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Hospira Inc (NYSE:HSP)

Q4 2009 Earnings Call

February 04, 2010 09:00 a.m. ET

Executives

Karen King - VP, Investor Relations

Chris Begley - Chairman and CEO

Terry Kearney - COO

Tom Werner - SVP and CFO

Analysts

David Roman - Goldman Sachs

Taylor Harris - JPMorgan

Rick Wise - Leerink Swann

Marshall Urist - Morgan Stanley

Ronny Gal - Bernstein

Jayson Bedford - Raymond James

Junaid Husain - Soleil Securities

Sumet Fulcari - Bank of America\Merrill Lynch

John Putnam - Capstone Investments

Operator

Welcome to Hospira's fourth quarter and full year 2009 earnings conference call. All lines have been placed on a 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

Good morning, everyone, and welcome to our conference call and webcast regarding Hospira’s financial results for the fourth quarter and full year 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 and MD&A sections in Hospira's latest annual report on Form 10-K and subsequent Form 10-Qs 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 presentation page in the investor relations section of our website.

Also posted on our website is a presentation of complementary materials that summarizes the points of today's call. We will not be speaking directly to the material which is posted on the presentation page at www.hospirainvestor.com, the material is for your reference and as an enhanced communication tool.

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

Chris Begley

Thank you, Karen and good morning, everyone. 2009 was a year of significant transformation for Hospira on many fronts. We made substantial progress in our business including advancing our biogenerics program and launching our first major paragraph for drug in the US, oxaliplatin solution. We ticked off Project Fuel, a corporate-wide optimization initiative to drive long-term profitable growth and increased shareholder value and we met the commitments we set forth for 2009.

Financially, net sales of $3.9 billion represented an increase of 7% year-over-year or 9% excluding the impact of foreign currency. Driving these results was stellar growth in our Specialty Injectable Pharmaceutical product line. Adjusted gross margin reached 40%, adjusted operating margin increased by more than a 100 basis points and we generated healthy cash flow from operations of $945 million.

Despite the pressures of the global economic recession and several disposals of non-strategic assets, adjusted diluted earnings per share grew 23% to $3.11. We are on our way to achieving our ultimate goal of becoming a consistent top quartile performer and are excited about the prospects and opportunities that lie ahead.

In the fourth quarter, we once again exceeded the $1 billion mark in net sales, an increase of 16% year-over-year or 11% excluding the impact of foreign currency. Adjusted earnings per share of $0.87 represent a growth of 12% over fourth quarter 2008 EPS of $0.78, driving our net sales growth was strength in Specialty Injectable Pharmaceuticals, primarily the result of our third quarter US launch of oxaliplatin and strong demand for Precedex, our proprietary sedation agent.

Our laser-focus on advancing the business resulted in many significant achievements in 2009. We were the first market entrant with a generic solution presentation of oxaliplatin in the US. As a result of our flawless execution, we captured a significant share of the market for this very large drug and experienced exceptionally levels of demand for our product. We announced our intent to acquire the Generic Injectable Pharmaceutical asset of Orchid Chemicals and Pharmaceuticals, a leading Indian injectable manufacturer and developer of beta-lactams. Through this transaction, we fulfill a key capability gap in our SIP portfolio and establish a direct presence in India providing a platform for future growth.

We launched six new high dosage presentations of therapeutic heparin in single and multi-dose vials expanding our portfolio and helping to meet an important need for our customers. We received European marketing authorization for the launch of generic docetaxel, a major drug used in the treatment of various cancers. The drug had branded sales in Europe in 2008 of approximately $1.1 billion. We expect the launch of docetaxel across most of Europe by the end of 2010.

We also continued our successful rollouts of several drugs in EMEA and Asia Pac, including gemcitabine and pipercillin/tazobactam and we launched a total of 23 compounds already on the market and new countries around the world during the year.

Our biogenerics program continues to progress as well. We gained momentum with Retacrit our biogeneric erythropoietin. Retacrit is currently available in 16 countries throughout Europe and has captured more than 40% of the short-acting biogeneric EPO market in the region. We acquired from PLIVA worldwide rights to biogeneric version of filgrastim and an affiliated manufacturing facility in Croatia.

This gives us development and manufacturing capabilities for our Filgrastim and pegfilgrastim pipeline products as well as potential future biogenerics. We finalized an agreement with Celltrion, a South Korea based biopharmaceutical company which strengthens our presence in the global biogeneric market with the addition of five new biogeneric drugs from the agreement, the number of compounds in our biogenerics pipeline has almost doubled to 11, giving us one of the largest pipelines in the industry with a local branded value of $34 billion.

In medication management systems, our other strategic product line, we acquired TheraDoc, the gold standard and enterprise-wide clinical surveillance and decision support. Through this acquisition we are advancing the quality and safety of patient care through sophisticated technology used to monitor hospital-acquired infections. We extended Hospira's portfolio of MMS products with the introduction in the Middle East of Plum A+ with MedNet safety software.

This marks the first time Middle East healthcare facilities can access these types of advanced integrated technologies from one company. We also launched our first Symbiq device in Canada. In our EMEA region, we signed a 10-year contract with The Royal Marsden Hospitals National Health Service Trust in UK to be as provider of aseptic compounding services. This is the largest outsource compounding contract awarded by Royal Marsden and builds on the compounding capabilities we acquired with Mayne Pharma.

In Asia Pac, we established a direct presence in Seoul, South Korea focused primarily on distribution of our oncology portfolio. This brings our direct sales presence to 9 markets in the Asia Pacific region. We received a credit rating upgrade from both Standard & Poor’s rating service and Moody’s Investors Service. Standard & Poor’s upgraded our rating from BBB to BBB-plus and Moody’s from Baa3 Negative to Baa3 Stable.

We reduced our debt by approximately $425 million during the year including an early paydown of $370 million of debt that was due in March of 2010. Last, but certainly not least we introduced and made significant progress on Project Fuel. With regards to optimizing our product line, we have identified approximately 55% of our original 7000 plus SKUs or list numbers that can be eliminated over time. To date, we have eliminated more than 35% of the total SKUs which compares to the 30% we announced on our last quarterly earnings call.

We also continue to progress in streamlining our organizational structure. Of the target 1400 to 1500 position-reduction goal, we have notified approximately 75% of the people whose positions are being eliminated. In the area of evaluating non-strategic assets, we made several asset disposals including the sale of two product lines, our critical care products to ICU medical and our brain-function monitoring products to SEDLine, a sub of Masimo and the sale of two contract manufacturing facilities, our Salisbury Australia manufacturing facility to Halcygen Pharmaceuticals and most recently our Wasserburg, Germany manufacturing facility to Recipharm AB. Both of these facilities came with our acquisition of Mayne in 2007. These asset disposals advanced our efforts to simplify our product line and focus on our key strategic areas, better enabling us to drive future growth.

We have met our Project Fuel commitments in 2009, aggressively driving transformation throughout the organization and building momentum going into 2010. In procurement, we pursued over a 150 strategic sourcing programs to identify best cost suppliers and lower total cost of ownership.

