FDA returns to Hospira plant for crucial re-inspection

CEO Ball's guidance for 2013 assumes successful outcome
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CEO F. Michael Ball

The days of reckoning are upon Hospira ($HSP). FDA inspectors are back in its beleaguered Rocky Mount, NC, plant and the agency's decisions on whether the generic sterile injectables player is meeting agency expectations will determine whether it can meet Wall Street's expectations in 2013.

"I am excited that they are there," CEO F. Michael Ball said in a call with investors Wednesday. "It is like studying for a test for a year-and-a-half and suddenly it arrives." 

Ball said a successful outcome would "entail the FDA saying, 'Yes, you've made progress. Yes, you've met your commitments. Yes, the cadence of remediations seems appropriate.'   And if we get those types of responses, then the net-net from that will be that we will be able to continue to increase the release of supply out of Rocky Mount, in my view."  
 
Ball also explained that the company's forecast for 1% to 3% growth in sales in 2013 is predicated on a successful inspection of the plant. "To us that would entail the FDA saying 'Yes you made progress. Yes, you have met your commitments and that the cadence of remediation seems appropriate.' And if we get those types of responses, then the net-net from that will be that we will be able to continue to increase the release of supply out of Rocky Mount, in my view. So that's what success would look like."
For all of its problems, Hospira reported fourth-quarter net income of $5.3 million, or 3 cents per share, compared with a net loss of $214 million, or $1.30 per share, a year earlier.
 
The company launched into major upgrades after the FDA in 2011 found a long list of problems at plants in Rocky Mount and Clayton, NC; Austin, TX; and Boulder, CO. It had a bevy of recalls last year and the plant interruptions have contributed to shortages of some crucial drugs.
 
The company has allocated more than $375 million on remediation, including paying for tens of thousands of consultant hours, Ball said today. But it is making progress and the company has been slowly ramping up production at its plants to help relieve shortages of some drugs while carefully controlling quality. The CEO said the investments will put the company in a better position, making it more efficient and helping it with pricing.
 
Hospira is not only building on its foundation but also looking toward growth. Ball said the company will build on its $200 million acquisition of an API plant in India, a deal that takes it further into penems and penicillins. He said the company intends to expand its international business, including in emerging markets.
 
The Hospira makeover led investment bible Barron's to recently suggest that it is a promising takeover candidate. The piece called Hospira "a giant in the high barriers to entry injectable drug market," and pointed out that its 37% market share is nearly twice that of the next largest competitor. It said some big players might see buying the company as a way to get into generic drugmaking. Ball did not address that topic today.
 
- here's the release

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