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Hospira (NYSE:HSP)

Q4 2010 Earnings Call

February 02, 2011 9:00 am ET

Executives

Christopher Begley - Chairman, Chief Executive Officer and Member of Science & Technology Committee

Karen King - Vice President Investor Relations

Thomas Werner - Chief Financial Officer and Senior Vice President of Finance

Analysts

Matthew Taylor - Barclays Capital

David Roman - Goldman Sachs Group Inc.

Ronny Gal - Bernstein Research

John Putnam - Capstone Investments

Christopher Schott - JP Morgan Chase & Co

Gregory Gilbert - BofA Merrill Lynch

Frederick Wise - Leerink Swann LLC

Robert Goldman - CL King & Associates, Inc

Jayson Bedford - Raymond James & Associates

Paul Choi - Caris & Company

David Buck - Buckingham Research Group, Inc.

Marshall Urist - Morgan Stanley

Gregory Hertz - Citigroup Inc

Operator

Welcome to Hospira's Fourth Quarter and Full Year 2010 Conference Call. [Operator Instructions] 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 fourth quarter and full year 2011 (sic) [2010]. Participating in today's call are Chris Begley, Chairman and Chief Executive Officer of Hospira; and Tom Werner, Senior Vice President, Finance, and Chief Financial Officer.

For those of you that are not aware, Chicago is in a state of emergency, and we're right in the middle of what is considered to be one of the worst blizzards in decades. So this is one of those rare occasions where all the weather predictions have aligned, and they're estimating that we're going to get two feet of snow. All of our roads are shut down for emergency vehicles only. So Chris, Tom and I are calling from our homes. Hopefully, our electricity stays on and we're able to complete the call. Please be patient if you may hear a dog bark or kids waking up since this is an official snow day and all the schools are closed as well. And if we drop for any reason, please stay on the line and give us a few minutes to dial back in.

With that, let's move on with the call. 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 Presentations 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. It is posted on the Presentation page at www.hospirainvestor.com. The material is for your reference as an enhanced communication tool.

Before I turn the call over to Chris, I want to draw your attention to the product line reporting and the 8-K we published this morning. In 2009, we divested our Critical Care business, which historically rolled up into our Other Device product line. As a result of the divestiture, we have made the decision to incorporate this product line, which is primarily gravity administration sets, into medication management. Going forward, we will report sales by three product lines instead of four: Specialty Injectable Pharmaceuticals, Medication Management and Other Pharma, which remains our Solutions, Nutritional and Contract Manufacturing business. For your reference, the 8-K provides quarterly financials with our updated product lines for the past three years.

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

Christopher Begley

Thank you, Karen, and good morning, everyone. As I reflect on the past year, my experience as an avid cyclist comes to mind. I conjure an image of a road race. The course in front of me has all kinds of obstacles, including the slope and the curve of the road, unpredictable weather conditions, the actions of the other cyclists and the mental and physical endurance required. But those with experience in training, those who are conditioned for the race, those who focus on staying the course, they can not only overcome those obstacles, they can turn them into opportunities.

2010 was like that road race. We faced several obstacles throughout the year. But by staying the course, we made significant progress in transforming challenges into opportunities as I'll briefly highlight.

Early in the year, to address the largest gap in our SIP portfolio and to stay ahead of our peers with a competitive cost structure, we successfully acquired Orchid's generic injectable pharmaceutical business. This acquisition not only enhanced our SIP portfolio by adding new beta-lactam antibiotic compounds into our pipeline, it also secured access to high-quality, low-cost development and manufacturing capabilities.

Also during the first quarter, we finalized an agreement on our oxaliplatin patent challenge, allowing us to sell a significant volume of the product in the first half of the year, eliminating any litigation risk and securing the right to relaunch our product in 2012, almost a year before patent expiry.

In the second quarter, we received a warning letter regarding two of our facilities, both located in North Carolina. This was a sizable pothole in the road that could have deterred us. But we resolved to meet the FDA's expectations and raised our bar internally to drive even higher levels of quality and consistency across our global facilities. During the second half of 2010, we made substantial progress addressing the issues in the warning letter. We fulfilled our planned commitments outlined to the FDA, most of which were completed by year end and resumed delivery of propofol under the new manufacturing process. I am pleased to announce that just last week, the FDA completed their inspection of our Clayton facility with no observations. The next step is the FDA inspection of our Rocky Mountain facility, which we anticipate will occur within the coming months.

To capitalize on our second major Paragraph IV litigation opportunity, we finished 2010 by launching the oncology drug gemcitabine. We were the first and only market entrant to offer gemcitabine in a two-gram, freeze-dried vial in the U.S., with 180-day exclusivity. This further aids the oncology patient in reducing the high cost of proprietary oncolytics. And finally, to meet our internally driven challenge of improving margins and driving towards top quartile financial performance, we not only met our commitments for Project Fuel, our corporate-wide optimization initiative, but we overachieved many of our goals, allowing us to invest in key drivers of our business. In terms of our Project Fuel initiatives, we simplified our product line, disposed of non-strategic assets and aggressively drove transformation throughout the organization. In doing so, we are optimizing our productivity and driving towards better execution of our longer term financial targets and business goals.

Despite the significant progress we made in the course of 2010, we had some challenges that couldn't be resolved within the year. They have carried into 2011 and had a dampening effect on both our 2010 results and on our 2011 guidance. First, as you are all aware, the U.S. patent expiration date for docetaxel was in mid-November 2010. We are frustrated regarding the pace of approval of the drug. I have personally been involved, and I can assure you that we have all our resources behind this effort. We are confident that there is not an issue with our product, and that closing this out is more of an administrative procedure. This is a top priority for us, and we have been proactively working with the FDA to bring this cost-saving oncology product for our customers to the market.

Next, during the middle of 2010, we experienced an increase in our backorders, which negatively impacted our SIP business. The increase was driven by several factors, including certain capacity-related constraints, a general slowdown of deliveries as a result of our quality enhancement initiatives and other market dynamics such as competitors exiting the market which resulted in us reallocating manufacturing to address increased market demand. By the end of the year, we were successful in cutting the backorders by half. But we'll not be satisfied until we are consistently meeting customer demand. Some of the supply shortages have forced practitioners to change their clinical practice, switching to drugs that are in supply or ones that we don't sell.

We still have isolated areas of constrained capacity that will persist through 2011. While we have a solid plan in place for resolution and are committed to restoring our service back to its industry-leading levels, the effects of the backorders continue to impact our financial progress. And we expect this will persist through the first half of the year. As supply comes back, we are initiating a variety of programs to regain the market share we lost in 2010 and are confident based on our historical success and our ability to gain back share.

Third, on the device side of the business, we elected to place our Symbiq general infusion pump on ship-hold for new customers earlier in the year due to some reports we received about alarm failure and certain conditions. We are continuing to address this with a software upgrade package which we are on track to submit to the FDA by the end of the first quarter. This submission will be one of the first to follow the guidelines of the new 510(k) process, thus approval timing remains uncertain. New pump placements for Symbiq will remain on voluntary hold until we receive FDA approval of our 510(k) submission.

