Hospira, Inc.

275 North Field Drive
Lake Forest, Illinois 60045
U.S.A.
Telephone: (224) 212-2000
Toll Free: (877) 946-7747
Fax: (224) 212-3350
Web site: http://www.hospira.com

Public Company
Incorporated: 2004
Employees: 14,000
Sales: $2.64 billion (2004)
Stock Exchanges: New York
Ticker Symbol: HSP
NAIC: 325412 Pharmaceutical Preparation Manufacturing

Hospira, Inc. is a hospital products company that manufactures medication delivery systems, generic pharmaceuticals, and intensive care pharmaceuticals. Hospira's pharmaceutical products include generic injectables used in areas such as anesthesia, cardiovascular, infectious diseases, and pain management. The company's medication delivery systems include electronic infusion pumps, needle-free syringes, and intravenous administration sets that provide patients with fluids and medications. The company operates globally, but derives 85 percent of its revenues from sales to hospital customers in the United States. Hospira operates 15 manufacturing facilities in the United States and abroad.

Origins

When Hospira began trading on the New York Stock Exchange on May 3, 2004, the debut marked the start of a "new" company, a company with roots stretching back nearly 70 years. Hospira was new in name only, constituting one substantially sized arm of one of the largest pharmaceutical companies in the world. When the HSP ticker symbol was unveiled, it was the result of an announcement made nine months earlier, from the offices of senior executives at Abbott Laboratories.

Abbott Laboratories began in the kitchen of its founder, Dr. Wallace C. Abbott. In the late 1880s, Dr. Abbott began producing alkaloid extracts in pill form, a pioneering achievement that greatly increased the effectiveness of drugs such as morphine, quinine, strychnine, and codeine—all classified as alkaloid extracts. Before Dr. Abbott began experimenting in his apartment's kitchen, alkaloid extracts were available only in liquid form, which made them susceptible to spoilage and thus less effective. Dr. Abbott's work formed the basis of his company, incorporated in 1900 as Abbott Alkaloidal Company. The company developed into a diversified pharmaceutical concern over the course of the next several decades, using a laboratory in Rocky Mount, North Carolina, to develop new sedatives, tranquilizers, and vitamins. In 1936, the ever-widening business scope of the company brought Abbott Laboratories into the field of anesthetics, a move that marked the beginning of what later became Hospira.

In 1936, two Abbott Laboratories scientists, Ernest Volwiler and Donalee Tabern, developed sodium pentothal. The introduction of sodium pentothal, a barbiturate used for intravenous anesthesia and in the treatment of some mental diseases, coincided with the company's production of dextrose and saline intravenous solutions in bulk form, creating the original business foundation of Abbott Laboratories' hospital products business—the basis of Hospira. During the next two decades, investment in research and development paid dividends, as Abbott Laboratories' new hospital products business became a prominent facet of its overall business. The company introduced the first fully disposable intravenous administration set and a new protein solution for feeding surgical patients intravenously. By the 1950s, Abbott Laboratories' hospital products business held sway as a market leader, ranking as one of the largest suppliers of bulk intravenous solutions in the United States.

Abbott Laboratories' expansion and diversification reached new heights in the decades after the discovery of sodium pentothal. The company, on its way toward becoming a corporate behemoth, pursued several different paths in search of revenue growth, delving into infant and adult nutritionals and medical diagnostic equipment, and going as far afield as involving itself in the manufacture of golf balls—one small part of Abbott Laboratories' push into the consumer products market. The company's most significant addition to its portfolio of interests happened by accident, a discovery that quickly became the financial bedrock of all of its operations and, in direct proportion to its importance, caused considerable pain to Abbott Laboratories when the discovery proved regrettable. Not long after World War II, an Abbott Laboratories researcher who was working with various chemicals somehow realized that one of them had a sweet taste, a discovery that led to the introduction of cyclamate as a sugar substitute. By 1969, the revenue collected from the sale of cyclamate accounted for one-third of Abbott Laboratories' annual revenue, having become a staple ingredient in diet foods. The following year, cyclamate was banned when the U.S. Food and Drug Administration charged that it was carcinogenic. Within months, Abbott Laboratories received another devastating blow, one incurred by the operations that later became Hospira. Nearly 3.5 million bottles of intravenous solution were recalled after it was discovered that the bottles were sealed with a varnished paper called Golsonite that harbored bacteria. The U.S. Center for Disease Control eventually linked the contaminated solutions to at least 434 infections and 49 deaths, resulting in heavy fines incurred by Abbott Laboratories and the company's plea of no contest to conspiracy charges.