In finance, we redesigned our annual plan process saving hundreds of employees’ hours improving the quality of the process. In sales and marketing, we developed a go-to-market strategy to improve the effectiveness of our US sales force through focus and alignment to our key strategic growth areas SIP and MMS.

In R&D we enhance the milestone review process for new development programs to streamline the process, lower risk and improve the predictability of success. And in IT, we established strategic outsourcing partnerships to provide greater oversight and maximize the value attained from our global IT service providers. Efforts such as these will optimize our productivity and allow us to free up additional funds for investment in our business driving even better execution of our longer term financial targets and business goals.

With that I will now turn the call over to Terry for more details on sales for the quarter.

Terry Kearney

Thank you Chris and good morning everyone. I will remind everyone 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 and the schedules accompanying our press release for the impact of foreign currency by segment and product line.

Global net sales grew 11% in the quarter and 9% for the full year exceeding our most recent annual guidance of 5% to 7% growth. Both of our key strategic areas SIP and MMS performed well across all three segments, the Americas, EMEA and APAC.

I'll now discuss results by product line for each segment focusing most of my remarks on the results for the quarter. Specialty Injectable Pharmaceuticals net sales in the Americas were up over 25% in the quarter and more than 20% for the full year, primarily attributable to greater than anticipated performance in oxaliplatin and strength in Precedex.

Regarding oxaliplatin, the fourth quarter performance for the drug was impacted by two major factors. The first, which accounted for nearly 75% of the drug results related to the dividends between the estimated and actual charge-back amounts as a result of stronger than anticipated end-user pricing. As a point of reference the charge back provision is a difference between the amount we charge wholesalers and the amount end user customers pay at the time of purchase.

Secondly, we had anticipated that given the exceptionally high level of wholesaler demand right out the gate, fourth quarter sales were accelerated into the third quarter. Thus we project a little as no sales for the drug for the fourth quarter. However given their limited amount of actual competitors during the quarter price erosion was less than expected and additional demand for the drug drove incremental oxaliplatin sales in the fourth quarter. The combination of these factors contributed to the fourth quarter's positive oxaliplatin performance.

In addition to oxaliplatin, Precedex performed extremely well. Precedex had a very strong year enhanced by several factors, including the efforts of our expanded sales force, positive response to the expanded label for the procedural indication and the article in JAMA early in 2009. This popular sedation agent exceeded annual global revenues of $100 million this quarter, much earlier than anticipated.

Heparin also contributed to the positive quarters as our key performance, as a result of strong demand for our new high dosage presentations that we recently launched. We are pleased that we are able to address the substantial market need and believe we will continue to gain momentum with the product throughout the course of 2010.

Moving to EMEA, net sales of Specialty Injectables in the European region increased 10% in the quarter and 2% for the full year. Driving the quarter's positive results was strong demand for several new product launch molecules including gemcitabine and pipercillin/tazobactam. Momentum for Retacrit continues to build. We ended the year with strong top and bottom-line performance achieving our breakeven goal for the biogeneric. We continue to gain market share that are share of the total short acting biogeneric EPO market in Europe surpassing 40%.

Net sales of Specialty Injectables in APAC increased 1% in the forth quarter and 7% for the full year. Driving t he growth was the ongoing strength in proprietary pharmaceuticals in Australia as well as strength in Precedex across the region. Our launch of gemcitabine in Australia in the first half of the year has exceeded our expectations as we have captured the largest unit market share of this important generic chemotherapy agent. We are continuing to roll the drug out to additional countries in this region in 2010.

Moving now to devices, net sales of global medication management systems increased more than 5% in the quarter and more than 2% for the full year with positive contributions from all three regions. And despite continued hospital capital spending constraints, we recorded an increase in our overall Plum placements contributing to our year-over-year growth of 8% in our global install base.

In the Americas net MMS sales increased over 3% in the quarter and 1% for the full year. Both our Plum and Symbiq devices performed favorably in the quarter. Several strategic orders that we have been cultivating throughout the year shift in the fourth quarter contributing to the strong year-end performance. We also believe that are broad product portfolio continues to be a significant advantage in today's market.

You may recall that at the beginning of the year we had anticipated that placements would be down as a result of the constraint capital spending environment. While places for a large volume in fusion devices were up slightly year-over-year we saw a shift towards our lower price Plum pumps versus Symbiq. Price sensitive customers can purchase our traditional Plum device today and with the interoperability of our MedNet safety software they can easily upgrade to our higher technology Symbiq device in the future. For our Symbiq devices that we are placing we continue to see strong competitive captures with over 80% of our Symbiq placements for the year coming from competitive accounts.

In EMEA, MMS net sales increased 19% during the quarter and 9% for the full year due to favorable performance in both our Plum and GemStar devices and dedicated set sales. Growth during the quarter was aided by our recent tender award for Plum A+ with MedNet in the key hospital account in Saudi Arabia. MMS net sales in the Asia Pacific region increased 25% for the quarter and 11% for the full year. Strong pump and set growth for GemStar drove both the quarter and full year results with Plum A+ also contributing to performance.

In addition, the fourth quarter achieved a significant milestone with the introduction of GemStar and Plum A+ into the Japanese market. Clinician response has been very positive particularly for GemStar. We expect the adoption of our MMS platform to continue in 2010, not only in Japan but in China and Australia as well, all key countries in the region.

Before turning the call over to Tom, I will provide an update on our drug pipelines which we do on an annual basis during this call. At December 31st 2009 our small molecule pipeline totaled 39 compounds, which represents a total of 65 regional launches including 30in the United States. The global branded market value of a small molecule pipeline is approximately $15 billion. Other pipelines compounds currently 21 have been submitted for approval in one or more regulatory agencies. The local market value of the filed compound is approximately $7.9 billion. Of that dollar value roughly 50% of it relates to compounds where we are currently challenging the patterns or whether is some uncertainty associated with launch timing.

In terms of therapeutic areas, roughly 45% of the total pipeline compounds are related to oncology and beta-lactams. This reflects the investments we have been making through acquisitions to become fundamental in these two important areas.

Relative to launch timing approximately 18 drugs are expected to launch in various regions over 2010 and 2011 with a split between the two years roughly equivalent as was the case last year launches in 2010 and 2011 combined larger drugs with significant potential in smaller drugs that helped drive growth in scale. Regarding our biogenerics pipeline, as Chris mentioned, with the addition of five new biogeneric drugs with the agreement with Celltrion our biogenerics pipeline now has 11 compounds. One of the largest pipelines in the industry with a local branded value of $34 billion.

I'll now turn the call over to Tom for review of the rest of our financial results and guidance for 2010. Tom?

Tom Werner

Thanks Terry and good morning everyone. First I will take you through the details on our Q4 and 2009 financial results and then we will move to guidance. Adjusted gross margin was 40.5% in the fourth quarter, more favorable product mix and improvements resulting from the company's Project Fuel optimization initiatives were somewhat offset by costs related to product corrective actions as well as the impact of foreign exchange. For the full year, adjusted gross margin of 40% represented a 70 basis point improvement over full year 2008.

