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Hospira, Inc.’s (HSP - Analyst Report) third quarter 2013 adjusted earnings of 51 cents per share surpassed the Zacks Consensus Estimate by 6 cents and the year-ago earnings by 4 cents. Results during the quarter were aided by lower costs. Including one-time items, the company posted earnings of 1 cent per share in the third quarter of 2013 flat year over year.

Third quarter revenues improved 1.4% to $1 billion in the third quarter of 2013, edging past the Zacks Consensus Estimate of $994 million. Revenues were aided by the strong sales of drugs like Precedex (sedative) in the Specialty Injectable Pharmaceuticals (SIP) segment. Impressive sales of these drugs outweighed the price erosion of some of the new products in the SIP division. Sales of devices were also disappointing during the third quarter of 2013.

Quarter in Detail

Sales from the SIP segment, the biggest contributor to Hospira’s revenues, climbed 6.5% (up 7.4% at constant currency) to $685 million despite the price erosion mentioned above.

The Medication Management segment performed disappointingly during the third quarter of 2013. Sales in the segment declined 11.3% (down 10.8% at constant currency) to $209.8 million. The segment has been going through a rough patch. In Feb 2013, the U.S. Food and Drug Administration (FDA) expanded the import ban on certain Hospira products issued last year.

In Nov 2012, the FDA had issued a directive prohibiting Hospira from importing Symbiq medication infusion pumps, manufactured at its Costa Rica facility, into the U.S. The U.S. regulatory body issued a fresh directive in Feb 2013, preventing Hospira from importing Plum, GemStar and LifeCare PCA infusion pumps, manufactured in Costa Rica, to the U.S. Sales in the Other Pharma division declined 0.7%  to $113.4 million.

Geographically, the Americas, Europe, Middle East and Africa and the Asia-Pacific markets contributed $804.2 million (up 2.6% at constant currency), $123.5 million (down 3.2% at constant currency) and $80.5 million (up 6.5% at constant currency), respectively, to total revenue in the third quarter of 2013.

2013 Outlook

Hospira still expects top-line growth in the range of negative 1% to positive 1%. The company still expects 2013 adjusted earnings in the range of $2.00 to $2.10 per share, representing flat to 5% growth. The pre-earnings Zacks Consensus Estimate of $2.06 per share is towards the higher end of management’s guidance.

The company still expects cash flow from operations for 2013 in the range of $200 million - $250 million. Depreciation and amortization is projected in the range of $255 million- $275 million. Hospira still forecasts 2013 capital expenditures in the range of $350 million - $400 million.

Our Take

At first glance, Hospira’s third quarter results look impressive with the company surpassing earnings and revenue estimates. However, the top line beat was only marginal. We believe revenues will remain under pressure until the manufacturing issues confronting the company are resolved.

A positive development for Hospira in the third quarter of 2013 was the European approval of the company’s Inflectra (infliximab) for the treatment of inflammatory conditions such as rheumatoid arthritis, ankylosing spondylitis, Crohn's disease, ulcerative colitis, psoriatic arthritis and psoriasis.

We note that Inflectra is the biosimilar version of Johnson & Johnson / Merck & Co. Inc.’s (JNJ - Analyst Report)/(MRK - Analyst Report) blockbuster drug Remicade. Hospira noted that Inflectra is the first monoclonal antibody therapy to be cleared in Europe through the European Medicines Agency biosimilars regulatory process.

Biosimilars, which are generic versions of biologic drugs, are expected to be a significant growth driver in the generics industry in the coming years. The biosimilars market represents huge commercial opportunity with a significant amount of biologic sales slated to lose patent protection in the coming years.

Hospira carries a Zacks Rank #3 (Hold). Actelion Ltd. (ALIOF) appears to be well placed with a Zacks Rank #1 (Strong Buy).

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