Hospira, Inc. Q1 2008 Earnings Call Transcript

Hospira, Inc. (HSP)

Q1 FY08 Earnings Call

May 7, 2008, 9:00 AM ET

Executives

Lynn McHugh - VP of IR

Christopher B. Begley - Chairman and CEO

Terrence C. Kearney - COO

Thomas E. Werner - Sr. VP of Finance and CFO

Analysts

Glenn Reicin - Morgan Stanley

Taylor Harris - JP Morgan

Junaid Husain - Soleil Securities Corporation

Gregg Gilbert - Gregg Gilbert

Danielle Antalffy - Stearns & Co.

Bruce Cranna - Leerink Swann

Presentation

Operator

Welcome to Hospira's First Quarter 2008 Earnings Conference Call. All lines have been placed on a listen-only mode to prevent any background noise. Following the speakers' remarks, there will be a question-and-answer period. I would now turn the call over to Lynn McHugh, Vice President of Investor Relations. Lynn, you may begin your conference.

Lynn McHugh - Vice President of Investor Relations

Thank you Christy. Good morning everyone. Welcome to our conference call and webcast regarding Hospira's financial results for the first quarter of 2008. Participating in today's call are Chris Begley, Chairman and Chief Executive Officer of Hospira; Terry Kearney, Chief Operating Officer; and Tom Werner, Senior Vice President, Finance, and Chief Financial Officer.

We'll 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 the MD&A in Hospira's latest annual report on Form 10-K on file with the SEC. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments.

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

Before turning the call over to Chris, I would also like to remind everyone that beginning with the first quarter, we have re-aligned our segment and product line reporting. We've taken this step to better reflect both our current global business structure and our strategic focus on specialty injectable pharmaceuticals and medication management systems. In line with the change, we are now reporting results for three segments; first, the Americas, which includes the U.S., Canada, and Latin America; second, Europe, Middle East, and Africa, or as we also call EMEA; and third, Asia Pacific, or APAC.

Within each segment, we are now reporting product sales for four categories; Specialty Injectable Pharmaceuticals, Other Pharmaceuticals, Medication Management Systems, and Other Devices. The sales of the former Mayne Pharma are now classified in the appropriate product lines, since the business has been integrated with Hospira. For a more detailed description of what is included in each product category, please see the product line sales schedule accompanying today's press release. In addition, this description as well as historical quarterly sales for 2007 and 2006 in the new presentations are available on our website at www.hospirainvestor.com. With that, I'll now turn the call over to Chris.

Christopher B. Begley - Chairman and Chief Executive Officer

Thank you, Lynn, and good morning, everyone. I'm pleased to report another good quarter for Hospira, one in which we made continued progress in advancing the business. We recently celebrated our fourth anniversary as an independent company. It was a proud moment to see how far we've come in those four short years, guided by our employees, our strategies, and our focus on execution. That focus got us off to a great start for the year. We launched our first biosimilar, Retacrit in Germany and Austria. As a reminder, Retacrit is our generic version of erythropoietin. This launch represents a significant milestone for us, as we expect biogenerics to be an important longer-term growth driver for Hospira. The experience we gain with our biosimilars program in Europe should position us well to participate in the larger U.S. market once it broadly opens for biogenerics.

Near term, we will continue to launch Retacrit in more European countries over the course of this year. Also on the biogenerics front, we recently completed the enrollment for the clinical trial of our second biogeneric drug, filgrastim, more commonly known as G-CSF. In addition to Retacrit, we launched two other drugs out of our pipeline in the first quarter, with a total local market value of about $550 million. These drugs were irinotecan in the U.S., and a very small drug in Australia. We also continued to introduce compounds from our on-market specialty injectable portfolio to additional countries around the world. During the quarter we launched 11 compounds into new markets.

The first quarter was one of continued progress for Precedex, our proprietary I.V. sedation agent used in intensive care settings. We submitted the sNDA for the long-term sedation indication to the FDA in the first quarter, right on schedule. This development follows the filing to the FDA on the procedural sedation indication for Precedex in the fourth quarter of 2007.

On the device side, just last week we announced the acquisition of Sculptor Developmental Technologies and its VeriScan Rx Medication System, a leading bar-code point-of-care and RFID technology. This technology complements our medication management systems offerings, and is expected to enhance our ability to help customers improve patient safety and hospital productivity. And last but certainly not least, more than a year after the acquisition of Mayne, we continued to successfully execute its integration. We remain very pleased with the addition of the products and people that became part of Hospira last year. Additionally during the first quarter, we paid down $25 million of debt from the acquisition.

On the financial side, net sales in the quarter were up nearly 14%. Excluding foreign currency, sales grew about 10%, primarily on strength in our specialty injectables business and an additional month of Mayne's sales compared to last year. Our adjusted diluted earnings per share were $0.55 versus $0.59 cents last year, slightly above our expectations and once again aligned with the Street's estimates. For the 2008 year, we remain comfortable with our previous sales and earnings guidance. Tom will talk more about this later. Right now, I'll turn the call over to Terry for more details on the quarter. Terry?

Terrence C. Kearney - Chief Operating Officer

Thank you, Chris, and good morning everyone. Net sales in the Americas were up 8%, or 7% on a constant-currency basis, mainly on strength in Specialty Injectables. Specialty Injectables grew 17% for the quarter, with double-digit growth in the U.S., Canada, and Latin America. Currency contributed one point of growth. In the U.S., the base business drove performance, supplemented by new product introductions. Pricing was a modest positive. In the base business, higher sales from increased awards on GPO pharmacy contracts, drug wholesaler purchasing patterns, and benefits from competitors' supply issues on several drugs all were factors in the quarter.

