The Rocky Mount plant in North Carolina is operating at less than 70 per cent of capacity as Hospira works to fix the problems found by US Food and Drug Administration (FDA) inspectors. Hospira is pouring cash into the site to get it back up to speed but it is unclear when the uptick will begin.
“As we go through the first quarter, and then into the second quarter, we should have greater clarity on when that inflection point occurs”, Michael Ball, CEO of Hospira, told investors in a call to discuss its fourth quarter results.
To hit the midpoint of its 2012 guidance Hospira output at Rocky Mount will have to pick up after its scheduled shut down in July. This is far from certain though and Hospira is “still wrestling with” the timing of the recovery.
Hospira is uncertain of the timing because it is difficult to predict what problems it will encounter as it works to fix the plant. “So, it is very difficult to see exactly when these issues are finally solved and you can start moving up the supply recovery pathway, if you will”, Ball said.
Speaking at the JP Morgan Healthcare Conference last month Ball described the issues as “gators” [that] appear when you drain the swamp”. Extending the January shutdown made it easier to fix some of these problems, Ball said, but any that arise now must be fixed while production continues.
These setbacks could drag on results. Contract manufacturing at Hospira was hit in the fourth quarter by “heightened quality-transformation actions”, Ball said, and the January shut down is expected to result in a drop in first quarter sales.
In November an analyst warned that the FDA may file a consent decree against Hospira but nothing has happened yet. “You never know what the agency is going to do. But at this particular juncture, as I said, we have had no indication from them…of a consent decree”, Ball said.
Hospira is meeting the FDA in a few weeks when it hopes to have its “remediation plans blessed by the [Agency]”, Ball said. Gaining the support of the FDA would be a small milestone in Hospira’s strategy for resolving its manufacturing problems over the next couple of years.
“As you look out at 2014, this is where I see that we are in an optimal supply situation. Remediation should be completed. We are driving cost savings in the organisation and then we get Vizag online”, Ball said. Vizag is the Indian city where Hospira is building a production facility.
If everything goes according to plan Hospira could be well positioned in 2014. Efforts by the FDA to raise manufacturing standards “can increase barriers to entry”, Ball said, and some competitors may struggle to comply with more rigorously enforced GMPs (good manufacturing practices).