FDA enforcement against Hospira likely: analyst

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FDA enforcement against Hospira likely: analyst

April 2nd, 2013 // 2:51 pm @

Hospira Inc. has “systemic” manufacturing and quality-control issues that will likely force the Lake Forest-based injectable-drug maker to accept a consent decree from federal regulators, according to a new report by analysts.

The company, with 2012 net sales of nearly $4.1 billion, disclosed on March 5 that the U.S. Food and Drug Administration issued a report raising fresh concerns about its manufacturing plant in Rocky Mount, N.C. The facility, which at one time accounted for a quarter of Hospira’s revenue, has been under the FDA scanner since April 2010, when regulators issued a warning letter stating manufacturing practices at the plant violated its rules.

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The FDA issued the new report, called a Form 483, after spending three weeks re-inspecting the facility. The report contained 20 findings about production, including three concerns that the agency had expressed earlier.

In a strongly worded note issued on March 17, Shibani Malhotra, a New York-based analyst at RBC Capital Markets, said the FDA report reveals “systemic manufacturing and quality control issues across multiple sites and business segments (that) makes the company a likely candidate for enforcement action.”

“The overarching picture building up is that Hospira has not yet been able to adopt a ‘quality first culture,’ ” the note said. “We believe that given the scope and repetitive nature of the issues across numerous plants/business segments, the FDA will be more likely to take enforcement action.”

More Info on Hospira Consent Decree

A company spokesman declined to comment on the report by Ms. Malhotra, who has been skeptical of Hospira’s prospects.

Yesterday, the company posted a statement to its website.

Hospira said it was “encouraged” that a number of the FDA’s findings “are related to remediation efforts currently under way or issues that had been self-identified, and are slated to be addressed in the latter part of the plant’s remediation and modernization plans.”

A consent decree typically requires more government intervention into plant operations and slows production.

Some analysts who are bullish on Hospira say the FDA will be unlikely to require a consent decree because it would worsen the current shortage of drugs that the company makes, Ms. Malhotra said in her report.

Whether investors have factored the likelihood of a consent decree into Hospira’s share price has been the subject of speculation.

On March 8, a UBS analyst upgraded shares of Hospira to “neutral” from “sell,” in part because concerns about manufacturing problems and slow earnings growth are reflected in the stock price, which is trading at annual lows.

The company’s stock price has risen 6 percent, to $31.58 a share yesterday, up from $29.77 on March 4, before Hospira disclosed the FDA report. It rose as high as $31.76 in morning trading today.

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