February 14, 2012 / 1:41 PM / 8 years ago

UPDATE 4-Hospira resumes production at key plant, shares up

* Shares rally as uncertainty about Rocky Mount plant eases

* Q4 net share loss $1.30 vs year-ago 36-cent/shr profit

* Adjusted earnings 51 cents/shr vs Street view of 45 cents

* Quarterly sales rose 2.2 percent

* Shares rise 7.2 percent

By Debra Sherman

Feb 14 (Reuters) - Hospira Inc said it has resumed production of injectable drugs at its Rocky Mount, North Carolina, plant, where numerous problems have led to shortages of anesthesia and other drugs.

Its shares rallied more than 7 percent on Tuesday after the Lake Forest, Illinois-based company indicated that the long-standing issues that have hurt the shares were being resolved.

“They appear to have a handle on Rocky Mount ... production has resumed and products are being re-released,” said Barclays analyst Matt Taylor.

He said a lot of investors were shorting the stock going into its earnings release and were forced to cover their positions as the stock moved higher, fueling the rally.

“Barring intervention from FDA, it seems like they should be able to execute remediation,” Taylor said, referring to the Rocky Mount plant.

Hospira has been beset by problems at its Rocky Mount facility, which represents about a quarter of corporate profits. Remediation efforts are expected to cost $300 million to $375 million through 2013. The problems have also sparked a class-action lawsuit from investors who said the company failed to disclose those issues.

Chief Executive Michael Ball told a conference call that enough progress has been made to resume production.

He said the company was in discussions with the Food and Drug Administration about how to fix the problems at the plant and that there was no consent decree in place at this time.

Management will meet with FDA officials over the next few weeks. Ball declined to speculate on the possibility of a consent decree, but seemed upbeat on the company’s prospects.

“We are doing the best at getting better,” he told analysts.

Morningstar analyst Michael Waterhouse said investors had been wary about management’s ability to deal with the situation at the plant and the conference call seemed to have alleviated some uncertainty.

“There seems to be light at the end of the tunnel,” Waterhouse said.

Chief Financial Officer Thomas Werner told analysts that Rocky Mount produced a lot of anesthesia drugs.

“The best list you can look at to get an idea of what is produced at Rocky Mount is unfortunately the (FDA’s) drug shortage list,” Werner said.


The company declined to elaborate and disclose exactly which drugs were produced at the facility.

“The Rocky Mount plant produces a variety of injectable drug products, including irrigation and intravenous solutions, renal and cardiovascular care products, local and general anesthesia and analgesia agents,” a company spokesman wrote in an email.

For the fourth quarter, the company reported a net loss of $212.3 million, or $1.30 per diluted share, compared with a year-earlier profit of $53.6 million, or 36 cents per diluted share.

Excluding items, the company had a fourth-quarter profit of 51 cents per share. On that basis, analysts had expected 45 cents per share, according to Thomson Reuters I/B/E/S.

Sales rose 2.2 percent to $1.014 billion in the latest quarter from $992.1 million a year earlier.

Continued strong demand for cancer treatment oncolytic docetaxel in the United States contributed to the sales increase, but sales gains were outweighed by weakness in its device business and expenses for actions the company took to respond to the FDA’s warning letter related to its Rocky Mount plant.

In 2012, Hospira said it expects net sales change to be in a range of negative 1 percent to positive 2 percent, excluding the impact of foreign exchange rates. The company expects foreign exchange to detract from results by a negative 1 percent, based on current exchange rates.

Excluding items, adjusted earnings are expected to be $2.00 to $2.30 per diluted share for 2012, the company said. It expects acquisition-related costs to be 28 cents to 32 cents a share, charges to address certain product and quality-related matters to be 50 cents to 62 cents a share, and charges related to capacity expansion to be 9 to 11 cents per share. That would put net earnings between $1.04 and $1.34 per diluted share.

“The mid-point of the earnings guidance falls below our published estimate of $2.47 and consensus at $2.43,” Goldman Sachs analyst David Roman wrote in a note.

He said he believed the weaker outlook was tied to higher investments in physical plant and quality control initiatives.

“The key question, in our view, is whether the company will be able to articulate a clear and decisive plan toward warning letter/quality control remediation. This could prove more important than the projected 2012 EPS outlook and provide some perspective as to when the company can head back toward a more normalized earnings profile,” Roman said.

Hospira’s shares were up 7.2 percent at $36.70 in afternoon trading on the New York Stock Exchange.

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