FDA Clears Hospira's Generic Drug - Analyst Blog

Recently, Hospira Inc. (HSP) announced that its generic version of AstraZeneca Plc’s (AZN) antibiotic Merrem has received marketing approval from the FDA. The clearance was for Hospira’s version of intravenous meropenem in 500 mg and 1g vials.

Merrem, a carbapenem, is used for treating infections including meningitis and pneumonia. Carbapenems refer to a class of beta-lactam antibiotics that have a wide range of antibacterial activity. Their structure causes them to be highly resistant to beta-lactamases. Meropenem is the first generic carbapenem to hit the US markets.

Meropenem, originally developed by Japanese drug company Sumitomo Pharmaceuticals, is marketed in the US by AstraZeneca with US sales coming in at approximately $200 million in 2009. The market for beta-lactam molecules is highly lucrative in the US and stood in excess of $1 billion based on 2009 sales, according to data released by IMS Health.

Meropenem is the first drug to be launched in the US from Hospira’s recently acquired India-based Orchid Chemicals’ generic injectable pharmaceuticals business. The acquisition was completed earlier in the year for approximately $400 million.

Orchid and Hospira also have a long-term agreement under which Orchid will supply active pharmaceutical ingredients (APIs) for the acquired generic injectable pharmaceuticals operations. Hospira has been eyeing small deals to expand its generic injectables business as well as its geographic presence.

Our Take and Recommendation

Hospira, headquartered in Lake Forest , Illinois , is a global leader in the development, manufacturing, and marketing of specialty injectable pharmaceuticals and medication delivery systems that deliver drugs and intravenous (IV) fluids. The Specialty Injectable Pharmaceuticals (SIP) segment, which includes about 200 generic injectable drugs, is the lead growth driver at Hospira. Growth in this segment appears promising because of the increased demand for core generic injectable drugs. Another factor favoring the segment is the promising pipeline, which contains many injectables going off-patent in the next few years.

Currently we are Neutral on Hospira. While we are encouraged by the company’s deal with Durect Corp. (DRRX), which we believe complements Hospira’s existing product pipeline, the fate of Hospira‘s impending acquisition of Javelin concerns us. The deal seems to have run into rough weather with Hospira extending the buyout bid for the third time.

Our long-term Neutral stance on the company indicates that the stock is expected the stock to perform in line with the overall US equity market for the next 6-12 months. Consequently we advise investors to retain the stock over the time-period.