We launched two new products in the U.S. during Q1, irinotecan and ciprofloxacin premix. Irinotecan was another first-to-market launch for us, as we entered the market at patent expiration in February and met our market share expectations of 20% to 25% share in the hospital channels. Ciprofloxacin premix was also launched on patent expiration. The premix presentation by far dominates the cipro injectables market. We've captured in both the hospital and alternate site channels more than a 50% share of the sales of cipro in this differentiated delivery system.

In Other Pharma, the decrease in sales was driven by the expected lower sales to Abbott and a decline in contract manufacturing related to the timing of shipments to customers. This was partially offset by double-digit growth in IV solutions and nutritionals, driven by growth in VisIV and new account gains.

Medication Management Systems sales in the Americas increased 1.5% in the first quarter and were flat on a constant-currency basis. In the U.S., growth in service revenue and strong pump-set sales offset lower infusion device sales. During the quarter, we were focused on the broad launch of Symbiq, as well as development of a new customer base, given our recent contract awards at the HealthTrust Purchasing Group GPO. Both will be key growth drivers in the quarters to come.

There is a great deal of interest in Symbiq. Early uptake in competitive accounts is very strong. Over 90% of the current and scheduled implementations of Symbiq are in competitive accounts. Our early success clearly validates our technology leadership. And with the new contract award from HPG for both pumps and solutions, we are aggressively prospecting these accounts. We have already signed certain accounts and have begun converting them to Hospira products.

Overall, we see momentum building in Medication Management. At the end of March, we have signed and/or shipped about 35% of the placements we've planned for in 2008. Of this percentage, the ratio of signed contracts to pumps that are already been shipped is nearly two to one, indicating that the majority of the revenue is yet to come. In Other Devices in the U.S., strength in gravity administration sets was partially offset by declines in critical care and OR products.

Moving now to the European region, net sales increased 32%. Excluding foreign currency, sales rose 18%. In Specialty Injectables, sales grew 44% on a constant currency basis, driven by the extra month of Mayne sales. Looking at a few of the key drugs in Europe, irinotecan, epirubicin, and carboplatin all generated higher sales compared to a year ago on strong volume gains. Paclitaxel sales were flat on a constant-currency basis, although volume continues to grow. Oxaliplatin sales were lower, in part reflecting the loss of a tender in the U.K.

As Chris mentioned, the first-quarter launch of Retacrit in Germany and Austria was a milestone event for us, as it represented the inaugural launch in our biogenerics program. While we continue to roll the product out in additional European markets including the UK, Ireland, and Portugal all planned for the second quarter, it's still too early to provide any meaningful perspective. As we've told you, while it will take time to convert the markets to biogenerics, the experience we're gaining in Europe is invaluable in terms of positioning us for eventual entry into the larger U.S. EPO market.

Other Pharma grew 11%, primarily on foreign currency, which contributed 10 points. Strength in compounding was offset by expected lower sales in contract manufacturing. Sales for Medication Management Systems in EMEA grew 24% during the quarter, or 10% excluding the foreign exchange benefit. Strong pump placements, particularly our GemStar ambulatory infusion pump, and our Plum general infusion device, were drivers of the performance.

The Asia Pacific region reported a sales increase of 46%, or 29% excluding foreign exchange. The additional month of Mayne drove the increase on the pharma side, with a contribution from contract manufacturing as well. On the device side, we generated double-digit growth in Medication Management Systems on a constant-currency basis on higher pump placements. A notable milestone in the quarter for APAC was the first placement of our GemStar pump in China.

With the realignment of our product line reporting structure, we are providing you with 2008 full-year sales projections that corresponds with this new format. All projections are on a constant-currency basis versus 2007. For 2008, we expect sales growth in the Americas to range between 6% and 8%. Within the Americas, we project Specialty Injectables sales will increase 7% to 9%, and Medication Management sales will grow 8% to 12%. In the European region, we are projecting sales growth of 4% to 6%. Within EMEA, we anticipate sales of Specialty Injectables will increase 6% to 8% and MMS sales will rise 20% to 25%. And in Asia Pacific, we expect sales growth for the region to be between 15% and 17%. Within APAC, we expect Specialty Injectables sales to grow 15% to 20% and Medication Management sales to increase 30% to 35%. These projections do not reflect any fundamental changes in the expectations we initially provided to you in February. They are merely recast to align with the new reporting structure.

Before turning the call over to Tom, I'll briefly update you on our integration activities and our facilities optimization initiatives. The integration of Mayne is progressing well. We are tracking to our target schedule to convert all the Mayne commercial operations to SAP by early Q3. During the first quarter, we converted several key countries, including Germany, France, and Spain, with no disruptions to customers.

Our facilities optimization initiatives are progressing as well. Our Montreal manufacturing facility ceased production in the first quarter, and the transfer of product out of the North Chicago facility over the next couple of years remains on track. As part of our ongoing efforts to optimize our manufacturing footprint, recently we announced plans to exit our Morgan Hill, California facility, transferring most of the production to other locations over the next two to three years. Morgan Hill primarily manufactures infusion pumps. We expect this move to ensure that we remain cost competitive on a global basis for years to come.

I'll now turn the call over to Tom for a review of our financial statements. Tom?

