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Hospira, Inc. (NYSE:HSP)

October 18, 2011 10:00 am ET

Executives

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

Karen King - Vice President Investor Relations

Michael Michael Ball - Chief Executive Officer, Director and Member of Science, Technology & Quality Committee

Analysts

Robert M. Goldman - CL King & Associates, Inc.

Gregory Hertz - Citigroup Inc, Research Division

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Junaid Husain - Ticonderoga Securities LLC, Research Division

John M. Putnam - Capstone Investments, Research Division

Frederick A. Wise - Leerink Swann LLC, Research Division

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

Matthew Taylor - Barclays Capital, Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

Marshall Urist - Morgan Stanley, Research Division

David G. Buck - Buckingham Research Group, Inc.

Christopher Schott - JP Morgan Chase & Co, Research Division

Louise A. Chen - Collins Stewart LLC, Research Division

Operator

Welcome to Hospira's Preliminary Third Quarter 2011 Financial Results 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 thank you for joining us on this morning's call, during which were announcing certain of Hospira's financial results for the third quarter of 2011. Please bear in mind that the results we provide on today's call are preliminary and subject to change. We will announce our comprehensive and final financial results on our previously scheduled conference call on Wednesday, October 26.

Participating in today's call are Mike Ball, Chief Executive Officer of Hospira and Tom Werner, Senior Vice President of 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 revision 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.

Finally, in the interest of time, and to allow as many of you as possible to ask questions, we're limiting each person to one question. If you ask more than one question, we will answer the first one and move on to the next person. We also ask that you restrict your questions to the material we are presenting on today's call. When we have our regularly scheduled call on October 26, we will be happy to answer other questions regarding third quarter results that are not addressed in our remarks today. Thank you in advance for your cooperation.

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

Michael Michael Ball

Thank you, Karen, and good morning, everyone. We appreciate you joining this call on such short notice. Well, as those of you who know me are aware, I am not accustomed to missing numbers, which is why this is a particularly difficult call for me to have to make. I first want to articulate to you the sequence of events over the past month to put this morning's press release into context. And then we'll open up the call for your questions.

As indicated in today's release, preliminary third quarter global net sales are $977 million, representing a 3% increase over the same period in 2010, primarily due to continued strong U.S. sales of docetaxel. On a constant currency basis, third quarter net sales increased slightly compared to third quarter of 2010. Preliminary adjusted income from operations is expected to total $142 million, with adjusted operating margin at 14.6%. This translated into adjusted diluted earnings per share of $0.66, an 11% decrease from the third quarter of 2010.

If I can take you back several months to our second quarter call, many of our metrics were headed in the right direction. Our back orders were declining; our customer service levels were improving; we were increasing our market share in many of our core products and newly launched products; and we felt confident that the strong top line in the first half of the year should be reflected in the annual guidance. We also announced that we had received observations regarding our Rocky Mount facility and that the FDA was not satisfied with our progress.

As we discussed at Investor Day, after the second quarter call, we received a second 483 with additional observations from the agency. Receiving 2 483s so close together was a clear signal that we were not making satisfactory progress to fully comply with the FDA's concerns and that we had to ramp up our remediation efforts. Accordingly, we initiated several additional actions at the Rocky Mount facility. We made changes to the senior operations and quality leadership, we installed third-party assistance and oversight and we are making further improvements to our processes and procedures.

These actions resulted in a number of consequences, which due to the sheer size and magnitude of Rocky Mount, had implications that were greater than anticipated. Production and batch releases slowed significantly and material charges were incurred related to inventory losses due to batch writeoffs.

As a result, late in the quarter and into October, promising trends in back orders and customer service levels were dramatically reversed as customer service levels went from the mid-90% we discussed on the second quarter call to the high 80%. This resulted in lost sales, which combined with the inventory charges, ultimately accounted for most of our miss in the quarter.

The remaining significant item that contributed to the miss was related to device quality and supply-related issues, which was primarily associated with delays in Plum remediation. All of this added up to a disappointing preliminary third quarter performance, which was significantly below our expectations and your projections.

[indiscernible] our operating forecast did not anticipate the degree to which the production slowdown and resulting charges would impact performance through the rest of September, nor we did we have visibility into the magnitude of the reversal in customer service levels. Furthermore, because traditionally September has been a very strong month for sales, we believed at that point that the sales would materialize. However, our customer service levels declined sharply and sales were impacted.

