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Healthcare

UPDATE 3-Mylan battles quality control concern; stock drops

* Newspaper says Mylan workers overrode quality controls

* WHO cites Mylan’s Matrix unit for manufacturing problems

* Shares down 12.6 percent (Updates with FDA starting fact-finding investigation)

BOSTON, July 27 (Reuters) - U.S regulators have begun investigating possible manufacturing violations by Mylan Inc MYL.O, the world's third-biggest generic drugmaker.

Shares of Mylan fell 13 percent on Monday after a newspaper raised potential quality-control problems at a key manufacturing plant.

“We are currently fact-finding and investigating this situation,” said Christopher Kelly, a spokesman for the U.S. Food and Drug Administration.

The Pittsburgh Post-Gazette, citing an internal report, said workers at Mylan overrode quality controls intended to ensure the safety and efficacy of their prescription drugs.

Mylan defended the quality of its products in an email to Reuters over the weekend and questioned the conclusions and sources cited in the newspaper article.

A slew of manufacturing deficiencies at generic drugmakers has raised questions about the relative safety of generic products at a time when the government is relying on such products to help reduce healthcare costs.

Over the past year, Actavis, KV Pharmaceutical Co KVa.N, Caraco Pharmaceutical Laboratories CPD.A and Sandoz, the generic drug unit of Novartis AG NOVN.VX have been cited for problems by the U.S. Food and Drug Administration.

The FDA also halted reviews of drug applications from Ranbaxy Laboratories' RANB.BO Paonta Sahib plant in India after saying the drugmaker falsified data and test results.

In some cases, the manufacturing issues have led to generic drug shortages. Recently, the popular blood pressure medication Toprol XL was recalled due to manufacturing deficiencies, forcing drugmaker AstraZeneca AZN.L to beef up supply of its branded product.

Nonetheless, the FDA insists generic drugs are safe. In a fact sheet, the agency says that while some variability can and does occur during manufacturing, for both brand name and generic drugs, the FDA puts limits on how much variability in composition or performance of a drug is acceptable.

But generic drugmakers, whose products are essentially commodities produced for pennies, are operating in an environment even more cut-throat than that of branded drugmakers.

The Post-Gazette said Mylan’s quality control issues affected Mylan’s Morgantown, West Virginia plant.

Christopher Schott, an analyst at JP Morgan, said in a research note that it was difficult to interpret the nature, severity or implications of potential quality-control violations without additional information.

“We believe that an escalation of the issues raised in the Post-Gazette article to a threshold that would meaningfully impact Mylan’s operations is unlikely,” Schott wrote. “That said, we would expect Mylan’s shares to come under pressure today, given the importance of the Morgantown plant and the numerous manufacturing/quality control enforcement actions recently taken by the FDA across the generics industry.”

The Morgantown plant makes roughly 19 billion doses of medication a year.

Mylan spokesman Michael Laffin told Reuters that like any manufacturing facility, Mylan periodically faces “deviations” in standard operating procedures and that the issues cited in the newspaper article had “no impact on product quality whatsoever.”

“What sets us apart is the way we’ve always addressed these issues, swiftly and effectively,” he said.

Regardless of how serious the problems at the company’s Morgantown plant, Mylan faces quality control problems at its Indian subsidiary Matrix Laboratories Ltd, whose products include drugs to treat HIV/AIDS.

In a letter to Matrix dated July 22 and posted on its website, the World Health Organization said a recent inspection of the company’s manufacturing facility at Vizianagaram revealed “major deviations” from the WHO’s good manufacturing practice standards.

The WHO said that while the company provided some corrective actions, issues of concern remain.

Mylan did not immediately return calls seeking additional information about the letter. Matrix referred calls to Mylan.

In April, Matrix announced it had been selected by the Clinton HIV/AIDS initiative as the primary supplier of five anti-retroviral drugs for the treatment of HIV/AIDS. The company has also been selected as the primary supplier of seven anti-retrovirals for pediatric treatment.

Mylan recently acquired the remaining 29 percent stake in Matrix it did not already own for $133 million in a transaction it said would add to its 2009 earnings.

Mylan’s shares fell 12.6 percent to close at $12.10 on Nasdaq, after trading as low as $11.66 earlier in the session.

Reporting by Toni Clarke; Additional reporting by Lewis Krauskopf; Editing by John Wallace and Richard Chang

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