And finally, just recently, we informed the FDA that we had received a small number of customer reports associated with our Plum A+ pump regarding failure of the pump's audible alarm under certain conditions. We are contacting our customers, notifying them of the corrective action plan. Although this will be classified as a field recall, the FDA is not requiring us to pull our pumps off the market or halt production. We will be servicing the pumps in the field which will permit the continued sales of new Plum pumps.

Before I turn the call over to Tom, I would like to update you on our search for my successor as CEO. The board has been busy interviewing a short list of impressive candidates and has narrowed down the candidate pool even further. Over the next month, the board will be conducting a second round of interviews, and we are hopeful that we will have a successor in place by the end of the first quarter.

As I emphasized at the outset of my CEO retirement announcement, I will remain in place as CEO as long as it takes to find my replacement and then transition to the role of Executive Chairman. I am committed to ensuring that we not only get the right person for the job in Hospira but also that the transition goes smoothly for all of our stakeholders.

Although our achievements in 2010 were many and substantial, the challenges we have faced were also substantial and managing them created a drag on our results for the year. We are not happy with this and are intently focused on driving forward. We know what it takes to overcome these challenges and come out ahead, and we are doing it. We will continue to transform the remaining obstacles into positive stepping stones, turning challenges into opportunities and building on the passion that has made Hospira the great company it is today.

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

Thomas Werner

Thanks, Chris. Good morning, everyone. As a reminder, as usual, our references to net sales results will be on a constant currency basis, which excludes the impact of foreign currency fluctuations.

As Chris mentioned in his opening comments, while we've been successful in cutting the backorder level in half, the financial impact resulting from supply shortages was more significant than we had anticipated when we provided our updated full year guidance. We were disappointed with the quarter and how we closed out the year. We fell short of our full year sales and earnings projections, primarily a result of continued supply shortages that impacted SIP and contract manufacturing sales in the fourth quarter and lower gross margins due to a recently estimated charge associated with the anticipated Plum A+ field correction.

Also related to margins, our docetaxel product for Europe comes from our Indian joint venture. So some of the resulting positive gross margin impact is coming through on the other income and expense line in the form of joint venture income, and we can get into that a little bit later during the Q&A. Also, during the quarter, impacting results, we had slightly higher R&D expenses related to the timing of project spending and some SG&A spending that moved from Q3 into Q4. The launch of our gemcitabine two-gram products and a lower-than-anticipated tax rate helped to offset part but not the entire amount of the shortfall.

We were also disappointed with our operating cash flow as we were not able to work off inventories as much as we had expected. We also elected to make a discretionary contribution to our frozen U.S. Pension Plan, resulting in fully funded status under regulatory guidelines.

The full year 2010 sales were $3.9 billion, relatively flat from 2009, but excluding the impact of oxaliplatin and the non-strategic divestitures we made, net sales were up 3% versus 2009. Adjusted gross margin for the year was 42½%, and adjusted operating margin increased by 100 basis points to 20.0%, while adjusted diluted earnings per share grew 6% to $3.31 per share.

Global net sales for the quarter were $992 million, a decrease of 6% from the fourth quarter of last year. But again, excluding the year-over-year impact related to oxaliplatin and divestitures, net sales in the fourth quarter were essentially flat versus the fourth quarter of 2009. Our primary growth driver for the year, SIP, increased in all three regional segments. Adjusted earnings per share in the quarter were $0.77 compared to $0.87 in the fourth quarter of 2009.

By product line, global Specialty Injectable net sales increased 4% for the quarter and 12% for the year. By region, in the Americas, Specialty Injectable sales were up 4% in the quarter, with strong performance of recent launches, partially offset by the year-over-year decline related to oxaliplatin. We launched meropenem in the U.S. at the tail end of the second quarter and we now have over 50% market share, still being the only generic on the market. We introduced generic Zosyn, referred to as Piperacillin/Tazobactam or Piptaz in a phased approach with multiple-vial format launched in the fourth quarter. And more recently, we launched the product in our proprietary advantage system, which we believe will be very well received and help us gain additional share in 2011.

As Chris mentioned, we also launched our two-gram freeze-dried gemcitabine product at patent expiry in mid-November, and we were the first generic to enter the market for this product. Our novel presentation has been well received by the customers, allowing us to quickly capture 20% to 30% of the total market. While the originator has introduced an authorized generic, pricing has remained rational, with hospital markets at price discounts currently 15% to 20% below originator pricing.

In EMEA, Specialty Injectable sales increased 8% in the quarter with a couple of our recently launched molecules, namely docetaxel and Piptaz driving those results. We've now launched docetaxel in 15 countries including all the major markets in Europe, and while the oncology market continues to be fairly fragmented among competitors, we did capture the leading market share for European generic docetaxel in 2010.

Momentum for Retacrit in the region also continues to build as Biosimilar adoption has increased steadily throughout the year, recently topping 12% share. Of the total short acting biogeneric EPO market in Europe, our market share remains at roughly 50%.

Moving to the Asia-Pacific region. For Specialty Injectables, sales increased 3% over the fourth quarter of 2009 due primarily to growth in Precedex coming from our new long-term indication in Japan as well as ongoing strength in Australia.

Moving to Medication Management which, as Karen mentioned, now includes gravity administration sets. Net sales of Medication Management for the quarter were down 10% versus the fourth quarter of 2009. In the Americas, strong pump performance in the fourth quarter of 2009, as well as a lack of new Symbiq sales due to the voluntary ship-hold in 2010 made for very tough year-over-year comparisons. Medication Management net sales decreased 11% in the quarter, masking an otherwise healthy quarter for Plum and our other pump platforms. Placements for Plum increased over 25% relative to the fourth quarter of 2009, as several large strategic orders we've been cultivating throughout the year shipped in the fourth quarter.

Outside the Americas, Medication Management net sales decreased 4% in Europe, Middle East and Africa and increased 5% in Asia-Pacific in the fourth quarter. This was primarily related just to the timing of sales.

In the Other Pharma segment, sales decreased across all regions in the quarter, primarily due to the non-strategic asset divestitures that impacted the period, as well as the backorder situation that impacted our ability to provide supply to certain contract manufacturing customers.

Moving down the rest of the income statement, adjusted gross margin in the quarter was 39.1% compared to 40.5% in the fourth quarter of 2009, with the decline driven in part by charges associated with our quality initiatives and estimated expenses related to the Plum field correction. These were partially offset by improved manufacturing efficiency associated with Project Fuel.

For the full year, adjusted gross margin finished at 42½%, a 250 basis point improvement over the full year 2009. R&D expense in the fourth quarter increased to $103 million, due in large part to an initial payment associated with an agreement for hematology product for cancer patients that is still in development, as well as the timing of overall project spending. Excluding one-time development charges in both 2009 and '10, R&D finished the year at 6.4% of net sales, up from 5.8% of net sales in 2009.