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

Thanks Terry, and good morning, everyone. Net sales in the first quarter were $889 million, a 14% increase over last year with currency contributing about 4%. As we mentioned on last quarter's call, beginning this year we moved the grant date for our stock-based compensation awards from the second quarter to the first quarter, primarily to streamline the performance-based compensation process and encourage greater alignment between our talent management programs and incentives. This change adversely impacts comparisons of gross profit, R&D, and SG&A by a total of about $7 million in the quarter.

Walking through the rest of the income statement, adjusted gross margin in the quarter was 38% compared to 40.5% in the first quarter of 2007. The decrease in gross margin relates to the timing of manufacturing costs, higher freight and distribution expenses, and slightly unfavorable product mix. Adjusted R&D expenses were $49 million in the quarter compared to $43 million last year, an increase of 13%. The increase was driven by higher spending on new product development, partially offset by lower spending in the first quarter of 2008 on the clinical trials for Precedex, of which two have now been completed. Adjusted R&D as a percentage of sales was 5.5%, equal to the first quarter of last year.

Adjusted SG&A expenses for the first quarter were $143 million, compared to $123 million last year, an increase of 17%, of which nearly 5 percentage points is related to the stock-based compensation change. The remainder of the increase in SG&A relates to the negative impact of foreign currency and the additional one-month impact of Mayne, as well as higher costs for the investments we've made in our sales forces particularly for Retacrit and Precedex. Adjusted SG&A as a percentage of sales was 16.1%, versus 15.7% in 2007.

Adjusted operating income for the quarter was $145 million versus $151 million last year, with the adjusted operating margin at 16.3%, compared to 19.2% last year. Adjusted interest expense rose 11% to $31 million in the first quarter from $28 million last year. This increase reflects the expense associated with higher average debt during the quarter compared to last year, a result of the Mayne acquisition. Other non-operating income was down on an adjusted basis, due to lower interest income on lower cash balances, partially offset by an increase in foreign currency transaction gains.

Our tax rate on an adjusted basis in the quarter was consistent with our full-year projected rate of approximately 25.5%. Our adjusted diluted EPS for the first quarter was $0.55, compared to $0.59 last year, down due to the timing change in stock-based compensation expense as well as higher interest and increased weighted average shares outstanding, but still slightly ahead of our expectations.

Our first-quarter adjusted diluted EPS excludes several items relating to the Mayne acquisition, as well as to our facilities optimization initiatives. Those relating to the Mayne acquisition are as follows; first, the non-cash pre-tax charge of $16 million for the amortization of intangibles, and second, $10 million of integration costs that were primarily cash. Together, these Mayne-related items represent $0.11 in the diluted GAAP EPS in the quarter. The expenses related to our facilities optimization initiatives totaled $8 million pre-tax, or $0.03 per share.

As Terry indicated, we've taken additional actions to optimize our manufacturing cost structure with the recent announcement of our plans to exit our Morgan Hill facility. As part of this initiative, we estimate pre-tax charges related to that action to range between $29 million and $35 million over the next three years, beginning in the second quarter of 2008. Of these charges, approximately $24 million to $30 million will be cash payments. However, the cash impact does not reflect any capital expenditures related to adding capacity to other locations, nor the eventual proceeds from the sale of the existing facility. Savings from this action are expected to reach $15 million annually, after tax, by 2011, augmenting the cost savings from our other facilities optimization initiatives that we had previously announced.

Now turning to the balance sheet, our cash balance at March 31, 2008 was a healthy $232 million, compared with $241 million at the end of last year and $250 million at March 31, 2007. As Chris mentioned, we paid down an additional $25 million of our debt in Q1 and are still targeting paying down a total of $475 million of our debt in 2008, mostly to be paid in Q4. The increase in inventory to $807 million from $767 million at year-end is primarily due to the impact of foreign currency and some inventory build in line with planned sales.

On the cash flow statement, our cash flow from operations for the quarter was $74 million, up from $50 million in the first quarter last year. Capital spending in the quarter was $43 million. Depreciation and amortization of $64 million in the quarter included $16 million of intangibles amortization related to the Mayne acquisition.

Regarding our projections for the 2008 year, we remain comfortable with our previous top and bottom line projections. We continue to believe that consolidated net sales will grow in the 6% to 8% range on a constant-currency basis. Adjusted diluted earnings per share for 2008 continue to be projected in the $2.45 to $2.55 range. The assumptions we provided to you last quarter for gross margin, R&D, and SG&A as a percentage of sales, and on operating margin, remained unchanged.

In terms of the calendarization of our adjusted diluted EPS for the remainder of the year, we continue to expect Q4's earnings per share to be the highest for the year, with Q2 and Q3 within a few pennies of each other. Our estimates for cash flow from operations, depreciation, and amortization, and capital spending all remain unchanged from our last projections. The amounts for all of these cash flow items are in today's press release.

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

Christopher B. Begley - Chairman and Chief Executive Officer

By focusing on our business strategy, Hospira continues to gain momentum. The first quarter was a solid start to 2008, with particular strength in our Specialty Injectables business. Companywide, we are delivering the right products to our customers that help reduce their costs and improve patient safety. Our focus will translate into another solid year of growth for Hospira. Before we go to question-and-answer this is Lynn McHugh's last call as a full time employee of Hospira and I would now like to publicly in front of our shareholders and employees thank Lynn for all she has done for us since we became a public company. She has done a great job in training and guiding myself, Terry, and Tom on our journey as a public company. Lynn we will miss you greatly and good luck. With that operator I believe it's time for some questions.