Let me now provide you with more details that gives me confidence we are doing all the right things to correct the Rocky Mount situation. First, we are building an integrated corporate senior leadership team to oversee global manufacturing and quality. Our new external hires are bringing broad experience in their respective fields and a proven track record of success. They're using their experience to develop effective and permanent solutions for our operational issues.

Second, specific to Rocky Mount, we replaced the site's senior-most operation and quality leaders, including the Rocky Mount plant manager, head of quality and the quality lab manager. As we are seeking replacements, we have moved several of our most seasoned and talented operations and quality leaders from corporate to serve as temporary leadership at the facility. We are actively recruiting external leaders that will drive culture change, leaders who come from large, sterile and injectable manufacturing sites with extensive regulatory experience in implementing new processes and systems. In sum, we have hired leaders in place in global operations and quality and are in the midst of hiring at Rocky Mount. These efforts will drive permanent culture change throughout the manufacturing system and in Rocky Mount specifically.

Third, we brought in additional third-party oversight that we hadn't engaged previously at Rocky Mount. In early September, we brought in Robert Lewis and his IHL team to oversee operations of our quality labs. We also brought in a team of consultants from Quintiles. IHL and Quintiles are known for their in-depth knowledge of the FDA's requirements, and we believe that we can use their proven practices and expertise to strengthen our efforts. You may recall that IHL and Quintiles provided the third-party oversight for the Clayton facility, the other facility in the 2010 warning letter. Their input yielded a very successful outcome at Clayton during the FDA's subsequent inspection of the facility earlier this year, which resulted in no observations. Finally, with the collaboration of third-party oversight, we have made and continue to make further changes to our processes and procedures.

As mentioned previously, all of these efforts had an impact on production and batch release as well as the write-down of certain inventory, which ultimately impacted customer service levels and results. We are committed to ensuring that we resolve the issues the FDA has cited with respect to Rocky Mount as swiftly as possible. As we've previously discussed, this is an important facility for Hospira. It represents approximately 25% of our overall net sales. It is also a complex facility, and regardless of our remediation efforts at Rocky Mount over the past months, it is clear to us that we needed to expand the scope of our remediation efforts and accelerate our progress.

As far as next steps, we recently met with the FDA to submit our updated action plan. I was present at this meeting to reiterate to the FDA, as I did with you at Investor Day, that I regard the remediation of this facility to be our number one priority. The communication at the meeting was open, and I believe productive, but the FDA clearly wants to see further results. We are moving forward with our plan, and we believe that we now have a clear picture of the near-term effects our quality initiatives are having on our business and financials. As part of our commitment to the FDA, we will be updating the agency on a regular basis. Our belief is that the agency will be measuring our progress closely over the next several quarters and will be back in our Rocky Mount facility sometime next year.

As a result of the slowdown, we have revised our 2011 full year adjusted earnings per share guidance to the range of $2.95 to $3.05. This reflects the fact that we will remain at reduced production capacity at Rocky Mount at least through the end of the year.

Now before we respond to your questions, I want to emphasize that the fundamental strategies of our business have not changed. I am still firmly convinced that Hospira remains uniquely positioned to address the most pressing needs of customers around cost, productivity and safety. The changes that we have made and are making today will make us a stronger, more competitive company that we expect will set the bar on quality.

As we indicated during our Investor Day, we will do whatever it takes to, as I said, fix the foundation, and we're confident we have the talent and strategies in place to deliver. I am committed to this just as I am committed to lead Hospira to sustainable growth so that we can remain the provider customers look to for the solutions to their most pressing needs.

Please keep in mind that the results that I have shared today are preliminary and may change as we complete our financial statement close process. In an effort to ensure timely communication and transparency, we felt it was important to provide an update today. We intend to issue a full press release containing third quarter results as planned on October 26, and we will also conduct our regularly scheduled call that day.

I will now open up the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of David Roman with Goldman Sachs.

David H. Roman - Goldman Sachs Group Inc., Research Division

I was hoping, Mike, you could dive into a little bit more detail to provide some quality on the past forward here. I understand that, that obviously, some of the issues came up late in the quarter as it relates to Rocky Mount. But it's really at the time of the Analyst Meeting, the commentary from James Hardy was that things were pretty much on track to -- towards sustained improvements. So from here, can you walk us through what happens next, what specifically you're doing from remediation perspective and what the timelines are around that?