SG&A expense was $168 million, up slightly from $165 million in the fourth quarter of 2009, primarily a result of sales force expansion and increased promotional spending, offsetting Project Fuel savings.

For the year, SG&A totaled $675 million, up from $619 million in 2009 due to acquisition and integration-related charges and litigation settlements and related expenses in the third quarter, as well as increased sales and marketing spend during the year. Adjusted operating income decreased to $142 million versus $204 million in the fourth quarter last year. But for the full year, adjusted operating income was $784 million, a 100 basis point improvement over 2009 for operating income as a percentage of net sales.

Interest expense increased 3% in the quarter. This was really the result of an extra 15 days of debt that we carried in the fourth quarter as we refinanced our $500 million notes, most of the refinancing taking place in the third quarter but stretched a little bit into the fourth quarter. Interest expense for the full year decreased 5% due to lower overall average outstanding debt versus last year.

Our effective tax rate on an adjusted basis in the quarter was a benefit of 1.7% due to the impact of the renewal by the U.S. Federal Government of several tax extender bills, as well as the mix of earnings, bringing our year-to-date effective tax rate to 20.1% versus 20.3% last year.

And finally, adjusted diluted earnings per share for the fourth quarter were $0.77 compared to $0.87 last year. For the full year, adjusted diluted EPS was $3.31, an increase of 6% over 2009.

Turning to the cash flow statement. Our cash flow from operations for 2010 was $315 million, well short of our guidance range of $525 million to $575 million. It was primarily due to inventory build during the year related to the preparation for new product launches and future strategic opportunities.

Also, we were unsuccessful in working off as much of the inventory build as we had planned to work off by the end of the year. Also, affecting cash flow were several other factors: Higher work-in-process inventories as a result of longer lead times created by our quality initiatives, the timing of an initial payment associated with the Kiadis licensing agreement and an unplanned discretionary contribution of $92 million to our frozen U.S. pension plan during the fourth quarter which resulted in fully funded status under the regulatory guidelines. All of these were major contributors to the cash flow shortfall.

At December 31, 2010, our cash balance was $604 million compared to $1.1 billion at September 30, and $946 million at the end of last year. The decrease relative to last year was driven primarily by acquisitions; second, common stock repurchases during both the third and the fourth quarter of 2010, and again, as I mentioned before, the early payout related to our $500 million long-term debt retirement relative to the September balance.

As I did mention before, the September balance is abnormally high due to this transition period we went through as we did the refinancing. When we completed the refinancing, this did extend our current weighted average maturity for debt to 12 years which is now one of the most favorable among comparably rated healthcare companies.

Before I move to guidance, at this point I'd like to provide an update to our drug pipeline. At December 31, 2010, our small molecule pipeline totaled 46 compounds, representing a total of 80 regional launches, including 39 in the U.S. The global branded market value of the Small-Molecule pipeline is now approximately $13 billion. This is lower than our mid-year update due primarily to the launch of docetaxel in EMEA and Piptaz and gemcitabine in the U.S. Of the pipeline compounds, 19 have been submitted for approval to one or more regulatory agencies and the local market value of the filed compounds is approximately $5 billion.

In terms of therapeutic areas, roughly 40% of the total pipeline compounds are related to oncology and beta-lactam anti-infectives. This reflects the strategic investments we've been making through acquisitions to become leaders in these two important therapeutic areas.

Relative to launch timing, more than 17 drugs are expected to launch in various regions over 2011 and 2012, with slightly more than half due to launch this year. Our Biosimilars pipeline remains one of the largest pipelines in the industry, with 11 compounds and a local branded value of $28 billion. The pipeline has already begun to benefit Hospira, with the launches of Retacrit and Nivestim in Europe as well as the impending launch of Nivestim in Australia later this year.

And now I'd like to turn to our 2011 full year projections, as well as an update on our long-term financial goals. First, for 2011, underlying our guidance for 2011 is growth in our base business, as well as the impact of expected new product launches and incremental savings related to Project Fuel. Overall, we expect sales growth of 5% to 7% on a constant currency basis, with foreign exchange contributing an additional positive 1% based on today's rates. We expect adjusted earnings per share growth between 18% and 21%.

Our guidance reflects the following assumptions: First, FDA approval of our single vial docetaxel product late in the first quarter. We're assuming that two other generic competitors will be on market when we launch, including an authorized generic and that the originator will stay in the market with a discounted price. We know that the originator has almost completely converted the market to a single-vial solution product, and we believe we'll be the only generic competitor with this offering.

Our second key assumption is FDA approval of our gemcitabine solution presentations in the fourth quarter of 2010. The PDUFA date for our gemcitabine product was mid-January. FDA sent us a complete response letter at that time asking us for additional information. We're actively working to respond to all their questions. It's anticipated that once we respond, our amendment will be on a six-month review clock, with a PDUFA date in the fourth quarter of 2011. We're assuming that our 505 b2 filing for our differentiated solution in citabine product will be approved at that time, and that we’ll be the first entry to market with a solutions product.

For some product line sales highlights, let's start with global Specialty Injectable Pharmaceuticals net sales. The impact of temporarily exiting the U.S. oxaliplatin market in 2010 would just about offset the expected annual benefit of docetaxel and gemcitabine in 2011, assuming a full year contribution from both of those new launches. As I had highlighted, we are assuming approximately nine months of docetaxel and three months of gemcitabine solution. If we exclude new product launches but include Paragraph IVs from our 2010 and 2011 results, so that's excluding new product launches and excluding Paragraph IVs from both years, the base SIP business is expected to increase 5% to 7% year-over-year. When we layer on the impact of new product launches, we expect global SIP net sales to grow 8% to 10%, including the assumptions I highlighted regarding the launch of docetaxel and gemcitabine solutions.

Moving to Medication Management net sales globally. While we are hopeful to receive FDA approval of our 510(k) submission before the end of the year for Symbiq, we have excluded new pump placements for Symbiq from our 2011 guidance due to this uncertainty. We've also assumed slow growth in the first half of the year related to Plum as we work to resolve the audible alarm issue by servicing pumps in the field. Therefore, our year-over-year growth is primarily related to upgrades and competitive captures for Plum in the second half of the year, which would include contribution from the Baxter Colleague recall opportunity and growth in our GemStar installed base. While we've seen some acceleration from certain customers in decisions regarding their Baxter Colleague pumps, we still believe that most customers will take their time working through the evaluation and decision-making process, and have therefore assumed that the majority of this opportunity transpires in 2012. We've also assumed that the capital spending trends do not change significantly from the environment we experienced in 2010. As a result, we expect Medication Management net sales globally to decline 1% to 2% in 2011.

With incremental savings from Project Fuel and better product mix, we're projecting 2011 gross margins to continue to improve to between 43½% and 44½%, a 100 to 200 basis point improvement over last year. R&D as a percent of net sales will remain in the 6% to 6½% range, and SG&A in the 15½% to 16% range.