Question And Answer

Operator

[Operator Instructions]. Your first question comes from the line Glenn Reicin of Morgan Stanley.

Christopher B. Begley - Chairman and Chief Executive Officer

Good morning Glenn.

Glenn Reicin - Morgan Stanley

Hi, this is Glenn Reicin, can you hear me.

Christopher B. Begley - Chairman and Chief Executive Officer

Glenn you are breaking up, it sounds like you are on a cell phone.

Glenn Reicin - Morgan Stanley

I am, hold on, I get back, thank you.

Christopher B. Begley - Chairman and Chief Executive Officer

Okay, thank you. Why don't we go to caller number two, Taylor Harris.

Operator

Your next question is from Taylor Harris of JP Morgan.

Taylor Harris - JP Morgan

Hey there, can you hear me?

Christopher B. Begley - Chairman and Chief Executive Officer

Yes we can Taylor, how are you today?

Taylor Harris - JP Morgan

Very good, thanks. So, Chris or Terry, on the U.S. injectables business there have been a number of moving parts over the last few quarters with wholesaler inventory, etcetera, can you maybe just give us your thoughts on what the market is growing right now, are you growing above market, what's the core trend in your business and then help us with this quarter may be quantify some of the extra impacts to the positive side that you have

Terrence C. Kearney - Chief Operating Officer

Taylor, it is Terry. I think our estimate is that we are probably growing a little faster than the market at this point in time. Relative to the wholesaler buying patterns so, there is a number of factors that probably have come into play, I can think of a couple right off the top of my head, one being what we have seen as a very strong flu season, certainly relative to other years, at least in the last couple of years where they had fairly weak flu seasons. Flu season 2008 was particularly strong and we saw our price and volume because of that. And also we priced off some extra activity with wholesalers because of the fact that certain of our competitors were no longer able to supply prior to the market, so I think that put a bigger demand on our products as well. Now trying to understand how that may play out over the course of the year, it's hard to do at this point in time because I can't tell you what the flu driven purchases are or competitive issues with supply, how much of that product ended up in the market versus has remained in the inventories. So down the road there could be some burn off there but right now it's really hard to predict when and how much. But I guess coming back to your question, we feel very good about our injectible business. We think we are doing all the right things to launch products on time, if that's in expiration. We also have been there when other players have been unable to supply the market, so we feel pretty good about it and we continue to expect good strength in that business going forward in quarters to come.

Taylor Harris - JP Morgan

Okay, so I guess that means so far through the second quarter you haven't seen a pull back in inventory levels but it's possible that they could come at some point in years, is that fair?

Terrence C. Kearney - Chief Operating Officer

That's fair.

Taylor Harris - JP Morgan

Okay, just another injectibles question but this time in Japan, the... 'I believe there has been a change in the regulatory framework in that market in Japan, is that the case and can you just explain to what extent that's going to help you guys?

Christopher B. Begley - Chairman and Chief Executive Officer

If you're talking about generic injectibles or generics in total, the only thing I am aware of that I can share with you is the fact that Japanese government keeps looking at issues relative to the overall increase in cost of healthcare and they have now encouraged more generic use in the marketplace. So that's a positive for us but again it's a still a fairly difficult market in the sense that you still have to convince each hospital to put your drug on formulary. So it does take some time but I think it's encouraging to see a market, the second largest market in the world, finally starting to embrace generics and take some action to ensure that generic scripts are written in place of proprietary scripts.

Taylor Harris - JP Morgan

Have you heard anything differently? I thought they were moving more toward a mandatory generic substitution unless otherwise indicated by a doctor in the injectible?

Terrence C. Kearney - Chief Operating Officer

I know that's the trend, but I don't believe it's totally mandatory at this point in time.

Taylor Harris - JP Morgan

Okay, great. And then just last question, can you give us the impact of Mayne in the quarter of that extra month?

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

Well what saw... Taylor, it's Tom. What we said for the year is that that extra month of Mayne, we think is about 1%, contributing about 1% to the growth that we have given for the full year.

Taylor Harris - JP Morgan

For the full year. Okay, thank you very much. And Lynn, thank you as well.

Lynn McHugh - Vice President of Investor Relations

Thanks Taylor.

Christopher B. Begley - Chairman and Chief Executive Officer

Have a great day, Taylor.

Operator

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

Junaid Husain - Soleil Securities Corporation

Good morning everyone.

Christopher B. Begley - Chairman and Chief Executive Officer

How are you, Junaid?

Junaid Husain - Soleil Securities Corporation

Doing well. If I could ask the obligatory question on hospital spending. Relative to your infusion pump business, as you look to launch the Symbiq in... or do the full launch of Symbiq in 2008 and your sales and marketing focus takes the pump out to your hospital customers, are you getting any budgetary push back from hospitals who are now evaluating perhaps a tad more expensive infusion pump contracts with the latest and newest pump?

Terrence C. Kearney - Chief Operating Officer

Junaid, not at all. Quite honestly, we see a lot of excitement about the pump and a lot of people wanting us to bring it to them to demo it. And we have been very successful after demoing the pump to actually sign these customers up. And you are right, this is a premium priced product and I think the features and the technology sort of speak for themselves. And at this point in time, the hospitals we are dealing with are willing to pay the price and are very excited about getting the pump into their institutions.

Junaid Husain - Soleil Securities Corporation

Good enough. And then a question with regards to Retacrit in Europe. I know it's early going in the launch. Is there any metric that you could provide that could help us gauge how the Retacrit launch is fairing? If not product sales, maybe percent of new script that Retacrit is taking from the competition or the number of hospitals that have agreed to include Retacrit on formulary, something... anything that could help us get a read or could potentially give us a read on how Retacrit is faring would be very helpful.

