Monsanto Company announced last Friday that it has filed an arbitration claim against Sandoz, a subsidiary of the pharmaceutical company Novartis AG, in an international arbitration proceeding.

According to a statement released by Monsanto, the company seeks to recover damages caused by Sandoz's “inadequate quality assurance program” and the U.S. Food and Drug Administration (FDA) issuance of a Warning Letter to Sandoz's pharmaceutical facility in Kundl, Austria, which contracted to supply Monsanto's dairy product, POSILAC bovine somatotropin. All products sold by Monsanto met quality control standards, but the process of making necessary changes and improvements to the facility limited manufacturing capabilities, the statement says.

Monsanto claims that supplies to Monsanto and its customers were disrupted as a result of Sandoz's failure to meet quality assurance obligations that were warranted and represented by Sandoz as satisfying compliance with FDA's current Good Manufacturing Practices standards.

In November 2003, the FDA inspected the Sandoz manufacturing facility in Kundl, Austria, and found problems with the facility and systems that led to the issuance of an FDA Warning Letter. The process of making necessary changes and corrections addressed quality assurance, but required shut-downs and limited manufacturing capabilities at the Sandoz plant. FDA conducted a follow-up regulatory inspection in 2006 and lifted its Warning Letter in August 2006.

"Sandoz's failure to maintain the quality practices expected by FDA was a clear breach of its contractual obligations," says David Snively, senior vice president and general counsel for Monsanto. "Since discussions with Sandoz to resolve this issue were inconclusive, we have filed for arbitration with the International Chamber of Commerce, according to the provisions of the contract, seeking in excess of $100 million in damages. Arbitration will determine how much compensation is owed by Sandoz to Monsanto."

The arbitration complaint notes that as a direct result of Sandoz's quality assurance failures, it did not fulfill its contractual supply agreements and Monsanto suffered extensive financial loss.

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