Leiner Health Products' restart of its U.S. OTC operations could be delayed due to the loss of an exclusive ingredient supply contract with Dr. Reddy's Laboratories, the Carson, Calif.-based firm says.

Leiner CEO Robert Kaminski said India-based Dr. Reddy's termination of its contract in April complicates the firm's efforts to resume its U.S. OTC manufacturing and distribution operations.

The firm is planning litigation against Dr. Reddy's, which plans to enter the U.S. market and compete directly with Leiner and other private-label suppliers.

Leiner suspended its U.S. OTC operations March 20 to remedy FDA's quality control concerns and compliance issues with good manufacturing practices. The shutdown did not include Leiner's vitamin, mineral and supplement manufacturing (¹ Also see "Leiner Suspends U.S. OTC Operations, Expects Perrigo To Meet Demand" - Pink Sheet, 9 April, 2007., p. 5).

Selling products in the U.S. made with Dr. Reddy's ingredients "from our point of view was essentially our piece of the joint venture agreement that we had with Dr. Reddy's," Kaminski said June 28 during Leiner's fiscal 2007 fourth quarter earnings call.

"For us, that is clearly a point of concern, something that we clearly find damaging and we will consider them as competitors. They are going to compete with us once they are ready to do so," he said, adding Leiner intends "to hold DRL accountable for its actions."

The firm says its operations should be in full production within six months. It does not need a go-ahead from FDA to restart, but Leiner says it wants the agency's confidence it can manufacture safe products.

The firm says global fourth quarter sales grew 0.8 percent to $175.2 million, with the marginal up-tick from an increase in contract manufacturing sales. U.S. sales increased 0.5 percent to $162.4 million.

Leiner posted a net loss of $39.2 million for the quarter against a net income of $400,000 a year ago. The substantial change resulted in part from a $27.4 million non-cash inventory reserve and a non-cash charge of $16.5 million for impairment of assets related to its consolidation (² Also see "Leiner’s U.S. OTC Operations Face Regulatory, Competitive Obstacles" - Pink Sheet, 18 June, 2007., p. 4).

- Robert W. Mitchell (r.mitchell@elsevier.com)

Leiner Plans Suit Against Dr. Reddy’s, Expects Delay Restarting OTC Business

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