R&D expense in the quarter was $80 million, up from $53 million in the fourth quarter of 2008. For the full year, R&D increased 14% to $241 million. The increase for both the quarter and the full year was primarily related to our investment in various new product development programs in both SIP and MMS product lines as well as the upfront payments to ChemGenex and the impact of foreign exchange.

SG&A expense for the fourth quarter was $165 million, up 18% from $139 million for the same period last year, mainly a function of legal costs, the timing of expenses as well as the impact of foreign exchange. Partially offsetting these factors were our Project Fuel cost reduction efforts. For the full year SG&A was $619 million, up 5% from the $590 million in 2008.

Adjusted operating income increased 9% to $204 million versus $188 million in the fourth quarter of last year. For the full year, adjusted operating income as a percent of revenue was 19%, up 120 basis points versus last year’s 17.8%. Interest expense decreased 10% for the quarter, 9% for the full year, primarily due to lower interest rates on our floating rate notes as well as lower debt levels. Our effective tax rate on an adjusted basis for the full year was 20.3%, nearly four percentage points lower than our 2008 adjusted effective tax rate.

Driving a majority of 2009’s lower rate were various tax benefits recognized throughout the course of 2009. Moving to our EPS performance, adjusted diluted EPS increased 12% in the fourth quarter to $0.87 compared to $0.78 last year. As was the case with the third quarter, when we increased our guidance by $0.10, most of the EPS favorability this quarter relative to consensus was due to oxaliplatin.

Full year 2009 adjusted diluted EPS was $3.11 per share, an increase of 23% over 2008. Several charges were excluded from our adjusted EPS namely Project Fuel charges including project related impairment and other asset charges of $0.12 a share in the quarter and $0.69 a share for the full year.

Next, charges related to our facilities optimization initiatives, which totaled $0.03 per share in the quarter or $0.12 for the full year. Next, intangible amortization related to the Mayne pharma acquisition totaled $0.07 per share in the quarter or $0.23 for the full year.

Also, a research and development milestone payment for omacetaxine, which totaled $0.07 per share for, both the quarter and the full year. In addition, the full year EPS excludes $0.10 per share related to the impairment of marketable equity securities and a $0.57 per share benefit related to the resolution of various IRS tax audits. In aggregate these items totaled $0.29 for the quarter and $0.64 for the full year.

Next turning to cash flow, our cash flow from the operations in the fourth quarter was $404 million, a 58% improvement over last year’s fourth quarter. For the full year, cash flow from operations was $945 million compared to $584 million in 2008 driven primarily by higher net income adjusted for non-cash items as well as the timing of cash flows associated with the launch of generic oxaliplatin and some other favorable changes in working capital.

At December 31, 2009 our cash balance was $946 million compared to $921 million at September 30, 2009 and $484 million at the end of last year. Free cash flow defined as cash flow from operations, less capital expenditures also improved for the year. Free cash flow as a percent of sales was 20% in 2009 versus 12% in 2008.

Capital spending in the quarter totaled $41 million versus $37 million in the fourth quarter of 2008. For the year, capital spending totaled $159 million, down from $164 million in 2008. The decrease mostly reflects lower spending in 2009 versus 2008 related to our facilities optimization initiatives and spending restrictions we put in place in late 2008.

Depreciation and amortization were $58 million in the quarter, compared to $60 million in the fourth quarter last year. For the full year, depreciation and amortization totaled $230 million, including $62 million of intangibles amortization. This compares to depreciation and amortization of $252 million in 2008.

From a liquidity perspective, as of year end 2009 we had paid down a cumulative total of approximately $925 million of debt since we began paying down Mayne related acquisition debt in 2007, a net of $425 million of which we paid in 2009. The net $425 million of debt we paid down in 2009 included an early redemption on our $375 million notes that were due in March of 2010.

Our next scheduled debt payment is not due until 2012. Also the net $425 million debt paydown also factored in the $250 million six-year notes we issued in 2009 which were priced with a coupon of 6.4%. So in addition to cash on hand, we also have a committed bank revolver of $700 million upon which to draw. So combined with our year-end cash balance of $946 million, this gives us access if needed to approximately $1.6 billion in liquidity to meet our future needs.

Next I would like to turn to our guidance for 2010. As Chris and Terry have both stated we made major strides in 2009 to transform and redefine our business through the various programs of Project Fuel including the non-strategic asset disposals we mentioned. But we are excited that the guidance we will be providing will show that we expect to be achieving our Project Fuel related goals of the low 40% for adjusted gross margin and the low 20% for the adjusted operating margin goal, almost a full year ahead of schedule.

The impact of the asset disposals, however plus the projected decline in US oxaliplatin sales will make for some difficult and potentially confusing year-over-year comparisons. Now underlying our guidance for 2010 is expected growth in our base businesses, the impact of expected new product launches, continued progress on Project Fuel, a heavier investment in R&D funded by better than expected savings from Project Fuel as well as the impact of any disposals or acquisitions of businesses that were completed by January 31 of this year.

Specifically, guidance will reflect the disposals of both the Salisbury and Wasserburg contract manufacturing facilities, the disposal of the critical care product line and the acquisition of TheraDoc. Globally the disposals accounted for $134 million in 2009 sales, that’s $134 million and about a dime in EPS. The sales were mostly recorded in our other pharma and other device product lines in each of our three geographic regions with a more pronounced impact of these disposals on a percentage basis outside the US.

TheraDoc sales in 2000 were not significant. One other item, the acquisition of Orchids Injectable business, which is expected to close later this quarter is not included in our guidance. Also excluded from the guidance, is any impact from the proposed United States Healthcare Reform given the current uncertainty of the reforms outcome.

So in the interest of transparency as well as ease of comparability, our revenue guidance will have statements relative to expected year-over-year growth, both and without the impact of the disposals that have been completed. But all comments will be on a constant currency basis unless we note otherwise. Significant expected new product launches will be discussed by region as well the expected year-over-year decline in the United States relative to our 2009 launch of oxaliplatin. Given the complexity of the oxaliplatin discussion, we will start our guidance by segment with EMEA then move to APAC and conclude with the Americas.

So starting with EMEA, sales in EMEA excluding the impact of the various disposals are expected to grow between 17% and 19%. However, the disposals impacting the other pharma and other devices product lines will reduce overall growth in the region by almost 10 full percentage points so that constant currency sales growth in the region is expected to be between 7% and 9%.

Top line growth in the region is highly dependent on a robust new product pipeline. Investments we have made over the last couple of years to expand our pipeline are coming to fruition in 2010. We are particularly excited about the prospects for docetaxel. We expect to launch this major chemotherapy agent across most of Europe throughout the year with the five major European countries in the fourth quarter of 2010. In addition, we will be launching two other important oncology products in the region. Mid-year we plan to launch pegfilgrastim our second biogeneric used for the treatment of low white blood cells in patients undergoing chemotherapy.

