Hospira Q1 2009 Earnings Call Transcript

Apr.28.09 | About: Hospira, Inc. (HSP)

Hospira, Inc. (NYSE:HSP)

Q1 2009 Earnings Call

April 28, 2009 09:00 AM ET

Executives

Karen King - Vice President

Christopher B. Begley - Chairman and Chief Executive Officer

Terrence C. Kearney - Chief Operating Officer

Thomas E. Werner - Senior Vice President, Finance, and Chief Financial Officer

Analysts

Rick Wise - Leerink Swan

Greg Gilbert - Bank of America/Merrill Lynch

Taylor Harris - JPMorgan

Junaid Husain - Soleil Securities

Operator

Welcome to Hospira's First Quarter 2009 Earning Conference Call. All lines have been placed on listen-only mode to prevent any background noise. Following the speakers' remarks, there will be a question-and-answer period.

I will now turn the call over to Karen King, Vice President of Investor Relations. Karen, you may now begin your conference.

Karen King

Thank you. Good morning everyone and welcome to our conference call and webcast regarding Hospira's financial results for the first quarter of 2009.

Participating in today's call are Chris Begley, Chairman and Chief Executive Officer of Hospira; Terry Kearney, Chief Operating Officer; and Tom Werner, Senior Vice President-Finance and Chief Financial Officer.

We will be making some forward-looking statements today, which are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those indicated. A discussion of these factors is included in the risk factors in MD&A sections in Hospira's latest annual reports on Form 10-K on file with the SEC.

We undertake no obligation to release publicly any revisions to forward-looking statements, as a result of subsequent events or developments.

In today's conference call, non-GAAP financial measures will be used to help investors understand Hospira's base business performance. These non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the press release and Form 8-K issued this morning, and are also available on the presentations page in the Investor Relations section of our Web site.

With that, I'll now turn the call over to Chris.

Christopher B. Begley

Thank you, Karen. And good morning, everyone. Considering the challenging global economic situation, we generated very solid sales and strong profitability in the first quarter.

Net sales were $860 million, and ahead of our expectations. Excluding the impact of foreign currency, sales increased over 2%, driven in part on strength in our Medication Management Systems business.

Our adjusted diluted earnings per share were $0.60 cents versus $0.55 cents last year. We also made significant advancements in many key areas of our business. We now offer Retacrit, our first biogeneric in 15 countries in Europe with a first quarter launch in Italy and France.

In addition, results of our clinical trials for G-CSF, the biogeneric version of Filgrastim, were filed and accepted by the European Medicines Agency.

We continued to introduce compounds from our on-market specialty injectable portfolio to additional countries around the world. During the quarter we launched 10 compounds into new markets. We received marketing authorization and launched Tazobactam, the generic version of Zosyn in the U.K.

We extended Hospira's portfolio of MMS products in the Middle East to include Symbiq, Hospira MedNet's safety software and the VeriScan Rx bar code point-of-care system. This marks the first time Middle East healthcare facilities can access these types of advanced integrated technologies from one company. More recently in April, we launched our first Symbiq device in Canada.

As part of our manufacturing optimization initiative, we completed the accelerated exit from the North Chicago facility with seamless transfer of production to one of our other facilities.

We announced the election of Heino von Prondzynski to Hospira's Board of Directors. Heino, former Chief Executive Officer of Roche Diagnostics, brings strong executive management and diverse global business experience to our Board from his leadership positions at several multinational healthcare companies.

We concluded an IRS audit, resulting in a one-time tax benefit of $92 million, or $0.57 per share. We also announced additional details regarding Project Fuel, our multi-phase initiative focused on operational efficiency, designed to improve margins and fuel long term growth to improve shareholder value.

While it has only been a month since our Project Fuel announcement in late March, we are making progress in several key areas. At that time, we discussed three overall components of the project: First, optimizing our product line. Of the several thousand of list numbers or SKUs, we have already identified approximately 10% of the portfolio that can potentially be eliminated, reducing duplicative work activities and streamlining our product offering, while maintaining a robust portfolio for our customers.

Second, evaluating non-strategic assets. We continue to consider various alternatives for our non-strategic assets. We plan to determine which assets will be affected and the course of action by the fourth quarter of 2009.

And third, streamlining our organizational structure. Of the workforce reduction we projected, we have eliminated approximately 10% of the 1,400 to 1,500 positions. In addition, to help capitalize on the tremendous opportunity to improve efficiencies and performance throughout our enterprise-wide supply chain operations, we recently named Brian Meadows to the newly established position of Corporate Vice President, Supply Chain. Please refer to the press release we issued yesterday for further details.