Terrence C. Kearney - Chief Operating Officer

I think it's a great question. I don't have anything off the top of my head that I can share with you. Again, it's very early for us. It's slow in the sense that the market awareness has to build... the market has to get comfortable with the concept of the biogeneric being as safe and efficacious as the proprietary drug. So it's... we all along believe this would a slow uptake for the product. I don't think we are experiencing anything different than our other generic competitors. But we are seeing some uptake and it's not only in the hospitals, but it's also in the nephrology renal centers as well. So we are aggressively marketing this product today in both the oncology as well as the renal settings. And again, it's slow and we do believe that over time as more and more clinicians get the product in their hands, they'll understand it's value to them and we will see more of an uptake. But relative to scripts or anything else that you mentioned, I don't have those metrics on hand at this point in time.

Christopher B. Begley - Chairman and Chief Executive Officer

Junaid, this is Chris. It's really... we are just really beginning to scratch the surface from a penetration standpoint, so it's too early to report on any of those type of metrics. The other thing I would add, as expected, from a competitive standpoint, big pharma is being extremely competitive and is doing everything possible to try to hang on to their billion plus revenue that they have. But that was expected and this is a longer term build that we are doing. And we are learning a whole lot which will eventually help us in the U.S. when that market opens up.

Junaid Husain - Soleil Securities Corporation

Thanks, that's helpful. And then I guess last question for you, with regard to your anesthesia business. There has been a lot of noise out there with regards to some of the payers not willing to ante up for anesthesia services in conjunction with the colonoscopy procedure. Given that push back from the payers, I was wondering if you had noticed any impact on your propofol business?

Unidentified Company Representative

No, we really have not, whatsoever and in fact on the propofol front, one of the suppliers of propofol has exited the market and so even picking up share in propofol which further reinforces if you recall on propofol, we weren't first to market and we actually came out a number of years after the first generic player. But it shows that the fact that we have a high service level, high quality and the staying power that eventually the door opens us to capture share a longer term and that's exactly what's happened with propofol.

Junaid Husain - Soleil Securities Corporation

Great. Thanks guys that's all I have got and thank you and for answers [ph].

Operator

Your next question comes from the line of Gregg Gilbert of Morgan Stanley.

Gregg Gilbert - Gregg Gilbert

Thanks. Good morning I am still at Merrill Lynch though.

Christopher B. Begley - Chairman and Chief Executive Officer

Good morning Gregg. Actually it was Lynn [ph].

Gregg Gilbert - Gregg Gilbert

I see good luck Lynn by the way. Terry can you give us some flavor on the U.S generic business in North America sort of keeping Precedex and new launches aside can you give us some flavor on how that base did in the quarter?

Terrence C. Kearney - Chief Operating Officer

Again to the best of our knowledge I haven't really looked at that closely, but I believe it's a sort of low single digits to flat perhaps at least when we look at it a while ago it was and we a see pretty growth in our business. So I think the market isn't doing as well as we are doing, but we certainly are enjoying much better uptick from our business.

Gregg Gilbert - Gregg Gilbert

And on the new product launches you mentioned you met were maybe even exceeded your share goals depending on the product.

Terrence C. Kearney - Chief Operating Officer

Right.

Gregg Gilbert - Gregg Gilbert

Has pricing on these products been in line with your expectations as well.

Unidentified Company Representative

I'm sorry.

Gregg Gilbert - Gregg Gilbert

I'm sorry, on these dates certain launches are you finding that pricing is more competitive or are you pretty good at estimating it?

Terrence C. Kearney - Chief Operating Officer

Well I think we are pretty good at estimating, and again it's not surprising that there are most of the competitors entering the market so, when we are able to achieve our market share goals and sometimes actually exceed them. I think that's again a great testament to what Chris is alluding to relative to our contract in strength within the in injectables market place.

Christopher B. Begley - Chairman and Chief Executive Officer

Greg, let me add a little bit more color to that and I think you have really have touched on something the base market in Terry has categorized appropriately and where our growth is coming from is in the new products Precedex, but also just share capture across the board as well, and so our whole strategy around differentiation in the U.S. continues to payoff for us, as we have our products, or drugs in unique delivery systems that improve patients safety or reduce labor in the hospital.

Gregg Gilbert - Gregg Gilbert

Can you... 'with the new revenue breakout which is appreciated, can you give us a sense of how much of Bacimycin you saw in the quarter, sort of which bucket, how much resides in each bucket at lease approximately?

Unidentified Company Representative

Well, Vonco would be in this specialty injectables line in the Americas, but again typically we don't really share our by molecule sales results, so.

Unidentified Company Representative

Danny there growth, it was one of the many molecules that shows good growth in the quarter, not [Multiple speakers].

Gregg Gilbert - Gregg Gilbert

Far North America is my question, right. You pretty much all?

Unidentified Company Representative

Yes, it is pretty much in North America, in U.S. specifically.

Gregg Gilbert - Gregg Gilbert

And then last question, Chris sort of bigger picture question. How successful has the company been introducing the older Hospira products and demands infrastructure in other countries, and how much of a focus has that been? Thanks.

