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Hospira Inc. (HSP): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:

Hospira's third-quarter 2014 adjusted earnings of $0.74 per share easily beat the Zacks Consensus Estimate of $0.53. Third-quarter 2014 earnings were above the year-ago figure by 45.1%. Third-quarter net sales climbed 14.1% year over year to $1.15 billion. Hospira's impressive top-line growth in the third quarter, driven by its SIP segment, is encouraging. However, the Medication Management segment is still under pressure. We believe segmental revenues will remain soft until regulatory issues are resolved. Even though we expect Hospira to continue facing headwinds in the form of manufacturing issues and the entry of generic versions of Precedex, we believe that the SIP segment will continue to perform well. We maintain a Neutral recommendation on the stock.

Overview:

Hospira, based in Lake Forest, IL, is a global leader in the development, manufacturing and marketing of injectable pharmaceuticals and integrated infusion therapy and medication management products. Hospira was hived off from Abbott Laboratories in 2004.

Hospira has three reportable segments: Americas Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC). The Americas segment includes the U.S., Canada, and Latin America. The APAC segment includes Asia, Japan, Australia and New Zealand. In 2013, revenue contribution from Americas, EMEA and APAC were $3.3 billion (79.5% of the total revenue), $521.8 million (12.7%) and $321.1 million (7.8%), respectively.

Hospira sells a broad line of hospital products. They include:

Specialty Injectable Pharmaceuticals (SIP) This segment includes generic injectables as well as proprietary specialty injectables, including Precedex (a drug for sedation) covering areas of analgesia, anesthesia, anti-infective, cardiovascular and oncology. The SIP segment includes multiple generic injectable drugs. The company has a lucrative biosimilars pipeline, potentially worth multi-billion dollars. Biosimilars are resulting in massive cost savings in the EU. Hospira is preparing to enter the U.S. market with biosimilars. The market for biosimilars in the U.S. (expected to be formed in 2014-15) is expected in the range of $6-$13 billion by 2020 resulting in massive cost savings. Hospira stated at a presentation in May 2014 that it is the market leader in the generic injectables space commanding a 34% share in the $9 billion market.

Other Pharmaceuticals This segment primarily consists of large volume IV solutions, nutritionals and contract manufacturing services. Under the contract manufacturing business, Hospira produces injectable products for some major pharmaceutical companies.

Medication Management (MM) This includes infusion pumps, related drug dose safety software and services, and administration sets to deliver IV fluids and medications along with the services related to these products. These devices are meant to prevent medication errors by defining proper dose limits and tracking IV drug delivery. Medication Management also includes gravity administration sets and other miscellaneous device products. Hospira stated at a presentation in May 2014 that it commands a 25% share in the $2 billion global devices market.

Specialty Injectable Pharmaceuticals ($2.76 billion), Medication Management ($874.1 million) and Other Pharma ($473.6 million) segments accounted for 67.2%, 21.3%, and 11.5%, respectively, of total sales in 2013.

Hospira acquired India-based Orchid Chemicals' generic injectable pharmaceuticals business in Mar 2010 as a part of its strategy to establish its presence in the much sought after emerging market. Moreover, in 2012, the company entered into a definitive agreement with India-based Orchid Chemicals & Pharmaceuticals Ltd. to acquire the latter's penem and penicillin API facility for $202.5 million in cash. The purchase price was increased to approximately $218 million in Mar 2013. The transaction was completed in July last year.

In Jan 2013, Hospira inked a deal with medical devices company Q Core Medical, Ltd. pertaining to the latter's Q Core Sapphire multi-therapy infusion system. The system is a compact and lightweight infusion device mechanism, which finds frequent usage in ambulatory and hospital settings. On its third quarter 2013 conference call the company announced that it has received a 510K clearance for Sapphire in the U.S. The product was launched in Oct 2013.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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