sterile syringe operation that also was the focus of a federal probe. The company had to set aside $625 million to cover expected penalties to resolve civil litigation with the DOJ surrounding alleged violations of the federal False Claims Act.
The DOJ has claimed that between 2001 and 2014, two of the wholesaler’s Alabama-based subsidiaries—Oncology Supply Co. and the now-defunct Medical Initiatives—prepared millions of syringes of cancer medicines in an unapproved facility. The civil payment set-asides were on top of the $260 million the drug distributor had already paid to resolve a criminal misdemeanor charge tied to its sales of the injected cancer meds produced that the plant.
Despite the difficulties the company has seen from PharMEDium, both Guttman and CEO Steve Collis talked about its bright future for AmerisourceBergen.
“Overall, we remain confident that we'll cycle through this remediation period, and ultimately, we will increase PharMEDium's competitive advantage while delivering the highest quality compounded sterile preparations available today,” Guttman told analysts.