Hospira Slapped Again By the FDA for Plant Problems

Published: Apr 16, 2015

Hospira Slapped Again By the FDA for Plant Problems
April 8, 2015
By Riley McDermid and Jessica Wilson, BioSpace.com Breaking News

Lake Forest, Ill.-based generic drugmaker Hospira, Inc. is once again being reprimanded by the U.S. Food and Drug Administration (FDA), this time via a warning letter detailing violations in standard drug manufacturing practices at its facility in Liscate, Italy.

The letter, dated March 31, does not restrict the production or shipment of pharmaceutical products from the facility, but it does say that Hospira had not made “sufficient corrective actions" after the FDA visited the plant twice last May and found multiple violations.

Hospira Inc, which said in February it will be acquired by global drug giant Pfizer Inc. for $15 billion, has run afoul of the FDA’s manufacturing practices before, most recently in October 2014.

In October, Hospira announced that it received a similar warning letter from the FDA Australian manufacturing facility in Mulgrave, Victoria, chiding the firm for not sufficiently correcting manufacturing problems observed by the FDA during an inspection of the plant between February 24 and March 1 of 2014.

The letter, posted in an 8-K filing by Hospira, states that, “Until all corrections have been completed and FDA has confirmed corrections of the violations and your firm’s compliance with CGMP, FDA may withhold approval of any new applications or supplements listing your firm as a drug product manufacturer.”

In the 8-K filing, Hospira states, “The company takes this matter seriously, and intends to respond fully and in a timely manner to the FDA’s warning letter.”

Though the FDA warning letter does not restrict the production of or the shipment of products from the Mulgrave plant at this time, Hospira acknowledges in the filing that, “There can be no assurance that the FDA will be satisfied with the company’s response. Until the violations are corrected, the company may be subject to additional regulatory action by the FDA. Any such further action could, ultimately, be significant to our ongoing business and operations.”

The company indicates in the same document that it does not believe the warning will impact its 2014 financial guidance.

The FDA letter read, “During our inspection of your pharmaceutical manufacturing facility, Hospira Australia Pty, Limited located…[in] Mulgrave, Victoria, Australia, dated February 24 through March 1, 2014, investigators from the U.S. Food and Drug Administration (FDA) identified significant violations of current good manufacturing practice (CGMP) regulations for finished pharmaceuticals….These violations cause your drug product(s) to be adulterated.”

The FDA acknowledged that Hospira did respond to the infractions noted, however, the response was insufficient. In the most recent warning letter, the FDA states, “We have conducted a detailed review of your firm’s response dated March 21, 2014 and note that it lacks sufficient corrective actions.”

Hospira, which claims to be the leading provider of injectable drugs and infusion technologies, employs 15,000 people worldwide. The company, which was formerly the hospital products division of Abbott Laboratories , was spun off from Abbott in 2004.

There has been some good news for the company, however, The chief executive of Hospira, Inc., Michael Ball, is expected to receive more than $80 million from the $15 billion acquisition deal the company just inked with Pfizer Inc. (PFE), based on a review conducted by Crain’s Chicago Business of Hospira filings.

The newspaper reported in early February that the filings detail Bell’s ownership of company stock, stock options, restricted shares and severance compensation tally up to a combined $81 million in payouts to the former CEO—though no new job with the merged company.

Hospira will see all stock options and share awards converted into cash automatically upon completion of the deal, at the $90-per-share buyout price.

“After deducting the exercise prices of his options. Ball would collect $60 million on options and restricted shares alone,” wrote columnist Joe Cahill. “Add $90 apiece for another 148,000 shares he owns outright, according to the company's most recent proxy statement, and his net from the deal rises to more than $73 million.”

“He also is entitled to severance pay equal to 2.99 times his annual salary and bonus if he leaves Hospira after the merger, as he is expected to do,” he said. “That comes to about $8 million, according to the proxy, bringing his grand total to about $81 million.”

Deal hungry Pfizer Inc. (PFE) may have seen $6 billion in market cap tacked on after it announced a $15 billion acquisition of Hospira, Inc. to bolster its hospital products business, but that’s no guarantee the firm will escape its perennially bad track record with M&A activity, market watchers have said, or that it’s done making buys.

Pfizer’s purchase of the injectable drugmaker last week looks like a good bet to analysts, who like the potential it has for a spin off and the more than $800 million in cost savings it could bring to the company.

“I don't think this deal is a game changer for Pfizer but helps them build out their sterile injectables business without wildly overpaying for assets, as the company has done in the past," portfolio manager Les Funtleyder of E Squared Asset Management, told Reuters.

But a history littered with failed deals, like the $220 billion lead balloon purchases of Lambert, Pharmacia and Wyeth between 2000 and 2009, have a few Pfizer followers worried.

“The company is, in fact, weighing a breakup in 2017 or later, continuing a pattern set by Chief Executive Ian Read. Since he took the helm in late 2010, Pfizer has sold its infant nutrition business for $12 billion and a pill production unit for $2.4 billion and spun off its animal health business,” wrote Reuters BreakingViews columnist Robert Cyran last Friday. “The company’s stock has doubled over that period, easily outperforming the S&P 500.

But, said Cyran, by 2025, “patents will expire on a huge number of so-called biologic therapies – drugs produced in living cells – prompting the loss of more than $100 billion in annual sales across the industry. Hospira is big in the fast-growing and relatively new business of making non-branded copies of those drugs.”

Indeed, the company has a recent history of failing courtships. Pressure from internal decision makers at Pfizer Inc. (PFE) pushed Read to approach Israeli drug company Teva Pharmaceutical Industries Ltd. at the end of 2014 about a possible merger, people familiar with the matter told Bloomberg News in January, but that bid was immediately rejected.

Read has said in the past that he is dedicated to building out the company’s businesses via “bolt-on” acquisitions or even wholesale takeovers.

“Certainly I feel a sense of urgency on utilizing our balance sheet and our capital to do deals that are incremental, add incremental value and certainly add revenue growth in the innovative space,” said Read on a conference call with analysts in October. “We are aggressively looking at all alternatives.”

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