The Roots of Hospira in the 1970s and 1980s

On a more positive note, important new products were developed that became one of Hospira's primary business platforms during the 21st century. During the mid-1970s, Abbott Laboratories' hospital products division entered the electronic flow control market with the introduction of its first electronic drug delivery pump, the prototype of the electronic infusion pumps Hospira marketed when it made its debut as a separate company. In 1984, the division introduced another innovation, a device for patient-controlled analgesia that enabled patients, for the first time, to control the administration of their pain medication. The hospital products division added a new business interest the following year, acquiring Oxitmetrix, a company that manufactured high-technology monitoring systems for the management of critically ill patients. The acquisition marked the division's entry into the critical care business, another principal market for Hospira in the early 21st century.

Despite the disastrous intravenous solution debacle at the beginning of the 1970s, the legacy inherited by Hospira generally lacked drama. From 1936 forward, Abbott Laboratories' hospital products division, relative to the company's other business interests, was a steady yet unprolific money winner. Drug development required vast cash investments, occasionally resulting in pharmaceutical products that rewarded the company with a revenue stream akin to a financial panacea. Hospira's legacy within Abbott Laboratories exuded a character quite different from that of the pharmaceutical company's primary business. Abbott Laboratories' hospital products business never yielded big profits. The division was a slow and steady money machine, never risking nor gaining much financially. The division was reliable, but eventually the senior management at Abbott Laboratories decided to go for high-risk, high-yield businesses, a decision that meant the end of the company's association with its more staid business pursuits. Hospira became the result, a division set free from the oversight of a company that had nurtured its development for seven decades.

The timeline of events that led to Hospira's separation began in August 2003, when Abbott Laboratories' senior executives announced their intention to focus on higher-risk, higher-reward operations that developed patented drugs and medical devices. To narrow its strategic focus, the company bundled its lower growth businesses into what was to become a separate company.

Although it lacked a name, the company was given a leader in August, a 17-year veteran of Abbott Laboratories, Christopher B. Begley. Begley, who served as president of Abbott Laboratories' U.S. hospital business in 2003, served in various management positions during his career at the company, including functioning as the senior vice-president of Abbott Laboratories' chemical and agricultural products division, as the vice-president of AbbottHealthSystems, which marketed the company's products, and as the vice-president of MediSense, Inc., a global unit of the company's diagnostics division. A Chicago native, Begley earned his undergraduate degree at Western Illinois University and a master's degree in business administration at Northern Illinois University.

Company Perspectives:

Our Vision: Advancing Wellness … through the right people and the right products. Our vision guides everything Hospira does. "Advancing" focuses on the progressive, positive and purposeful approach we take as we look to the future. "Wellness" demonstrates a broad commitment to healthcare, supported by our wide variety of products that help improve the well being of patients around the world. Wellness also refers to the overall well being of our customers, our employees, our shareholders and our company. The "right people"—our employees—are a talented group of dedicated, customer-focused, entrepreneurial individuals who are committed to working under the highest standards of integrity and ethics. Our broad portfolio of products—the "right products"—provides quality, reliability and cost-effectiveness.

As Begley prepared to take the helm of Abbott Laboratories' spun-off assets, the business press scrutinized the company he was set to inherit. The hospital products company was large and well established, boasting $2.4 billion in 2003 revenues, 14,000 employees, more than 5,000 customers, and 15 manufacturing sites scattered throughout the world. In a U.S. market whose annual worth was estimated a $9 billion, the nearly $2.5 billion Begley-led operation figured to play a prominent, if not a dominant, role. The company's intravenous therapy products and its acute-care generic injectables (a product of concerted expansion undertaken by Abbott Laboratories during the 1990s) generated the bulk of the new company's revenues. While acknowledging the market leadership the company promised to enjoy once it was officially set free, critics pointed to the nature of the company's business, arguing that the reason Abbott Laboratories wanted to shed the assets did not augur a vibrant financial future for Begley's company. The sales collected by the company's two primary business areas were the definition of steady, derived from long-term contracts that provided a reliable stream of revenue. The businesses, however, were characterized as low-profit-margin enterprises that, historically, had suffered the ignobleness of being labeled as slow-growth ventures. In the nine-month period spanning the August 2003 announcement and Hospira's official birth, the financial community anticipated the debut of a sizable entrant, waiting to see if Begley could inject vitality in a company that, on paper, fell short of sparking excitement on Wall Street.