Moving to a discussion of the current economic climate and its impact on our first quarter results. Focusing first on Pharma. We believe we are well positioned with the portfolio of drugs that we offer as we did not experience a discernable impact to sales in the first quarter. As a matter of fact, end-user sales to our customers remain strong, with growth tracking in the low teens through the end of February.

Moving to Medication Management. While we continue to experience solid demand for our products, customer delays on implementation of capital equipment and requests for alternate financing continue to be prevalent among our customer base. Our backlog coming into the year helped in the quarter to mitigate the impact from these negative market conditions.

Before turning the call over to Terry, I'd like to address another development of interest during the quarter, the proposed U.S. federal healthcare reform outlined in President Obama's budget. We commend the Obama administration for its commitment to reforming the U.S. healthcare system. The proposal's focus on the key areas of quality of care and cost containment is at the heart of what we do.

We help drive costs out of the healthcare system through our high-quality, cost effective generic portfolio. We help our customers prevent medication errors and provide enhanced patient outcomes through integrated IT solutions. We improve productivity and overall quality of care.

Plus, the administration's emphasis on establishing a regulatory pathway for biogenerics in the U.S. support a critical need in the U.S. healthcare system. We are encouraged and support Chairman Waxman's proposed biogenerics legislation.

With that, I'll now turn the call over to Terry for more details on sales for the quarter. Terry?

Terrence C. Kearney

Thank you, Chris, and good morning to everyone. I'll remind you that references to net sales results will be on a constant-currency basis, which excludes the impact of foreign-currency fluctuations. Please refer to the table in the schedules accompanying our press release that shows the impact of foreign currency by segment and product line.

Our global net sales increased over 2% for the quarter, above our expectations. Global Specialty Injectable Pharmaceuticals decreased roughly 2% in the first quarter, on a tough comparison to the first quarter of 2008. The following discussion highlights activity by region for the Specialty Injectable business.

In the Americas, Specialty Injectables sales were relatively flat. Results for the quarter reflect a mild flu season this year, accompanied by a difficult comparison to last year's first quarter, when we benefited from unusually strong wholesaler stocking levels in the United States. We saw strong demand in certain anesthesia products, including our proprietary drug Precedex. We also benefited during the quarter by our ability to respond to competitor's continued supply issues.

Net sales of Specialty Injectables in the European region decreased 12% in the quarter. The gains we achieved with our continued rollout of Retacrit were more than offset by the expected pricing pressure in oncology, as well as some delayed shipments. In addition, most of the region's new products are scheduled to begin launching later in the year. The exception was Piperacillin Tazobactam, which we launched at the end of the first quarter in the U.K.

While we were not first to market with this drug, we believe this drug offers a good expansion opportunity in other European markets.

SIP net sales in Asia Pacific increased 8% over the prior year first quarter, a function of continued strength for in-licensed proprietary pharmaceuticals in Australia. Another positive contributor to the quarter's results was Precedex, which continued its strong performance across the region. We have now submitted the clinical trial results for the long-term indication of Precedex in Japan, the drug's second largest market.

During the quarter we also continued to expand our portfolio, launching Irinotecan and Oxaliplatin in Singapore.

Moving now to Devices, net sales of global Medication Management Systems increased 6%, driven mainly by solid U.S. results. MMS sales in the Americas grew 6% in the first quarter. Overall pump placements of both Plum and Symbiq drove the majority of the growth. With the gains from our new GPO contract awards in 2008, we entered the year with a strong backlog of signed contracts. We also continued to capture competitive share, with over 60% of our Symbiq placements in competitive accounts.

In terms of MMS milestones, we recently launched the English language version of Symbiq in Canada during the quarter and expect to introduce the French language version in the second half of the year. In the European region, MMS net sales grew 9% on continued strong placements of Plum and GemStar devices.

MMS net sales in the Asia Pacific region decreased 4%, mainly a result of timing due to unusually large device placements in the first quarter of last year. Underlying revenue growth expectations remain healthy, as indicated by continued strong set sales growth for Plum A+ and GemStar.

Turning to Other Pharma, net sales increased on a global basis 10% in the quarter, mostly due to stronger demand from certain contract manufacturing customers as well as increased sales of our large volume solutions resulting from last year's GPO awards. The contract manufacturing results reflect additional customer purchases to replenish inventory to normal levels of supply. While we were pleased with the additional demand, we believe the benefit is isolated to the current quarter.

I'll now turn the call over to Tom for an overview of our financial results. Tom?

Thomas E. Werner

Thanks, Terry, and good morning, everyone. Before I walk you through our financials, I want to draw your attention to some changes we made to the press release exhibit of our income statement.

In an effort to better align our press release financial statements with GAAP reporting and overtime reduce the use of non-GAAP financial measures, we have revised the format of our financial statement presentation. We believe the new format provides a streamlined view of our adjustments each quarter. It's more consistent with our quarterly and annual SEC filings, and it's pathway to advancing discussion more focused on GAAP reporting over time.