Christopher B. Begley - Chairman and Chief Executive Officer

Well, it's been a main focus for us both from an R&D standpoint and from a commercial standpoint as I mentioned in my opening comments. We just launched in Q1, 11 products that were on market products for us in the U.S and we launched those into other countries around the world and obviously the main organization has a great job on that front. The other thing is the main Hospira combined organization around the world is beginning to have a major impact on MMS and I think you saw that both Terry's and Tom's opening comments around the numbers from a performance standpoint and the guidance that we've given for the balance of the year. And that's due to the synergistic sale activity, but also due to the fact that we're beginning to... 'with our Plum A+ technology translated into different languages which is opening up that international marketplace for us. So, we've been very successful, but we also believe that we're just getting to the point where we continue to maximize that moving forward.

Gregg Gilbert - Gregg Gilbert

Thanks.

Operator

Your next question from the line of Rick Wise of Bear, Stearns.

Christopher B. Begley - Chairman and Chief Executive Officer

Good morning Rick.

Danielle Antalffy - Stearns & Co.

Can you hear me? Hello?

Lynn McHugh - Vice President of Investor Relations

Danielle.

Danielle Antalffy - Stearns & Co.

Can you hear me?

Lynn McHugh - Vice President of Investor Relations

Yes.

Christopher B. Begley - Chairman and Chief Executive Officer

Yes.

Danielle Antalffy - Stearns & Co.

Okay. Hi guys, this is Danielle in for Rick. First I'd like to see Lynn we will miss you a lot. It's been a pleasure working with you.

Lynn McHugh - Vice President of Investor Relations

Thank you.

Danielle Antalffy - Stearns & Co.

Okay, my first question, sort of a big picture question. It's on 2008 guidance, so you guys are reiterating you're your top and bottom line guidance but you had a pretty strong quarter on the to and bottom line. So, I'm just trying to get a better understanding of how you expect the rest of the year to play out, I mean you beat consensus by a penny, you beat us by $0.03, so just kind of if I could get more color on why you are not raising guidance?

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

Yeah, Danielle, it's Tom, if you look at the quarter and how it played out, sales came a little stronger than we were initially expecting. Product mix in some other cost issues in volume and manufacturing little bit less, FX did help us, timing and options expense helped us, but it just really too early in the year to really provide any new guidance. We've given a $0.10 range to cover off the usual collection of upsides and downside and it's just really too early to do anything at this point.

Danielle Antalffy - Stearns & Co.

Okay, so is it fair to say you may be a little bit conservative here?

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

No, I think we really aiming the kind of, the middle of the fairway and that's really was dial into the guidance we gave initially.

Danielle Antalffy - Stearns & Co.

Okay and then trimming down into net management. So in the America's net management are grew about... 'grew 1.5%, we were looking for 7.5%. So its a lot weaker than we expected, our sense was that despite the Symbiq launch delay, it was going pretty well in the quarter. But it doesn't seem to be highly visible in the number, so if you can help me better understand, is this another sales cycle issue with Symbiq that's going on here or any color there?

Terrence C. Kearney - Chief Operating Officer

Danielle, this is Terry. Let me give you a little color, and what I am going to share with you is consistent with some of the comments I made in February, but the difference when I bring these up again today is that today we have strong and proper evidence that really supports our confidence in our U.S MMS business and when you think about it, we really had clearly building momentum, but in the quarter, we really a lot of our energy were really centered around the board launch of Symbiq which we talked about, we have an high degree of interest, primarily and particularly in competitive accounts where we have over 90% our signings on a year-to-date basis in competitive accounts.

What's also very helpful to understand is that we are limited in what hospitals, or clinical areas we are going with this pump, this pump serves a variety of needs and we are able to penetrate our clinical areas in hospital where the pump was not able to do that in the past. And we also can share with you that we have signed a number of large prestigious competitive accounts in the first quarter and those are being implemented as we speak today. So a lot of what Symbiq meant to us is really still there and it's just a question of you have to spend the first quarter doing the demos, doing the contract cycling and now we are in implementation phase. So it is more to come on Symbiq and again very confident in the way Symbiq is being rolled out today.

The other thing that gives us good confidence is the fact that with the HPG Award, we have a much broader place, you have to play it on and in the past we are limited to certain GPO contracts, if weren't on contract, we had a very difficult, perhaps given the time and opportunities to talk to those customers. Today with HPG which is a very large GPO of over 700 acute care hospitals, we are making good headway as I indicated in my earlier dialogue, we have already signed in the process of converting a number of hospitals in HPG and what that really means is that once you start to convert them initially from four [ph] solutions and equipment, the next logical step for us is to introduce intuition pumps.

So we see this a very good opportunity to continue to push LMS pipeline into a much broader audience and third, we still believe that we have the broadest and most technologically advance product line in the industry today. Clearly, we have a strong quality record and we also believe we have really good relationships with our customers whether it's through the contracting cycle or implementation cycle. And again I will reiterate what I mentioned in the script is that on a year-to-date basis, we have already; we are very much tracking our placement expectations for the year. We are about 35% through March year-to-date. So we are very confident that we are on the right track and again, we have real good headwind with us with the launch of Symbiq as well as the Award HPG, so I recognize that the first quarter wasn't as high as you may have planned, but we are still very confident with the growth assumptions that we except for this part line in the U.S and Americas.

Danielle Antalffy - Stearns & Co.

Okay that's helpful and then just thinking about guidance and your 8% to 12% guidance. I mean now you have a competitor that was suppose to come back on the market mid year, day or now not coming back on the market. I mean are you not expecting to benefit, I guess from that at all or...

