Consent Decree Coming for Hospira?

Consent Decree Coming for Hospira?

August 31st, 2012 // 3:43 pm @


Yet more evidence emerges that Hospira has systemic problems at its various manufacturing facilities. The drugmaker yesterday disclosed that the FDA has issued yet another warning letter, but this time to a plant that was previously not on the agency radar (here is the letter). The plant is based in Costa Rica and makes infusion devices, and while no restrictions have been placed on shipments, there were a host of quality problems found during an April inspection.

The FDA missive is only the latest signal that Hospira (HSP) may face a consent decree for its myriad manufacturing gaffes. Over the past two years, the agency uncovered a host of quality control issues at plants in North Carolina, Colorado and Texas, prompting warning letters and 483 inspection reports (back story). Meanwhile, many Hospira medications now appear on the FDA drug shortages list (see here).

Although Hospira management recently told Wall Street analysts that good progress was being made in resolving the problems, the drugmaker had already spent $235 million on remediation and forecast this could reach as much as $375 million, according to RBC Capital Markets analyst Shibani Malhotra. But that likely did not include the corrective actions that must now be undertaken at the Costa Rica facility, according to Leerink Swann analyst Jason Gerberry.

This is “an important facility” for Hospira, he writes in an investor note. “While it’s unclear to us what potential costs may be associated with these corrective actions, we note that (the Costa Rica facility) accounted for a significant amount of 2011 sales, about 13.5 percent, or $550 million, so we would not be surprised if the company increased remediation spend to avoid putting revenue at risk.”

HSP Chart

HSP data by YCharts

The likelihood of still more problems arising at other facilities was predictable, according to Malhotra. In a recent investor note, she pointed out that remediating a key plant in Rocky Mount, North Carolina, has proven complex and may have diverted management attention from properly maintaining other facilities, such as the ongoing troubles at the Boulder plant, that have been scrutinized by the FDA.

“In our view, considerable uncertainty remains regarding the timing of resolution and whether further, material issues are yet to be uncovered during the remediation process,” she wrote earlier this month. “While we do not doubt Hospira’s renewed commitment to the Boulder facility, we find this lapse troubling and are concerned that oversight at other facilities may have been compromised by the company’s intense focus on remediating its most troubled plants.”

In his own assessment, Leerink’s Gerberry points out Hospira plants in North Carolina remain under FDA watch, altough he notes that the warning letter pertaining to Costa Rica did not mention other outstanding warning letters and Hospira believes the problems are specific to the site. Nonetheless, based on feedback from specialists, he writes that “we continue to believe the systemic nature of Hospira manufacturing issues will likely result in a consent decree.”

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