Therefore, we expect to attain adjusted operating margins of 22% to 23% in 2011, a 200 to 300 basis point improvement over 2010. Below the operating line, we are forecasting net interest and other expense and other nonoperating items in the aggregate to be in the range of $65 million to $70 million. This again is largely due to the increased joint venture income generated by our Indian pharma joint venture that I mentioned before. We're estimating our adjusted tax rate will be in the range of 22% to 23% primarily due to a shift in the mix of earnings compared to 2010.

Moving to earnings per share, we're assuming outstanding shares to be steady at $171 million and are projecting adjusted diluted earnings per share to be in the range of $3.90 to $4, which represents an 18% to 21% growth over 2010.

In terms of quarterly calendarization, reflecting the delayed launch of U.S. docetaxel, we expect the first quarter of 2011 to be our lightest earnings quarter, with 16% to 18% of our annual adjusted earnings per share generated in that quarter, and then the remainder spread fairly evenly over the subsequent three quarters. We expect revenues in the first quarter to be down roughly 10% from the fourth quarter of 2010 due to limited Plum sales and the timing of Specialty Injectables as the result of wholesaler buying patterns and then pick up in the remaining three quarters of the year.

Adjusted gross margins in the first quarter will be substantially better than the fourth quarter of 2010 and will gradually ramp up throughout the year. R&D spending will gradually ramp up throughout the year, and SG&A will be fairly flat throughout the year in line with the fourth quarter of 2010. We estimate cash flow from operations for 2011 to be between $650 million and $700 million, capital spending projected to range between $250 million and $275 million, increase here primarily related to IT projects that were begun during Project Fuel as well as capacity expansion at certain facilities.

We expect depreciation and amortization to be $230 million to $250 million. And when we hold our first quarter earnings call, we intend to communicate our plans for capital structure and future uses of cash.

Finally, I'd like to update you on our longer term financial goals which we are defining as three years out through 2013. We're targeting sales to grow in the mid- to high-single digit range, driven by continued growth in Precedex, the market return in 2012 of oxaliplatin, as well as other new product launches. Adjusted gross margins should approach 45% and operating margins should approach 25% by 2013 and adjusted earnings per share is expected to grow in the mid-teens.

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

Christopher Begley

2010 was a year of significant transformation and achievements for Hospira, but also a year with several challenges. We are meeting these challenges head-on, but they have created a drag on our business and continue to affect us as we move forward into 2011. We are transforming these challenges into opportunities wherever possible, and at the same time, are moving our business forward.

The optimized efficiencies we've achieved through Project Fuel and the focus it has instilled in the company is driving us towards continual improvement and has enhanced our commitment to operational excellence. We look forward to resolving our remaining challenges in 2011, as well as continuing to build on Hospira's leadership position, driving sustainable growth and returning value to our shareholders.

With that, operator, we are now ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Marshall Urist with Morgan Stanley.

Marshall Urist - Morgan Stanley

First one, just on the Taxotere assumptions that are in guidance, I know you gave some detail, but could you also talk about what your assumptions there are on pricing? Are you kind of assuming sort of kind of equal share amongst all the players and what are your assumptions on pricing there, just so we can get a sense of how you guys are thinking about that launch.

Christopher Begley

On Taxotere docetaxel, over time we believe that we can maintain our typical market share for new products, which we have always said is in that 20% to 30% range. However, given that there's few competitors are expected in the initial launch, we believe we can achieve a higher market share position initially, similar to what we experienced with oxaliplatin in the 40% to 50% range. On the price erosion piece, it's difficult to speculate on the erosion until we have a better idea of how the market for the generic product actually forms. And so those are our assumptions going into the guidance on docetaxel.

Marshall Urist - Morgan Stanley

So just to press you on that last point a little bit, just given that you will be the only one-vial out there, is the pricing assumption for -- is it 15% to 20% like you've seen with Gemzar or is it more severe than that?

Thomas Werner

Really, at this point, until we get the product approved and we can see the competitive landscape, we've kind of modeled a variety of scenarios, but it's just really too early to pinpoint a number on pricing.

Marshall Urist - Morgan Stanley

I know you said on the top line that Gemzar and Taxotere will offset oxali, but can you give us a sense of the earnings contribution from oxali in 2010, just so we can a little bit better understand the earnings outlook for next year?

Thomas Werner

The comment we made was that on a full year basis, they would about offset, but we're not expecting to have both docetaxel and gem solution for the full year. And we haven't really disclosed a profitability number on oxaliplatin, but the sales and profitability that we've laid in for gemcitabine and docetaxel relatively wash out with oxaliplatin.

Marshall Urist - Morgan Stanley

On the 2013 outlook, it would be helpful, you've obviously got more confident on sort of getting operating margins to the mid-20s. What are the big pieces or what are the major pieces that you guys are putting in place or see putting in place? Is it more on the expense side? Is it sort of product mix in the launches that you have to sort of get you from the 2011, I believe, 22% to 23% to get to that 25%?

Thomas Werner

Well, it's really kind of the standard answer we've had. It's all of the above. As we grow Precedex and hopefully when oxaliplatin comes back at richer margins, that's going to help. There's continued focus on cost reductions and manufacturing. We've got the India opportunity in front of us. R&D should stay in that 6% to 7% range of sales, and then we intend to leverage SG&A and try to hold the line there and see some drop through just by growing sales and gross profit, then growing SG&A slower.

Operator

[Operator Instructions] Our next question comes from Rick Wise with Leerink Swann.

Frederick Wise - Leerink Swann LLC

If I could come back to gross margins, can you give us a little more color on how you get from the fourth quarter gross margin to the, if I heard it correctly, Tom, the 43½% to 44½% for 2011? And maybe as part of that, do you need additional restructuring given the challenges, and the timing and everything, relative to Project Fuel to make margins happen?

Thomas Werner

No, I don't really think so. I think as you try to transition from this year's fourth quarter margins, which as we said, we were very disappointed in, we saw an impact of over 200 basis points just related to the Plum issue, and that's not going to recur in the first quarter. Factories should run a little bit stronger, and I think we'll have a richer mix of products as well. So just the Plum issue alone really depressed the margins. And as we've looked at pulling the quality-related issues out, as well as oxaliplatin, we’ve seen quarter after quarter and the fourth quarter was no exception that margins continue to improve, but we just had a couple of things this quarter that really dampened them down.

Frederick Wise - Leerink Swann LLC

My follow-up question also relates to 2011 guidance. I hate to be boring and predictable, but I also would like to ask what are the puts and takes to 2011 guidance. It seems like you're taking, on the sales line, with the new products and on the pump side, a fairly conservative stance on timing. Can you handicap that for us a little bit and again it’s always what pushes you toward the top end or the low-end risks?

