(Updated to include more context and analyst reaction.)

 
   DOW JONES NEWSWIRES 
 

Caraco Pharmaceutical Laboratories Ltd. (CPD) said third-party products not seized by the U.S. Food and Drug Administration in a Thursday raid will generate sufficient profit to cover the generic-drug maker's continuing operating expenses.

The company added, "We expect that our financial position will allow the company the time to resolve its pending FDA issues." Caraco noted that its cash balance was about $64 million, which included a loan of $18 million.

Investors welcomed the news, sending shares up 31% to $3.14 Friday. Shares on Thursday closed down 43% following the raid.

The FDA said it seized more than 30 Caraco-made generic drugs after the agency found manufacturing defects at company plants, including oversized tablets.

Caraco develops generic drugs for the prescription and over-the-counter markets. Its products include a version of epilepsy treatment Tegretol. The company also produces a generic version of the diabetes drug Glucophage.

On Friday, the company, which said the estimated value of the inventory involved in the raid is $15 million to $20 million, also noted it has a cash position of about $64 million, including an $18 million loan.

Deborah Autor, director of the FDA's office of compliance in its drug division, said patients taking any generic drugs made by Caraco should continue taking them.

The company makes a wide variety of drugs, including the popular diabetes medicine metformin, and the pain reliever tramadol. Autor said patients may not realize the generic drug they are taking is made by Caraco, but added that any defective drugs have already been recalled or are seized.

The FDA seized the products after Caraco's "continued failure" to ensure the quality of its manufacturing processes, Autor said. The FDA said the seizure may create a shortage of one medicine, choline magnesium trisalicylate oral tablets, commonly used as pain relievers. In that instance, physicians should switch patients to a safe alternative.

RBC Capital Markets analyst Adam Greene said the drug seizure, which followed warning letters and recalls over the past several months, also shines a spotlight on the "long list" of generics that have suffered "significant deviations from current good manufacturing practices over the last 12 months."

"We hear frequently from generic buyers now that quality and reliability are becoming a much bigger part of the decision process today compared to price, which was the single most important factor two-three years ago," he said.

Greene said the seizure of drugs could lead to opportunities for Caraco's generic rivals Teva Pharmaceutical Industries (TEVA) and Lannett Co. (LCI), but that it was unlikely to produce any meaningful upside. Caraco estimated the seized drugs' value at $15 million-$20 million.

Caraco is Teva's top competitor in the market for the antidepressant mirtazapine, and it leads the market in the pain reliever tramadol/APAP. It also has a fifth of the market for heart drug digoxin, compared to Lannett's 70%.

- By Mike Barris, Dow Jones Newswires; 201-938-5658; mike.barris@dowjones.com

(Jared A. Favole and Brendan Conway contributed to this article.)