Problems Continue for Pan PharmaceuticalsProblems Continue for Pan Pharmaceuticals

Problems Continue for Pan Pharmaceuticals

COLLAROY BEACH, Australia--The dust has not settled around PanPharmaceuticals, the company that was forced to recall many of its naturalproducts due to manufacturing "deficiencies and failures," such assubstituting beef cartilage for shark cartilage and a failure to test rawmaterials. The Therapeutic Goods Administration (TGA), which issued the recallApril 28, initially identified 200 products for immediate recall, revoked thecompany's manufacturing license for six months and cancelled the company'sapproval to supply export products. In the month's time since the recall wasenacted, the number of recalled product rose into the thousands, the companycancelled its planned dividend to shareholders, trading was suspended on theAustralian Stock Exchange, an administrator was appointed to oversee thecompany's financial situation, an independent task force was hired tore-establish the company's license and Pan Pharmaceuticals was ordered to paythe advertising costs associated with the national campaign to publicize whichproducts had been recalled.

The April 28 recall action affects all batches of nutritional productsproduced since May 1, 2002; 1,546 products have been identified so far. TGA isworking with companies that were using Pan Pharmaceuticals for contractmanufacturing to identify additional products for recall, which could push thenumber of products involved into the area of several thousand.

The company reported it would not make its revenue forecast of $20 millionfor May and June 2003.The dividend of AUS$.04 per share, announced Feb. 25 andplanned to be paid on May 28, was consequently revoked. The company no longer"justifies the payment of a dividend [that] would increase the liabilitiesof the company and dilute the assets of the company to meet the claims ofcreditors," reported Pan Pharmaceuticals in a May 22 press release.

The company added the board of directors is confident the company cancontinue so long as it can commence partial or full production within areasonable timeframe.

This action follows the April 29 announcement in which the company requesteda Trading Halt on company shares until further notice. "It is anticipatedthat, once the TGA is satisfied that the production processes meet requirements,the TGA will lift the suspension of the manufacturing license," the companystated.

Due to financial worries, Pan Pharmaceuticals reported May 22 the company islikely to become insolvent at some point. To rectify this possibility, AnthonyMcGrath and Christopher Honey, both from business advisory firm KPMG, wereappointed administrators to the company. Other appointments included RodUnsworth, who will lead an independent taskforce to address the TGA's concernswith the company and to re-establish licenses and business opportunities.According to Colin Henson, acting chief executive officer, "Neither Mr.Unsworth nor the taskforce will pull any punches in improving our processes. ...This is a rescue mission. Our focus is on saving the business and securing jobs,as well as restoring the credibility of the complementary medicines sector andsupporting the thousands of retailers impacted by the recall."

In terms of bettering the company's reputation with the TGA, Henson said,"At the earliest possible opportunity, I intend to meet with the TGA totable the company's action plan and seek their cooperation in assisting Panreturn to production."

In the meantime, the company has begun skills audits to assess where trainingis necessary, has planned on producing duty statements for all positions to makesure each position operates under good manufacturing practices (GMPs) and hasalready created a Complementary Medicines Recall Hotline to assist the public inidentifying recalled products. Another step taken included identifying thebreakdown in quality control procedures; as a result, one employee has so farbeen dismissed.

A release from Trish Worth, parliamentary secretary to the Minister forHealth and Ageing, reported that the government posted an advertisement listingthe recalled products May 3 in a 16- to 20-page spread. The costs associatedwith this action was to be billed to Pan Pharmaceuticals, at an estimatedexpense of AUS$650,000. "The sheer size of the recall--believed to be thelargest ... recall anywhere in the world--means we will ensure the informationreaches all parts of Australia," Worth said.

In the news section of the May 10 edition of the British Medical Journal(326:1001, 2003), author Bob Burton reported Pan Pharmaceuticals makesapproximately 70 percent of Australia's vitamins, minerals and herbal medicines,and in the wake of the controversy, Chief Executive Officer Jim Selim resignedfrom his role and Henson stepped in, although Selim still owns 52 percent of thecompany. According to The Sydney Morning Herald (www.smh.com.au),the TGA reported it would not reactivate Pan Pharmaceutical's license whileSelim could still exert influence over the company. The paper postulated that ifSelim does not let go of his sizeable chunk, the company's assets could beliquidated.

Australia's largest health store chain, Health 2000, told The New ZealandHerald (www.nzherald.co.nz) therecall caused a 20-percent drop in sales. The newspaper also reported a callcenter established by the TGA to handle inquiries regarding the recalledproducts received more than 320,000 calls its first two days in operation.