Michael Michael Ball

So the situation at the investor meeting when James Hardy was making the comments, he was looking at a set of customer service levels that were on the upswing. What happened, as I mentioned in this prepared remarks, was that as we brought in the oversight group, this slowed down our batch releases and production. As we look at it now, those releases will continue to be slow as we go through this fourth quarter. We are bringing in more resources in order to address the batch releases. We're also training up our people on new processes, and as they get more comfortable with the processes and as the training takes hold and as we get more bandwidth to go through our batch release processes, we believe that things will start to pick up. However, I believe that through the fourth quarter, we will continue to see these low releases from the Rocky Mount facility, and it's too early to say exactly how far into 2012 that could possibly extend.

David H. Roman - Goldman Sachs Group Inc., Research Division

So maybe just to clarify, you have previously thought it was going to take x amount of time to resolve these issues. Are we talking orders of magnitude 1.5X now, 3x to 4x? And maybe just from orders of magnitude, how much worse this is than you thought?

Michael Michael Ball

Well, it's quite clearly a bigger job than we thought and we are still working through it. And at this time, I don't really feel like we're in a position to say whether it's 1.5 or 2x. What I'm looking to see happen is with the expanded resources that we are putting into Rocky Mount, if we can't start to accelerate the production process. But until we start to see some results from those added resources going into the plant, it is just simply too early to say what the timing might be around it.

Operator

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

John M. Putnam - Capstone Investments, Research Division

I was just wondering, Mike, if there's any opportunity to move production to other facilities in the interim to be able to perhaps mitigate the problem here?

Michael Michael Ball

So we've looked at all of these options, John. And the situation is to move production into other facilities is a very long process. So what we are looking to do most expeditiously is to get the situation in Rocky Mount fixed. However, having said that, we are looking at other options of moving production into other facilities, but that again, is not a timely process.

Operator

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

Frederick A. Wise - Leerink Swann LLC, Research Division

Maybe you can help us to just even however roughly frame time to resolution. I appreciate there are a lot of moving pieces, you're hiring new people, you're hiring consultants, but -- and you sort of indicated that the FDA was, if I understood you correctly, FDA's not going to come back a little sometime in 2012. I mean could this take through the whole year? Again, if you could just give us any kind of framing for 6 to 12 months or it could take 3 years, I would appreciate it.

Michael Michael Ball

Rick, so I think a couple of things. Number one in terms of doing a full remediation plan, culture change, et cetera, those things definitely take some time. With respect to increasing our production so that production comes back up to what I would call near normal levels, this is what we're working on right now. So we just do not have, and I am not comfortable at this point saying that there is a timeline at which we get out from underneath these, let's call it, reduced manufacturing levels. I feel like we are doing the right things to bring those things back up. But sitting here today, I just have not seen evidence of that. And until we do and until we understand all the root issues, et cetera, I would be very reluctant to put any type of time frame on it.

Operator

Your next question comes from Matt Taylor with Barclays Capital.

Matthew Taylor - Barclays Capital, Research Division

I wanted to ask about something else you mentioned, which was the Plum remediation taking longer than expected. Could you give us a little more color on that? The last thing I think we heard at the Analyst Day was you're working on the board and expected to get Plum back in and around the fourth quarter?

Michael Michael Ball

So at the investor meeting, yes, we had some optimism relative to the Plum and getting the PAs saw boards into the system. And in our plan, we actually had a good amount of machines being shipped in September. That did not transpire. But what I am pleased to say is, this week, we have started to ship the Plum with the new PAs of alarm in it. So we ran into a number of hurdles throughout the third quarter that prevented us from shipping, but the product is now starting to ship.

Operator

Your next question comes from the line of Louise Chen with Collins Stewart.

Louise A. Chen - Collins Stewart LLC, Research Division

I just wanted to ask you, is the additional SG&A spend that you highlighted at your Investor Day still intact? Or is it now going to cost you more? And if it is intact, will any of that be spent in 2011? Is that part of the changes that you've made that you announced this quarter?

Thomas E. Werner

Louise, it's Tom. SG&A spend was not something that we highlighted at Investor Day. What we did highlight was the increased spending in R&D. And those plans remain in place. But unless I'm forgetting something, I've kind of drawn a blank on SG&A.