Then towards the end of the year we expect to launch Omacetaxine, a proprietary cytotoxic and oncology pharmaceutical product used in the treatment of Leukemia which we in-licensed from ChemGenex in 2009. These products will add to our strong oncology portfolio and will augment our presence in hematology as well as leverage the expertise and customer relationships of the biogeneric sales force we put in place in the EMEA for Retacrit.

We also expect our 2009 launches including gemcitabine, pipercillin/tazobactam to contribute to EMEA results for the year and we anticipate continued growth of both sales and market share for Retacrit as it gains further acceptance and as we obtain approval for our subcutaneous renal indication this year.

For MMS, we anticipate a milestone for MedNet in the region with the expected introduction of the first language translation of Hospira, MedNet into Spanish. We are also promoting our MMS portfolio aggressively in the Middle East, a growing market and one which values the medication safety features of our smart and fusion systems.

Next moving to APAC. Sales in APAC excluding the impact of the various disposals are expected to grow between 13% and 15%. As with EMEA however, the disposals impacting the other pharma and other device product lines will reduce overall growth in the APAC region by almost 11 percentage points so that constant currency sales growth in the region is expected to be between 2% and 4%. We expect the trends driving the region’s positive growth in 2009 will continue throughout 2010.

On the pharma side, our specially proprietary products in Australia particularly the oncology drugs are expected to be drivers of growth as well as Precedex which we expect to be a driver across the region. We are also excited about the anticipated approval and launch of Precedex in Korea later this year. And in Australia, we expect approval and launch of pegfilgrastim in the second half of the year. This will mark the first launch of a biogeneric in APAC expanding our biogenerics commercialization to two of the company's three regions.

On the device side, we expect another good year in the region in 2010 with continued strength in GemStar and Plum in our major markets including Australia, Japan and Korea. 2010 will mark the introduction of Symbiq into the region as well. We were very pleased to have recently signed the first contract for Symbiq in a large hospital in Queensland, Australia.

Next moving to the Americas. Before discussing the overall guidance for the region, I would like to walk you through our MMS and SIP product categories starting with MMS. Then I will touch on the impact of the disposals primarily to the other device and other pharma product lines followed by a discussion of SIP and the impact of the expected year-over-year decline in oxaliplatin sales in United States and its impact on the SIP business.

In MMS assuming continued constraint hospital capital spending environment, we are anticipating limited growth for devices. However, on the new product front, we are planning a limited roll out of our integrated Symbiq and EndoTool platform which was recently submitted to FDA for approval. We will also receive a full year benefit from TheraDoc sales, our recently acquired clinical decision support platform and applications so that growth in Americas MMS is expected to be in the 5% to 7% range. Regarding the asset disposal impact, it was close to 2% of total Americas net sales in 2009, affecting both the other pharma and other device product lines.

Moving now to Specialty Injectable Pharmaceuticals in the Americas. We expect to see 5% to 7% growth in the base business as we continue to grow faster than the overall market. We are planning to launch two beta-lactam products, imipenem and meropenem in 2010 which are partnered products with Orchid and had a combined 2008 local branded market value of approximately $400 million. We also anticipate building momentum in 2010 for the new high dose presentations of heparin that we launched in 2009. However, the expected year-over-year decline in oxaliplatin sales in the US that we have assumed in our plan will more than offset our expected total growth as the early benefit we saw with our 2009 launch will face increased competition and price erosion in 2010.

Therefore, after factoring in the projected decline in sales of oxaliplatin which we assumed in our plan, we expect that SIP sales in the Americas are expected to actually show a decline of 1% to 3% on a constant currency basis. Note, we haven’t included generic Zosyn, docetaxel or gemcitabine in our guidance for Americas SIP sales in 2010.

So to summarize for the Americas, excluding the impacts of the asset disposals and the projected year-over-year decline in oxaliplatin sales, total net sales in the Americas are expected to increase 3% to 5% on a constant currency basis. But after factoring in the asset disposal in oxaliplatin impacts, 2010 total net sales in the Americas are expected to show a decline of 1% to 3% on a constant currency basis. To give you an idea of how that complex discussion impacts our total global revenue growth, excluding the impact of the disposals and year-over-year expected change in oxaliplatin, again this is excluding, we expect sales on a constant currency basis to increase by 6% to 8% or 7% to 9% including the impact of foreign currency.

However, after factoring in the disposals and the projected oxaliplatin impact, we expect that reported constant currency sales will be fairly flat with 2009 but slightly up after including the expected impact of foreign currency. I know that’s a little bit complex and should you have questions I am sure we will glad to deal with them in the Q&A session following our prepared comments.

In terms of calendarization for the total company, quarterly sales in 2010 should be similar in pattern to what we saw in 2009 relative to total year sales, although the ramp up will be a bit flatter than in 2009 with first half 2010 sales representing a slightly higher percentage of full year sales than in 2009.

Next I would like to run you through how we see the rest of the income statement as well as cash flow shaping up for 2010. As Chris mentioned in his opening remarks we made significant progress with Project Fuel in 2009 and the savings associated with the project contributed a fairly equal amount to cost to goods sold and SG&A.

In 2010, however we expect the lion’s share of the savings from Project Fuel to favorably impact cost of goods sold and therefore gross margin helping along with better product mix and manufacturing performance to drive our adjusted gross margins to between 42% and 43%, a 250 basis improvement over last year.

As you recall, when we announced Project Fuel almost a year ago, we committed that when the project was completed in 2011, that we expected the gross margins would progress into the low 40% range. As you can see from our guidance, we are expecting to track way ahead with our progress. This allows us to take R&D spending, up by approximately 80 to 100 basis points in 2010 while still on track to meet our 2010 commitment, a $70 million to $80 million in pre-tax savings from Project Fuel.

SG&A expense is expected to remain relatively flat as savings from Project Fuel, primarily in administrative spending are offset by additional sales and marketing expense related to new product launches and strong performance by Precedex. We expect to attain adjusted operating margins of 20% to 21% in 2010, a 100 to 200 basis point improvement over 2009.

Now below the operating line, we are forecasting adjusted net interest and other expense and other non-operating items in aggregate to be in the $95 million to $100 million range. We are currently estimating the adjusted tax rate will be in the range of 22% to 23% due to a shift in the mix of earnings versus 2009 as well as the expiration of the R&D tax credit.

Moving to earnings per share, we are assuming outstanding shares to be $166 million in the year. As a point of reference, the collective impact on EPS of our higher tax rate, higher share count, lower interest expense and greater interest income is $0.13 per share or about four percentage points of negative impact on EPS.

The disposals and the expected lower oxaliplatin sales this year will also have a drag on our bottom line, but we are still projecting adjusted diluted earnings per share to be in the range of $3.25 to $3.35, which when excluding the impact of the disposals and oxaliplatin represents significant earnings growth exceeding for 2010, our long-term goals and demonstrating a much improved profile, one that better positions us to invest for the future.

