PORT WASHINGTON, N.Y., Feb. 27, 2018 - ACETO Corporation (NASDAQ:ACET), an international company engaged in the development, marketing, sale and distribution of Human Health products, Pharmaceutical Ingredients and Performance Chemicals, has been notified by the U.S. government that 11 generic drug products it acquired through its Acetris Health subsidiary in a product purchase agreement with an entity formerly known as Lucid Pharma LLC are not in compliance with the federal Trade Agreement Act (“TAA”) country-of-origin provisions of a clause contained in the government supply contracts. The 11 finished dosage form products purchased by the U.S. government are manufactured by Aurolife Pharma LLC which is located in Dayton, New Jersey using APIs sourced from India. In conjunction with this finding, the U.S. Department of Veterans Affairs (“VA”) has requested that ACETO supply new TAA-compliant sources for the referenced products by March 9, 2018 and supply new TAA-compliant drugs to the government purchasers under the contracts by March 26, 2018.
Commenting on this matter, William C. Kennally, III, Chief Executive Officer of ACETO, said, “We are concerned about the VA’s request since Acetris’ U.S. manufacturing partner has sourced APIs from India for the 11 products in question at least since ACETO assumed its supply contracts with the VA. We have also heard from other suppliers to the VA who report that they too source APIs from India and have the finished dosage form manufactured in the United States. Finally, we do not believe that supplying the U.S. government with product containing an API originating in India is a deviation from industry practice.
“As a practical matter, the compressed deadline for finding a replacement API as required by the VA is simply neither realistic nor attainable given the regulatory process required by the FDA. Nevertheless, we are taking all necessary steps to address the agency’s concerns and ensure an uninterrupted supply of product to our veterans. These generic drug products reduce the price the VA pays on behalf of veterans. They are the same products sold commercially and generic drugs could not be offered to the VA at such low prices if the ingredients used to make them cannot be sourced from the primary manufacturers of pharmaceutical chemicals. However, in the event that our supply contracts with the VA are terminated, we do not believe the financial impact to the company’s fiscal 2018 non-GAAP EPS will be material.”
Under current longstanding law, the government, under the Buy America Act, is permitted to buy domestic end products, including commercial off-the-shelf (“COTS”) products like generic drugs that are manufactured in the U.S. even if their components are not all manufactured in the US. ACETO thus believes that the government was and is permitted to buy Acetris’ products, because they are COTS items manufactured in the U.S. As a result, ACETO disputes the determination that the 11 products sold pursuant to novated contracts with the VA originate in India rather than the United States and intends to appeal the decision that it is not currently compliant with contract sourcing requirements. To further pursue remedies, ACETO has asserted an indemnification claim against the sellers under the product purchase agreement dated December 21, 2016. As previously disclosed in the company’s Form 10-K filing with the Securities and Exchange Commission (“SEC”) for the fiscal year ended June 30, 2017, the U.S. government had advised Acetris that it was reviewing whether Acetris’ supply of 11 products under its government contracts complied with the country-of-origin clause. ACETO has also filed a Form 8-K with the SEC today with respect to this matter.
ACETO Corporation, incorporated in 1947 and with offices and operations in 10 countries, is engaged in the development, marketing, sale and distribution of Human Health products (finished dosage form generics and nutraceuticals), Pharmaceutical Ingredients (pharmaceutical intermediates and active pharmaceutical ingredients) and Performance Chemicals (specialty chemicals and agricultural protection products).