Hospira, Inc. Q1 2010 Earnings Call Transcript

Hospira, Inc. (HSP)

Q1 2010 Earnings Call Transcript

April 27, 2010 9:00 am ET

Executives

Karen King – VP, IR

Chris Begley – Chairman and CEO

Tom Werner – SVP, Finance and CFO

Analysts

Marshall Urist – Morgan Stanley

Rick Wise – Leerink Swann

Ronny Gal – Bernstein

John Putnam – Capstone Investments

Kevin [ph] – Goldman Sachs

Jayson Bedford – Raymond James

Presentation

Operator

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Welcome to Hospira's first quarter 2010 earnings conference call. All lines have been placed on a listen-only-mode to prevent any background noise. Following the speakers’ remarks, there will be a question-and-answer period. I will now turn the call over to Karen King, Vice President of Investor Relations. Karen, you may now begin your conference.

Karen King

Thank you. Good morning, everyone, and welcome to our conference call and web cast regarding Hospira’s financial results for the first quarter of 2010.

Participating in today's call are Chris Begley, Chairman and Chief Executive Officer of Hospira; and Tom Werner, Senior Vice President, Finance and Chief Financial officer.

We will be making some forward-looking statements today, which are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those indicated. A discussion of these factors is included in the risk factors and MD&A sections in Hospira's latest annual report on Form 10-K and subsequent Form 10-Qs on file with the SEC.

We undertake no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments.

In today's conference call, non-GAAP financial measures will be used to help investors understand Hospira's base business performance. These non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the press release and Form 8-K issued this morning, and are also available on the presentation page in the investor relations section of our website.

Also posted on our website is a presentation of complementary materials that summarizes the points of today's call. We will not be speaking directly to the material, which is posted on the presentation page at www.hospirainvestor.com, the material is for your reference as an enhanced communication tool.

With that, I'll now turn the call over to Chris.

Chris Begley

Thank you, Karen and good morning, everyone. We started out the year with very strong sales and profitability, driven mainly by continued strength in Specialty Injectable Pharmaceuticals. The majority of the contribution came from oxaliplatin, a major oncology drug use in the treatment of colon cancer, and Precedex, our proprietary sedation engine.

Net sales topped $1 billion this quarter, increasing 17% year-over-year or 13% excluding the impact of foreign currency. Adjusted earnings per share of $0.94 represents a growth of 57% over the first quarter of 2009 EPS of $0.60. The first quarter included several significant developments for Hospira. We completed the acquisition of Orchid generic injectable pharmaceuticals business. Integration of Orchid Chemicals injectable formulation business represents a strong strategic fit.

Through this acquisition, we have enhanced our SIP portfolio by fulfilling a key manufacturing and development capability gap, and adding new beta-lactam antibiotic compounds to our portfolio. It also establishes a direct presence for us in India, providing a platform for future growth.

We reached a positive agreement on our oxaliplatin patent challenge since the third quarter 2009 launch of generic oxaliplatin in solution. We have seen extremely high levels of demand with only a limited number of competitors offering a solution product. This has resulted in extremely favorable performance over the past several quarters. However, ongoing litigation continued to provide uncertainty as to future prospects. By settling the litigation, we eliminate any litigation risk while we secure the right to relaunch our product in 2012 in advance of patent expiry.

On the biogenerics front, we were very pleased to be the first biogeneric to receive approval for subcutaneous use of Retacrit in renal anemia from the European Community. This development allows us to serve a broader base of the fast acting EPO market in Europe, where the subcutaneous indication of the drug represents more than half of the renal usage of the product.

More recently, we entered into a merger agreement and commenced a tender offer for all outstanding shares of Javelin Pharmaceuticals. Once approved the acquisition of Javelin will allow us to capitalize on the synergies between Javelin’s main product candidate, Dyloject, a post-operative pain management drug and Precedex. Both drugs are marketed to anesthesiologists, and will be sold through our Precedex sales force upon completion of the acquisition.

Finally, last week the US District Court for the Northern district of Illinois ruled in our favor in the ERISA lawsuit related to the spin-off of Hospira from Abbott. We are pleased with the court’s ruling, which validated our long-held position that Hospira had acted in compliance with the law at all times.

So, our list of achievements continues to grow, however, we have had our fair share of challenges as well. As you know, two weeks ago we received a warning letter from the US FDA related to the inspections earlier this year of our manufacturing facilities in Clayton and Rocky Mount, both located in North Carolina.

While the letter does not restrict production of shipment of our products from these facilities, it does address topics related to documentation policies and procedures and validation and investigation practices. More specifically, the FDA cites failure to adequately validate the processes used to manufacture products at Rocky Mount facility. Deficiencies related to particulate in certain emulsion products, namely Propofol and Liposyn at the Clayton facility and corporate oversight.

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