A Bucks County drug firm promised to revive the big Lockheed Martin site. Now it’s fighting with local officials and faces charges of defrauding the FDA.

In 2015, when the small but fast-growing drug company KVK Tech Inc. began preparing to buy the vast Lockheed Martin site in Newtown Township, there was soaring hope in the community that the dynamic generic firm could restore the modern 52-acre corporate campus to glory. The town faced a massive loss of tax revenue as Lockheed, the big defense contractor that once employed 1,200, was shutting down.

Still, one township supervisor had questions. When Jennifer Dix searched online for information on KVK Tech, she couldn’t find much about its leadership. “I was curious,” she said at a public meeting in March 2015, “how a small company was going to grow this fast, and to be honest I could not find a lot of information on their website as to who owns the company, who is on their board of directors. Do we know anything about the company?”

Dix’s questions didn’t stop KVK Tech from buying the campus off the Newtown Bypass for $12.5 million. But seven years later, her skepticism seems on point. Under KVK, the Lockheed site — which local officials once hoped would anchor a high-tech corridor — is barely used with nearly empty parking lots.

KVK, far from embracing the community, has clashed with local, federal and regional officials over its mobile trailers, parking, worker safety and its main plant’s waste water.

And Murty Vepuri — the firm’s “de facto” owner, the government says — faces a federal criminal charge that he conspired to undermine the Food and Drug Administration by using an unapproved drug ingredient.

If convicted, Vepuri could be fined, imprisoned and barred from the drug industry, the government says.

His lawyers say he did nothing wrong, and call the government’s case a “fundamental misunderstanding of FDA requirements.”

The FDA’s concerns with Vepuri go back decades, spanning allegations over unapproved drug ingredients and repeated findings of flawed drug-manufacturing processes that could threaten public health.

Vepuri, who began his career in India, originally signed a plea deal agreeing to one count of distributing unapproved drugs, the government says. But last year he withdrew it.

Authorities in June then charged Vepuri, KVK Tech and the company’s director of quality assurance, Ashvin Panchal, with the alleged criminal conspiracy. The government also charged KVK Tech with mail fraud.

» READ MORE: The government's release charging KVK and two executives with conspiracy to defraud the FDA

Last summer, federal agents swarmed over KVK facilities in Newtown as part of a six-year global investigation. The agents said they carted out 30 terabytes of digital information and 500 boxes of company records.

The executives each face a maximum possible sentence of five years in prison and a $250,000 fine. KVK Tech, which remains a prominent generic drug maker, could be fined as much as $4 million.

A federal court recently threw out part of the conspiracy charge of distributing unapproved drugs. Prosecutors say the case can’t move forward without that charge and are appealing. A May trial has been delayed until the appeal is decided.

So how is all that playing back in Newtown?

“Things were overlooked,” said Phillip P. Calabro, a Newtown supervisor since 2006, speaking of KVK’s purchase of the Lockheed site. The supervisors couldn’t have stopped it but they could have asked more questions, he said.

Above all, Calabro said, he wished that KVK executives “were better corporate citizens.”

The FDA and Vepuri go back a long way, before there was a Google.

Through the late 1980s, Vepuri had a bad run of inspections at his Able Laboratories Inc. generics plant in South Plainfield, N.J. In six visits over eight years, federal investigators found “violations in virtually all the firm’s product lines,” the government said in 1991.

Vepuri denied the allegations. But in 1995, he filed an affidavit with the court saying that he had sold his share of Able Laboratories and wouldn’t be involved in the drug industry. His lawyers say that agreement pertained only to Able Laboratories.

Nearly a decade later, Verpuri had a new generics company in Bucks County, only not in his name. The government argues that Vepuri concealed his control of KVK Tech by placing its ownership in his children’s trusts and calling himself an adviser or part-time consultant to it. That way, the government claims, Vepuri could not be held responsible for regulatory violations as he was at Able Laboratories.

Defense lawyers dispute that, saying Vepuri had no reason to conceal his ownership.

When asked who owns KVK, a company spokesman declined to comment.

