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Shares of Hospira (HSP - Analyst Report) tumbled 2.81% to close the trading session on Aug 19 at $53.92 per share, following the company’s decision to file a lawsuit against the FDA over approvals granted to generic versions of its injectable sedative Precedex (dexmedetomidine hydrochloride). Hospira believes that the U.S. regulatory body will clear more applications pertaining to generic forms of the drug, which is a significant contributor to the company’s top line.

The branded version of the drug is approved for use in non-intubated patients who need sedation as well as intubated and mechanically ventilated patients in the intensive care setting. Hospira holds a patent (6,716,867) on Precedex relating to intensive care unit sedation which will expire in 2019. The FDA, while approving generic forms of Precedex, stated that it is free to clear the generic versions with labels having no information about the sedative’s use in the intensive-care setting and include information pertaining to its uses in other settings. Hospira has challenged the FDA’s decision.

Despite the entry of the generic versions of the drug, Hospira continues to expect 2014 earnings per share in the range of $2.30 to $2.50. The Zacks Consensus Estimate of $2.43 per share is well within the guidance range.

Mylan (MYL - Analyst Report) was one of the companies to gain FDA approval for its generic version of Precedex. Approval was gained to sell its generic version of Precedex for the sedation of non-intubated patients preceding and/or during surgical and other procedures. The generic player launched its generic form of Precedex immediately after receiving the FDA nod.

Hospira carries a Zacks Rank #2 (Buy). Better-ranked stocks in the medical sector include Gilead Sciences (GILD - Analyst Report) and Mallinckrodt (MNK - Analyst Report) both of which sport a Zacks Rank #1 (Strong Buy).

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