Tuesday, December 15, 2015 | By Eric Palmer. Mylan ($MYL) recently got hammered by the FDA in a warning letter for three plants that it acquired as part of its $1.75 billion acquisition of the sterile injectables business of what was then Strides Arcolabs. Now Mylan is apparently looking for Strides to cough up some of the cost of getting those plants back into shape.
In a letter to the Bombay Stock Exchange (BSE) Tuesday, what is now Strides Shasun reported that it “has received notification of claims from Mylan … in relation to certain regulatory concerns.” It said it is evaluating each claim and feels confident it can “successfully defend” against them.
If it can’t, Strides said that as part of their deal, it had put $200 million into escrow to cover “claims on warranties and indemnities” as well as claims “in relation to certain regulatory concerns.” It said that should cover its exposure and not create any new liabilities for the company.
When the warning letter was posted in August, Mylan CEO Heather Bresch issued a statement reiterating the company’s “deep and unwavering commitment to quality” and assured investors Mylan was working with the FDA to resolve the regulatory issues.
But there were indications of problems even before the two closed their deal in December 2014 when the FDA issued a warning letter to one of three Bangalore plants, noting a unsatisfactory conditions that could lead to contamination of its sterile injectable drugs. The FDA referenced those earlier problems in its warning letter in August, telling Mylan President Rajiv Malik that it should have been a heads up to his company that the plants and their processes needed some attention.
Regardless, the FDA said that once it had the plants, Mylan’s corporate quality system should have picked up and done something about the long list of shortcomings before the agency had to step in. The agency acknowledged Mylan’s intent to fix the issues, but said until it does, it will not accept any applications for new or generic drugs from the three facilities.
There were signs earlier this year that the FDA was still concerned with the quality of some of the drugs coming out of those plants when Mylan began recalling cancer meds made at the plants, including products produced for Pfizer ($PFE).