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Earnings Beat at Hospira in 2Q, Sales In Line

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Hospira, Inc.’s second quarter 2013 adjusted earnings of 55 cents per share surpassed the Zacks Consensus Estimate and the year-ago earnings of 51 cents each. Results during the quarter were aided by lower costs. Including one-time items, the company posted earnings of 20 cents per share in the second quarter of 2013 as against a loss of 2 cents reported a year ago.

Second quarter revenues declined marginally to $1 billion, in line with the Zacks Consensus Estimate. Revenues were hurt by the price erosion of some new products in the Specialty Injectable Pharmaceuticals (SIP) segment of Hospira. Reduced sales of devices also contributed to the revenue decline.

Quarter in Detail

Sales from the SIP segment, the biggest contributor to Hospira’s revenues, climbed 7.1% (up 7.4% at constant currency) to $689.8 million despite the price erosion mentioned above.

Drugs such as Precedex performed well during the quarter. The SIP segment includes generic injectables as well as proprietary specialty injectables.

The Medication Management segment performed disappointingly during the second quarter of 2013. Sales in the segment declined 16.1% (down 16% at constant currency) to $214 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, into the U.S. Sales in the Other Pharma division declined 8.7% (down 8.4% at constant currency) to $122.4 million.

Geographically, the Americas, Europe, Middle East and Africa and the Asia-Pacific markets contributed $816.2 million (up 1% at constant currency), $129.3 million (down 5.5% at constant currency) and $80.7 million (down 5.1% at constant currency), respectively, to total revenue in the second 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 $2.03 per share is towards the lower 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 now forecasts 2013 capital expenditures in the range of $350 million - $400 million (old guidance: $425 million-$475 million).

Our Take

Hospira’s second quarter results were mixed with earnings coming above expectations and revenues in line. We believe revenues will remain under pressure until the manufacturing issues confronting the company are resolved.

Hospira currently carries a Zacks Rank #1 (Strong Buy). Shares of the company have been buoyed by the positive opinion issued by the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) regarding the approval of Hospira’s Inflectra (infliximab) for  the treatment of rheumatoid arthritis, inflammatory bowel disease and plaque psoriasis.

We note that Inflectra is the biosimilar version of Johnson & Johnson / Merck & Co. Inc.’s (JNJ - Free Report) / (MRK - Free Report) blockbuster drug Remicade. Hospira noted in its press release that Inflectra is the first monoclonal antibody therapy to receive a favorable opinion from the CHMP after review through the EMA biosimilars regulatory pathway.

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.

Gilead Sciences Inc. (GILD - Free Report) is another stock which carries a Zacks Rank #1.

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