Baxter third quarter net income increases 12% to $595 million

Baxter International Inc. (NYSE:BAX) today announced its financial results for the third quarter of 2010, and provided its fourth quarter and updated full-year 2010 financial outlook.

Baxter reported net income in the third quarter of $595 million, which increased 12 percent from $530 million reported in the third quarter of 2009. Earnings per diluted share of $1.01 advanced 16 percent and exceeded the company's previously issued earnings guidance of $0.96 to $0.99 per diluted share. On an adjusted basis, excluding special charges taken in the third quarter of 2009, Baxter's net income declined 1 percent compared to the prior-year period and earnings per diluted share increased 3 percent.

"We are pleased with our financial results in the third quarter which exceeded our guidance," said Robert J. Hombach, chief financial officer. "We effectively executed on our plans to drive operating margin expansion as a result of continued momentum in the Medication Delivery business, improvement in the plasma proteins business, and our disciplined focus on expense management."

Worldwide sales in the third quarter totaled $3.2 billion and increased 3 percent over the same period last year. Excluding the impact of foreign currency, worldwide sales grew 4 percent. Sales within the United States increased 4 percent to $1.4 billion and international sales grew 1 percent to $1.8 billion. Excluding the impact of foreign currency, international sales increased 4 percent.

By business, BioScience revenues totaled $1.4 billion, which was comparable to the prior-year period. Excluding the impact of foreign currency, BioScience sales increased 3 percent reflecting enhanced sequential growth across the portfolio. Contributing to the improved performance was solid growth of ADVATE [Antihemophilic Factor (Recombinant), Plasma/Albumin-Free Method] for the treatment of hemophilia, strong demand for GAMMAGARD LIQUID [Immune Globulin Intravenous (Human)] (marketed as KIOVIG outside of the United States) and specialty plasma-based therapeutics such as FEIBA [Anti-Inhibitor Coagulation Complex] and ARALAST [Alpha1-Proteinase Inhibitor], as well as biosurgery products.

Medication Delivery sales grew 5 percent to $1.2 billion (or 7 percent excluding the impact of foreign currency), driven primarily by growth of intravenous therapies (including the company's parenteral nutrition products), certain multi-source generic drugs, anesthesia products and sales of the Sigma SPECTRUM infusion pump. Renal sales of $594 million increased 3 percent (and increased 3 percent excluding the impact of foreign currency), as the company continued to post solid gains in peritoneal dialysis patients, particularly in the United States, Latin America and Asia.

Nine-Month Results

For the first nine months of 2010, Baxter reported net income of $1.1 billion or $1.79 per diluted share, compared to net income of $1.6 billion or $2.66 per diluted share from the same period last year. On an adjusted basis, excluding special charges in both years, Baxter's net income for the nine-month period was $1.7 billion and increased 1 percent, and earnings per diluted share increased 4 percent to $2.87 per diluted share.

Baxter's worldwide sales increased 3 percent and totaled $9.3 billion for the first nine months of 2010, including a first-quarter revenue adjustment of $213 million associated with the COLLEAGUE infusion pump recall. On an adjusted basis, excluding the COLLEAGUE charge, Baxter's worldwide sales totaled $9.6 billion, an increase of 5 percent over the prior year revenues of $9.1 billion. Sales within the United States (excluding the COLLEAGUE adjustment) increased 4 percent to $4.0 billion for the first nine months, and international sales grew 6 percent to $5.5 billion. Excluding the impact of foreign currency, international sales increased 2 percent on a year-to-date basis.

Through the first nine months of the year, Baxter generated strong cash flow and has returned significant value to shareholders in the form of dividends and share repurchases. Cash flows from operations through the first nine months of 2010 totaled $2.1 billion (after a $300 million pension contribution to the company's U.S. pension fund in the first quarter), reflecting an 8 percent increase versus the same period last year. In addition, over the last nine months, Baxter has returned approximately $1.8 billion to shareholders through dividends totaling $519 million and share repurchases of approximately $1.3 billion (or 26 million shares).

