Baxter International (BAX)

Q3 2011 Earnings Call

October 20, 2011 8:30 am ET

Executives

Robert L. Parkinson - Chairman, Chief Executive Officer and President

Robert J. Hombach - Chief Financial Officer and Corporate Vice President

Mary Kay Ladone - Vice President of Investor Relations

Analysts

Robert Wisniewski - Deutsche Bank AG, Research Division

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Frederick A. Wise - Leerink Swann LLC, Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

David R. Lewis - Morgan Stanley, Research Division

Lawrence S. Keusch - Morgan Keegan & Company, Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to Baxter International's Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded by Baxter and is copyrighted material. It cannot be recorded or rebroadcast without Baxter's permission. If you have any objections, please disconnect at this time. I would now like to turn the call over to Ms. Mary Kay Ladone, Corporate Vice President, Investor Relations of Baxter International. Ms. Ladone, you may begin.

Mary Kay Ladone

Thanks, Sean. Good morning, and welcome to our Q3 2011 Earnings Conference Call. Joining me today are Bob Parkinson, CEO and Chairman of Baxter International; and Bob Hombach, Chief Financial Officer.

Before we get started, let me remind you that this presentation, including comments regarding our financial outlook, new product developments and regulatory matters contain forward-looking statements that involve risks and uncertainties, and of course, our actual results could differ materially from our current expectations. Please refer to today's press release and our SEC filings for more details concerning factors that could cause actual results to differ materially.

In addition, in today's call, non-GAAP financial measures will be used to help investors understand Baxter's ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in our earnings release issued this morning and available on our website.

Now I'd like to turn the call over to Bob Parkinson.

Robert L. Parkinson

Thanks, Mary Kay. Good morning. Thanks for calling in. We're pleased today to announce financial results for the third quarter and also to provide you with an update on our full year 2011 outlook. As you saw in this morning's press release, adjusted EPS of $1.09 per diluted share increased 8% versus the prior year and was at the high end of our guidance of $1.07 to $1.09 per diluted share. Third quarter sales growth was 8% on a reported basis, and after adjusting for FX, sales growth was 3%. Excluding the sales that were related to the Generics Injectable business that we divested earlier in the year, sales growth was 10% on a reported basis and 4% excluding the impact of foreign currency.

The evolving global macro environment will exert ongoing pressures on our business, creating challenges that we will manage with disciplined execution of our strategies. We continue to benefit from the diversified and medically necessary nature of our portfolio, our broad geographic reach and strong financial position, which provides us with the flexibility to invest in innovation, advance our new product pipeline and augment future growth with select business development initiatives. In the third quarter, R&D spending accelerated 15%, supporting progress of investigational therapies and late-stage clinical development and success in obtaining approvals and launching innovative products in the global marketplace.

Some recent achievements include the following. In the quarter, we received FDA approval for GAMMAGARD LIQUID 10% SubQ and recently launched the therapy in the United States. This allows Baxter to participate in this fast-growing segment in the PID market in the U.S. for the first time. We're pleased with the initial market acceptance of SubQ, as we've secured both share gains and conversion of Baxter patients to this new therapy. And we expect to continue to capitalize on the differentiation we've achieved with this product's favorable tolerability profile, speed of infusion and low infusion site reaction rate observed in our clinical trials of 2.7%.

We submitted the applications to the FDA and the EMA for approval of HyQ, allowing for the enhanced subcutaneous administration of a new immunoglobulin with recombinant human hyaluronidase for patients with PID. We recently received notification from both agencies that the files had now been accepted for review. Both submissions were based on results from the Phase III trial, which met both its primary and secondary end points. The final result will be presented at the annual meeting of the American College of Asthma, Allergy and Immunology in Boston early November.

As you know, we're also conducting Phase III clinical trials exploring the use of GAMMAGARD LIQUID as a therapy for 2 neurological conditions. The first is for the treatment of multifocal motor neuropathy, or MMN. We've now completed our clinical trials in the U.S. and Canada and expect to submit for approval in early 2012. As a reminder, Baxter is the only company with approval for the MMN indication in Europe, and we've also been granted Orphan Drug status for the therapy in the U.S.

We continue to advance our Phase III trial for Alzheimer's. As we previously mentioned, we completed enrollment in our first Phase III trial with more than 360 patients in the second quarter of this year, with an 18-month follow-up here. And we currently expect to complete the first Phase III trial by the end of 2012 and begin our second confirmatory Phase III trial in the coming months.

In our hemophilia franchise, we've achieved a number of recent milestones. For example, we've now completed the global Phase I/II clinical trial of BAX 817, a recombinant Factor VIIa therapy and plan to advance into Phase III in early 2012. We've also completed enrollment in the Phase I/III clinical trial for BAX 326, a recombinant Factor IX treatment for hemophilia B and expect to complete this trial and file for U.S. approval in 2012 as well.

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