) recently announced its intension to acquire an active
pharmaceutical ingredient (API) manufacturing facility and an
associated research and development (R&D) facility from
India-based Orchid Chemicals & Pharmaceuticals Ltd. for around
The agreement is sanctioned by both the companies and is
expected to conclude by the fourth quarter of 2012.
The state-of-the-art API manufacturing facility is approved by
the US Food and Drug Administration (FDA). The API facility will
help Hospira reduce costs and support the continuous supply of key
antibiotic products. As per the agreement, Orchid Chemicals &
Pharmaceuticals will continue with its cephalosporin API business
and facilities as well as supplying its associated API to
Orchid Chemicals & Pharmaceuticals will continue with its
cephalosporin API business and facilities as well as supplying its
associated API to Hospira.
We note that in 2010, Hospira had acquired the generic
injectable finished-dosage form pharmaceutical business of Orchid
Chemicals & Pharmaceuticals for $381.0 million, which included
a beta-lactam antibiotic formulation manufacturing complex and a
pharmaceutical R&D facility.
Post-acquisition, the facility is expected to have a marginal
impact on Hospira's earnings for the first year, less transaction
related expenses like purchase accounting charges, integration
costs, and the amortization of intangible assets.
Notably, during the second quarter this year, Hospira paid
around $30 million to a supplier for the purchase of APIs.
Meanwhile we note that Hospira recently received a warning
letter from the FDA regarding an inspection of the company's La
Aurora de Heredia, Costa Rica device manufacturing facility in
April this year. The Costa Rica site manufactures the majority
Hospira's infusion devices and sets.
The warning letter did not mention any restriction in production
or shipment of Hospira's products from the site. The company is
currently evaluating the concerns raised in the letter. The FDA can
take further regulatory actions if the issue is not solved.
We are pleased with Hospira's decision to acquire Orchid
Chemicals & Pharmaceuticals' manufacturing facility. However
the warning letter for the Costa Rica facility is a matter of
We note that this is this is not the first time that Hospira has
received a warning letter for its manufacturing facilities. The
company received warning letters from the FDA for its
pharmaceutical and device manufacturing facilities in Clayton and
Rocky Mount, North Carolina. Hospira has been working on addressing
and correcting the issues raised by the agency. We expect investor
focus to remain on the company's manufacturing issues.
We have a Neutral recommendation on Hospira. The stock carries a
Zacks #3 Rank (Hold rating) in the short run.
HOSPIRA INC (HSP): Free Stock Analysis Report
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