Hospira's Rocky Mount warning letter lifted; Pfizer benefits

After 5 years of investment, hard work and the occasional backsliding, Hospira ($HSP) has worked itself out from under the warning letters for its pharma manufacturing plants in Rocky Mount and Clayton, NC. That means that Pfizer ($PFE), which is buying Hospira in a $17 billion deal, will not have that hanging over its head, although the company still has plenty of other regulatory issues with which Pfizer will have to contend.

The sterile injectable specialist said during its investor presentation, and in a quarterly SEC filing Tuesday, that the FDA notified the company on April 16 that it had "completed its evaluation of the corrective actions" at the facilities and that the warning letter issued in April 2010 "had been lifted."

The notification comes too late for the Clayton plant to benefit since Hospira said in January, just ahead of announcing its deal with Pfizer, that it intended to close the plant in June. The company said the four products made at Clayton would either be discontinued or production would be moved to another plant or a contractor and that it would eliminate the 250 jobs.

Pfizer will still have plenty of corrective work to do with Hospira because as the company pointed out, it just this month picked up a warning letter for a pharma plant in Italy and is still operating under FDA warning letters for pharma plants in Australia and India, as well as warning letters for medical device facilities in Costa Rica and at its home base in Lake Forest, IL. It has also been unable to satisfy FDA inspectors that a new 1.1 million-square-foot facility in Vizag, India, that Hospira had hoped to open last year is ready for prime time. Hospira is counting on that facility to significantly reduce its operating costs and set it up for product expansion.

Pfizer execs have said they are thoroughly aware of the issues facing the company and are satisfied with the progress it is making.

The closeouts are a long time coming. For several years, Hospira CEO F. Michael Ball, who came on board within a year after the warning letter for the North Carolina plants was issued, had to spend his quarterly conference calls talking more about quality issues than revenue potential. He once said that more "gators" kept popping up as the company drained the swamp that the two plants represented.

The plants ran at reduced capacity and some key products had to be taken offline, contributing to revenue hits and drug shortages. Ball remade his quality management team and the company brought in an army of third-party consultants, investing more than $375 million in upgrades and improvements. In the last 18 months, all of that work came together, allowing Hospira to get key products back into the market and improve its financial standing, improvements that impressed Pfizer enough to make a bid.

- here's the SEC filing
- access the conference call material here

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