Hospira commits $300M to make troubled N.C. plant FDA compliant

Hospira (NYSE:HSP) plans to spend up to $375 million over the next three years to bring its manufacturing facilities into regulatory compliance, the bulk of it going to a North Carolina plant saddled under heavy regulatory scrutiny for much of the last two years.

The effort is under way with a hiring blitz over the next month to bring priority hires to the specialty pharmaceutical company’s Rocky Mount, North Carolina plant for positions such as “quality assurance auditor” and “senior biological quality supervisor.” The Rocky Mount plant, among the largest of Lake Forest, Illinois-based Hospira’s 12 global sites, has been grappling with a succession of warning letters and inspection reports from the U.S. Food and Drug Administration.

The FDA sent Hospira an April 2010 warning letter containing quality assurance and compliance concerns for the Rocky Mount plant. Hospira temporarily shut down the plant to deal with those concerns. But problems persisted. A June inspection resulted in a list of observations outlining where the plant remained out of line with “current good manufacturing practices,” a document called a Form 483. An August inspection yielded another 483.

Company spokesman Dan Rosenberg referred all questions to the public comments that executives made during Hospira’s quarterly conference call.

“Receiving two 483s so close together was a clear signal that we were not making satisfactory progress to fully comply with the FDA’s concerns, and that we needed to ramp up our remediation efforts,” CEO F. Michael Ball told analysts.

Ball said Hospira plans to hire new site leadership and has already brought on regulatory consulting help from Quintiles and IHL Consulting Group. Those firms also consulted with Hospira on issues for its Clayton, North Carolina plant, which returned to compliance following a 2010 FDA warning letter. But Rocky Mount is a much larger site and presents additional challenges.

The Rocky Mount plant, which makes injectable drugs and supports Hospira’s contract manufacturing business, is a crucial one to the company. At full capacity, the site employs more than 2,500 and accounts for 25 percent of Hospira’s nearly $4 billion in annual revenue. Following the 2010 warning letter, Hospira’s annual report showed pre-tax charges of $54.3 million for the site, which included consulting costs, costs for keeping the facility idle and penalties for failing to supply product to customers.

Now Hospira will pour even more money into the plant. Ball said that remediation efforts for Rocky Mount have slowed production and added costs that contributed to the lower than expected third quarter financial results.

Rocky Mount is not the only Hospira site under FDA scrutiny. An Austin, Texas facility is dealing with a 483, though Ball said customer orders there have not been affected. Ball described 483s as”a normal part of business.” But the FDA has had concerns escalating to warning letters at multiple Hospira facilities. When the FDA issued warning letters for Hospira’s Clayton and Rocky Mount facilities last year, the agency noted that the violations were similar to those cited in 2009 for a Hospira site in California.

“It is apparent that Hospira’s attempts to implement global corrective actions after past regulatory actions by the FDA have been inadequate,” the FDA said.

Of the up to $375 million that Hospira plans to spend on its plants in the next three years split between the company’s pharmaceutical and medical device operations, as much as 80 percent of that will be spent on Rocky Mount. An earlier estimate put the total costs at up to $250 million. But CFO Tom Werner told analysts that the figure was revised after “more recent actions regarding Rocky Mount.” Between $100 and $150 million will be spent in the fourth quarter, Werner said. An estimated 65 percent of those expenses will be one-time costs. Hospira will also devote resources to new hires.

Hospira has 153 Rocky Mount job openings, with more expected in the coming year, said Ali Ghiassi, a Raleigh, North Carolina-based account manager for staffing firm Aerotek, which has been contracted to coordinate hiring. Hospira wants to make 20 to 25 priority hires for permanent positions by December 19, Ghiassi said. Kelly Scientific Resources is handling hiring of contract workers for the site.

The Rocky Mount plant will continue to operate while Hospira brings the site into FDA compliance but Ball estimates that it is at between 60 to 70 percent of its normal production capacity. Shifting production to other Hospira facilities is not a feasible workaround option. The company would need FDA approval to manufacture a product in another facility, which takes time.

“We basically have to attack the back orders at the root place, which is Rocky Mount,” Ball said.

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