The U.S. Food and Drug Administration (FDA) on Thursday revealed that it had sent a letter to Gary Philbin, CEO of Greenbrier International, which does business as Dollar Tree Inc. (NASDAQ: DLTR), warning the company of “serious violations of federal law” for receiving drugs produced by foreign manufacturers that do not meet good manufacturing processes. The over-the-counter products are being sold at Dollar Tree and Dollar General stores under the Assured Brand label.
The warning letter noted that in November 2018 a Chinese supplier was warned about its failure “to conduct component identity testing … and the failure to test each batch of drug for objectionable microorganisms prior to distribution.” Greenbrier received a copy of that warning letter and responded to a January FDA inspection by telling the agency that if a drug maker receives such a warning, the company “ceases importing drug products from that establishment.”
To which the FDA’s warning letter to Greenbrier noted, “The import data … demonstrate this is not always the case.” The agency goes on to specify additional drug makers that were warned and with which Greenbriar also continued to do business.
The FDA also said that the contract testing lab, France-based Bureau Veritas (BVS), that Greenbrier required its drug products suppliers to use had been inspected in February 2018 and that the FDA “found multiple inadequacies related to test methods BVS employed for the analyses of drugs.”
BVS told the FDA that its testing methods were not suitable for certain purposes and “that its test results were not suitable to make release decisions of drug products for distribution into the U.S. supply chain.” Despite these shortcomings, Greenbrier continued to require drug products suppliers to use BVS. The FDA declared that the BVS testing “cannot be used as a substitute for testing required under FDA regulations.”
The company has 15 days from receipt of the warning letter (dated November 6) to respond in writing with a plan to correct the violations or to state Greenbrier’s reasons for a delay and provide a timetable for taking corrective action.
Greenbrier operates more than 15,000 Dollar Tree and Dollar General stores, and drug products sales probably didn’t contribute much to the company’s $5.74 billion in second-quarter sales. That’s likely the reason that investors are not showing much concern over the FDA warning. So far, the reaction seems to be, “no harm, no foul.”
Dollar Tree stock is up more than 25% over the past 12 months and traded up about 0.1% Friday morning at $108.90, in a 52-week range of $81.02 to $119.71. The 12-month consensus price target on the stock is $116.44.