The adjusted earnings exclude the charges related to our facilities optimization initiatives as well as the intangibles amortization associated with the main acquisition and any one-time charges related to Project Fuel. In terms of calendarization, quarterly EPS in 2010 is expected to follow a very similar pattern to 2009 with first and second half EPS representing similar portions relative to full-year EPS.

Gross margin should be stronger in the back half of the year as Project Fuel savings accelerate and operating margins are expected to progress gradually each quarter. We estimate cash flow from operations for 2010 to be between $600 million and 650 million. The decrease relative to 2009 due primarily to the estimated timing of oxaliplatin sales from the wholesaler to the end user. We expect to see a year-over-year decline in cash flow from operations as the charge-backs and rebates accrued at the end of last year are paid out this year.

Capital spending is projected to range between $195 million and $215 million primarily related to IT projects associated with Project Fuel and depreciation and amortization is expected to be $235 million to $245 million.

With that, I will turn the call back to Chris for some final comments.

Chris Begley

Our strong performance in the fourth quarter brought to close a very good year for Hospira, the year of significant transformation for the company. The far-reaching changes we have made with Project Fuel have not only improved our operations, they have significantly changed the profitability profile.

We have substantially improved gross margins and have made substantial investments in R&D. We have eliminated low growth, non-strategic assets. In short we have changed Hospira for the better. The significant momentum we generated in 2009 paved us a way for continued progress in 2010. We expect to drive increased efficiencies this year through Project Fuel as we continue to position Hospira for long-term sustainable growth and with that operator we are now ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of David Roman of Goldman Sachs.

David Roman - Goldman Sachs

I want to just quickly clarify on the sales guidance here and make sure that we got this okay. So for the total company, you are saying flat sales on a constant currency basis and you are only factoring in one point of FX benefit for the full year?

Tom Werner

We set our rates back in October when we were sort of in the middle of our planning process and I just would remind everyone that we got a particularly high level of Australia based sales and our earnings and manufacturing and that currency has really varied quite a bit over the last 18 months.

So other companies I think have factored in a little bit more, but because of the Australian dollar situation, the way our currency is mixed out as it only looks to be about 1%. As we look at rates today, I looked at on this morning, we are pretty close with what we have assumed. The rates actually kind of moved up a little bit and then they move the other way such that we are back fairly close to what we assumed in October, but the way it mixes out is about a percent.

David Roman - Goldman Sachs

On the year-over-year decline in operating cash flow, can you just walk us through the components to how much of that are charge-back reversals from oxaliplatin and then how much of that is reinvestment in the business?

Tom Werner

The capital spending year-over-year is going to be up and that’s related to SAP and our manufacturing plants as well as some other IT investments we are making as part of Project Fuel to make our business more efficient.

So you'll see an uptick in capital spending, but in terms of operating cash flow, it’s down about $300 million net income year-over-year when you sort through all of one-timers and what not, should add about $40 million to $50 million, so basically there is three components, the lion’s share of it I'd say 80% of the delta year-over-year is this charge-back and rebate impact of oxaliplatin.

We sold the product in the back part of 2009, but we are just continuing to pay the charge-backs and rebates into 2010. So you get a complete reversal. So the number sort of has a 2x impact, the positive impact in 2009 completely reversing in 2010 based on the assumptions we have made. So that’s most of it and then there will be some slight increases in inventory and receivables, given the mix of sales growth outside the US where DSO is a little bit higher. So it’s pretty much if you wanted to pin it down to one thing. It’s really the impact of oxaliplatin and sort of the reversal of fortune there with respect to the cash involved with charge-backs and rebates.

David Roman - Goldman Sachs

On the pipeline, there’s obviously a lot going on here. Can you give us some sense to what the key data points are to watch for in 2010, whether its submission or potential approvals/anything on the legal file we should be watching for?

Tom Werner

Well, as we indicated David that we do not include generic Zosyn, docetaxel or gemcitabine in the US and obviously those are pretty key levers for us. So we will be monitoring those throughout the year relative to how those opportunities do develop. Outside the US, one of the biggest drivers is docetaxel in Europe and as you know we have launched that already and we don’t expect to have significant launches Europe until the fourth quarter, so we will be directing those as well. And other than that the pegfilgrastim launch in Europe which we do expect in the middle of the year and again subsequent roll out in Asia-Pac after launches in Europe.

David Roman - Goldman Sachs

So it’s a [very similar] in terms of significant new product launches we are looking at 4Q 2010 but most significant will be something like tax appear in 2011?

Chris Begley

That’s our current planning assumption, that’s correct.

David Roman - Goldman Sachs

For the US.

Chris Begley

For US, right.

Operator

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

Taylor Harris - JPMorgan

Good morning Chris. On oxaliplatin, I was hoping you guys could may be just be a little bit more specific on what the impact was in 2009 and what you are thinking is going to be in 2010?

Tom Werner

Unfortunately I am not going get into specific dollars related to oxaliplatin, it’s just been our policy all along. But as you recall in the third quarter when we took our guidance up by a dime, I think we alluded that a lot of that impact came from oxaliplatin and as we said in our comments earlier this morning most of the EPS beat relative to consensus again was due to oxaliplatin. So, if you start to tally that up that’s about what we expect year-over-year impact to be on the bottom line. Might be last on that because we will sell some in 2010 but as we said with much higher competition and higher price erosion.

Taylor Harris - JPMorgan

Right. Did I hear you correctly that I think you said Americas SIP you are planning on 5% to 7% growth in the base but after giving some consideration to oxaliplatin, that goes to negative 1 to negative 3, did I get that right.

Chris Begley

That’s correct. I was doing this morning it creates the deltas there create a big range so you may just want to look at the midpoints between both those sets of numbers the 5 to 7 and the 1 to 3 and then the range isn’t so big because it does when you take the upper and lower bounds of both those numbers it creates a pretty big range but that’s correct.

Taylor Harris - JPMorgan

So I think that implies about $125 million drag year-over-year, is that about right?

Chris Begley

I think your math worked.

Taylor Harris - JPMorgan

Okay. So that plus the $134 million of divestitures that’s really where this revenue year-over-year with the drag on the 6 to 8% base business growth comes from.

Tom Werner

That’s correct and those numbers aren’t exactly the same but to use your numbers that’s almost $250 million of sales. Now the good news is when we get Orchid close we will be pulling in some of those sales so expect when we are finally able to dial that into guidance. If you relay or refer to some of the numbers that have been quoted for Orchid, the Orchid acquisition assuming it closes fairly soon here could go a long way on the top line to offsetting the disposals.

Taylor Harris - JPMorgan

Okay.

Chris Begley

Adding a little bit to that Taylor, on an annual basis the Orchid sales and revenue are approximately about $110 million on an annual basis, okay and the other thing that we’ve talked about with Orchid is those lines were on that topic is that it would neutral from an EPS standpoint and its probably worthwhile just mentioning real quickly Orchid the shareholder vote did occur 99% of the shareholders voted in favor the next key milestone is the HSR review which will come up in a couple of weeks there.