Moving to the income statement. Net sales in the first quarter exceeded our expectations at $860 million, down 3% from first quarter of 2008, but up 2% on a constant-currency basis. Adjusted gross margin in the quarter was 39.5% compared to 38.0% in the first quarter of 2008. The increase reflects improvements in manufacturing productivity as well as some favorable product mix. These increases were partially offset by the impact of foreign exchange rates and higher freight and distribution expenses.

R&D expenses were relatively flat with the first quarter of last year. R&D as a percentage of net sales was 5.8% versus 5.6% in first quarter 2008. S,G&A expenses for the first quarter were $146 million, down 5% from $152 million for the same period last year, primarily driven by foreign exchange movements. SG&A as a percentage of net sales was 16.9%, compared to 17.1% in the first quarter of 2008.

Adjusted operating income increased 3% to 150 million versus 145 million in the first quarter last year. And adjusted operating margin was 17.4% compared to 16.3% last year.

Interest expense decreased 14% to $27 million in the first quarter from $31 million last year, due mainly to lower average outstanding debt compared to the first quarter of 2008. Relative to our tax rate, during the quarter we concluded our audit for the 2004 and 2005 tax years with the IRS. As a result of the settlement for those years and the favorable impact on tax years 2006 through 2008, from a GAAP standpoint, we recorded a one-time tax benefit of $92 million, or $0.57 cents per share.

Now on an adjusted basis, our first-quarter effective tax rate was 21.5% versus our exit point at year-end 2008 of 24%. Substantially the entire decline in the tax rate relates to the reevaluation of our tax positions under FIN 48, which results in a reduced level of unrecognized tax benefit accruals required on an ongoing basis.

Our adjusted diluted EPS for the first quarter was $0.60 cents compared to $0.55 cents last year. The first-quarter adjusted diluted EPS excludes the $0.57 cent benefit from the IRS tax audit resolution, and other items which fall into three primary categories: Project Fuel, facilities optimization initiatives and the Mayne acquisition intangible amortization.

Project Fuel charges for the quarter totaled $0.04 cents a share, facilities optimization initiatives totaled $0.05 cents a share, and items associated with the Mayne acquisition intangible amortization also totaled $0.05 cents a share.

As Chris mentioned earlier, during the quarter we completed the accelerated exit from the North Chicago manufacturing facility. This move is another successful milestone in our facilities optimization initiatives that we launched several years ago.

Turning to the cash flow, our cash flow from operations for the quarter was 89 million, up from 74 million in the first quarter last year. This was driven primarily by the increase in net income, adjusted for non-cash items.

On the balance sheet, at March 31, our cash balance was 529 million, compared to 484 million at the end of 2008 and 232 million at March 31, 2008.

Regarding debt, we will be repaying the $300 million of unsecured notes when they come due in June of this year. In addition, the $375 million principal amount of floating rate notes became classified as short-term borrowings this quarter, as they mature in March of 2010.

Capital spending in the quarter decreased to 34 million versus 43 million in the first quarter of 2008, mainly related to tighter spending controls. Depreciation and amortization of $56 million in the quarter included $13 million of intangibles amortization.

Moving to our full year projections. Because of the uncertainty surrounding the approval of generic Zosyn, we believe it's prudent to take a more conservative stance, and have therefore removed Zosyn from our guidance for 2009.

In addition, while were pleased with our MMS results for the first quarter, we don't believe we have seen the bottom of the impact from capital constraints resulting from the recession. We continue to see strong interest for our MMS products, but we are unprecedented times, and until the economy rebounds, we expect to see continued delays in customer implementation.

As a result of these changes, we now expect Specialty Injectable Pharmaceuticals and Medication Management Systems sales in the Americas to each grow in the range of 4 to 6%, while still maintaining our global net sales projection of 4 to 6% growth on a constant-currency basis. Including the impact of foreign exchange, we expect net sales, year-over-year to be flat.

Because of the settlement of our U.S. tax audit, we are revising our full-year effective tax rate to a range of 21 to 22%, and then leaving all other guidance assumptions, with the exception of adjusted EPS, unchanged. For adjusted EPS, given the expected impact of several factors, first, removing Zosyn from our guidance.

Second, the general uncertainty regarding the economy and its impact on the timing of MMS implementations. Third, the new tax rate, and fourth, the impact of Project Fuel, we are narrowing our adjusted EPS guidance to the upper end of our original guidance range, which is now $2.67 to $2.72, between a 5.5 to 7.5% increase over the prior year.

