Hospira has just one facility in Boulder, Colorado, that manufactures active pharmaceutical ingredients (APIs) for its Specialty Injectable Pharma (SIP) business. However, last year the firm shelled out $200m (€159m) on Aurangabad, India-based Orchid Chemicals and Pharmaceuticals in part to support its nearby finished-dose antibiotic facility in Chennai.
CEO Michael Ball said during Hospira’s Investor day last week (transcript here) he expects the Orchid transaction to be completed in the next four to six months and will help cut down the reliance on third-party API makers.
“APIs can be a very expensive part of the cost of goods equation, especially in something like oncolytics,” he told stakeholders. “Right now, Hospira only produces less than 10% of its own APIs and one of the ideas behind the Orchid acquisition is to up that percentage.”
He continued, adding by 2015: “We should be up to somewhere around 30% of our API is coming from homegrown sources, and with a couple of other inorganic moves we think we can get this number to 50% by 2018.”
This was backed up further by CFO Thomas Werner who told stakeholders the firm is looking at further purchases in order to get vertically integrate Hospira’s API busines.
“The way we've defined it now is tuck-in acquisitions, sub $1 billion in size,” such as with orchid, he said. “We'd evaluate opportunities, but we're really looking at helping ourselves geographically expand and also getting into vertical API, but we will be opportunistic.”
Matthew Stober, Senior Vice President of Operations, added such acquisitions: “Will really help drive down our cost to goods, our unit cost and help us control the overall supply chain from a quality point of view.”
Furthermore, Hospira’s investment in alternate source programs, he continued, will help “ensure that if there are interruptions of critical API supply due to regulatory or technical issues, [Hospira’ll] be able to mitigate them with these alternate sources.”