In August, Hospira ($HSP) finalized a $60 million agreement to settle a three-year-old lawsuit that said investors had been kept in the dark about the quality problems at its manufacturing operations that led to FDA warning letters and shaved investments. But in the midst of getting that dealt with, a couple of shareholder derivative lawsuits arose and now the Lake Forest, IL, company says it has settled them as well.
As part of the settlement of the derivative shareholders suits, the company agreed to make changes so that executives in charge of quality will meet regularly with board members, as well as strengthening its insider trading policy for senior executives.
In recent filings with the Securities and Exchange Commission, the drugmaker said a federal judge has given preliminary approval for the settlement and that a final hearing has been set for Jan. 23 of next year. The company has said that insurance is expected to pick up most of the cost.
The new agreement calls for Hospira to pay attorneys in litigation filed in Illinois up to $2.3 million, and attorneys in the case filed in June in Delaware up to $330,000. It also agreed to an arrangement for the attorneys to apply to the court for incentive awards of up to $3,000 per plaintiff. All of this was hammered out with a mediator.
In a statement, the company said that directors and officers believe they did nothing wrong but were settling to avoid the disruption of an extended legal battle.
The initial litigation accused the maker of sterile injectable drugs of skimping on quality when it launched its "Project Fuel" plan in 2009 with the idea that it would boost shareholder value by reducing its workforce and some operating units. Instead, the lawsuit claimed, it hurt quality and eventually cost investors. Hospira's shares fell 21% following a third-quarter 2011 announcement that it was cutting its earnings projections in the face of FDA actions, the suit said.
Problems at Hospira's massive Rocky Mount, NC, plant were first noted in a warning letter in 2010. The company launched a major overhaul of its U.S. manufacturing network including plants in Austin, TX; Clayton, NC; and Boulder, CO, in addition to the Rocky Mount facility, investing more than $375 million. It has added to its quality-control management but continues to struggle with quality issues. Last year, the company received a warning letter for a plant in India. In October, the FDA filed a warning letter for a Hospira plant in Australia. More recently, the company has reported continued progress at Rocky Mount, in which it invested more than $200 million, as well as saying it is resolving issues at the plant in India.
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