HSP

Hospira Inc.'s (HSP) second-quarter earnings surged because of fewer charges than in last year's quarter, but sales were light as the company continued to hold back shipments of certain drug-infusion pumps and dealt with other disruptions in that market.

The Lake Forest, Ill., maker of generic injectable drugs and medical products has also been holding back shipments of an anesthesia product, called propofol, as it resolves an issue with metal particles. Though second-quarter earnings were better than Wall Street expected, Hospira kept its earnings guidance for the full year in place while citing increased charges linked to quality-improvement efforts.

Hospira shares were recently down 7% at $52.64.

The company noted that its outlook for this year does not assume restarting shipments of propofol or the Symbiq infusion pumps to new customers. It didn't estimate when these issues would be resolved, but Christopher Begley, chairman and chief executive, cited some progress

On the Symbiq front, Hospira halted shipments in April because an alarm that signals the end of infusion therapy wasn't working under certain conditions. Begley said Hospira will soon submit a corrective action plan to the Food and Drug Administration and expects a third-quarter meeting to review the response.

On the propofol front, the company proposed manufacturing process improvements to the FDA in April that include using a new filter to catch tiny particles. The FDA accepted that change but asked Hospira to explore "additional enhancements to our manufacturing process," Begley said on a conference call.

"We are currently in the process of implementing these changes," he said.

Propofol is made at a North Carolina plant, one of two in the state the FDA slapped with a warning letter this spring due to issues it found during an inspection. Begley said Hospira believes the agency has accepted the company's remediation plans, the bulk of which it expects to complete by year-end.

The company's second-quarter earnings were $83.5 million, or 49 cents a share, up from $25.5 million, or 16 cents a share, a year earlier. Excluding acquisition- and litigation-related charges, the company said per-share earnings rose to 86 cents from 73 cents.

Analysts surveyed by Thomson Reuters had forecast earnings of 79 cents in the recent quarter, and Leerink Swann analyst Rick Wise said stronger-than-expected gross margins caused Hospira's adjusted results to top that estimate.

But its sales of $968.2 million, up 1.2% from last year, fell far short of analysts' $995.7 forecast.

One issue was the company's medication-management business, which makes infusion pumps. It saw sales drop 18% to $142.4 million. Hospira attributed some of this drop to market disruptions caused by Baxter Inc. (BAX), which is pulling 200,000 pumps off the market and either replacing them or handing out refunds. But Hospira's Symbiq sales were also stymied by the shipping hold, and the fact that sales of another pump, called Plum, were hurt by temporary supply constraints.

Overall sales in the company's medical devices segment fell 16%, affected by the pump issues and some divestitures linked to a company restructuring plan.

Sales in Hospira's drug segment rose 8.5% to $724 million behind an 18% surge for specialty injectable drugs. One key catalyst was a generic colon-cancer drug called oxaliplatin, which Hospira stopped selling on June 30 as part of a legal settlement with Sanofi-Aventis SA (SNY, SAN.FR), which makes the branded version of the drug known as Eloxatin. Hospira plans to relaunch sales in about two years.

Looking ahead, Hospira continued to forecast sales growth of about 3% to 5% this year, excluding the impact of foreign currency rates. It is also maintaining a projected forecast, excluding a host of charges and other costs, for earnings in a range of $3.35 to $3.45 per share.

Chief Financial Officer Thomas Werner said the static earnings view was mainly due to increased charges associated with quality-improvement initiatives as well as an increase in drug back-orders. The company also expects a significant increase in research and development spending in the second half of 2010 for clinical trials, plus a slightly dilutive impact from acquisitions, Werner said.

Analysts had forecast full-year earnings of $3.50 per share.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

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