Christopher Begley

Let me go through for you, Rick, and all of our other callers, the upsides and downsides as we see them in the guidance that we just covered. And I'll do the upside first. As we talked about, we expect docetaxel to be approved towards the end of this quarter. It if was approved any earlier, that could end up being a potential upside. In addition to that, higher infusion pumps overall, if we ended up being able to get Symbiq approved and get it approved earlier and actually capture sales, which we have left Symbiq sales out of the 2011 guidance, that would be also an upside. And then the typical one that we always have is if we're able to drive stronger overall product mix. That would be another upside that would occur through the P&L. And then the final upside is, for some reason, if we're able to relaunch oxaliplatin depending upon what happens with Sun and any decision that we would make after a move by Sun, that would be an upside as well. And then from the downside standpoint, any further delay beyond the first quarter on docetaxel would be a downside. Any further delays beyond the fourth quarter on gemcitabine solution would also be a downside. And on Plum, we believe we've captured appropriately the Plum situation that we're dealing with. But for some reason, if we have not, that could be a potential downside as well. And then, any further extension on new product reviews from the FDA from a timing standpoint, again we believe we've captured them appropriately with the assumptions that time has gone through. But that's always hanging out there as a potential downside as well. And any other downsides, the last one would probably be if we've miscalled this backorder recovery time period, but again, we believe we’ve called that one appropriately as well.

Operator

And our next question comes from Greg Gilbert with Bank of America Merrill Lynch.

Gregory Gilbert - BofA Merrill Lynch

There's obviously a lot of focus on some specific launches, but it seems to me that the big story here is the backorder situation, which presumably affects multiple products that you sell and potentially affects your leadership position in the U.S. So what I'd like you to do, if you could, is give us maybe in layman's terms a description of what's been causing that, why you're confident that you can reverse course and whether there’s the potential that the pricing environment could change as you try to recapture some of that lost share. So if you could frame that as an opportunity and as a risk for us, that would be great. And then secondly, a small one on Gemzar solution, is it fair to say that by the time you get that to market, that the gemcitabine molecule will be pretty fully genericized and at very different pricing from what you're contemplating? Or what you're seeing in the near-term?

Christopher Begley

Tom, let me try to do both of those initially and feel free to chime in. And I'll do the backorder one first. As we've talked about the backorders are being caused by a variety of different situations. Let me try to put them into a couple of buckets. One is we've had on certain product line where competitors have gone off of the market and we have tried to fill in to the best of our ability and to take in some time because either we've had to order incremental components or add some capital equipment to fill in on those exits. And obviously, longer term, that's a real positive for Hospira and for our shareholders. And on a couple of those, we're beginning to see the light at the end of the tunnel. We've also had some situations where our new quality system and the sensitivity to the triggers that we have in the new quality system, which will pay dividends long term as it elevates our overall quality in the marketplace and quite candidly also sets a higher benchmark for everyone else. It's not untypical for the market share leader to be used to set a new quality standard, and then everyone else ends up having to match that. And I really believe that we've taken our SIP quality to a new level here. The situation that has been caused though from the backorder standpoint is we just have triggers that are more sensitive as it relates to issues that pop up in the plant or at the customer level, and our root cause analysis and investigations are much more thorough, driving the root cause. And if you think about it, medium term and long term, what it does is, by driving the root cause, the problem doesn't pop up again. And so that has slowed down our ability to get product out the door, and you're seeing that somewhat reflected in our inventory levels as well. And we're beginning again to see the light at the end of the tunnel on that but need another quarter or so to get through that. And then the final one is we've had some spotty situations where we have not been able to get both drugs from some of our suppliers, which have caused an issue as well. And so those are the different buckets we'll fall into, the reasons why. We're all over those issues. In fact, every Thursday morning at 7:00, there is a management meeting we have, and every plant manager and plant quality manager from around the world is on that phone call, along with our senior leadership team, and I attend that meeting on a regular basis as well. And we go through each issue that we have as it relates to backorders and what we're doing to fix those. I believe that from a recovery standpoint, we'll have no problem whatsoever in recovering from the backorder situation and regaining any lost momentum that we may have in the base business. The other piece of color I would give you on this topic is there was actually a very well-written article in the Wall Street Journal on February 1 titled Drug Shortages Distress Hospitals. And what this revolved around is the oncology therapeutic market specifically and on freeze-dried oncology products because one of our competitors has gone out of the market because of a plant quality issue. We're trying to fill in to the best of our ability in this area but what the article points out is, is the patient, which is what this is really all about, instead of using a generic drug, had to go on to a more expensive proprietary product. And so that's a fine example of some of the substitution that we're seeing as the result of the backorders we've had. I personally went through that where I had back surgery the week of Christmas. And typically, when you would have a surgical procedure like that, they would induce you with propofol and then use one of the inhalation agents, mass conduction, for the rest of the procedure. Well, because of the shortage on propofol which we're all aware of, the anesthesiologist went right directly to mass conduction. So again a substitution from demand on our product short term because propofol wasn't available. Clearly, propofol induction is much more pleasant for the patient and you are able to recover much faster as well, and so we're seeing those type of activities going on. And Tom referenced that in his opening remarks that we're beginning to create and go out to the marketplace with programs to get the clinical pattern back to where it should be using a generic drug, which is less expensive, but also has better outcomes. And so we need some time to get those clinical practices shifting back as well. So I'm confident that we'll be able to get back on track. We are seeing the light at the end of the tunnel, and so that will be behind us before you know it. Hopefully, that answers your question.

Gregory Gilbert - BofA Merrill Lynch

And on the Gemzar solution question?

Thomas Werner

On the gemcitabine, and Chris, you can add to this, we're not pleased that there's been a delay here. However, we hope and we're pretty confident that a good chance that the standard will be for more of a solutions product once we can get it to market. So while we're delayed, we don't think that there's going to be a significant delta on the price. The other thing I'd mention, Greg, just on specific drugs, propofol, we are still in the process of ramping back up, but we will be very close to pre-FDA issues level of production in Clayton. Vancomycin, we're in pretty good shape on. We've been expanding our lyophilization capacity, and we've got some little spot shortages with certain sizes from time to time but we're quickly gaining back a lot of the share that we lost when we ran into capacity problems last year.

Christopher Begley

If I can do a little commercial off of what Tom just said, the article I referenced in the Wall Street Journal and gemcitabine solution is a fine example where if we could get gemcitabine solution approved earlier then what we have in our guidance, the positive from a drug shortage standpoint is the capacity that we have for making gem powder, we could convert over to some of the drug shortages that are referenced in the Wall Street Journal article. So we could end up helping out on the drug shortage end further as well.

Operator

And our next question comes from the line of Chris Schott with JPMorgan.

Christopher Schott - JP Morgan Chase & Co

And just to follow up on some of those comments, to maybe put some of these SIP backlogs and manufacturing improvements in context, can you quantify what type of impact these had on 2010 from a sales and earnings perspective? And what type of impact this will have in 2011 in terms of sales opportunity and incremental cost as you finish resolving the issues? And just as a second quick follow-up question, longer-term outlook for Taxotere, doesn’t seem like there’s a ton of incremental players here, how attractive and sustainable is this market for you guys longer term? And how should we think about product profitability for Taxotere holding up longer term?

