UPDATE 2-KV Pharma stops production; may default on credit line

Mon Jan 26, 2009 3:20pm EST

(Adds general counsel dismissal in fifth paragraph; updates share movement)

Jan 26 (Reuters) - Embattled drugmaker KV Pharmaceutical KVa.N KVb.N said it stopped making and selling all its products, and may not be in compliance with one or more covenants in a credit agreement with its lenders, wiping out more than three-fourths of its market value.

The company, which said the outstanding balance under the line of credit was about $30 million, will also voluntarily recall most of its products.

The recall as well as the suspension of manufacture and sales of its products, except a few that it distributes but does not make, follows an inspection that began in December by the U.S. Food and Drug Administration of the company's operations and inventory.

The company, which has been plagued with several manufacturing issues that resulted in oversized tablets, is facing a series of class-action lawsuits that allege its officers made false statements to inflate the company's stock price.

KV Pharmaceutical on Jan. 16 fired its senior vice president and general counsel, Gregory Bentley, a regulatory filing on Monday showed.

The company, which is also facing an informal enquiry from the U.S. Securities and Exchange Commission, had in December ousted its chief executive after it recalled several products.

The company also said Gestiva, a drug to prevent preterm birth in women with a history of preterm delivery will not be approved by the FDA until additional data was provided and part of the patients in a post-approval study are enrolled before the drug gets a regulatory nod.

In January last year, KV Pharmaceutical had agreed to buy U.S. and worldwide rights to Gestiva from Hologic Inc (HOLX.O) for $82 million in cash upon the drug's approval. The drug had been given an orphan drug status by the FDA and was expected to receive final approval by late 2008.

On Monday, KV Pharmaceutical said it does not expect revenue from sales of Gestiva during the financial year ending March 31, 2009.

KV Pharma's Class A shares fell to a lifetime low of 49 cents, before paring some losses to trade down $1.70 at 54 cents Monday afternoon on the New York Stock Exchange. (Reporting by Vidya L Nathan and Aradhana Aravindan in Bangalore; Editing by Pratish Narayanan)

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