Finally, before I turn the call over to Chris, I would like to provide some additional color around the second quarter. On the Specialty Injectable front, as we mentioned, we have removed Zosyn from our projections, which we originally projected mid-year approval, with a second-quarter initial pipeline fill.

And in MMS, remember the second quarter of 2008 was our highest-performing quarter in the history of our MMS product line. We achieved over 20% growth in the second quarter of 2008, compared to the prior year, primarily reflecting pent-up demand and strong pump placements for Symbiq, which makes for a difficult year-over-year comparisons.

This is exacerbated by the continued customer implementation delays we're experiencing from constrained capital budgets.

With that, I'll turn the call back to Chris.

Christopher B. Begley

Our performance in the first quarter was a good start to 2009, especially given the difficult economic climate. We exceeded our sales and earnings expectation for the quarter and continue to drive improved profitability. We were pleased by the recent outcome of our completed IRS audit.

Looking out over the remainder of the year, we believe that our strategic investment and our focus on execution positions us well to deliver on our financial commitments for the year. In addition, we remain enthusiastic about Project Fuel, which we believe will create long-term sustainable growth and increased shareholder value. We look forward to reporting further progress to you next quarter.

Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Rick Wise with Leerink Swan.

Rick Wise - Leerink Swan

All right. Good morning everybody.

Christopher Begley

Good morning Rick.

Karen King

Good morning.

Rick Wise - Leerink Swan

Couple of questions. First, just can you quantify the impact of Zosyn coming out of your numbers. We had assumed -- it might be in our numbers, but we had already removed it that might be 4 to $0.05. Just trying to gauge the impact of how much you've raised the numbers?

Thomas Werner

Hi Rick, it's Tom. Good morning, what we are dialing in for the removal of Zosyn is about 3 to $0.04 reduction in EPS.

Rick Wise - Leerink Swan

Okay. And couple of others. Gross margin were especially strong and you went pretty quickly through it. May be I don't know, Terry or Tom both, if you go through again, especially on the manufacturing improvement side, is this Project Fuel related improvements or is this other before you even get to the restructuring benefits and may be little more color on some of the mix issues as well?

Thomas Werner

Yes, so Rick in terms of manufacturing performance, it's really not Project Fuel at this point. This is really the continued impact of manufacturing optimization, programs that we announced in previous years plus just a high focus on cost reductions. So, Project Fuel really has yet to kick in the manufacturing area. Most of the reductions that we taken up till now have been in the G&A area. So, not much impact in manufacturing.

And than with respect to product mix, better Precedex, better Symbiq and Terry were there a few other things that us gave some uplift there or...

Terrence Kearney

Yes, most probably.

Rick Wise - Leerink Swan

Okay. And last. May be the most impact full, you highlighted a bunch of product launches in a variety of countries and geographies. Maybe as we look towards the rest of the year, one of the most significant, most impact full launches that we should look for, either or product roll outs. Thanks.

Christopher Begley

Well, Rick. I think we are not seeing large product launches happening in the reminder of the year. The biggest one that we initially anticipated was Zosyn and obviously we have taken it out now. So rest of them are relatively small and spread across the various geographies that you have mentioned.

Clearly we also expect good momentum with Retacrit, now that we have approved it in fifteen countries. You know a lot of the approvals in the major countries in Europe really happen towards the end of the year. So we see a lot of momentum and growth there for our products for the reminder of 2009.

Rick Wise - Leerink Swan

Thank you.

Operator

Your next question comes from the line of Greg Gilbert with Bank of America - Merrill Lynch

Greg Gilbert - Bank of America/Merrill Lynch

Thanks. A few quick SIP questions. First if I hear you correctly that SIT was helped by some supply issues, others were having. And if so, what are those products?

Christopher Begley

Greg, that's historically has happened where a number of times where certain competitors were unable to supply to the market, a certain drug over a period of time. And we've always been in a position to be able to meet that demand when it's placed on us. So this quarter, we also did benefit from a lack of supply of a product called Amadate (ph) and we are able to make that happen for our customers.

Greg Gilbert - Bank of America/Merrill Lynch

Thanks. On generics, (ph) have you learned anything new from the agency being your partner or are you just being more conservative?

Terrence Kearney

We didn't learn anything new. Our partner still feels confident but again since it's all hung up on the approval of citizen's petition, we just think it's prudent this time to remove it from our forecast.

Greg Gilbert - Bank of America/Merrill Lynch

Okay and lastly, before I get back in line. On the clinical trials side, it's looks like you did a study on generic Venofer last summer. Have you filed an NDA on that and are you working on the other timed product generic Tazocin as well?

Christopher Begley

We -- that's certainly in our pipeline and now we hope to be launching that sometime in the future.

Greg Gilbert - Bank of America/Merrill Lynch

Okay, thanks.

