Hospira Finds Healthy Niche

1/25/2010


  Recent Price
$51
  Dividend
$0.00
  Yield

0.0%

  P/E Ratio
17
  Shares (millions)
164
  Long-Term Debt as % of Capital
41%
  52-Week Price Range
$52.45 - $21.21

Abbott Laboratories ($56; ABT) spun off its hospital-supply unit, also known as Hospira ($51; HSP), in 2004. Now, Hospira stands as one of the few unqualified winners as U.S. health-reform efforts lay the groundwork for allowing biosimilar drugs.

Having launched a biosimilar for anemia treatment Retacrit in Europe in early 2008, Hospira is the only American company currently producing copycat versions of complex biotechnology drugs derived from living cells.

The stock jumped 90% in 2009, shedding its discount valuation along the way. Shares trade at 17 times trailing earnings, about 9% below the five-year average. And rising earnings estimates suggest the stock still has plenty of room to run in 2010. Hospira is a Focus List Buy and a Long-Term Buy.

Business breakdown

Hospira operates in two segments, pharmaceuticals and devices. Within the pharmaceuticals unit, Hospira makes and distributes specialty injectables (53% of total sales for the nine months ended September). Specialty injectables have driven the company’s sales gains recently, growing 10% in the nine-month period.

As the biggest player in generic injectables, Hospira claims a 23% share of the $11 billion global market. Hospira has 35 injectable drugs in its pipeline, including 12 submitted for U.S. approval. The company plans to launch a generic version of Taxotere — used to treat various forms of cancer — in Europe by the end of 2010 and in the U.S. in 2011.

The pharmaceuticals unit also markets intravenous solutions, nutritionals, and contract-manufacturing services (18% of sales).

The devices segment includes medication-management systems (17%) — electronic pumps that deliver drugs. Other devices, including gravity-driven I.V. sets and critical-care products, accounted for the remaining 12% of revenue, though Hospira sold its critical-care business in August.

Growth by acquisition

Over the last seven months, Hospira has made a series of small deals intended to sustain long-term growth. The overarching aim is to grow the generic injectables business and expand the geographic footprint, while at the same time divesting noncore businesses.

Hospira will establish a presence in India with the planned $400 million purchase of a rival’s injectable-drug segment. The separate acquisition of a manufacturing facility in Croatia will support future biosimilar development and production.

A distribution deal with Celltrion of South Korea nearly doubled the size of Hospira’s biosimilar pipeline. Hospira also bought the global rights for a biosimilar version of filgrastim, a drug that boosts white blood cells. The company has already filed applications for filgrastim in Europe and Australia.

Conclusion

While divestitures could pressure 2010 per-share profits, Wall Street still expects a 13% increase, with long-term annual growth of 14%. At 16 times projected 2010 earnings, Hospira seems reasonably valued relative to its growth potential. An annual report for Hospira Inc. is available from 275 North Field Drive, Lake Forest, IL 60045; (224) 212-2711; www.hospira.com.

HOSPIRA
Quarter

    Per-Share
     Earnings*

Sales
Change

      Quarterly
      Price Range

P/E Ratio
Range

Sep '09 $0.90 vs. $0.63 + 9% $45.08 -

$35.58

16 - 13
Jun '09 0.73 vs. 0.57 + 6% 38.94 - 29.86 15 - 12
Mar '09 0.60 vs. 0.55 - 3% 31.40 - 21.21 12 - 8
Dec '08 0.78 vs.

0.63

- 3% 38.85 - 23.00 16 - 10
           
Year
(Dec.)

Sales
 (Bil.)

Per-Share
Earnings*
Per-Share
Dividend

52-Week Price Range

P/E Ratio
Range

2008 $3.63 $2.53 $0.00 $44.00
-
$23.00 17 - 9
2007 $3.44 $2.19 $0.00 44.64
-
33.60 20 - 15
2006 $2.69 $1.93 $0.00 47.99
-
31.15 25 - 16
2005 $2.63 $1.73 $0.00 45.10
-
28.35 26 - 16
             
————————————————— Quadrix Scores † —————————————————
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Performance
92 84 66 88 55 85 75

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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