Hospira slumps on outlook and manufacturing update

Hospira declines on guidance, says it has 'a lot of work to do' on manufacturing problems

Associated Press

NEW YORK (AP) -- Shares of Hospira sank Thursday after the drug and medical device maker gave a disappointing outlook for 2013 and said it still has to do a lot of work to fix problems with some of its manufacturing facilities.

THE SPARK: Hospira said Wednesday it turned a profit in the fourth quarter, but its net income and revenue guidance both fell short of Wall Street estimates. The company said it expects to earn between $2.05 and $2.20 per share in 2012 and said revenue will grow 1 to 3 percent to as much as $4.21 billion.

Analysts had forecast income of $2.31 per share on $4.23 billion in revenue, according to FactSet.

In the fourth quarter the Lake Forest, Ill., company took about $44 million in costs related to regulatory problems at a drug manufacturing facility in Rocky Mount, N.C. It said the Food and Drug Administration started a new inspection of that facility on Tuesday and said that process could be long. Hospira also said the FDA started an inspection of a facility in Illinois two weeks ago and said the agency pointed out 10 problems the company needs to address.

The FDA identified some of the same problems during an inspection in July.

THE BIG PICTURE: The FDA said in April 2010 that manufacturing processes at facilities in Rocky Mount and Clayton, N.C., didn't meet regulatory standards. Hospira has been trying to fix the problems since then, and is relaunching drug manufacturing in Clayton. The FDA also sent Hospira a warning letter in August 2012 after an inspection of a medical device facility in Costa Rica.

The Rocky Mount and Costa Rica facilities are two of the company's biggest manufacturing plants, as the Costa Rica makes most of its infusion devices and sets.

"There is still a lot of work to be done within our device operations," said Hospira CEO Michael Ball. He said Hospira wants to develop a long term strategy to "modernize and streamline" its medication management business to respond to the needs of its customers and its regulatory issues.

The company said it has taken about $375 million in charges related to those problems, but said those costs will decrease in 2013.

THE ANALYSIS: Citi Investment Research analyst Matthew Dodds said it does not sound like Hospira made a lot of progress on its regulatory problems during the fourth quarter. He said the company expects a tougher outlook for its specialty drugs and medication management businesses, and limited growth in sales of other medications.

Dodds rates Hospira shares at "Sell," and he lowered his price target to $28 per share from $30.

SHARE ACTION: Hospira Inc. fell $2.59, or 7.9 percent, to $30.06 in afternoon trading. The shares reached a 52-week low of $28.62 on Nov. 16, about a week after the company reported its third-quarter results, and the stock has risen 14.1 percent since then.

View Comments