Louise A. Chen - Collins Stewart LLC, Research Division

Okay, maybe I didn't characterize that correctly. I meant the additional $200 million-plus spending to kind of additional investment in your facilities to upgrade them and make them better and more competitive [indiscernible] longer-term.

Thomas E. Werner

Yes, that's very key part of our European strategy. And as we get closer to providing 2012 guidance, we'll refine those numbers and make sure that we have the timing on it right, calling it by quarter, by year, but certainly remains a key part of the strategy.

Michael Michael Ball

Tom, you may just want to comment on the one-time that we talked about with respect to remediation of the plants and the machines, the $200 million to $250 million.

Thomas E. Werner

Okay. The remediation costs that we referenced at Investor Day as we've now dug deeper into the Rocky Mount situation, it's our expectation that we're going to see some cost in addition to what we referenced at Investor Day, and we'll give you a much clearer idea on that next week when we have the regular full earnings call.

Operator

Your next question comes from the line of Chris Schott with JP Morgan.

Christopher Schott - JP Morgan Chase & Co, Research Division

Just another question. With service levels now once again at reduced levels, can you just more broadly comment on the risk you see to Hospira kind of incurring more permanent share loss as some of your customers may seek to further go to alternative suppliers? And I know we're not supposed to ask 2 questions, but just a really quick one, when can we expect 2012 guidance at this point?

Thomas E. Werner

2012 guidance, our plan at this point is to provide that in conjunction with the fourth quarter call. And then, the first part of the question, that's for Mike.

Michael Michael Ball

So since the -- sense that we have is our customers are hanging there with us. You recall that drug shortages aren't just a Hospira issue. They've been across-the-industry issue. So we have worked with customers, I think, very diligently in terms of preserving our relationships. Obviously, this occasionally will let competitors in under the tent, which is not a good situation. But in doing an audit with our sales force, et cetera, we expect that these long-term customers will hang in with us and as we get the situation remediated, that we will maintain our share or at least get the share back.

Operator

Your next question comes from Marshall Urist with Morgan Stanley.

Marshall Urist - Morgan Stanley, Research Division

So my question is just back on the service levels. Have things changed now from the Analyst Day where you guys clearly indicated at the Analyst Day that the remediation process and the service levels and your ability to service customers were not linked, and so you could do both and maintain high service levels at the same time? So has that fundamentally changed now with your more complete understanding at this point so that until this process is complete, whenever that happens, that we will continue to see these depressed service levels?

Michael Michael Ball

We felt that on that day as we had looked at our service levels that we could do the remediation without a major hit to the service levels. As the remediation took hold, it became quickly apparent in mid-September that, that was not the case and that our service levels headed south, as I said, dramatically. So from our standpoint, we need to figure out a way to do the remediation and get the service levels back up. I don't think those 2 ideas are inconsistent with each other, but we need to find the formula in order to do it, and at this present time, we have not found that formula. Although I remain optimistic that we will, I don't know what the timing will be.

Operator

Your next question comes from Greg Gilbert with Bank of America.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Sort of a more financially oriented one. I think on a very simplistic level, investors are looking at your third quarter estimated results, which imply $3.9 billion in annualized sales and $2.64 in annualized EPS. I realize that's an overly simplistic approach, but how can you frame at least conceptually what's wrong with that math as a starting point for people?

Thomas E. Werner

I'd say nothing wrong with the math, Greg. As a starting point, we need to rebound out of the situation we're in. Also, the third and the fourth quarter, earnings are always going to be down in manufacturing in those quarters because of our shutdowns. So you have to really adjust probably $0.10 to $0.12 in each of those quarters back up because of the factory shutdowns that we do. But it's a combination of getting this quarter's number back to something that's more like $0.75, $0.66-plus say $0.10 to $0.12 and then annualizing that, that pulling out of the issues.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

I guess I should ask, could things get worse before they get better from a financial point of view?

Thomas E. Werner

We believe that we've covered off through a very detailed review of our forecast what the potential risks could be. It's difficult to call what activity the FDA could take, but we think within our control that we've called the number correctly and it's reflected in the new guidance.

Operator

Your next question comes from Gregory Hertz with Citi.