Taylor Harris - JPMorgan

Okay. Great and then just two other quick questions. Are you still assuming that you have an H1N1 manufacturing contract this year and then secondly Tom I think you’re not assuming the R&D tax credit gets extended, what’s the impact of that to your tax rate?

Tom Werner

I will do the tax one first and then Terry can do the other one. You know its somewhere less than 50 basis points in the tax rate and there are indications it could get reenacted but for planning assumptions we’ve just assumed that’s its not.

Terry Kearney

Taylor coming back to the H1N1, clearly we’ve been impacted as well by the global slowdown in that product line and the good news I guess is that we do have minimums of our contract and our partner is honoring their minimums.

So we will be producing vaccines in 2010 but they have elected to switch from H1N1 to H5N1 which is the avian flue vaccine, so we’ll be making that. In the meantime from a contract manufacturing perspective we are seeing additional new business opportunities as you are aware with the gem sign opportunity so we feel we are in pretty good shape with overall contract manufacturing at this point in time.

Operator

Your next question comes from the line of Rick Wise from Leerink Swann

Rick Wise - Leerink Swann

A couple of things, may be first on the savings from Project Fuel that you are reinvesting in R&D. Where are you reinvesting and how quickly can you ramp and get a sense what are your goals there with those exterior R&D dollars?

Chris Begley

Rick we are still really focused on both our SIP and MMS product lines so that’s where most of our investment is going in as well as we would put biogenerics into the SIP piece. As you know we have a lot of activity going about biogenerics but much of it is preliminary. You won’t see any benefit per say until later years of our long range plan, but suffice to say we have more opportunities than we have funding for even at this elevated level. So we are still focused on building out our SIP pipeline and we are still focused on continuing to add technology to our MMS product line as well.

Rick Wise - Leerink Swann

I know no easy answer but should we expect some sort of gross payback if you will in as quickly as 2011, does this all things all things equal accelerate what growth we saw might be present in 2011 and ’12 because of this extra investments.

Terry Kearney

The way we’ve always talked about fuel is you know our ability to change the financial profile of the business increasing gross margins which clearly in our guidance and our guidance for 2010 and our performance in ‘09 proves that we are doing that, we are putting the bottom the hoop and then with that we would reinvest in the R&D to make sure that we could that we could take and sustain long term high single digit sales growth, okay. So it’s all about delivering sustainable high single digit sales growth and so that’s really where the R&D dollars go is to generate that type of revenue growth around the world.

Rick Wise - Leerink Swann

Yeah, turning to oxy again Chris I don’t think I heard you say what you assumed for oxy as part of your 2010 guidance, did you quantify it at all because at one point $1.1 billion if I heard you correctly in 2009.

Terry Kearney

No we did not quantify the 2010 sales target that we have on our oxaliplatin we will not do that. We know historically have not gotten into individual molecules sales forecast and don’t plan you know billion to do that.

Chris Begley

I will add a little color to that Rick again we are assuming that more and more competitors come into market and there is a significant price (inaudible) so there will be as Tom alluded to and I think Terry helped quantify a significant year over year change in oxaliplatin revenues for the year.

Rick Wise - Leerink Swann

It still seems like when I look at 2010 I wouldn’t expect anything else but you take a sort of conservative stand I mean obviously the EPS guidance as (inaudible) but the tax credit could be upside some of the new drugs you’ve talked about I read in some of the paragraph for us which makes it uncertain that could be aside Orchid’s not a numbers again I hear you breakeven but its just still sounds like this is sort of thoughtfully realistically conservative.

Chris Begley

This is Chris. Let me respond to that and I appreciate the statement you just made but in that statement I think there is a question that I need to cover and that is as we look at our 2010 guidance you know we have the upsides and downsides to the 2010 guidance which I think could add additional color to the statement that you are making and then we believe we’ve hit it right in the middle of the fairway and I think once I go through the upsides and downsides I think you will feel the same way.

So let me go through that. From an upside standpoint, we believe potential upside would be greater than expected benefit from project fuel and as you were just stating and as we made in our opening comments another potential upside would be any positive elements related to docetaxel or gemcitabine, litigation in the US.

I will remind everyone that if you look at the patent and you look at pediatric exclusivity we are talking about being on the market for approximately a month, okay, a month and a half if everything were to go well okay and so that’s the potential upside and as the year unfolds we will continue to monitor the litigation status and if appropriate, get ready for a launch, but clearly right now that does not make sense to put it into our guidance and then FDA approval of Zosyn, we are assuming no approval of Zosyn and so if we ended up with an approval of Zosyn that’s an upside.

From what we are hearing right now, it’s very difficult for us to peg when that might occur, we tried pegging it probably the past two years actually and have been wrong with all of our assumptions around Zosyn, and so we believe it’s best to not have it in there and then any better product mix would be on the upside as well.

As we already covered Orchid and not from an EPS standpoint because we said Orchid would be neutral in 2010, but it would have a revenue uptick and just to refresh what I said earlier on an annual basis, the revenue is approximately $110 million on an annual basis and then faster than expected recovery from hospital capital spending environment in the back half of 2010 would have a positive impact on MMS.

So that’s another upside as you look at how we forecast it. Now going through the downsides, we have done as an organization a great job of implementing Project Fuel. The numbers get bigger in 2010 and so if we were not able to execute Project Fuel exactly as we have it laid out that obviously is a downside and the numbers are bigger in 2010 than they are in 2009.

And further increases in unemployment and loss to healthcare coverage. We are beginning to see in this country a flattening of jobs last year-to-year, it’s not totally flat, but we are seeing it improving, that needs to continue, but the longer people are without jobs, their COBRA coverage et cetera disappears and so that’s a potential downside.

Then any of the new products that we have in our forecast that Terry covered from a SIP standpoint and a MMS standpoint, if we ended up having delays from a regulatory approval standpoint that would negatively impact our revenue and our profit. And then the final one and I am going to give a little bit more color on this one as uncertainty around healthcare reform.

Particularly for 2010 as it relates to the cost side, right. And we have dialed in nothing from an increased tax, rebate or filing fees standpoint. And as you recall one of the things that was heavily talked about and it’s in the Senate and the House bill was the tax from a device standpoint.

If healthcare reform gets through and there is a tax from a device standpoint and if it were to get implemented in 2010 and if it were to get implemented the way it’s been talked about in the Senate or House Bill that’s impact from a negative standpoint of anywhere between approximately $0.07 to $0.10 of EPS on an annual basis.

There is in both bills, pharmaceutical rebates and in the most recent budget that President Obama has taken forward, there is talk about generic drug filing fees which we haven't contemplated and don’t have enough data to contemplate what that cost would be. And so we take all those pluses and minuses and I think for what we know today, we have hit this forecasting guidance pretty much in the middle of the fair way.

Operator

Your next question comes from the line of Marshall Urist of Morgan Stanley.

Marshall Urist - Morgan Stanley

On oxali, we talked about this last quarter, but are you seeing the increased competition and pressure on price already at this point sort of exiting the year and into 2010 or is there still something that within the plan and you are assuming is inevitable, but timing is unclear. So numbers could get pushed around over the next couple of quarters depending on how it plays out?

