Thursday, July 22, 2010

Baxter's Profit Drops 8.9%

Baxter International Inc.'s second-quarter earnings fell 8.9%, including a charge, as it faced macroeconomic headwinds and individual product issues. The Deerfield, Ill., based maker of products for conditions such as hemophilia and kidney failure, tightened its 2010 earnings guidance and backed sales expectations, but warned that issues in key markets will continue. "Clearly 2010 has been a challenging year," said Robert Parkinson, Baxter's chairman and chief executive, noting pressure from U.S. health-care reform, economic pressures, and softness in its plasma protein-based business.
Notably, Mr. Parkinson said the company continues to operate "through a transition period in the plasma proteins environment."
The slowdown in the plasma-based business has been a source of uncertainty for investors, as it is a key component in Baxter's largest business unit. For the remainder of the year, Mr. Parkinson projected plasma protein sales to decline in the mid-single digits, and antibody therapy sales to decline about 10%.
In its last earnings call in April, Baxter cut its 2010 outlook and said there was a surprising slowdown for plasma-based medical products.
Mr. Parkinson said that Baxter has implemented some new commercial strategies to counteract market share loss in sales of a plasma-based drug called Gammagard. He said that there are "some early positive signs" that the company's share position, and the U.S. market as a whole, are stabilizing.
Looking ahead, the company narrowed its 2010 adjusted earnings guidance to $3.93 to $3.98 a share, from a previous view of $3.92 to $4.00 a share. It projects sales growth of 1% to 3%, which amounts to $12.7 billion to $12.9 billion.
Baxter also forecast third-quarter earnings of 96 cents to 99 cents a share on revenue growth of 1% to 3%.
Earnings for the three months ended June 30 dropped 9% to $535 million, or 90 cents a share. The company recorded a $22 million write-down related to an expected settlement with the Greek government. Excluding items, the company earned 93 cents a share.
Sales in the period rose 2.3% to $3.2 billion, with the change primarily coming from the effects of currency exchange.
The company's biggest business unit, bioscience, reported a 4% revenue drop to $1.4 billion, mostly because of increased Medicaid rebates required by the U.S. health-care overhaul in the spring, as well as lower revenue derived from antibody therapies, vaccines, and some international hemophilia products.
Sales in the medication delivery unit rose 9% to $1.2 billion, helped by its intravenous and injectable therapies, along with sales of the Sigma Spectrum infusion pump.
The company is in the process of recalling about 200,000 Colleague brand drug-infusion pumps in the U.S. while offering customers either refunds or replacement devices over the next two years.
Problems with the pumps, typically found bedside at hospitals where they deliver intravenous fluid and drugs, have been a long-running issue for Baxter amid problems linked to reports of patient injuries and deaths.
Baxter is offering Spectrum brand pumps from a private company called Sigma International, in which Baxter has a 40% ownership stake. On Thursday, it said it continues to work with Sigma to increase manufacturing capacity to meet expected demand.
The ability to meet demand is key, as the company faces competition from rival pump makers CareFusion Corp. and Hospira Inc.
Mr. Parkinson said it is too early to tell how the company's market share for the products will change, but it will have a better view by the end of the year.
Baxter's renal unit, which includes products for managing advanced kidney failure, saw sales rise 6% to $585 million.
In the quarter, the company repurchased 15.2 million shares for about $677 million.

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