Hospira (HSP)

Q1 2012 Earnings Call

May 01, 2012 9:00 am ET

Executives

Karen King -

F. Michael Ball - Chief Executive Officer, Director and Member of Science, Technology & Quality Committee

Thomas E. Werner - Chief Financial Officer and Senior Vice President of Finance

Sumant Ramachandra - Chief Scientific Officer and Senior Vice President of Research & Development & Medical Affairs

Analysts

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Christopher Schott - JP Morgan Chase & Co, Research Division

Matthew Taylor - Barclays Capital, Research Division

John M. Putnam - Capstone Investments, Research Division

David G. Buck - The Buckingham Research Group Incorporated

David H. Roman - Goldman Sachs Group Inc., Research Division

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

Marshall Urist - Morgan Stanley, Research Division

Gregory Hertz - Citigroup Inc, Research Division

Robert M. Goldman - CL King & Associates, Inc.

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Welcome to Hospira's First Quarter 2012 Conference Call. [Operator Instructions] 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 first quarter 2012 conference call and webcast. Participating in today's call are Mike Ball, Chief Executive Officer of Hospira; Tom Werner, Senior Vice President, Finance, and Chief Financial Officer; and Sumant Ramachandra, Senior Vice President and Chief Scientific 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.

On today's 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 do not speak directly to the materials. It is for your reference to use as an enhanced communication tool. You can find the presentation on our website at www.hospira.com.

Finally, we will be ending the call at the top of the hour this morning. In order to allow as many of you as possible to ask a question, please limit yourself to one question.

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

F. Michael Ball

Thanks, Karen. Good morning, everyone. Welcome to our first quarter 2012 conference call.

I will begin today's call by providing you with an update on our quality remediation efforts and growth initiatives followed by a discussion of our first quarter sales results which, like our adjusted EPS, were in line with our expectations. Tom will then provide a deeper dive into the financials and wrap up with the discussion on guidance.

As I've said before, reinforcing the foundation is our #1 priority and that has not changed. On the quality front, as we progress with our remediation and move forward towards recovery, we are uprooting and resolving issues, we are preparing and responding to various FDA inspections. And with our strength in leadership, we are working across -- functionally across our plants to share best practices and to put the highest quality processes and procedures in place.

Let's start with Rocky Mount. First, we remain on track with our remediation efforts at the plant. As we indicated on our fourth quarter earnings call in February, we are currently maintaining our production and release levels in the 60% to 70% range and anticipate that we will remain at these levels through at least midyear.

Second, we are also making progress with our hiring efforts at Rocky. We have placed over 100 full-time employees at the plant since the beginning of the year. This is in addition to the more than 150 consultants we already have working on the plant floor, with our employees assisting us with our remediation efforts. We expect these consultants to remain with us for most of the year, after which we expect to steadily ramp down as our internal staff takes over many of the roles and responsibilities the consultants have been performing for us.

And finally, we have had continued -- we have continued our regular constructive dialogues with the FDA regarding our current progress at Rocky and continued to press forward with implementation of our remediation plan. The agency has told us they are willing to meet with us to discuss our plan, and we are communicating with them to finalize a date.

Moving to our Other Pharma facilities. At our Clayton plant, which is also cited under the Warning Letter with Rocky Mount, the FDA conducted an inspection in March. The inspection was not a full cGMP audit but a limited inspection focused on a specific issue. The agency had one observation regarding how we conduct investigations, which we did not deem to be critical in nature. We have already addressed and completed the corrective action for this observation.

In addition, during the month of March, we encountered some manufacturing issues at the plant and elected to shut down production to investigate. This has created a temporary shortage situation with propofol and has also impacted certain contract manufacturing customers. Last week, we completed the corrective action, which we believe addresses the issue. We have restarted production and will begin a staged release of quarantined product in the coming weeks.

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