Unidentified Company Representative

Oh we are. I mean again, if you look at last year we grew 5% and that was without Symbiq without HPG. So I believe the guidance that we have built for 2008 would be indicative of not only having Symbiq, but also being able to get into additional accounts with that competitors was particularly strong, so that's how we built our guidance with that expectation.

Danielle Antalffy - Stearns & Co.

Okay, I guess my question is why you didn't raise the sort of 8% to 12% guidance because they were supposed to have comeback when you issued the guidance and now they are not?

Unidentified Company Representative

We never really put a lot of value in their coming back that point, because it wasn't very clear when they would come back and how they would come back. So we don't see this as a significant change in the way we look at the market.

Danielle Antalffy - Stearns & Co.

Okay and then sorry, one more question, I will jump off. As far as you talk about being in the implementation phase now. I mean so does that mean in the second quarter we are going to see a pretty big bump up in sales growth, or is this in six months and eight months, 12 months?

Unidentified Company Representative

Again we have guided to give 8% to 12% growth in the year. So if you do the math with our first quarter, we are going to have significant second, third, fourth growth rates.

Danielle Antalffy - Stearns & Co.

Okay great, thank you so much guys.

Christopher B. Begley - Chairman and Chief Executive Officer

Thank you Danielle.

Operator

Your next question comes from the line of Glenn Reicin of Morgan Stanley.

Glenn Reicin - Morgan Stanley

This is Glenn, guys can you hear me?

Christopher B. Begley - Chairman and Chief Executive Officer

Yes Glenn.

Glenn Reicin - Morgan Stanley

Okay, sorry about that. Okay, a couple of questions. Firstly, Mayne [ph] I just want to know if you can make it simple for us. Just what do you think the monthly contribution, the extra month contribution was with the quarter as in the year and then what do you think the impact was on U.S, EMEA and Asia, just try to simplify for it us.

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

Yes, Glenn its Tom Werner. The impact to Mayne in the quarter as you look at our total sales growth of about 14% on a cost and currency basis, it get down to 10 and about half of the growth in the quarter of that 10 relates to main and that's right in line with our expectation, it's a little difficult to really pin it down now that the product lines have been merged, but near [ph] as we can tell is about half the growth that we report on a constant currency basis.

Glenn Reicin - Morgan Stanley

And what about geographically?

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

Yes, Glenn on the region piece there was very low impact from America's standpoint, more of an impact in Europe, in East Africa and Asia Pac which if you think about the strategic rationale for purchasing Mayne, it was expand our international footprint 85% of their business was outside of the U.S and so that's why it obviously had less of an impact in the U.S, more of an impact outside of the U.S

Glenn Reicin - Morgan Stanley

Let's just give the same thing in EMEA, if you have 32% growth, how much was that was FX and how much of that do you think would be Mayne just to get the same sort... kind of number?

Unidentified Company Representative

Yes Glenn, those numbers, we're not really disclosing at this point. I don't have the handy either.

Unidentified Company Representative

It was the... 'I think it's fair to assume and this is what Terry said in his script that it was the primary driver involved EMEA and Asia Pac for specially injectables.

Glenn Reicin - Morgan Stanley

Okay, I forgot, could you give us FX our region or no?

Unidentified Company Representative

Yes we did.

Unidentified Company Representative

We did.

Glenn Reicin - Morgan Stanley

Okay fine. I'm in the order, so you can tell. On the specialty side, we were expecting an impact from the stock and you have seen in the fourth quarter that you talked about. We didn't see the destocking in the first, is that just a timing issue or is the business really outperforming, may be just add a little bit of color to that.

Unidentified Company Representative

Glenn I think it's a couple of things. First, again I think we didn't anticipate our plan for these strong flu season that we experienced in the first quarter. So that would have offset any potential destocking for the fourth quarter and plus the effect that again a number of competitors were after-market, certainly benefited us in the quarter. So those would have mitigated any potential destocking. And then the last point, I think in fairness, we are feeling pretty confident that we are gaining share in the marketplace. So I think that clearly overwrites the rest that we continue to do well on our new product launches from a share gain perspective and on our pharmacy awards, as we renew those throughout the year, we fed good results. So we feel pretty good about it.

Unidentified Company Representative

Hey Glenn we are clearly firing in all cylinders and our SIP business as the numbers reflect.

Glenn Reicin - Morgan Stanley

Okay and the comments you gave for specialty and medical management, those are purely for those two lines. It is not device and total pharma that guidance.

Unidentified Company Representative

That's correct.

Glenn Reicin - Morgan Stanley

Okay, my last question. I know, talking of specific pipeline products is difficult, maybe if you can give us a sense of what products you have introduced over the last 12 months. Those new products what they generated worldwide or in the U.S, can you do that to aggregate those products?

Unidentified Company Representative

Yes maybe, a minute [ph]. I don't know if I have... I personally don't have 12 moths of data.

Lynn McHugh - Vice President of Investor Relations

Yes, you know what Glenn, because I am just kind of thinking back here. We didn't have a lot of new product launches last year in U.S, there were some year before. I mean it's always been a contributor of may be a couple of percentage points, but frankly the base business has really been driving growth over the last 12 months.

Unidentified Company Representative

And if you are looking for some specific names. Let me try to help you out on that. We, as we talked about on the opening comments several premix [ph], we launched in Q1 of this year in the U.S, irinotecan, we launched in Q1 of this year in the U.S at the epirubicin solution we launched August 8th of 2007. Phosphenytoin [ph] we launched on August 6th of 2007 also on the U.S. and so those were the major U.S launches. And then obviously, we talked about the oncology launches in Europe, Oxaliplatin and that and irinotecan as well. So those were really the major launches and as we talked about before Glenn in this SIP business, the real growth comes from the new product launches around the world and then in the U.S, it's our differentiation strategy that we have in place that enables us to continue to gain share even on older drugs.

