Troubled Hospira plant puts production, sales in jeopardy

Hospira lost $1 billion in market cap yesterday after admitting that quality control problems at a key plant will take a big bite out of third-quarter earnings. The North Carolina manufacturing facility, which turns out a big share of Hospira's injectable drugs, has slowed way down in the wake of FDA complaints about conditions there, and the company says it has lost sales as a result.

In April 2010, FDA warned Hospira about shortfalls at its Rocky Mount, NC, plant and another facility in Lake Forest, IL. Follow-up inspections cleared the Illinois plant, but FDA inspectors came back with a list of 18 more problems at the North Carolina facility.

"It's quite clearly a bigger job than we thought, and we are still working through it," CEO F. Michael Ball said, adding that he has replaced the plant's top management and retained consultants to help fix the problems. Production is expected to be slower-than-normal at the plant through year's end, he said.

The announcement comes just over a month after Hospira said the plant had improved its productivity. So, analysts are wondering whether they're getting the full story now. "This raises significant new credibility issues for the management," Citibank analyst Gregory Hertz said (as quoted by the Financial Times). It also raises questions about the company's long-term growth, Goldman Sachs analyst David Roman told investors, saying that the targets provided last month "now appear to be out of reach."

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