Operator

Your next question comes from the line of Taylor Harris with JPMorgan.

Taylor Harris - JPMorgan

Thanks a lot. I want to start with the SIP business and you guys mentioned that end user demand was up in the low teens, I think it was actually up in the mid-teens. So help bridge as to why the reported result was what it was. I understand there was stocking issue last quarter, but it seems like that stocking must have been pretty huge in order for you to not be out more than you were?

Terrence Kearney

Taylor its Terry and I guess let me try do this and I'll try to do this slowly so everybody picks up what I'm trying to explain, but there is a number of reconciling items between end user demand and to market reported sales that we have. And the first and largest reconciling item is the wholesaler buying pattern, which is obviously impacts us not only in this quarter but also in the fourth quarter.

The other thing that impact us is the fact that, we have a difference in shipping days or billing days between periods. So there is actually more billing days in the first quarter of 2008 and that was in 2009. IMS typically does not normalize for that. So IMS typically assumes equal billing days in both periods. So, that's the distortion.

And than the other thing that, relative to our reported sales is that there is a number of things, product lines in our reported sales of that are not picked up by IMS. And those are things like valances and part fuels (ph) and the like in of course the fuel economy and adjustments that we have to make for charge rates and rebate.

So, when you look at really, what we have looked at and again all we have is February year-to-date information, about over 80% of the difference between what's reported in market versus our reported sales is really attributable to wholesalers stocking levels, as well as the difference on the selling days.

We expect obviously that this will start to normalize as the wholesaler stocking issues are now behind us and we should expect that going forward in the second, third and forth quarters that we will see more core -- stronger core relations between in-market sales and to-market sales, maybe with a notable exception of difference in selling days. But we think they really will start to come in line again. But I guess the silver lining in all this is again, we continue to see very strong in market sales for our products and that's the positive that we continue to track and again, it's looks like we continue to grow somewhere between 2 to 3% or 2 to 3 times what the markets are growing in SIP.

Taylor Harris - JPMorgan

Okay. That's very helpful. So just a couple of follow-ups. Was it, two shipping days different. Is that about right?

Terrence Kearney

Yeah, we actually had three through February but again, I cant, -- I haven't analyzed the March data because it's not available for us.

Taylor Harris - JPMorgan

Okay and so you think you are trending end user demand in the low double-digits.

Christopher Begley

In the current quarter. Again last year if you remember we -- the fourth quarter is about 10% and the full year is about eight. I think it would be variable throughout the reminder of the year. But I suppose it will be somewhere around at least I am believing it will more above 8% by the time we finish the year.

Taylor Harris - JPMorgan

Okay, so is pulling down, you guys worked 5 to 7% in Americas, now you are four to six. Is that exclusively a function of version (ph).

Christopher Begley

Primarily yes.

Taylor Harris - JPMorgan

Okay, and the reason the business is trending as well is there is -- is that the GPO awards

Thomas Werner

It is the GPO awards. And again we worked very hard on ensuring contract compliance.

Taylor Harris - JPMorgan

Okay very good. And let me just ask one question on the pump business. So you are pulling it down, but not by much, really and so what gives you confidence at this point of the year? You've already seen some customer deferrals, what gives you confidence that you are really still in the ball park at what you talked about earlier?

Christopher Begley

Well a lot of it still comes backs to what we start the year with, again we think we are well positioned with our GPO awards, with our advanced technology and the like. We did see continued strong demand from our contract signing in the first quarter. But again what we typically do when we put our forecast together, we set a layout once we have a contract signed we sit with our customer input to determine when they're looking for implementation.

And a lot of that forecast time is driven by when the customer is looking for implementation. So, I guess you could speculate that there also seem a -- are may be hopeful for a turnaround or a rebound to some degree in the economy in the second half of the year. And so a number of our implementations are scheduled in the second half of the year. And that's obviously when we recognize revenue.

Taylor Harris - JPMorgan

I got you. And you mentioned that over half of Symbiq placements were competitive captures. What's the percentage of Symbiq of your overall placements? I just want to get a sense of really what your competitive capture rate is?

Thomas Werner

I think it's trending to be running around 40 to 50% of our total placements. I mean, we have a lot of demand for our pump pipeline as well still. It is a very competitive device and it fits very nicely in the lower ASP part of the market place.

Taylor Harris - JPMorgan

Okay but so, that roughly means that a quarter of your placements are competitive accounts?

Thomas Werner

Yeah.

Taylor Harris - JPMorgan

Okay. So it seems like, you should be -- if that's right. If you are keeping your base business and then you are adding on 25% incremental from competitors. Just seems like that business should be growing more than what we're seeing?