Thomas Werner

In terms of the backorders, I'll try to take that one. We've said that the backorders, while they're not where we would like them to be, that they've never represented more than 5% of sales. So in some respects, it doesn't sound like a big amount, it's just for us typically running at 98% or 99% service levels, it's up substantially. But we have not and won't disclose a specific amount on it.

Christopher Begley

And then, Tom, let me pick up the docetaxel Taxotere question. Obviously, having it in a one-vial format has a tremendous advantage. As most of you are aware, the innovator launched their one-vial system shortly before patent expiration. And they ended up changing the dosage on it after the dosage had been consistent for the whole life of the patent. And so when we go to launch our product, we’re the original dosage form in a single vial, and so we're going to have to convert the market back to that dosage. We believe the customers' clinical use is more accustomed with that dosage. It's also why the FDA though is spending considerable time reviewing the label and making sure that the label on our product doesn't create any further confusion than what was created by going to a new dosage form by the innovator’s switch. From a sustainability standpoint, we think Taxotere can be a very nice drug for us and don't see significant competition other than what Tom had outlined in his opening comments.

Thomas Werner

The other comment I'd make just on the backorders, if you look at the top line miss that we had this quarter and specifically focus on SIP and contract manufacturing which is included in the Other Pharma, almost all of the miss was related to the backorder situation.

Operator

[Operator Instructions] Our next question comes from Matt Taylor with Barclays Capital.

Matthew Taylor - Barclays Capital

On Taxotere, I'm wondering how you're coming up with the 1Q estimate? What gives you the confidence that you're going to be able to launch in 1Q versus 2Q or even 3Q?

Christopher Begley

Let me take a stab at that initially, and Tom, feel again free to chime in. As I just outlined, we really have not received any new questions from the FDA since the end of last year. And all of their questions have really been around labeling and packaging modifications to our product to make sure that additional confusion is not created in the marketplace when we launch our product. And so that's one of the things that gives us confidence. The other thing that gives us confidence versus, for example, Zosyn which took quite some time to get approved is this is our product and so we're dealing directly with the FDA, and we know what those conversations are all about. And again, there's been no questions about the quality of our product. It's all been around labeling. And those conversations with the FDA are occurring on a weekly basis, and I'm personally involved. And so that's why we believe by the end of the first quarter, we should end up having docetaxel approved. Hopefully, that answers your question.

Matthew Taylor - Barclays Capital

Just a follow-up on the pumps with the Plum issue, I was just curious in terms of your Plum sales that you talked about, cultivating through the year and dropping in the fourth quarter, can you help us characterize the sales of -- natural sales, or were you taking share from some competitors given the Colleague recall?

Thomas Werner

Early in the year, we were not initially anticipating much uptake from the Colleague recall, so I would sort of characterize the Plum sales in the first part of the year as more normal. And we think this is a pretty manageable issue, but we realize that as we're in the process of remediating that we need to focus on that appropriately, taking a conservative view on what sales might be in the first part of the year.

Operator

Our next question comes from David Buck with Buckingham Research.

David Buck - Buckingham Research Group, Inc.

If we look at the fourth quarter miss versus your own guidance above the consensus, can you give more background on when you, I guess, realized that you were going to be falling short between the backorder and the pumps? Can you just quantify a little bit better how much was each in terms of the shortfall? And then what changed in terms of your guidance for 2011, in terms of things that you were more conservative on besides the timing of the two product launches that you mentioned, the Taxotere, generic and gemcitabine? And then more, looking at the longer-term guidance, why should we be confident in this with the new CEO coming in and how should we think of that as guidance under one CEO and potential for change when there's...

Thomas Werner

I'll take the backorder question and then the other one's probably more appropriate for Chris. When we realized it, as Chris mentioned, we meet every Thursday and this is a rapidly evolving situation where a little slippage here and there and you suddenly have a problem and this was, I would expect that we were tracking fairly well throughout the month of December. And we missed some commitments toward the end of the month and didn't really realize that we were going to miss until right up to the very end.

Christopher Begley

And with that, then I'll pick up the question on the longer-term guidance and as a new CEO coming in and will that shift the strategies for Hospira or the longer-term guidance. And on that topic, I'd say no, absolutely not. As we’ve talked about before, the board is very pleased with the direction that Hospira is going from a strategy standpoint and from a performance standpoint. It's one of the reasons why I will make sure that I stay on as Executive Chairman and make sure that there's a very smooth transition to a new CEO. And I can tell you that as we're interviewing candidates, I'm very confident that anyone who comes in here as the new CEO will take Hospira to the next level of its growth and its evolution, both from a execution standpoint and a strategy standpoint. And so I don't think we're going to miss a beat whatsoever. And if anything, it's just going to continue to build upon the momentum that the team here has already built over the past seven years. So I'm very confident with that and even more so now as we've gone a couple of months into the process.

David Buck - Buckingham Research Group, Inc.

Just on the results for the fourth quarter and the guidance being well below the consensus, was there any thought to preannouncing your results? I heard Tom, you said that it was late in the process, but obviously, there's a trust factor here and the stock price is showing that the Street was actually surprised. So I guess why no pre-announcement?

Thomas Werner

The other comment I'd make, I'd reiterate what I said to begin with on the backorders, and the Plum issue literally came up within the last day or two, so we've had to react as quick as we can. And from that standpoint, I think we were within the range prior to the Plum issue. And then certainly the Plum issue caused us to be substantially out of there. So that's about all I’d have to say.

Operator

Our next question comes from John Putnam with Capstone Investments.

John Putnam - Capstone Investments

Just wondering is there any way to expediate (sic) [expedite] the review of pumps to get hospitals to react perhaps more rapidly than has traditionally been the case?

Christopher Begley

On that topic, I will tell you Hospira has tried a number of different commercial programs to stimulate and to speed up that process. And we have not been successful with them, and I would add our competitors have as well, and they have not been successful either. And I think there’s a couple of reasons for that, that are worth discussing. One is the type of -- the tighter capital budget constraints that hospitals have had; two, the whole stimulus package that was put out as it relates to capital investments for hospitals and the priority on bigger ticket items like hospital IT systems and getting those put in place first have delayed the process as well. And so, those two have been really key drivers in having the pump decision taking more of a backseat versus the priority for them as we all would have liked.

Operator

Our next question comes from Paul Choi with Caris & Company.

Paul Choi - Caris & Company

Could you maybe provide an update on supply availability for Piptaz and how you guys are working through that on the API?

Thomas Werner

I don't think the situation has changed at all. Sandoz continues to be constrained. They're in the market as well. So we continue to split capacity coming off their line, and I'm not aware that they've added any additional capacity. Chris or Karen, any other information on that?