Gregory Hertz - Citigroup Inc, Research Division

As I read through the 43, it seems to indicate there are at least 2 observations having structural issues that suggest, as I kind of read between the lines, the potential need to even transfer manufacturing with the need to phase out the facility, the Rocky Mount facility, that may have reached the end of its useful life. I'm just wondering what have your communications with the FDA been at this point and as well the third-party consultant feedback? And how quickly would you be able to ramp up the Indian facilities to ship over the manufacturing?

Michael Michael Ball

So I think with respect to the Rocky Mount facility, in our discussions with the FDA, there was a number of points, mainly around processes and compliance, that needed to be remediated. I think everybody's sense is that the plant can do the job. We just have to have the right processes and compliance in place. So I don't think the plant is really an issue. With respect to the India side of things, India is as I mentioned in the Investor Day, around 2014. So really at this point, as an alternative for Rocky, that is not a near-term solution. With respect to the consultants' feedback, I think the consultants' feedback is that things in Rocky are fixable. As I said, one of the positive things, if there's anything positive we said here, this is an internal issue that is within our control to fix. And I think we just need to dedicate the time and resources to get the thing fixed, and that is in total alignment with what our outside consultants are telling us.

Operator

Your next question comes from Robert Goldman with CL King.

Robert M. Goldman - CL King & Associates, Inc.

The press release also talks about this preliminary goodwill impairment charge that you're taking up, $155 million related to the European unit. Perhaps you could speak to that. And that -- and related to that is a question on communications, which is, Mike, your ability to affect positive change at Hospira is only as good the information you're getting. You went through your own due diligence prior to joining. You had the Analyst Meeting after being there a while. It sounds like the quality control issues are likely well in excess of what you had thought going through that process. And how do we get a sense of confidence that you're getting the information you need from the people at Hospira to affect the positive change?

Thomas E. Werner

Mike, why don't you take the second part and then I'll wrap up with the first.

Michael Michael Ball

Okay, that sounds good. I think that's a good question. So from our standpoint, our monitoring systems, in my opinion, were not picking up the issues as well as they should have been picking them up. And as we dug into this, and I personally dug into it, I think we now can say that our monitoring systems are not just lagging indicators of what's going on but we're looking at forward indicators as to what is actually going on in the plant. So I think there's new transparency into the plant that probably just was not there before. And in digging through it with the consultants, I have one-on-ones, where it's just me and the consultants, every week where I personally talk to the individual who heads up IHL to get a thorough review of exactly what's going on at the plant in an unvarnished view. And this is also a commitment I made to the FDA that I would personally be involved in terms of ensuring that we have the right metrics in place and that we have the right controls in place for me to personally be assured that we were getting the right information. So as it pertains to the situation now, I think I have full transparency into the operation. At least as far as what is known, we continue to go through it with a fine-tooth comb to ensure there is no issues that we do not know about and we will comment about those to The Street as we go forward. And we'll also come up with some metrics to keep The Street apprised of our progress is going in the plant and we are working through those.

Thomas E. Werner

Bob, with respect to the impairment. It's Tom, I'll take that one. This is really an accounting requirement. It really has very little to do with our perspective on the potential value of the business. We test for goodwill as do all firms every year. And the big driver here, without getting into the complexity of goodwill impairment testing, the big driver here has been the decline in the stock price, and that factors heavily into the discount rate that you must use to apply against the future cash flow. So we don't see any difference, in our view, towards the potential to grow Europe and to expand the portfolio. We were -- we had sufficient cushion last year when we tested this. But again, the big driver, 80% to 90% of the decline in the net present value coming out of Europe really relates to an increase in the discount rate, which was driven by a drop in the stock price, and that so much to do with the investments we're making in Europe.

Operator

Your next question comes from Jayson Bedford with Raymond James.

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

I apologize if this is overly simplistic, but what exactly needs to be done to improve the batch releases here? And does it require any action by the FDA before you can improve it?

Michael Michael Ball

I think that the FDA has given us the feedback in the 483s about what needs to be done, and this is why we have retained consultants that we used at Clayton. They had a very similar situation in our Clayton facility, and we're able to remediate it to a point where the FDA was satisfied. So essentially, we're trying to take the playbook, albeit at a far larger facility than the Clayton one, and duplicate that basically then come back to where the FDA expects us to be. So I think my view is that we've done it once at Clayton. We proved that we can do it. This is a bigger operation, but it is still eminently doable. We do not need any more feedback from the FDA. We've got all we need in terms of what needs to get done, and now, honestly, we just have to do it.

