Endo expands, upgrades Qualitest plant

Endo Health Solutions ($ENDP) in 2010 forked over $1.2 billion for generic drugmaker Qualitest Pharmaceuticals as part of its strategy to prepare for patent losses. Qualitest would broaden Endo's reach in treatments for pain with its lines of generics. But the deal has brought on pain of its own. Manufacturing problems at Qualitest have been taking a financial toll on Endo and forced it to make investments into plants where the FDA has found issues.

In a conference call last week Endo executives acknowledged that recalls of pain drugs last year shaved about $15 million off of sales for the year. But they said Endo is making improvements and expects to recoup some of its lost sales this year.

"We're obviously very focused on continuous improvement of our manufacturing processes, including our quality systems," Chief Financial Officer Julie McHugh told analysts, according to a transcript of the call from Seeking Alpha. "And we've made some dramatic improvements in the course of the two years that we've owned the Qualitest facility. And we will continue to remain committed to all of those process improvements as we move forward."

Endo in September recalled a lot of what it called "super potent" pain drugs manufactured by Qualitest because they exceeded their prescribed weights. By December the company added 100 more lots to that removal and the FDA was warning of the potential hazards of taking too much hydrocodone bitartrate (generic Vicodin) and acetaminophen tablets since the drugs were not in spec.

McHugh said that problems are being addressed, even as Endo is adding capacity to manufacturing operations. "We expect to continue to invest in the expansion of our manufacturing capacity in 2013, and we believe we can do so with fewer supply disruptions as we will reduce some of the demand on our manufacturing footprint through selective use of outsourcing to help meet demand," she said.

The recall and lost sales are not the only quality issues tied to Qualitest. In 2011, it had to recall some lots of birth control pills because they had gotten out of order in their blister packs. Of course, with contraceptives order is essential because some pills are placebos. Now the company is fighting litigation from mothers who say their pregnancies occurred while they were using Qualitest products.

- read the Seeking Alpha transcript