HSP Company Profile

Hospira's business has an approximately 70-year history. Prior to its spin-off from Abbott Laboratories on April 30, 2004, Hospira's business was conducted by Abbott, and for all periods prior to the spin-off, references in this annual report to Hospira's historical assets, liabilities, products, businesses or activities are generally intended to refer to the historical assets, liabilities, products, businesses or activities of Hospira's business as it was conducted as a part of Abbott.

Hospira was incorporated in Delaware on September 16, 2003, as a wholly owned subsidiary of Abbott. As part of a plan to separate its core hospital products business from Abbott, Abbott transferred the assets and liabilities relating to Hospira's business to Hospira and, on April 30, 2004, distributed Hospira's common stock to Abbott's shareholders. On that date, Hospira began operating as an independent company, and on May 3, 2004, Hospira's common stock began trading on the New York Stock Exchange under the symbol "HSP." The separation from Abbott and distribution of Hospira common stock as described above are sometimes referred to in this document as the "spin-off" and April 30, 2004 is sometimes referred to as the "spin-off date."

Hospira believes that the treatment of patients in hospitals or hospital-like settings is a large and growing opportunity. Hospira's strategy is to develop, manufacture and market products that improve the productivity, safety, efficacy and overall cost of patient care by meeting the increasing needs of customers for advanced medication management systems, innovative device technologies and specialty injectable pharmaceutical products. There are two primary components to Hospira's strategy:

Investing for growth. Hospira's growth strategy is focused on growing global sales by increasing investment in product development and expanding sales outside the United States.

Invest in new product development. Hospira is expanding its portfolio of products to improve the effectiveness of patient care, including innovations in injectable products, drug delivery and medication management. Hospira has been successful in expanding its portfolio of generic injectable pharmaceuticals and plans to continue that expansion by increasing investment in its product development programs. Hospira intends to increase the number of first-to-market generic injectable drugs in its portfolio and to develop innovative drug delivery and/or packaging systems. Hospira may also expand its product offerings through strategic alliances or acquisitions to gain access to innovative technologies or products that are complementary to its existing products, and can be brought to market through its existing sales channels.

Expand sales outside the United States. Hospira intends to increase its participation in select markets outside the United States that have increasing demands for acute care products and that represent an opportunity for growth. As Hospira develops its independent international operations, it intends to establish direct commercial infrastructure in markets that have the greatest potential and focus its efforts in those markets. Hospira believes this approach will allow it to maximize its use of resources.

Product Line

Description

Specialty Injectable Pharmaceuticals

More than 130 injectable generic drugs in more than 600 dosages and formulations
Major therapeutic areas: cardiovascular, anasthesia, anti-infectives, analgesics, emergency and other
Precedex® (dexmedetomidine HCl), a proprietary drug for sedation

Medication Delivery Systems

Medication management systems that include electronic pumps and sets for I.V. drug delivery, and patient-controlled analgesia for pain management (PCA)
Pre-mixed drug solutions and nutritionals for I.V. infusion
I.V. solutions and supplies

Injectable Pharmaceutical Contract Manufacturing

Formulation development, filling and finishing of injectable pharmaceuticals on a contract basis for pharmaceutical and biotechnology companies

Other

Sales through alternate site providers, including clinics, home healthcare providers and long-term care facilities
Hemodynamic monitoring systems used in intensive care and critical care units to measure cardiac output and blood flow

International

Sales of Hospira's products outside the United States

Hospira's primary customers in the United States include hospitals, integrated delivery networks, alternate site facilities, and medical product and drug wholesalers. A substantial portion of Hospira's products is sold to group purchasing organization, or GPO, member hospitals and through wholesalers and distributors. Hospira has pricing agreements for specified products with the major GPOs in the United States, including AmeriNet, Inc.; Broadlane Healthcare Corporation; Consorta,  Inc.; MedAssets Inc.; Novation, LLC; PACT, LLC; and Premier Purchasing Partners, LP. The scope of products included in these agreements varies by GPO. Hospira has configured its U.S. sales and marketing organizations to meet the needs of customers across the continuum of care. Hospira's sales organization includes sales professionals who sell its complete product line, as well as product specialists who detail and promote its medication delivery systems, and sales personnel who market and sell Precedex® (dexmedetomidine HCl). Hospira's business has extensive experience contracting with, marketing to and servicing members of the major group purchasing organizations.

