|Hospira CEO F. Michael Ball|
Hospira ($HSP) is getting past quality issues that for several years dominated its attention and undermined its revenues. Now it has unburdened itself of litigation that came along with it.
The Lake Forest, IL-based drugmaker has agreed to cough up $60 million to settle a 2011 class action 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, Reuters reports. The suit was filed on behalf of investors who bought Hospira shares between Feb. 4, 2010 and Oct. 17, 2011. The settlement still needs to be approved by a federal judge in Chicago. Hospira has previously indicated it had reached a deal to settle the litigation and that it expects insurance to cover its costs.
In an emailed statement the company today said: "While we strongly believe that the company did not violate federal securities laws, we agreed to settle the lawsuit in order to avoid further risk and disruption to our business, allowing us to focus our efforts on addressing the needs of our customers worldwide and driving profitable growth and value for our shareholders. "
The suit claims the sterile injectable drugmaker 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.
"We believe this is an excellent result for the class and provides a substantial recovery for investor losses," James Barz, a lawyer for the plaintiffs, told Reuters in an email.
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, and some of its medical device operations have also run afoul of the FDA.
While Hospira's earnings continued to be hampered last year by its ongoing regulatory issues, it has made strides. CEO F. Michael Ball, who is named in the suit, reported during Hospira's February earnings call that the FDA had given the company verbal notice that its plants at Rocky Mount and Austin have improved their oversight status with the agency. He also pointed to the fact the company has ramped up production and so is selling more product. Its investments in India will help improve costs and propel growth for the company, he claimed. Ball, who was brought in to help steer Hospira through its regulatory issues, received a compensation package totaling nearly $10 million last year, according to recent Hospira filings.
- read the Reuters story