2 Hospira plants improve their FDA standing as improvements kick in

Hospira CEO F. Michael Ball

F. Michael Ball has spent many earnings calls talking almost entirely about the quality problems at the company's plants and its long-running efforts to get past them. Wednesday he spent very little, an indication, executives said, that four years of effort and more than $375 million in investments are paying off.

In fact, on Wednesday Ball said the FDA has advised the company verbally that its facilities at Rocky Mount, NC, and Austin, TX, have achieved the status of voluntary action indicated (VAI), a step down from the official action indicated moniker they have been operating under. He said Hospira ($HSP) expects the FDA will return for reinspections around midyear. "The warning letter for Rocky Mount cannot be lifted until the site has a successful reinspection, and Austin will have a reinspection as well, but we believe the change to VAI status for both of these plants' pharma operations is an acknowledgement of the progress we have made," Ball said.

Problems at the Rocky Mount plant were first noted in a warning letter in 2010. Since then, the company launched into a major overhaul of its U.S. manufacturing network including plants in Clayton, NC, and Boulder, CO, in addition to the Austin and Rocky Mount facilities. It has invested more than $375 million, brought in consultants and added to its quality-control management, but still struggled with recalls and FDA concerns. Last year, the company received a warning letter for a plant in India as well. Ball said today that Hospira believes it has most of the issues at its Indian plant resolved as well.

But he has predicted big strides before, only to have to backtrack. During the year-end earnings call a year ago, Ball said he expected a reinspection at Rocky Mount would show it had solved most of its issues. Two weeks later the FDA presented the company with a new Form 483 with 20 observations it wanted addressed. But the company's earnings today did indicate progress is being made. Its adjusted gross profit of $398.2 million for the quarter was up 3.8% as remediation costs were shed. Sales of its specialty injectable pharmaceuticals in the U.S. were up 6.1% to $572.6 million as it was able to continue to ramp up production from its U.S. plants and get better prices reflecting the investments it has made in quality, Ball said.

On the international front, Ball told analysts the company expects an FDA inspection for the plant in Vizag, India, it is building to happen this year and to be able to start production there by the end of 2014. It also expects to close its $200 million deal to buy an active pharmaceutical ingredient plant in India in the middle of 2014. The new facilities in India will lower the company's manufacturing costs, he said, adding to its earnings power going forward.

- here's the earnings release

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