Operator

Your next question comes from David Buck with Buckingham Research.

David G. Buck - Buckingham Research Group, Inc.

The question is more on the follow-up to the Investor Day when, Tom, one of the items in your talk was the higher expenses for quality remediation as well as R&D. I guess I missed one of the responses, but was there any front-loading of the quality of remediation expense now that you're spending in 2011? Or is there still the same hit in 2012 and 2013 earnings from additional R&D expenses and additional quality expenses?

Thomas E. Werner

David, it's Tom. We're just going to have really withhold judgment on that until we can give you our 2012 guidance. The R&D in the portfolio people are feverishly working to determine how quickly we can get after the right molecules for Europe, and they're getting that all timed out. So at this point, I'd say there's no change to the numbers, but I think we continue to think we'll spend roughly that amount of money. How it actually dates out, we just need a little more time to get that nailed down.

David G. Buck - Buckingham Research Group, Inc.

And then just the timing, the earliest for guidance on 2012?

Thomas E. Werner

Fourth quarter call, which, Karen, I don't know if we've got it scheduled Tuesday in the January or early February, but that's the plan at this point.

David G. Buck - Buckingham Research Group, Inc.

Okay, and just one final quick one. Where are you in the stock repurchase reauthorization at this point? Have you been active before today's news?

Thomas E. Werner

I really won't tell you whether we've been active but we do view today's news and the stock price reaction as a good opportunity.

Operator

Next question comes from Shibani Malhotra with RBC.

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

Just wanted to clarify, in your press release, you stated that much of this miss is primarily due to the facilities of productions. Is there anything that we should ultimately be looking for in terms of changing dynamics within the generics injectable space regarding competition? And then just following on from that, just a quick shot of earlier questions, what makes you confidence -- sorry, what makes you confident that customers will stand by Hospira if the kind of production issue or quality issue is prolonged?

Michael Michael Ball

So I think as we look at, again, the feedback we have from the sales force, I think customers, obviously, are not pleased with shortages from a variety of manufacturers, including ourselves. But I think we have the types of relationships and long-standing relationships, I should say, with them that will keep them. But obviously, they're not pleased with the situation and we're going to have to earn that share back. If you go back to last year towards, I believe, the first or second quarter, we also had a real slowdown in customer service levels, and we were able to capture a lot of those customers in that market share back. So I don't believe that these are permanent losses. They're, obviously, painful losses of dollars in the quarter, but I think we will earn our customers back. With respect to the dynamics in the generic industry, I don't think the dynamics have changed that drastically. I think there's, obviously, some new competitors in the marketplace, but nothing more than we've really seen before. So I don't see fundamental changes in the generic space as it pertains to the United States.

Operator

Your next question comes from Junaid Husain with Ticonderoga.

Junaid Husain - Ticonderoga Securities LLC, Research Division

Mike, big picture question for you. You've been on-the-job for Hospira now for, call it, 6 months, a tough 6 months to say the least. I know hindsight is in 20/20. But if you could do it all over again, what would you do differently? What are the lessons learned? And then how, as a manager, do you change your behavior moving forward?

Michael Michael Ball

So I think that's a good question. I think we've done a lot of the right things. I think as I look back at it, the fact that the plants were under a warning letter and we ended up getting a 483 in sometime in the June time frame, perhaps we could have acted in terms of getting some more consultants, et cetera, on the case sooner than we did. So I would say that would be one of the major things. However, I don't think it would have changed history at all. So I think we have what we have. In terms of moving forward, I'd said from the outset to the organization that the number one priority was fix the foundation. And by that, I meant obviously, as I said at Investor Day was get after the issues in our plants because I believe in this industry, one has to have the top-quality products. That's always been a belief of mine. So in terms of fixing the foundation, if there was another thing we could have done, maybe it was pursue that earlier, but our sense at the time was that things were going along okay.

Karen King

That's all the time that we have for the call today. We really appreciate your questions and thank you for joining the call in such short notice.

Operator

This concludes Hospira's preliminary third quarter 2011 financial results conference call. You may now disconnect.

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Source: Hospira Inc., 2011 Guidance/Update Call, Oct 18, 2011
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