Christopher Begley

No, that's correct, Tom.

Paul Choi - Caris & Company

Just quickly on the guidance, it sounds like with the range for SG&A you've given, it looks like you're trying to hold that pretty flat here, relatively speaking. Do you think any need for build in the latter part of the year, relative to some of the timing for the drug launches that you mentioned for gem and for docetaxel here? How should we think about it, more or less holding constant at these levels through the year?

Thomas Werner

Relative to those two drugs, the nice part about our model in the U.S. is when we add drugs like that, we do not add incremental sales reps. Certainly, there'll be some commission impact but it's very insignificant, and there really isn't anything we would add. We get tremendous leverage from our sales force and our infrastructure. So with respect to those two products, no SG&A adds whatsoever, and we are going to hold the line on SG&A. We want to get a clear line of sight to approval on things. And we're going to tightly control spending as best we can until we see approval, and we'll control it tightly after that as well.

Operator

Our next question comes from Gregory Hertz with Citi.

Gregory Hertz - Citigroup Inc

One, I was just wanting to get a little bit more -- just flush out a little bit more with the backorder situation. I'm just hoping you could maybe reconcile the work down around 50% of the backorder in the back half of this year and your comments regarding supply constraints in 2011.

Thomas Werner

I think the way that you square it, Greg, is that, as Chris mentioned in his opening comments, we've seen practitioners switch their procedures over to other drugs. And in a quarter where we did make some progress in clearing the backorders off, it was not the progress we expected. But our overall demand, because of the shortage situation, really offset quite a bit of that. We don't see that we're going to be able to make much of a dent in the backorder level on many of the specific products until approaching the second quarter or so. And I guess the way to look at it is there was some clearing of the backorders, but not nearly what we had anticipated and you're seeing sort of the impact of people switching to drugs that are in more plentiful supply. Chris?

Christopher Begley

So then the second piece of that is the piece I referenced which is us having active programs to get them switching back to the version of the drug that they historically have used for clinical practice and for cost reasons.

Gregory Hertz - Citigroup Inc

The R&D is, I'm calculating it based on the guidance ranges. I'm calculating basically quarterly amounts of between $62 million and $68 million, which is at zero and below this quarter, which I understand is due to the timing but it's also a bit below the $70 million bogey that you've mentioned in Q3. And I'm just wondering if that's just more just trying to manage through a difficult 2011. And also just kind of if you could just share your views as to how you feel about that level of spending in a more normal environment as it relates to developing your own internal pipeline.

Thomas Werner

I wouldn't read anything into it, Greg. Certainly the fourth quarter was high because of the various programs and the clinicals. But we've not taken any specific actions to curtail program activity in R&D. We're not at that point yet.

Operator

Our next question comes from David Roman with Goldman Sachs.

David Roman - Goldman Sachs Group Inc.

Wanted just to follow up on the backorders, how much of a reversal of backorders is included in 2011 guidance?

Thomas Werner

How much -- you mean, how much...

David Roman - Goldman Sachs Group Inc.

I mean, is there any assumption that you fill those backorders and some of those customers that have switched to other products come back to you?

Thomas Werner

Yes, in the back part of the year.

David Roman - Goldman Sachs Group Inc.

And then that's included in the guidance?

Christopher Begley

Yes it is.

Thomas Werner

That's right.

David Roman - Goldman Sachs Group Inc.

And did you quantify that?

Thomas Werner

No, I mean, I've said before that backorders, and this is primarily a Specialty Injectables and contract manufacturing issue, that they have not exceeded 5% of annual sales but they're way too high for our liking and way too high for our historical level of customer service, so we need to get them down. We did make progress in the fourth quarter, and we need to cut them again in the back part of the year. But the specific areas that we're working on with capacity expansion and then getting better access to API, we don't really see a clear path on that until towards the end of the second quarter getting into the third quarter. So we haven't assumed much clearing of the backorders in the first part of the year.

David Roman - Goldman Sachs Group Inc.

And then looking to the long-term guidance that you've provided this morning, the 5%, that's for mid- to high-single digit top line and mid-teens bottom line. If we square that against 2011, in which we were seeing 5% to 7% and 18% to 21% sales and earnings growth, respectively, I mean, 2011 is the year where you have two pretty significant new product launches as we kind of go into the ’12 time frame with the exception of the return of oxaliplatin, which will probably be smaller. I don't know what major launches there are. So I guess if you could walk us through how you sustain growth in this mid- to high-single digit range on the back of a year with major new product introductions and what really drives the growth at that level beyond 2011?

Thomas Werner

So as you look at some of the comments we made earlier on the base business in SIP, it's still a very healthy business. It still continues to grow. Precedex is doing just fabulously for us. We're continuing to gain share back in Vancomycin. Meropenem will grow very nice. Heparin, with the new high dosage formats, we're gaining quite a bit of momentum there. So there's a variety of products. Those are some of the specifics that while they're not major launches, if you add that to the return of oxaliplatin and some of the other anti-infectives that should start to launch, and as we look at it, we feel pretty confident we can hit those numbers.

Christopher Begley

Let me add to that, too. I think the other thing I’d mention just for a point of clarity, we're now talking about docetaxel basically for three full quarters versus a full year, which is an adjustment versus everyone's original thinking. And then on gem solution, we're talking about a launch in the fourth quarter versus a full year. So in effect, we'd characterize your statement and say one significant product launch versus two for 2011 when you look at it because of the changes on the approval date. And then the other thing I'd add for 2011 and beyond is there’s other new products whether those are proprietary pharmaceuticals that we've been licensed and also the coming back of the infusion pump business from a growth standpoint. If you recall, if you go back a couple of years ago before increased regulations on infusion pumps, we had some really nice growth in high-single digits on infusion pumps, and we believe that we can return to that in the midterm.

David Roman - Goldman Sachs Group Inc.

And then maybe lastly, can you maybe update us on your thoughts about use of cash. If you look across the peer group, there are several companies who are facing top line challenges in 2011 and have made a move to repurchase a significant amount of stock to support earnings and also an acknowledgement of the relative valuation of the stock. I think something like $400 million of free cash flow you'll generate in 2011 with relatively minimal debt obligations and a pretty strong balance sheet. Maybe just sort of give us your latest thoughts on use of cash.

Thomas Werner

We will give specifics on that with our first quarter call. This is the time of the year where we're reviewing our long-range plan and uses of cash. And while I would have liked to have included that as part of our longer-term guidance, look for us to do, give some detail on that with the first quarter. Now that said, one thing we did do in the fourth quarter is we continued to buy shares back to at least keep the share count flat. And our assumption for this year although it doesn't necessarily mean we would do a buyback but we've assumed a flat share count. So from that standpoint, at a minimum, you could draw the conclusion we'd buy back at least that much. But really no firm commitments at this point. Give us through the first quarter, and we'll have more firm plans.

Operator

Our next question comes from Ronny Gal with Bernstein.