Glenn Reicin - Morgan Stanley

Right of course, okay thank you very much.

Unidentified Company Representative

Thank you Glenn.

Operator

Your final question comes from the line of Gregg Gilbert of Merrill Lynch.

Gregg Gilbert - Gregg Gilbert

Couple of quick follow ups. Other than propofol what other products had supply issues that helped you and do you see that as a sort of permanent set of wins or temporary and are you still assuming generic Zosyn around mid year?

Terrence C. Kearney - Chief Operating Officer

Okay. Let me answer those questions, Greg. Clearly Heparin was a significant product in the quarter. We didn't try benefit as much as perhaps other competitors. As you may be aware, we actually offer Heparin in a differentiated delivery system being Carpuject as well as iSecure systems. So they are not offered today in vials, as other may be. But we have seen uptick in the Heparin demand and we expect that to continue over the course of the year assuming that Baxtor does not come back to the market.

The other insignificant product other than Heparin and propofol was ceftriaxone that was off to market for a while and I am not clear when that maybe coming back, but I think as far as the Heparin and propofol products, we expect to see continued benefit from that throughout the year. Our intelligence indicates that [indiscernible] wont be back in the market in this year, at least that's what we are estimating that point in time. It may be back next year and again, the jury is still out on what Baxtor will do with their Heparin product line. Relative to Zosyn, we are in discussions constantly with our partner on this and they are feeling right now, they are in discussions with the FDA, and so forth is that they are still feeling it will be a mid-year launch this year. So we are planning for it and we are gearing upward.

Gregg Gilbert - Gregg Gilbert

Thanks

Unidentified Company Representative

Yes.

Operator

We have the other question from the line of Bruce Cranna of Leerink Swann.

Christopher B. Begley - Chairman and Chief Executive Officer

Good morning Bruce

Bruce Cranna - Leerink Swann

hey, good morning guys, thank you for taking the question. I just want, I don't know at the risk of beating a dead horse. I do want to spend a little bit of time on MMS in the U.S, because it was a little bit below what I was thinking about it as well and I think in the prior quarter you guys had mentioned that there may be some delays in hospital purchasing activity. Are you still experiencing that and is there any sort of postponement due to Symbiq effect in your numbers as well?

Christopher B. Begley - Chairman and Chief Executive Officer

No Bruce, for us we don't see any delay relative to... or any purchase decisions being delayed, because Symbiq is now launched and it's in broad market launch across the U.S as of early January or actually late December, early January and again it's been a lot of activity and lot of excitement from our customer basis, as well as competitive customer basis for this products so, we see that being very positive. Typically, when you think about delays... at least we are not experiencing any delays on purchasing decisions because of the capital markets or credit crisis. It's typically... right now it's really not... the people are interested, people are encouraged, we will get them signed.

Usually, we typically run to is their timing on one day can marshal the resources to go through the implementation cycle. And so, typically we could sign a contract saying January and it potentially may not be implemented until the second or third quarter, based on how bigger the deal it is and how extensive the project planning that Hospira has to go through to make that happen. But we've monitored that very closely so, every signing that we do... 'we put together, our plan with the hospital to make sure that they had the resources in place of appropriate project management. And of course, we have appropriate resources to support that limitation at that time.

So, we see it all being very positive right now. We don't see any environmental things that would show us off course again high degree of enthusiasm. The sales force is very pumped up and very excited about being able to promote some Symbiq. So, I think everything is very positive at this point of time.

Bruce Cranna - Leerink Swann

Okay. And then, I think it was Tom who was making comments on gross margin and there were three pieces that were mixed, they were mentioned, I think a timing in freight and mix. Is it possible to sort of I guess to size those or rank order them at least?

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

Yes, Bruce, it's Tom. If you look at the year-over-year change, I guess we're not sure if you're looking that year-over-year or just Bruce's expectation. We had a very strong quarter, first quarter last year and we expected that margin in the first quarter of this year would be less than the overall guidance for the year. So it should increase throughout the year. In terms of magnitude there, it's fairly equivalent, mix was a little bit, cost was a little bit, freight and distribution, some of it is really volume and product mix, so nothing really more pronounced than the other.

Bruce Cranna - Leerink Swann

So the mix impact is product related not geographic?

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

Correct.

Bruce Cranna - Leerink Swann

And I am... it confuses me a bit, because the pharma business seems to be doing much well. I am sorry what I call the pharma business doing better than MMS. So is that, would that be anticipated, is that. I mean are the margins better on the MMS side than the pharma side?

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

Yes they are.

Bruce Cranna - Leerink Swann

Okay and then lastly for me I am sorry if I missed it, but I on Precedex did you, have you guys started the pediatric trial?

Unidentified Company Representative

Actually we are just in the process of putting together the final design on the clinical trials and we hope to be moving forward later this year on the pediatric clinical trials that we intend to take, undertake.

Bruce Cranna - Leerink Swann

Okay. Thank you and Lynn. Good luck to you.

Lynn McHugh - Vice President of Investor Relations

Thanks Bruce. Well that concludes our call for the quarter. Thank you all for joining us today. Operator we are now ready to end the call.

Operator

Thank you. This concludes Hospira's first quarter 2008 conference call. You may now disconnect.

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