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CEO says Hospira is making progress on manufacturing fixes

Improved supplies from Rocky Mount plant help boost Q2 sales
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Hospira ($HSP) rebounded from losses and reported a second-quarter profit, partly because it has managed to improve the supply of drugs coming out of its Rocky Mount, NC, plant. But the drug and device maker's work to improve quality-control issues at plants across the world is far from over.

Hospira CEO F. Michael Ball

The company has been fighting manufacturing issues for several years now, particularly at Rocky Mount, where the FDA set out a laundry list of required improvements. In May, the company disclosed a warning letter relating to its pharma site in Irungattukottai, India, which cited a variety of new manufacturing deficiencies.

Hospira has spent millions to rehab the Rocky Mount plant, and CEO F. Michael Ball says it's continuing to make progress. During the company's quarterly earnings call, Ball cited some improvements at the plant, including lower levels of backlogs. An automated inspection line is up and running, too. "We made steady improvement at Rocky Mount in improving release levels and bringing additional supply to the market," Ball said.

The company also continued to ramp up its supply of propofol, an anesthetic drug it stopped producing because of manufacturing problems. It started resupplying propofol earlier this year, and then it recalled several lots in February because of particle contamination.

As for the problems in India, Hospira in June submitted its plans for fixes to the FDA, according to its quarterly filing with the Securities and Exchange Commission. As it did with other problem plants, Hospira pledged to amp up its quality systems, employee training, control procedures and technology, among other things. And according to Ball, the agency has responded favorably. "[T]he FDA recently sent us letter that they agree with our proposed corrective actions," he said.

The company is also scrambling to address recalls and violations on the device side of its business. "While we continued to make progress in supply recovery and in advancing our quality-improvement initiatives, we still have work to do to reinforce our foundation," Ball said. "We are working through our commitments to the [FDA]."

Through the first 6 months of this year the company spent $45 million, down from $114 million during the same period of 2012, on consultants and other costs related to addressing warning letters as well as improving its device technologies. This year the company estimates that the costs of improving quality and related expenses will hit about $100 million.

Partly because of those reduced expenses, the bottom line looked solid for Hospira in the second quarter, with profits of $32.9 million compared with a net loss of $2.5 million in the same quarter last year. Shares of Lake Forest, Illinois-based Hospira rose 2.57% to $40.72 as of 10:56 a.m. ET today.

- here's the SEC filing
- check out the Wall Street Journal's article on Q2 earnings (sub. req.)

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