Hospira (NYSE:HSP) is by no means the belle of the health-care ball. The medical products and services outfit was recently spun off from Abbott Pharmaceuticals (NYSE:ABT), primarily so that Abbott could concentrate on faster-growing and more profitable business lines. While Hospira is not likely to win many fans in the near term, it is making investments in areas of the health-care industry that could see significant growth in coming years.
The new company recently reported third-quarter results, and again, the results hardly warranted much praise. Sales grew 1% to $656 million, which included an $8 million gain from the sale of product rights, while net income actually declined 8% to $61 million. Perhaps the most damning aspect of the earnings report, though, was Hospira's disclosure that it doesn't expect earnings to grow next year.
Still, Hospira is positioning itself well in fields that look promising over the long run, including generic injectables. Generics don't carry huge margins, but as efforts to control health-care costs continue, off-label offerings will become more important than ever. In the third quarter, Hospira jumped on the patent expiration of Pfizer's (NYSE:PFE) injectable antifungal treatment Diflucan by immediately offering a generic version of the medicine, known as fluconazole. In addition, the company announced that it has added four new generic injectable drugs to its pipeline that it expects to launch in 2007 and beyond.
Further, Hospira is poised to benefit from the increasing importance of biotech drugs. Since most of these medicines are administered by injection, Hospira should see growing demand in coming years for its drug delivery systems and its contract manufacturing business, which performs the vital task of putting injectable medicines into vials, syringes, and other vessels.
Of course the company does face significant challenges. The firm will have its hands full competing with its chief rival, Baxter (NYSE:BAX), as well as paying down debt. Still, Hospira may be worth monitoring.
Fool contributor Brian Gorman is a freelance writer living in Chicago. He does not own shares of any companies mentioned here.