Tom Werner

Again, the reason we did to adjust our charge-back reserves is because we didn’t see the level of competition and price erosion in the fourth quarter that we had anticipated when we set those reserves in the third quarter. But again going forward, we have 12 months to deal with and we do expect that our competition will continue to ramp up and we have both solution providers as well as (inaudible) providers.

So there is a number of forums that will compete against each other. So we do expect in our forecast with the call forward, increased competition as well as increased price erosion. To a point where we believe that through the year we are going to start to see typical pricing that we typical see with any other generic launch in this marketplace. So, fairly aggressive price erosion throughout the year.

Marshall Urist - Morgan Stanley

On the Plum's business, just to confirm one thing. So anticipated in guidance there is no increase in placements year-on-year, I wasn’t clear from your prepared comments and then could you maybe talk a little bit about what you are seeing. I know some other people have talked maybe getting a little bit more optimistic, would love to get your thoughts there and exactly what's in guidance?

Terry Kearney

Our guidance says that placements will be relatively flat on a year-over-year basis similar to what we saw and again we were presently surprised in 2009 because we had called for placements to be down year-on-year, but again we are surprised by actually relatively flat prices, but we are calling for the same outcome in 2010.

I recognized that there has been a lot of people quoting some upticks in various financial metrics for hospitals and so forth and so on and our take is the following is that although there are some positive indicators, for the most part, the tone is very still pretty conservative and it relates back to what we saw in 2009 where there are still delays and decisions and some deferrals of decisions. I think hospital CEOs and CFOs unlike are going to have to see a longer trend, more data points to get the confidence in that purchase decision.

So that’s really our thinking and as Chris mentioned, an upside could be if those data points still stay robust through the first half of the year, maybe the purse strings will loosen a little bit, we will see more activity, but again I think we have fairly well call because we really don’t see a whole lot of change in the economic environment for hospitals at least early in the 2010 period of time.

Operator

Your next question comes from the line of Ronny Gal of Bernstein.

Ronny Gal - Bernstein

A little bit on Docetaxel in Europe, how many competitions do you see now as you are beginning to register your product across the different countries?

Chris Begley

It's very limited at this point in time, and that’s why we still have fairly high expectations for the product as it rolls out across the continent in 2010, Ronny.

Ronny Gal - Bernstein

So, if we kind of look at 2011, I actually just don’t have a concept of that, when you say good expectations for this product, roughly what kind of market shares can you get across the European continent when you have a good product launch?

Chris Begley

Again it varies depending on market and how the tenders vary, but we expect to get a good market share in all other markets we compete in and I think what you are alluding to is with the late launches in the big five and the later part of 2010 we should see an annualization impact going into 2011 as well.

There will overtime more competition coming into the market too. I think you are aware of our differentiated format which should give us some distinction in the marketplace versus competitors, so we are counting on that being successful as well.

Ronny Gal - Bernstein

So, just because I am just not aware of this. In US, you think about a good generic launch you think about the generics overall taking 80% or better. What is the equivalent number if you just average up European continent?

Chris Begley

The branded companies do tend to stay and fight a longer period of time, in the European market they will match price. So it's little bit of different dynamic, I am not saying that all brands give up in the US per se, but typically you see that. So, I would say the penetration is not as high, it doesn’t initially but overtime it becomes higher in a year or two and price is more equivalent to the US market in that period of time.

Ronny Gal - Bernstein

Okay and switching a little bit, connecting this to biosimilars, are you guys seeing a pull factor that is hospitals and regions where you are strong on your generic oncology sales? Are you seeing better penetration and better ability to present your biosimilars? I think Sandoz mentioned they got about $50 million from EPO in Europe in '09 and I was wondering if we can use your 40% in relation to that number, is that a good basis to think about them as the 60 and you guys as the 40?

Chris Begley

Well, let me start back on relative to the pull-through on generic oncology. In some markets, I think that does happen, but I will tell you that where we have our biggest market penetration is in Germany and we don’t have a very good SIP business in Germany because of the level of competition that is there so. It doesn’t necessarily always correlate directly to how are you doing your generic SIP business, it really comes down to the dedicated sales force that we have invested in and our ability to promote the product to two individual prescribers, a little different process than what you might see with a typical bidding tender situation.

We believe we are the market leader in short-acting EPO biogenerics at 40%, so I wouldn’t peg Sandoz at 60. I’m not sure where the numbers come from, but I can’t really correlate that from what we know. So again everything that we have from an IMS perspective and our internal intelligence says that we are the market leader across the continent and I know there are competitors other than the Sandoz out there that we compete with. So I don’t know I can’t confirm the information you have.

Ronny Gal - Bernstein

I think Celltrion may it public that they are starting rituximab trials in Europe, with expectation of being able to enter in about four European countries, a little bit ahead of the others. Can you give us a little more details on that and will those be countries where you'll be doing the marketing?

Terry Kearney

Ronny, at this point in time it’s a little premature to give any more color around that, perhaps on a later call we can give a little more color on the status of that. We would like to hold on that at this point.

Operator

Your next question comes from the line of Jayson Bedford of Raymond James

Jayson Bedford - Raymond James

On your EPS guidance, but you gave us the revenue growth assumptions excluding oxali and the business disposals. I am wondering if you can give us a similar number for EPS growth meaning the guidance implies 5% to 8% EPS growth, excluding the benefit from those two items we are getting to kind of high teens EPS growth, is that fair?

Tom Werner

So on the negative side, you have got out of the gate because the share count and tax-rate that’s about a $0.13 to the bad. Then you have about a dime to the bad relative to the disposals depending at how you comped oxaliplatin and Taylor's question earlier I think spelled that out, but we have commented that a good portion of the increasing guidance at Q3 and a good portion of the beats to consensus in Q4 was oxaliplatin related although we are not going to give a specific EPS number.

Those are some of the negatives and then that would re-base the [3.11] down to a more normalized number and then year-over-year, we have got an additional $60 million to 70 million in net Project Fuel savings, but I would say that those savings are probably more in the $90 million to $100 million because we are able to increase our R&D profile by 80 to 100 basis points year-over-year. So those are sort of the big movers and I think you have dial those in, high teens is certainly a reasonable number.

Jayson Bedford - Raymond James

So gross Project Fuel is $90 million to $100 million in 2010?

Tom Werner

We said $8 million to $10 million in savings this year, $70 to $80 million next year, so the delta is 62 to 70, we are getting all of that, but we are also able to afford a significant increase in the R&D profile. So that’s why I come up with a gross numbers that’s higher.

Now you can say that the base business is growing faster and that’s what's fun in the R&D, but we sort of choose to link fuel savings and additional investment and R&D together.

Jayson Bedford - Raymond James

That’s fair. Just Tom on the gross margin number in the fourth quarter you mentioned product corrective action and I'm just wondering the impact in the quarter and then when we look at 2010 gross margin at 42% to 43%, do you expect a step up in the first quarter or would you expect to exit 2010 north of 43%.

