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Hospira wins skirmish with SEC

Hospira successfully fought off a government request for more details about its prolonged efforts to fix safety problems, a win that highlights the scrutiny of CEO F. Michael Ball's efforts to boost production at the giant medical products maker.

The U.S. Securities and Exchange Commission dropped its request last month after Hospira executives argued that the agency was seeking an “unnecessary information overload” about attempts to resolve violations regulators found at several facilities, including a key plant in North Carolina. Hospira disclosed the six-letter exchange in SEC filings Jan. 4.

Correspondence between the SEC and public companies is not unusual. Yet resolving the problems cited by the U.S. Food and Drug Administration remains a top priority for Mr. Ball, who became CEO in March 2011.

The Lake Forest, Ill.-based company's stock price has slumped 25 percent since September 2011, when the extent of the safety problems began to emerge. In November, Hospira's largest shareholder for at least five years, operator of the well-known American Funds family of mutual funds, dumped the majority of its stake.

Hospira's shares closed Monday at $34.36. The company had net sales of $2.99 billion in the first nine months of 2012.

On Aug. 15, the SEC asked Hospira to provide details about the production capacity of its facility in Rocky Mount, N.C., which has operated at reduced levels since late 2011, after the FDA cited it for safety violations. Hospira executives have said the plant is operating at roughly 70 percent of capacity.

The agency also asked Hospira to summarize the remediation process for each FDA regulatory issue material to the company's business, a potentially burdensome requirement because Hospira is working to fix violations not only at Rocky Mount but at facilities in Austin, Texas; India; and Costa Rica.

“They are working through some pretty significant issues,” said Matthew Taylor, an analyst at New York-based Barclays Capital Inc.

Between 2010 and Sept. 13, Hospira was inspected more than 150 times by about 43 regulatory agencies, with no adverse findings noted in more than 70 of those inspections, the company told the SEC.

"The additional disclosure requested by the staff constitutes duplication and unnecessary information that is not required,” Thomas Werner, Hospira's chief financial officer, said in a Nov. 8 letter. “The company does not believe a detailed account of each issue uncovered during the remediation process promotes greater understanding.”

A Hospira spokesman said the publicly available documents “reflect our position, so we have no further comment.”

Fixing the problems has hurt Hospira's profitability, Mr. Ball acknowledged last week.

Hospira's gross margins are hovering in the mid-30s — 20 percentage points less than some peers — because of the higher costs necessary to fix safety problems and boost production in order to retain market share, he said Jan. 8 at the JPMorgan Healthcare Conference in San Francisco, according to a transcript.

“It's remediation and supply almost at any cost,” he said.

Mr. Ball also said he expects Rocky Mount to be reinspected in the first half of 2013 and is looking for the FDA to acknowledge the company has made “great progress,” the transcript said. He was guarded when asked if the FDA might require the company to sign a consent decree, which typically slows production by involving government officials in manufacturing decisions.

“It's always tough to tell with the agency,” he said, according to the transcript. “I feel like we're doing the right things and they feel like that we're moving in the right direction.”

Mr. Taylor added, “I think the real watershed or important event in the next six months is going to be reinspection of Rocky Mount by the FDA.”

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