Thomas Werner

Well, again it's still -- we do expect overtime that it will because of the capital sales that we are forecasting to be lower than we had last year. That's part of the drag on the overall growth earnings.

Taylor Harris - JPMorgan

Yeah.

Thomas Werner

We did anticipate and we still are seeing very strong disposable or consumable sales as a result of our larger installed base on a year-over-year basis. So, that's still holding true.

Taylor Harris - JPMorgan

Okay. And if really if you started the benefit from Premier yet or not?

Thomas Werner

We are seeing certainly activity on Premier both from a device perspective or pump perspective as well as solution perspective. And actually we are right now at least the way that I see it we are tracking pretty much on our internal goals for the year.

Taylor Harris - JPMorgan

Okay. Very good, thanks a lot.

Christopher Begley

Thank you, Taylor.

Operator

(Operator Instructions). Your next question is from the line of Junaid Husain with Soleil Securities.

Junaid Husain - Soleil Securities

Good morning gentleman.

Christopher Begley

Good morning.

Junaid Husain - Soleil Securities

Terry and Tom, as part of a Project Fuel are you seeing, you are going to look to improve your working capital position, may be by bringing down your inventory. When you look at your current inventory levels, are you happy where you are right now or there are some product inventories that you are hoping to get a tad leaner and in which businesses would this be? Is it on the MMS side or in the Specialty Injectable side?

Thomas Werner

Junaid, it's Tom. I think Terry and I could answer in unison here. No we are not happy with our current level of inventories and as you look at the product line complexity analysis we've done, it really is across the board, where we think that because of the number of SKUs that we've got, requiring us to maintain inventory and the service levels targets we've established. Nothing really sticks out over another product line. It really is across everything.

Junaid Husain - Soleil Securities

Got you. And then, relative to you Specialty Injectables business, Terry, where are you with erythromycin (ph), I think you had guided to a second quarter launch, but last time I checked, I had to see NDA on the FDA's website?

Terrence Kearney

No, we're still anticipating a second quarter launch but we have yet to receive approval.

Junaid Husain - Soleil Securities

Got you and then Tom remind me, your plant maintenance shutdowns in specifically happen in August I believe?

Thomas Werner

We've got just small one coming up in the second quarter and then the rest of them are in the third quarter.

Junaid Husain - Soleil Securities

Got you. Last question for you guys, relative to all the noise you've been hearing on swine flu over the past couple of days. A couple of questions. First I was just wondering if there's anything in your anti-infected portfolio may be the stuff you acquired from Mayne that might be beneficial to treat this infection or alternatively could you see some swine flu business because your contract manufacturing drugs, plant finishing soon (ph) to may be manufacturers of antivirals?

Christopher Begley

Junaid, this is Chris. We have nothing in our direct portfolio that would treat swine flu virus you are talking about, whatsoever. We don't have an antiviral in our product offering. What we do have though and what could potentially happen and we all hope it doesn't is if this virus continues to spread there will be other side affects besides this swine flu, around pneumonia, dehydration et cetera. And so if you think about that from a clinical standpoint, what would then end up happening is a person would be hospitalized and would go on IV fluids and than we have whole host of anti-infectives that could be used. And so, if we get to that point which none of us want to but if we got to that point, we would see an uptick in our IVs and our anti-infectives.

Junaid Husain - Soleil Securities

Got that. That's helpful. Thanks so much, guys.

Christopher Begley

You're welcome.

Operator

Your next question is the follow up from the line of Greg Gilbert with Bank of America Merrill Lynch.

Greg Gilbert

Hi, are you still planning to hold off on paying the 375 in early 2010 or might you accelerate that?

Thomas Werner

We are continuing to look at all the alternatives there Greg. Right now we are focused on getting the 300 million paid down in June and we just continue to look at the markets. We think we have got plenty of cash flow to take care of that. But there are other options that we are considering.

Greg Gilbert

And lastly, Chris what's your latest take on the timing and the form about this stimulus legislation. Are you standalone or a part of something bigger, thanks.

Christopher Begley

Yeah, you know, this is just my own personal feeling, I think we'll end up being part of something bigger. And if that doesn't happen then I think there is a good chance we will still be a standalone this year as well. And I think the big debate is going to be on the exclusivity period, whether it's double-digits or mid-single digit exclusively. I mean obviously we believe mid-single digit exclusivity makes much more sense. It still motivates big pharma biotech companies to continue to innovate. Yet it also enables patients to end up having lower cost products, when the patents expire as well. So that's what the landscape looks right now Greg.

Greg Gilbert

Can I pin you down on your prediction of timing, the '09 versus '10.

Christopher Begley

Yeah, Greg you can and again, I'll bet this is just my own personal belief. I believe it's going to get done today. I'm sorry, not today, I am sorry, this year and I tend to be an optimistic person. So I think it will get done year, 2009.