Tom Werner

Let’s see. I wouldn’t expect we'll be exiting the year north of that. I think what our comments said is we'll be ramping up throughout the year because the project fuel savings really begin to accelerate in the back part of the year and relative to the first part of your question in terms of what the impact was of these corrective actions I just won’t get into specific numbers. We also had foreign exchange because of our Australia manufacturing presence. When you look at the Australian dollar year-over-year, it's up 30%. So because of the balance of what product we make in Australia versus what we sell we're getting penalized there but I just choose not to give you a specific number on the corrective actions.

Jayson Bedford - Raymond James

Okay. Just a couple of quickies. With respect to the elimination of the SKU's, is that providing a headwind on revenue growth or have you for the most part kind of successfully transitioned those customers to other products?

Terry Kearney

I think to put it clearly we expect to successfully transition our customers through those prices. Not all of that has occurred yet. We have identified where the opportunities are to eliminate these SKU's and last year we spent a lot of time educating the TPO's. This year we're spending a good amount of time early in the year increasing the awareness of specific customers. We have a number of ways to do that, through websites and the like to help them understand the benefits of this opportunity for them and how this transition process will work the way we envision the transition occurring is that it will occur at the anniversary day. So each of the contracts sold will be staggered throughout the year.

Jayson Bedford - Raymond James

And then just lastly on Precedex, can you just update us on the timing of the expectation for the long term use indication and then also now that that product is exceeded a $100 million on a run rate basis, care to offer any new run rate goals for 2010?

Terry Kearney

We're still in discussions with the FDA relative to the long term indications and those are ongoing. Relative to 2010 again we believe we continue to build on the opportunities that we saw in 2009 with the expanded sales force investments not only in the U.S. but also outside the U.S. Certainly the procedure of sedation indication has been very beneficial and we will be entering new markets such as South Korea. So we have good expectations for continued strong growth in Precedex in 2010 but we're not going to quote in the number at this time.

Operator

Your next question comes from the line of Junaid Husain of Soleil Securities.

Junaid Husain - Soleil Securities

Guys relative to the Orchid Chemicals deal, you do have existing in this portfolio, could you remind me if there are any redundancies with the assets that that you are looking to acquire from Orchid and here I'm thinking about any potential divestments that you might need to make in order to be compliant with HSR.

Terry Kearney

On the beta-lactam area there is really, we have no capability there whatsoever and so there is no overlap product wise as it relates to our ability to make, develop that technology, that class of drugs. We do have some partnerships around the world, one of them with Orchid and then we have some other partnerships but there is really no overlap as it relates to core competencies.

Junaid Husain - Soleil Securities

And then Terry or Tom, could you help us out relative to your sales guidance for 2010 could you give us a sense for what portion of this may be represent a new product?

Terry Kearney

Well, Thomas, earlier when he went through the guidance there is a significant, depending on each of the regions there is more so in Europe. We are very dependent on new products. He went through a long laundry list of opportunities there and less so in both Asia Pac and the U.S. although new products are significant but we in all regions we continue to see good expanded growth in our base as well.

Junaid Husain - Soleil Securities

But just to be clear docetaxel and gemcitabine, there are not in your U.S. guidance?

Terry Kearney

Nor is generics also.

Junaid Husain - Soleil Securities

And then Chris last question for you, big picture question for you relative to the FDA. From a regulatory perspective, timelines to the agency has been flowing whether its drugs or devices. The FDA and the IOM are hosting a bunch of meetings this month and the rest of you are talking about FDA reforms. So to what extent does FDA policy keep you up at night given all the regulatory submissions you’ve got pending and what’s the risk?

Chris Begley

First of all, we’ve got a very good relationship with the FDA and we will continue to work very closely with the FDA and as it relates to the timing of approvals on the new product side, one of the things that we constantly do is monitor that and then adjust our timeframes of when we submit and then when we plan on launching it and so I think we’ve got in our models all that are fairly current because we have a very disciplined approach.

I’ve talked about before our Hospira review committee and so those are current and obviously we will do anything we can to help to assist the FDA from a question standpoint and information standpoint and also ease of the submission from a legibility and ability to read it. And so I think we're on top of it. And so I don’t mean to put it aside but its not something that keeps me up at night. The organization here is very well aware of the importance of working with the FDA and changing as the requirements change.

Operator

Your next question comes from the line of Sumet Fulcari of Bank of America\Merrill Lynch.

Sumet Fulcari - Bank of America\Merrill Lynch

On behalf of Greg Gilbert, I have two quick questions. The first one is to what extent did supply shortages are because their competitor help your base SIP business in 2009 and what are you factoring in for 2010 along these lines and my second is, are you factoring in any contribution from generic Lovenox in your 2010 guidance?

Chris Begley

Let me start out with on the supply issue. We always, especially in the U.S. end up picking up sales as a result of supply issues and that’s due to the fact that we've got such a broad product line but also due to our high service levels. We have never really quantified that. I would tell you from a year-over-year standpoint it probably stays pretty much relatively flat and so it does not have a lot of variance from year to year and it would be hard obviously to forecast any type of increase because we never know when someone is going to end up having a supply issue.

And then on Lovenox, Lovenox is not in our forecast and Lovenox, we've got quite a bit of additional work that we need to do and so its very appropriate not to have it in our forecast in the near term this year and we'll look at it for 2011 but we have quite a bit of work to do on Lovenox, I know there are other people talking about the fact that they're close to approvals. That is not the situation at all from a Hospira standpoint and so your question is a good one and a topic that we really need to make sure everyone understands.

Operator

Your next question comes from the line of John Putnam of Capstone Investments.

John Putnam - Capstone Investments

It appears that you pulled forward a lot of the impact from Project Fuel and I'm wondering if it may cause you or may give you the opportunity to readdress Project Fuel and add other initiatives if you will later in 2011?

Chris Begley

I will address that from a high level and I think your question is certainly an important question. The environment around us is constantly changing and so when you're running a public company that is the size of a Hospira, it's important to realize if that environment changes we need to continue to change. And that’s what transformation is all about. And so Project Fuel has an end date but when Project Fuel end we'll have some other transformation or changes that we will be driving because the environment around is wont stay constant. And so as an organization its important to be a learning organization and to adapt and to modify.

And to your point, the more we drive Project Fuel and the results from Project Fuel, the more flexibility it gives us whether that’s for key R&D investments to drive the high single digit sustainability on the top line that all want or other investments are becoming important to us and so I think the point you make is a very good one. We've shown success with fuel. The organization to its credit has been flexible and I’m sure they will in the future as well.

Operator

Thank you. That was your final question.

Karen King

Thank you. This concludes our call for the quarter. I’ll just remind everyone that we do have slides posted on our website that can help you through the quarter in some of those guidance numbers and thank you for joining us today.

Operator

This concludes Hospira’s fourth quarter and full year 2009 earnings conference call. You may now disconnect.

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Source: Hospira Inc Q4 2009 Earnings Call Transcript

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