US generics firm Caraco Pharmaceutical Laboratories is cutting over half of its workforce as it feels the effect of the recent seizure of drugs at one of the company’s facilities.

At the end of last month, US marshals, at the request of the Food and Drug Administration seized drug products made in Caraco’s Michigan facilities, a result of the company failing to resolving manufacturing violations. The company believes that “corrective actions have been made and continual improvements are in process” but the agency’s move has forced a halt in production.

As a result, Caraco says it is instituting “an indefinite reduction in its workforce of approximately 350 employees in order to align its expenses with the current voluntary cessation of its manufacturing operations”. The FDA's most recent inspection was at Caraco's Detroit facility, completed in May 2009, and the agency was not best pleased but the product seizure, $15-$20 million worth of inventory, only occurred at the Michigan plant.

On top of the job cuts, Caraco noted that JPMorgan Chase Bank has told the company that its $10 million line of credit was not available to be drawn down upon until the FDA matter is resolved. However, this will not have any material impact on the company's current financial position.

Caraco said the products subject to seizure “do not impact products on hand manufactured by third parties under their own label” or manufactured for the firm under the Caraco label. It also does not iinvolve products recently sold into the market manufactured by the company.

The profits generated from the products mentioned above “will cover our estimated ongoing expenses”, Caraco had initially said, noting that it had a cash balance last week of around $64 million which includes a loan of $18 million. This will give the firm “the time to resolve its pending FDA issues”, Caraco said but the job cuts now suggest otherwise.

Caraco is 76% owned by India’s Sun Pharma. Its sales for the year ended March 2009 were down 4% to $337.2 million.