Ronny Gal - Bernstein Research

Chris, just first, with a high-level question for you. We have seen the surprise -- were surprised there's a Plum A field recall this quarter. There were some other issues we didn't expect with manufacturing before. And just I have a question do you estimate your expense in the business -- are those kind of hedges going to be inherent to the business model? That is you are in an infusion pump business where the FDA is raising requirements on products that it views as relatively weak. The Injectable business suffers from supply constraints on multiple level both API and formulation issues from the manufacturing issues. And should we just -- when we think about the way you've got us going forward in the long term, should we just expect this earnings cycle to be just a little bit more dirty? That is, there's a long-term direction, but we are going to have substantial swings in quarters because of those issues?

Christopher Begley

No, Ron, I don't think so at all. Let me separate the two as I comment, but I don't see it being a long-term driver of choppiness or dirtiness or messiness from a financial standpoint. I do and I made this comment earlier and I'll reinforce it, when we improved our overall quality systems approximately a year ago, one of the key things that we did, and at the expectation from the FDA for all companies going forward and quite candidly, I don't think you've seen most of the companies begin to do this, in fact, I know they haven't other than the larger companies, and that is just to increase the sensitivity on their triggers from a complaint standpoint, whether those are internal driven complaints or external complaints. And so what you've seen is both on the SIP and the pump side of the business, is the ramifications of increasing the sensitivity of the triggers from a complaint review standpoint and then the action that is then taken. And that fits perfectly into the Plum situation, which has been a workhorse for our customers for the past two-plus decades. And what is a very, very low-level complaint, we now do a thorough root cause analysis on and come up with a fix for it. And then the expectation is to incorporate that fix across the whole product line. And so, you've seen a couple spikes like that, that have had a recent impact, but I don't see that occurring long term through the business and creating situations like we just had in Q4. And on the SIP overall, it's driven to the difficulty of us getting product out the door as efficiently as we used to, but as I've talked about, we are beginning to see the light at the end of the tunnel there. And the key metric that we look at is our internal investigations and the number of open investigations we have and the aging of that. And we review all of that data literally at my level weekly at this Thursday meeting, and there’s people looking at that data on a daily basis. And all of those trends are downwards in each of our manufacturing plants. And so that's a real positive sign because what it says is you're not opening up new investigations at all, and the fact that the age is less says you're driving the root cause more quickly and implementing those changes. So I really believe a good piece of this is behind us as we move forward. Does that help, Ronny? And then the other thing I'd add is it is creating a entry barrier and an expectation that across the industry will have to be met as well. And so from a competitive standpoint, I think medium term to long term, that's going to play big benefits for Hospira. I really believe that.

Operator

Our next question comes from Jayson Bedford with Raymond James.

Jayson Bedford - Raymond James & Associates

Can you comment on your installed base of pumps at the end of 2010?

Thomas Werner

Well, we continue to see an increase in the installed base. I'm not sure we've ever disclosed the specific number. Are you looking for something non-quantitative or?

Jayson Bedford - Raymond James & Associates

Maybe directionally. Did it go up?

Thomas Werner

Sure. It goes up every quarter. It increased every quarter during the year.

Jayson Bedford - Raymond James & Associates

I guess, the reason I ask is I look at MMS down 10% year-over-year. Certainly lower hospital volumes likely impacted this to some extent. But it's a pretty stable business. So can we assume that most of the decline in MMS was related to the lack of Symbiq?

Thomas Werner

Year-over-year, that's a big portion of it. And in the quarter, I think we mentioned in our comments, Plum had a very good quarter for placements, but it wasn't enough to offset the impact of Symbiq not being in the mix.

Christopher Begley

Keep in mind in the revenue number, you've got the ongoing disposables which represent a significant portion of the revenue but not all. And then the other piece is the capital placement. And to your comment and to Tom's point, for 2010, even without Symbiq, we had a very strong placement year. And if we would have had Symbiq, that would have been even stronger.

Jayson Bedford - Raymond James & Associates

And just if I may, just a quick follow-up. Other Pharma was down in '10. Can you just detail in terms of what contribute to this? How much was related to divestitures versus a decline in the actual base business? And then, maybe I missed it, but your assumed growth in Other Pharma in '11?

Thomas Werner

Jason, I will reference back before we get off the call. I've got to look up some information. I don’t have it at my fingertips, so I'll make sure that we mention that before the call's out.

Operator

And our last question comes from Robert Goldman with CL King.

Robert Goldman - CL King & Associates, Inc

A couple of things on the income statement. It was mentioned that you had some spending that moved from the third quarter to the fourth quarter in SG&A. Perhaps you could tell us about that and why the shift. And also on the R&D, obviously it did have a bump up in the fourth quarter, and I think you mentioned some discretionary spending was taken. Perhaps you could tell us what you took there and how it could be, having taken it, how it can be turned off in the next couple of quarters.

Thomas Werner

Let me take that in reverse order. The only discretionary spending that we made in the quarter was a contribution to the pension plan to get that topped off and funded under federal guidelines. So we did not make discretionary spending in this quarter, whatsoever. We have tight control on expenses, and nothing whatsoever happened there. We did signal with the third quarter call that SG&A spending was light in the third quarter, and we did expect that it would pick up a little bit in the fourth quarter. And the R&D, it's just difficult to predict some of the spending rates for clinical programs and other various research projects that are there. But we didn't turn on any spending that we had pent-up. This was just sort of a normal way things played out. The R&D was a little bit higher than expected. But again, it's difficult to predict how these clinicals sort of take place.

Robert Goldman - CL King & Associates, Inc

If I can, as a follow-up, since that was a significant swing factor in the quarter, and given the difficulty in projecting it, what's your sense of confidence in what your R&D levels will be in 2011?

Thomas Werner

As Chris mentioned in our comments, we need to tighten down our forecasting and tighten down our execution and make sure that we've got the right tools in place for people to make sure that they hit their numbers. So this was a quarter where we weren't happy with execution. We weren't happy with the forecasting of the execution from an R&D standpoint. That one's pretty easy to fix. And SG&A, as long as we control hiring, you've really controlled most of the spending. And then Jason, I said I would get back to you on the Other Pharma, almost all of the decline year-over-year in Other Pharma, as I look at it, was related to the divestitures. The rest of the business is fairly flat.

Christopher Begley

And let me add one other thing to Bob's question, is if you look at R&D in total for 2010 versus on a quarterly basis, I believe we were right within our guidance that we had given for R&D for 2010. And so your question about our confidence in delivering the R&D number for the guidance that we set up for 2011 obviously is high then, okay? And so what you really saw was a quarter-to-quarter fluctuation. We actually were light on R&D in the first half of 2010, if I remember right.

Karen King

That was our last call. Thank you for joining us. This concludes our call for the quarter. And operator, we are now ready to end the call.

Christopher Begley

Thank you.

Thomas Werner

Thank you.

Operator

This concludes Hospira's Fourth Quarter and Full Year 2010 Conference Call. You may now disconnect.

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