The Spinoff of Hospira in 2004

In the first week of May 2004, Abbott Laboratories' hospital products business began a new era as Hospira. The company's ticker symbol, HSP, debuted on May 3rd, an occasion marked by Begley, who was given the honor of ringing the Opening Bell at the New York Stock Exchange. Once the formalities were concluded, Begley addressed the industry pundits who characterized Hospira's business as being slow-growth in nature and yielding low profit margins—margins that were narrowing as the company's hospital customers banded together to buy in bulk, driving prices further down. Begley responded by pointing out that Hospira, as a separate company, would receive more attention and more investment than it had under the control of Abbott Laboratories, noting, in a May 3, 2004 interview with CEO Wire, that Hospira "has been an under-funded business as it relates to research and development." He promised a substantial increase in research and development spending, planning to increase spending 25 percent during the company's first fiscal quarter and to increase spending at a double-digit rate during ensuing quarters until research and development spending as a percentage of annual sales increased to 5 percent, as opposed to the 3 percent committed during Abbott Laboratories' era of control. In one example of the increase in research and development spending, Begley set his sights on more than 30 injectable drugs scheduled to lose their patent protection in the first few years of Hospira's existence. Before Hospira was spun off, Abbott Laboratories allocated funds to develop only four drugs whose patent expirations were pending.

Hospira's first year as an independent company produced both encouraging and discouraging results. During the company's first fiscal quarter as a publicly traded concern, investors were treated to an 86 percent jump in profits, but the reason for the gain enveloped Begley and his management team in controversy. The company discontinued medical and dental retirement benefits for nonunion U.S. employees, a cut in benefits that resulted in an approximately $40 million gain and triggered allegations that Hospira had violated the Employment Retirement Income Security Act. The allegations led to a class-action lawsuit filed against Abbott Laboratories and Hospira in the U.S. District Court in Chicago in November 2004.

Hospira concluded its first year as an independent company with many questions about its financial vitality left unanswered. The company, Begley stressed, was only halfway through its projected 24-month transition period in separating from Abbott Laboratories. In 2004, sales increased negligibly, rising 0.8 percent to $2.64 billion, while the company's net income increased to $301.6 million, eclipsing the $260.4 million posted in 2003. Looking ahead, Begley planned to continue to increase research and development spending and to increase the company's involvement in overseas business, where Hospira derived only 15 percent of its total volume. Although Hospira was a company with a 70-year legacy, in some ways the company was starting from scratch, working to create a profitable future for itself as an independent enterprise. Recognizing this, Begley broadly described the company's plans for the immediate future in a company press release dated March 2, 2005. "We finished our first year as a public company on a strong note, delivering sales and earnings growth higher than we anticipated," he said. "While building on the momentum generated in 2004, we are still in a period of transition, and our focus in 2005 is on execution. We'll continue to take the steps necessary to advance our success—creating an independent infrastructure and increasing our research and development investment to drive future growth."

Principal Subsidiaries

Hospira Worldwide, Inc.; Hospira S.p.A. (Italy); Hospira Limited (Bahamas).

Principal Competitors

American Pharmaceutical Partners, Inc.; Baxter International Inc.; Becton, Dickinson and Company.

Key Dates:

1936:

Abbott Laboratories develops sodium pentothal, marking the beginning of a business that developed into Hospira.

Mid-1970s:

Abbott Laboratories enters the electronic flow control market with the introduction of its first electronic drug delivery pump.

1984:

Abbott Laboratories introduces a device for patient-controlled analgesia.

1985:

Abbott Laboratories acquires Oximetrix, marking its entry into the critical care market.

2003:

Abbott Laboratories decides to spin off its hospital products business.

2004:

Hospira debuts on the New York Stock Exchange.

Further Reading

Aragon, Lawrence, "Abbott Seeks Valley Expansion," Business Journal, September 30, 1991, p. 1.

Barker, Robert, "Hospira Just May Put You in the Pink," Business Week, May 31, 2004, p. 102.

DeWitte, Dave, "Abbott Laboratories' Spinoff Hires Iowa Firm to Identify Top Health Products," Gazette, December 15, 2003, p. B2.

"Hospira—CEO Interview," CEO Wire, May 3, 2004, p. 21.

"Hospira Launches As New Independent, Global Hospital Products Co.," AsiaPulse News, May 4, 2004, p. 32.

Japsen, Bruce, "Former Workers Sue Abbott Over Spinoff of Hospital Products Unit," Chicago Tribune, November 9, 2004, p. B3.

——, "Lake Forest, Ill.-Based Hospital Equipment Maker Sees 86 Percent Profit Gain," Chicago Tribune, August 11, 2004, p. B4.

Johnson, Ed, "Hospira Slumps As 2005 Outlook Spooks Investors," America's Intelligence Wire, January 31, 2005, p. 43.

Sikora, Martin, "U.S. Pension Law Violations Alleged in Abbott Spin-Off," America's Intelligence Wire, January 14, 2005, p. 13.

—Jeffrey L. Covell