Shortly after Panchal was hired in 2005, he filed KVK Tech’s first generic drug applications for hydroxyzine, a sedative for treating anxiety and depression, among other uses. The FDA approved the applications that said where the drugs would be manufactured and what ingredients would be used.

KVK Tech told the FDA it would obtain the generic drug’s active ingredient, or hydroxyzine hydrochloride, in Belgium or Italy.

But from 2011 through 2013, KVK Tech got it from a Dr. Reddy’s Laboratories factory in Morelos, Mexico, without FDA permission, the indictment alleges. Using Dr. Reddy’s active ingredient without seeking FDA approval is the government’s basis for the charge of distributing an unapproved drug.

Separately, the FDA had slapped an import ban on that Dr. Reddy’s operation after finding manufacturing violations there in an earlier inspection. KVK Tech received its shipments in the first half of 2011 and used the Dr. Reddy’s active ingredient for more than 300,000 bottles shipped to consumers, the government says.

When the FDA eventually lifted the import ban on Dr. Reddy’s in about a year, KVK Tech ordered a second batch of the active ingredient from that plant even though it hadn’t informed the FDA about the first shipment or sought the regulator’s permission to buy again from the Dr. Reddy plant, the indictment said. When 19 drums landed at Philadelphia International Airport, FDA agents quarantined them.

KVK Tech then began to try to cover up its link to Dr. Reddy’s, the government says. Panchal told FDA inspectors that the company hadn’t received prior shipments from Mexico.

FDA inspectors found photos of drum labels stamped “Made in Mexico” in company files. Panchal told them KVK was using the Belgian company and said he didn’t know that it had shipped product from Mexico.

KVK Tech, Panchal and Vepuri blamed the errors on a former employee, court documents say, and point out that the Dr. Reddy’s active ingredient was safe for U.S. consumers.

In his decision striking the charge of distributing an unapproved new drug, U.S. District Judge Harvey Bartle III said the manufacturing location in Mexico was acceptable and did not constitute distributing a new drug. The Dr. Reddy’s active ingredient that KVK used had the same chemical composition as the active ingredient from Belgian or Italian plants.

Bartle said that in this case the public was not put at risk, but that broadly speaking it’s important to know where a drug is manufactured.

So Bartle let stand the charges of making false statements to the FDA and mail fraud.

Dix, a former community activist who was elected a Newtown supervisor in 2013, did her initial online search on KVK as the township was keen on replacing the estimated $650,000 in earned income tax that Lockheed employees paid each year.

In 1995, then-Gov. Tom Ridge helped lure Lockheed’s satellite division, which had employees in locations in New Jersey and Pennsylvania, to Bucks County with an incentives package of grants and low-interest loans worth about $25 million. Holy Family College sold part of its branch campus for the project. Lockheed Martin employed 1,200, but Lockheed decided to close the facility in 2013 in a nationwide consolidation, cutting 4,000 jobs. The Newtown facility was vacated by 2015.

KVK Tech was growing rapidly and became controversial because it was one of the nation’s largest makers of generic opioid pills. KVK was the country’s seventh largest maker of opioids, producing 580 million generic pills from 2006 to 2012, according to a Washington Post report that cited government records.

KVK Tech is now a defendant in hundreds of opioid-related suits, court documents show. Richard Ausness, a professor at the University of Kentucky Rosenberg College of Law, compared the opioid legal battles to those over tobacco and asbestos that led to billions of dollars in settlements.

He noted that plaintiffs lawyers have gone after bigger opioid companies such as Purdue Pharma while smaller companies such as KVK “tend to be under the radar but they do not escape liability.”

“The national opioid litigation has cast a broad net,” a company statement said. “Unfortunately, these cases have come to involve manufacturers such as KVK Tech, which have constantly adhered to laws regarding controlled substances, have never marketed these products, and have completely abstained from any industry efforts to promote opioid use. KVK Tech vehemently denies the allegations made against it in these cases.”

