Lake Forest-based injectables company Hospira (HSP, Financial) reported its fourth-quarter earnings on February 12, and the number mix added delight to its investors and skeptical analysts since it crossed the Street expectations. In fact, the results were declared just a week after the company agreed to the proposal of being acquired by pharma giant Pfizer (PFE, Financial) for a whopping sum of $16 billion. Let’s get into the article to decipher the major financial highlights of the final quarter of the 2014 fiscal year, and how the acquisition of Hospira will open new avenues for Pfizer in the long run.
The number mix was a splendid one
Due to strong sales of specialty injectables in the U.S., revenue for the final quarter rose 3.9% to $1.13 billion after considering the impact of currency fluctuations. Net profit grew 6.9% to $35.8 million or $0.21 a share including the one-time items. Barring such items, earnings came at $0.53 a share, almost $0.04 a share higher than the Street expectations.
While commenting at the earnings call, CEO Michael Ball stated, “Our results speak to the significant progress we made – as well as the multiple milestones we achieved – in our key growth areas of generic injectables, biosimilars and devices…” The global injectable sales improved by 2.7%, while the sales in the pharmaceutical segment rose by a whopping 25.4% for Hospira. However, the improvement in these two business lines was offset by medication management sales decline by 5% during the quarter.
Though the injectables major posted better than predicted results of the Street, a question might arise as to why has it agreed to Pfizer acquiring it and how the latter could be benefitted from such an association in the long run. Let’s get to the answer in the upcoming section.
The acquisition is down the lane
Though Hospira drove the fourth quarter above analyst expectations, in early February the news broke out of the company being acquired by Pfizer for a cash deal which amounts to $90 per share in cash. As the acquisition would require a couple of regulatory approvals, it is estimated that this inorganic growth mode selected by Pfizer would be completed by the close of 2015.
Hospira showed interest in such a deal as its key business has been facing widespread challenges for the past few years. In the past years, the injectables drugs manufacturer has benefitted from product shortage which has aided in improving the prices and demand for such drugs is higher against their supply. Such shortages were not due to manufacturing constraints but due to tougher inspections that were done by the U.S. FDA which in turn took more than a couple of years to be resolved. This clearly indicates that the latest cycle of price increase might be nearing a close which is a threat to the company’s sales dynamics.
Thus to get rid of such continued headwinds, amid posting good financial numbers, Hospira has agreed to the acquisition proposal of Pfizer. In fact, Pfizer is about to buy an ace up its sleeve as it ventures to build its business further into such business lines, and is utilizing this golden opportunity to expand its reach in the geographical markets where Hospira’s injectable sales are already at the peak.
Looking ahead
Pfizer obviously stands out to gain from gobbling Hospira and adding its products to its product range as Hospira’s injectables have created a niche for themselves in the pharmaceutical market. The Illinois headquartered Hospira has the iron-will to keep its numbers in place in spite of facing challenges due to strict inspection norms set by the U.S. FDA – something that is well-reflected through the fourth quarter earnings report which surpassed the Street estimates from all ends. With the acquisition in the starting phase, Hospira stands to gain in the long run by being associated with Pfizer as it will be in a position to offer tougher competition to other injectable drug manufacturers by expanding its marketing efforts into other international markets besides the U.S.