Greg Gilbert

Okay, thanks.

Operator

Your next question is a follow-up question from the line of Taylor Harris with JPMorgan.

Taylor Harris - JPMorgan

Thanks. Couple of follow-ups. So, you're keeping your overall constant currencies sales growth, in fact, you told us about what was coming down a little bit. What are you actually taking up a little bit?

Terrence Kearney

Well, we saw some good performance in other pharma in the IV solutions area as well as contract manufacturing in the first quarter. Most of the contract manufacturing is limited to the first quarter. There will probably be some continued good growth of IV solutions. So, that's really so offsetting some of this.

Taylor Harris - JPMorgan

Okay, and what remains in the facilities optimization plan?

Christopher Begley

At this point the only project we have underway that we will complete next year is the transfer of our IV solutions or our IV pumps from Morgan Hill to Costa Rica.

Taylor Harris - JPMorgan

Okay. Got it. And my last follow-up is may be a bigger picture one and that's on the European business, which at the time of the main deal, this was really one of the big reasons for doing that transaction. And yet Europe it seems has been the real underperformer, since the time of that transaction. So is there -- help us understand is there something bigger wrong with that business, do you think or are you going through a tough cycle with the oncology pricing?

Christopher Begley

Taylor, let me say a few words and then somebody else can jump in. They can certainly they can do that afterwards. Let's looks at first at SIP and again really the business will grow based on the pipeline that's provided to the commercial organization and again I'll term it radical -- there is been limited opportunity there. So, as we continue to develop the pipeline for Europe, I think we will see more progress on the SIP business.

And you are right, today it suffers from year-over-year price erosion, primarily on the oncology business, but I think it's also important to note that, that price is the status in these European markets on the onset of launch is much higher than what you see typically in the U.S. So, as we talked in the past, it will deteriorate over a period of time, but in the meantime, the gross margins stay very favorable in that business.

So, while it look really bad on the top line, certainly the contribution from a profit perspective is still strong for those oncology products. So, really again for oncology products it's really about pipeline and the continuing -- we continue to invest in that pipeline and we have another larger molecule scheduled in the ARP.

But what I think we don't want to lose sight of is the investment we made in Europe is really about infrastructure as well. And as you see with the growth that we are starting to get in MMS and the traction that we are seeing, is that's really the upside in my mind because we really had sort of an opportunistic business in Europe prior to the acquisition of Mayne.

Now with the larger infrastructure and a greater focus on the device business, I think we have a lot more upside there overtime. And I think that will also be then very beneficial to the business from a reduction of volatility, if you will because it's once that business is better established, it will becoming more of a annuity for that region overtime. So, I think the upside in the acquisition of Mayne is really -- will be in the device business and there's nothing from what we assume from day one with this business that we are disappointed about relative to performance. It's just a question of timing on the SIP portfolio.

Taylor Harris - JPMorgan

Okay. So you knew at the time, that you were buying it basically at the peak of a near term cycle in the injectables business. Is that a fair way to put it?

Christopher Begley

That's true and again part of the strategy at Mayne was employing prior to our acquisition was a lot of small acquisitions that they carved together and that was driving some growth. Obviously we are not doing that today, we are more fundamental from an organic perspective and we are trying to build the business with the portfolio that we have today.

Taylor Harris - JPMorgan

As you guys report profitability by geography, Europe and Asia Pacific look very low relative to the U.S. Is that really the profitability level or is that have something to do with just the way you recognize costs?

Thomas Werner

No, we believe it's a pretty big representation, as you look year-over-year in EMEA they were down about 250 to 300 basis points. Most of that is the pricing dropping through and then in Asia Pacific last year we were just running with higher number of open position in sales force in some other areas and those have now been sold in. So there's a slight drop off there. But I wouldn't excuse it off as some aberration with the way we allocate cost really.

Taylor Harris - JPMorgan

Okay.

Christopher Begley

Before we put the margin sales as not only include the commercial margins that you'd expect but also they includes all the other costs relative to manufacturing in the light for the plants that are in those geographies.

Taylor Harris - JPMorgan

Okay.

Because we're, and we are talking about I think single digit profit margins in outside the U.S. and 20% plus profit margin in the U.S. So is there -- could we hope that those ex-U.S. margins improved to something that looks a little bit more normal?

Thomas Werner

Yeah, that's. Approaching the -- I think we reported that 22 or 23% in the U.S. off the top of my head. It's going to be a while before they approach that but we think getting them back into the mid-teens, I think there have been a couple of quarters where they've been in the mid-teens so it's certainly doable.

Taylor Harris - JPMorgan

Okay. Thanks for the follow-ups.

Christopher Begley

Thank you.