Back in 2015, the firm initially seemed to be the answer to Newtown’s economic woes. KVK Tech could add hundreds of jobs, the former chair of the Newtown Board of Supervisors, Ryan Gallagher, said at the public meeting where Dix expressed skepticism.

When the deal for the Lockheed property closed that year, Anthony Tabasso, KVK’s chief executive officer, said at a media event that KVK had grown from six employees in 2004 to 200. Asked by the Bucks County Courier Times how many people it might add, Tabasso declined to give a number but said “we’re like the koi fish that grows bigger once you put it in a bigger pond.”

Tabasso also trumpeted the deal in a YouTube video.

A KVK Tech spokesman said that KVK now employs 388 workers and support personnel across its buildings. Besides the former Lockheed site, KVK operates its headquarters plant and a warehouse in Newtown, and a manufacturing facility in Falls Township.

KVK declined to provide employment by location.

John Mack, vice chair of the Newtown Township Board of Supervisors, has posted concerns online about KVK Tech for several years.

When campaigning in 2017, he spoke out against the company’s request for a zoning variance at its headquarters plant on Terry Drive, where drugs are made, that would add parking. “You have to prove you have a hardship [for a variance],” Mack said. “I said they did not have a hardship” because they had so much room at the Lockheed plant on the Newtown Bypass. The variance was granted.

KVK Tech has reached out to the community, contributing $10,000 to the Council Rock Education Foundation in 2018 and sponsoring the local fireworks.

But it has tangled with Newtown Township recently over zoning issues.

Instead of expanding at the Lockheed plant, KVK put three unpermitted mobile trailers on its headquarters property. Last August, the township asked KVK to remove them. Three months later, when the company still hadn’t acted, Newtown filed a civil complaint with District Justice Michael W. Petrucci, who decided in the township’s favor in January, fining the company $2,000.

KVK removed the three trailers, the township and the company said.

In early March, the Philadelphia Water Department told the company that it was “in significant non-compliance” for alkalinity and acetone in its industrial wastewater in 2021. Philadelphia told KVK to submit a compliance plan by April 15. KVK paid a $2,500 fine for the violations. A water department spokesperson said that KVK has reached compliance with acetone and is working on its alkalinity levels.

In February 2020, the FDA issued a warning letter to KVK’s headquarters plant on Terry Drive over impurity levels and foreign objects in separate lots of medications. In October 2020, the FDA wrote a similar letter about flawed manufacturing practices at the former Lockheed facility.

“These repeated failures at multiple sites demonstrate that management oversight and control over the manufacture of drugs is inadequate,” the FDA said in the Oct. 8, 2020, letter to KVK.

A company spokesman said “KVK has responded to the warning letters and taken all appropriate steps to address and, where applicable, remediate the observations in the warning letters.”

Also in February 2020, KVK hired OQSIE, a California firm, to fix the problems the FDA identified. But KVK fired the firm a few months later.

OQSIE alleges that KVK withheld payments and then tried to recruit its contractors to do the work. The firm has filed suit in federal court in Philadelphia, claiming that it has suffered $10 million in damages. KVK denies the allegations and says that OQSIE overbilled it.

Separately, the Occupational Safety and Health Administration is investigating the Newtown facilities for airborne narcotics dust from drugs made by the company. Employees had elevated levels of narcotics in their blood, company managers told federal agents, according to court documents.

”This is not because of anything the employees are doing improperly,” wrote Aaron McKivigan, special agent of the U.S. Department of Labor in a report to OSHA filed with the court, “but because of prolonged exposure to the particulate matter in the drug manufacturing process without having proper PPE or ventilation.”

OSHA asked a judge in January for a search warrant for the company’s two Newtown plants, and investigators performed an inspection in February. Its probe is ongoing, a spokeswoman said.

“OSHA has been looking at KVK’s air-quality since August 2021 as part of the investigation opened at that time,” the KVK Tech spokesperson said. “To date, OSHA has not issued any citations to KVK with regard to any overexposure to employees of manufacturing dust.”

The spokesperson added that “KVK continues to manufacture and deliver high-quality generic pharmaceuticals to its customers.”