In the United States, Hospira's products are primarily distributed through a network of five distribution facilities as well as external distributors. The distribution facilities in the United States Hospira operates are located in Atlanta, Georgia; Dallas, Texas; King of Prussia, Pennsylvania; Los Angeles, California; and Pleasant Prairie, Wisconsin.

Sales in markets outside the United States comprised approximately 16% of 2004 net sales. Hospira's primary customers in markets outside the United States are hospitals and wholesalers that Hospira serves through a direct sales force and a network of distributors. The majority of Hospira's business outside the United States is contract or tender driven. Hospira expects to exit certain countries as a result of its ongoing assessment of its international operations.

Pursuant to arrangements with Abbott made at the time of the spin-off, a significant portion of Hospira's commercial operations outside the United States is being, and will continue to be, performed for Hospira by Abbott under transitional services arrangements. These transitional services generally will be provided by Abbott for varying periods up to two years following the spin-off. While some of Hospira's personnel outside the United States will be former employees of Abbott, Hospira will need to hire additional people to conduct its business outside the United States, and Hospira will need to establish business infrastructure to support its operations. As Hospira establishes its business infrastructure outside the United States, and marketing authorizations for Hospira's products are transferred to Hospira by the applicable regulatory authorities, Abbott will legally transfer the local net assets to Hospira and Hospira will conduct those operations outside the United States. Hospira expects that the legal transfer to it of operations outside the United States will happen on a country-by-country basis, generally over the course of the two years following the spin-off.

Raw Materials

While Hospira produces some raw materials at its manufacturing sites, the majority of raw materials that it uses are sourced externally on a global basis. Hospira procures the active pharmaceutical ingredients in its products from third-party suppliers. Although most of the raw materials Hospira uses are readily available from multiple suppliers, Hospira relies on proprietary components that are available exclusively from ICU Medical. ICU's LifeShield® CLAVE® and MicroCLAVE® connector products are components of administration sets that represented over 10% of Hospira's 2004 sales. In addition, Hospira purchases some of its materials from single suppliers for reasons of quality assurance, sole-source availability, cost effectiveness or constraints resulting from regulatory requirements.

Hospira uses resins and other petroleum-based materials as raw materials in many of its products. Hospira may experience increased prices for these materials if oil prices continue to rise.

Hospira works very closely with its suppliers to assure continuity of supply while maintaining excellence in material quality and reliability. Hospira continually evaluates alternate source suppliers, although it does not typically pursue regulatory qualification of alternative sources due to the strength of its existing supplier relationships, the reliability of its current supplier base, and the time and expense associated with the regulatory process. Although a change in suppliers could require significant effort or investment by Hospira in circumstances where the items supplied are integral to the performance of its products or incorporate unique technology, Hospira does not believe that the loss of any existing supply arrangement (other than its supply arrangement with ICU Medical, which continues through 2014) would have a material adverse effect on its business.

Competition

Hospira's industry is highly competitive. Hospira competes with many companies, both public and private, that range from small, highly focused companies to large diversified healthcare manufacturers. Hospira believes that the most effective competitors in its industry are focused on product quality and performance, breadth of product offering, manufacturing efficiency and the ability to develop and deliver cost-effective products that help hospitals provide high quality care in an environment that requires increasing levels of efficiency and productivity.

Hospira's competitors in medication delivery systems include Baxter International  Inc., Becton Dickinson and Company, B. Braun Melsungen AG, Cardinal Healthcare  Inc., Fresenius Medical Care AG and Terumo Medical Corporation. Competitors in specialty injectable pharmaceuticals include American Pharmaceutical Partners,  Inc., Baxter and Teva Pharmaceuticals, as well as divisions of several multinational pharmaceutical companies. Baxter, Cardinal and Patheon, Inc. are significant competitors of Hospira's contract manufacturing business. Edwards Lifesciences Corporation is a significant competitor in critical care monitoring devices. Local manufacturers of specialty injectable pharmaceuticals also compete with Hospira on a country-by-country basis.