Operator

Today's final question will come from the line of Rick Wise with Leerink Swann.

Rick Wise - Leerink Swan

Yes, just a couple of follow-ups as well. The tax-rate, Tom you highlight, I think you said, if I heard 21 to 22% for this year. I know it's early for 2010 and beyond, but now this year is going to be a lot lower than we thought, may be just some color or direction about how we serve this interim model for next few years?

Thomas Werner

Well that's good question Rick, it all -- everything being equal, I think the one wild card that we will have there is where do the savings from Project Fuel come from and in what tax jurisdiction, so, we hope that we can keep this in the 21 to 22%. There may be some upward pressure on it depending on the mix of earnings but, relative to Taylor's call, if we can improve the operating results outside the U.S. as well as in the tax savings in factories, where we manufacture, hopefully that will be enough to offset it. But it's really hard to call that going forward.

I wouldn't think that the changes we see one way or the other are going to be very significant.

Rick Wise - Leerink Swan

Right, but it might be reasonable to think it is based roughly in this range in 10-11-12 kind of thing.

Thomas Werner

Yeah -- coming down would be though. I think it will stay here or go up slightly, but...

Rick Wise - Leerink Swan

Okay.

Thomas Werner

It just remains to be seen.

Rick Wise - Leerink Swan

Okay, maybe Terry you could qualify the year-over-year price erosion in those OUS markets for SIP, maybe just give us a little flavor and why do one you think the worst is over on that front. It get worse in here for a while before it gets better just as we look at the second-third quarters

Terrence Kearney

Well, I'm not sure I said it would get -- the worse is over. I think again, we do expect especially in Europe, more so than any other geography, continued erosion on the oncology portfolio. We've seen it for the last couple of years since acquisition of Mayne. So that's not surprising to us and again what really drives growth in Europe is introduction of new molecules. So that's what we're fighting against right now, until we start adding to the pipeline.

Specifically on the price erosion, I don't have that right in front of me but

Rick Wise - Leerink Swan

Order of magnitude.

Terrence Kearney

It's about 3 or 4% in EMEA, all focused in the oncology area.

Rick Wise - Leerink Swan

Got you.

Christopher Begley

I think the good news though Rick is that if you look at aggregate price across the company, it was very minimal. So again we are seeing some price erosion in Europe that is a little higher than other places, but there are offsetting price increases that we've taken through GPO contracts and renegotiated contracts that are offsetting that on a global basis.

Terrence Kearney

Right and in Asia Pacific. It was very minimal, less than a percent.

Rick Wise - Leerink Swan

Got you. And last maybe, again, this is to draw down a little more on your comments about that mid-management side and the decision that you were highlighting. I mean, your good backlog helped you in the first quarter. Is that a when is the backlog insufficient to keep the results in that frame work that you all are envisioning. I mean, do we have to be -- again a little more anxious about second and third quarter because the weakness is continuing. How do we think about all that?

Christopher Begley

Our back log for the as we stand today and in the first quarter is very similar to what we ended the year with. So we are pleased about that.

Rick Wise - Leerink Swan

Okay.

Christopher Begley

So we haven't seen any significant deterioration in backlog and so again we continue to as long as we continue to get out and sign contracts for the customers, we feel very positive about it. And I hate to say this but it will be only a question of time when that revenue is recognized. But I think the important for our business and the way we measure our is to actually get customer commitments, i.e. contracts and that's really what drives us going forward.

Rick Wise - Leerink Swan

And that's continuing to happen.

Christopher Begley

It is continuing to happen. We still see strong interest and the important thing to recognize is that it's not always about Symbiq it's also about Form (ph), when the economy is as it is, some times people are looking for a lower price point and Form is a prefect product for that lower price point. It gives you many of the same features that Symbiq provides relative to the med net and the like, but at a lower price points. So, we think we are well suited from a portfolio perspective to meet those needs of our customers today.

Rick Wise - Leerink Swan

Got you. Thanks so much.

Thomas Werner

Rick, back to your tax question too. I think one other thing that we need to factor in is the talk around Obama's 2010 budget proposal to generate an additional $210 billion of revenue through deferral tightening and tax savings and so, I mean obviously, if that legislation goes through, which we are monitoring very closely, that would impact any assumptions from a tax stand point as well. So I think you need to keep that in the back of your mind, but will not only impact Hospira but would impact other companies and you would see a raising of overall tax levels of all companies that have tax saving setup outside the U.S.

Rick Wise - Leerink Swan

Yeah. Good point. Thanks.

Karen King

That concludes our call for the quarter. Thank you for joining us today. Dennis, we can now end the call.

Operator

Thank you. This concludes Hospira's first quarter 2009 earning conference call. You may now disconnect.

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