A report in the Pittsburgh Post-Gazette yesterday about Mylan's
Employees at the generic-drug maker reportedly overrode and deleted automated warnings about potential production problems. The warnings are supposed to be investigated by the quality control department, but low-level workers were able to get around them and resume work. The company has already investigated the departures from standard protocol and claims that the deviations didn't result in any unsafe medication.
Mylan traded down as much as 16% today on the news. That could be an overreaction, because it isn't clear whether any Food and Drug Administration action will come of this. Regardless, I wouldn't recommend Mylan as a bad-news buy at this point. Last month, the agency sent U.S. marshals to seize drug products manufactured by generic drugmaker Caraco Pharmaceutical Laboratories
While the report makes Mylan look really bad, when combined with Caraco's issues, it could hurt the entire industry.
The problem is that consumers are brand-insensitive to generic drugs. Sure, if you look at the pill bottle, you can figure out who makes the drug, but the pharmacist rarely, if ever, asks you if you'd like the generic of Merck's
If customers begin to mistrust generic drugs from Mylan or whoever -- fearing that the companies are putting profits above safety -- all generic-drug companies, from giant Teva Pharmaceuticals
The industry better hope that customers don't deviate from their own standard operating procedure of picking generics if they're available.
Quality control has released these articles for further reading:
Fool contributor Brian Orelli, Ph.D., spent the most boring summer of his life checking the pH of drugs in a quality control lab. He doesn't own shares of any company mentioned in this article. Novartis is a Motley Fool Global Gains pick. The Fool has a disclosure policy.