"We continue to benefit from the diversified and medically-necessary nature of our portfolio, broad geographic reach and strong financial position, despite continued challenges presented by the evolving global macro-environment," said Robert L. Parkinson, Jr., chairman and chief executive officer. "Over the long term, we remain committed to executing strategies necessary to innovate through clinical differentiation, enhance earnings growth, and create sustained value for our shareholders."

Recent Highlights

Baxter continued to enhance its portfolio and advance its pipeline with a number of recent commercial and pipeline achievements including the following:

• A new five-year contract with Novation, a leading healthcare supply contracting company of VHA Inc., the University HealthSystem Consortium (UHC) and Provista. The agreement provides Novation members access to Baxter's broad portfolio of products, including IV solutions, drug delivery and parenteral nutrition products, large volume infusion pumps and IV administration sets and components.
• A manufacturing, supply and distribution agreement with Kamada Limited for GLASSIA™, the first and only liquid alpha1-proteinase inhibitor. Under the agreement, Baxter acquired commercial rights to GLASSIA™ in the United States, Australia, New Zealand and Canada. Under a separate license agreement, Baxter has been granted the right to process GLASSIA™ and will seek necessary regulatory approvals.
• The U.S. launch of TachoSil [Absorbable Fibrin Sealant Patch] for use as an adjunct to hemostasis in cardiovascular surgery. TachoSil is the first and only ready-to-use adjunctive hemostatic agent available in the United States that combines a collagen patch with a coating of human coagulation factors. Baxter holds exclusive rights to market and distribute TachoSil in the United States.
• The approval of PREFLUCEL in Austria and Czech Republic, the first approvals worldwide. PREFLUCEL is a seasonal influenza vaccine manufactured using Baxter's proprietary Vero cell technology. Baxter expects to submit for approval in additional European countries during 2010 through a Mutual Recognition Procedure.
• A collaboration between Baxter and Takeda for the development, production and supply of cell culture-based pandemic influenza vaccines for the Japanese market. During the quarter, Takeda was selected as a recipient of a subsidy from the Japanese government to support an investment associated with the development and production of pandemic influenza vaccines.
• The completion of enrollment in a Phase 3 clinical trial of GAMMAGARD LIQUID (marketed as KIOVIG outside of the United States) for the treatment of Multifocal Motor Neuropathy (MMN). The trial includes approximately 40 participants and is being conducted at clinical sites across the United States, Canada and Europe. Upon completion, Baxter intends to seek approval for GAMMAGARD LIQUID (marketed as KIOVIG outside of the United States) for the treatment of MMN and has been granted Orphan Drug Designation for this indication in the United States.
• The presentation of interim data from a Phase 3 clinical trial of HyQ at the European Society for Immunodeficiencies meeting in Istanbul, Turkey. HyQ is an immunoglobulin therapy facilitated subcutaneously by recombinant human hyaluronidase, a dispersion and permeation enhancer. Interim analyses showed that 28 out of 29 HyQ-treated study participants with primary immune deficiency were able to infuse immunoglobulin under the skin, using a single injection site, at infusion volumes, intervals and rates equivalent to their previous IV administration of immunoglobulin.

Fourth Quarter and Full-Year 2010 Outlook

Baxter also provided financial guidance for the fourth quarter and provided updated guidance for the full-year 2010. For the fourth quarter of 2010, the company expects sales growth of 1 to 2 percent, excluding the impact of foreign currency, and earnings of $1.09 to $1.11 per diluted share, before any special items.

For full-year 2010, Baxter's outlook now includes sales growth of 2 to 3 percent, excluding the impact of foreign exchange and the first quarter COLLEAGUE adjustment, and earnings of $3.96 to $3.98 per diluted share, before any special items. In addition, the company now expects to generate cash flow from operations of approximately $2.8 billion.