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UPDATE 1-Meningitis outbreak tangles 2 pharmacies with common owners

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(Updates with details from Massachusetts health department)

By Tim McLaughlin and Toni Clarke and Aaron Pressman

BOSTON, Oct 10 (Reuters) - A Massachusetts company thatmixes drugs for hospitals on Wednesday gave up an attempt todistance itself from an affiliated pharmacy linked to a deadlyU.S. outbreak of fungal meningitis.

Ameridose LLC agreed to close down for 12 days while stateand federal officials investigate the New England CompoundingCenter, which distributed thousands of vials of a contaminatedsteroid made at a shabby brick complex next to a waste andrecycling operation in a western suburb of Boston.

The pharmacies are owned by Gregory Conigliaro, an engineer,and his brother-in-law, Barry Cadden, a pharmacist who was incharge of pharmacy operations at NECC. The waste and recyclingfacility is another of Conigliaro's business interests.

Ameridose and NECC mix, dilute and prepare drugs intoformulations not typically available through pharmaceuticalmanufacturers from facilities in Massachusetts. NECC hassurrendered its license and recalled its products in the wake ofthe meningitis outbreak, which has claimed a dozen lives.

In the late 1990s, Conigliaro invented a way to turn theplastic in old computers and television sets into an asphaltsubstitute to repair roads. The product generated nationalattention. One headline read: "Pothole Filler Gives New Meaningto Information Highway."

Hazel O'Leary, the U.S. Energy Secretary at the time,praised the company's recycling efforts in 1995 during an "EcoExpo" in Boston.

Such plaudits are now few and far between.

Ameridose said in a statement that as part of an agreementwith the Massachusetts Board of Registration in Pharmacy, Caddenhas agreed to resign all corporate positions at Ameridose, wherehe was listed in its latest annual report as a manager.

According to O'Neill and Associates, a public relations firmhired by Ameridose, Cadden holds a minority ownership stake inAmeridose but was not involved in its pharmacy operations.

In early 2011, Ameridose moved out of its Framingham,Massachusetts, facility - which was near NECC's operations - andinto a modern, 70,000-square-foot building in nearby Westboroughto accommodate its growing operations.

Dr. Madeleine Biondolillo, director of the MassachusettsDepartment of Public Health's Bureau of Healthcare Safety andQuality, said that there is no evidence Ameridose's productshave been compromised and it has not requested a recall.

NECC had come to the attention of state and federalregulators following complaints going back to 2002.

Cadden's own personal pharmacist license is subject to arestriction preventing him from practicing, at least for now,according to public records. More details were not available.

Alaunus Pharmaceutical, a drug distributor which is alsoowned by Cadden and Conigliaro, will temporarily ceasedistribution of all products made by Ameridose or any othercompany under shared ownership, regulators said.

COMPOUNDING PROBLEMS

Compounding pharmacies such as NECC are permitted to makemedications based on specific prescriptions for individualpatients.

State and federal regulators are investigating how thousandsof vials of preservative-free methylprednisolone acetate wereshipped to healthcare facilities in multiple states and infected138 people in several across multiple states.

In 2004, the U.S. Food and Drug Administration and theMassachusetts Board of Pharmacy inspected NECC and in 2006 theFDA issued a warning letter, taking NECC to task for openingsterile products and repackaging them in a way that could damagehuman health. It said it was particularly concerned about NECC'ssplitting of the cancer drug Avastin into multiple doses to beused to treat an eye condition.

"Microbes could cause endophthalmitis, which has a highprobability for significant vision loss," the agency said in itswarning letter. "The absence of control over storage, and delaysbefore use after repackaging, only exacerbate these concerns."

Erica Jefferson, a spokeswoman for the U.S. Food and DrugAdministration, said that the FDA's legal authority to regulatecompounded drugs is complex and has been challenged vigorouslyby the compounding industry both in courts and Congress.

The FDA also warned NECC in 2006 that it was against the lawfor it to sell compounded drugs without first receiving aprescription for an individually identified patient.

"Your firm has reportedly also told physicians' offices thatusing a staff member's name on the prescription would suffice,"the letter said.

NECC did not respond though its public relations firm toquestions asking whether it had rectified the problemsidentified by the FDA six years ago. The MassachusettsDepartment of Health also did not respond to questions aboutwhether it followed up on complaints made against NECC andreflected in the FDA's warning letter.

"Our shared investigation with our federal partners at theFDA continues and will be comprehensive," Biondolillo said at apress conference. "This includes quality and safety across thecorporate entity, including but not limited to, corporateownership and governance structures at NECC and Ameridose."

IN BUSINESS WITH BROTHER-IN-LAW

Ameridose was formed in February 2006 and has built itselfinto one of the country's leading providers of prefilledsyringes and premixed intravenous and epidural pain medications.Recent clients have included Kern Medical Center in Bakersfield,California, which this year renewed a deal for up to $1 million,public records show. It has also won contracts with the U.S.Department of Veterans Affairs and the U.S. Army MedicalCommand.

"There are no other sources known that would provideproducts to support our patients," the Army said in a July 2012contract disclosure notice.

In June, Ameridose won a contract to compound and repackagedrugs for Brentwood, Tennessee-based HealthTrust PurchasingGroup LP, a consortium of hospitals and surgery centers withcombined annual purchasing volume of more than $20 billion andwhose owners include hospital giant HCA Holdings Inc .

In 2008, Ameridose recalled 155 injectable doses of thenarcotic painkiller fentanyl because of concerns they were toopotent, FDA records show. And it fought a battle with Irving,Texas-based Novation LLC, which purchases products on behalf ofa network of clients using its group purchasing power tonegotiate discounts.

The two recently settled a lawsuit in which Ameridoseclaimed it had been slandered by Novation spreading word thatAmeridose's quality control standards were subpar, according todocuments filed in U.S. District Court in Massachusetts.

Novation said in a statement that while it "vigorouslydisputed each and every claim made in the lawsuit" the partiesultimately agreed to settle. It declined to say why.

(Reporting by Toni Clarke; Editing by Martin Howell and DavidGregorio)

((toni.clarke@thomsonreuters.com)(617-856-4340)(Reuters

Messaging: toni.clarke.reuters.com@reuters.net))

Keywords: MENINGITIS AMERIDOSE/NECC