Baxter, Cell Therapeutics to Jointly Develop Pacritinib - Analyst Blog


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Baxter International Inc. ( BAX ) entered a global licensing agreement with Cell Therapeutics, Inc. ( CTIC ) to jointly develop and commercialize JAK2/FLT3 inhibitor pacritinib that fights against genetic mutations linked to myelofibrosis, leukemia and some tumors. As per the agreement, BAX gained the commercialization rights for all indications for pacritinib outside the U.S. while it jointly commercializes with CTIC it in the U.S. Following the announcement, shares of Baxter rose 0.2% to $68.82 after the market closed yesterday.

According to the agreement, Baxter will provide an upfront payment of $60 million, including a $30 million equity investment in CTIC. Moreover, Cell Therapeutics will receive clinical, regulatory, and commercial launch milestone payments of up to $112 million ($40 million of which relates to clinical milestones likely to be achieved in 2014) from BAX.

Assuming regulatory approval and commercial launch, CTIC may also receive additional sales milestone payments. It will receive royalties on net sales of pacritinib in ex-U.S. markets, but the companies will equally share profits generated in the U.S. Baxter will record a special pre-tax research and development charge of about $30 million in the fourth quarter of the year.

Pacritinib is an oral tyrosine kinase inhibitor (TKI) having dual activity against JAK2 and FLT3. The JAK family of enzymes is a central component in signal transduction pathways, which are critical to normal blood cell growth and development, as well as inflammatory cytokine expression and immune responses. Mutations in kinases are believed to be the cause of certain blood related cancers including myeloproliferative neoplasms, leukemia and lymphoma. Currently, pacritinib is in Phase III development for patients with myelofibrosis - a chronic malignant bone marrow disorder.

Baxter posted a 4% rise in third-quarter 2013 adjusted earnings per share to $1.19, in line with the Zacks Consensus Estimate. The third-quarter results were also within the company's earlier stated guidance of $1.18-$1.21.

Revenues for the quarter went up 9% to $3,774 million but slightly missed the Zacks Consensus Estimate of $3,795 million. On an organic basis (excluding Gambro that contributed $100 million), revenues climbed 6%. Foreign currency did not impact revenues in the quarter. On a geographic basis, revenues in the U.S. as well as internationally improved 9% to $1,642 million and $2,132 million, respectively.

For the fourth quarter of 2013, BAX expects revenue growth in the range of 14 to 15% (12 to 13% at CER). This includes the impact of the Gambro AB acquisition, amounting to $400 million. Adjusted earnings per share are expected to be in the band of $1.24 to $1.26. The Zacks Consensus Estimate for revenues and earnings per share are pegged at $4,240 million and $1.25 respectively, for the quarter.

Baxter affirmed its earnings forecast for 2013, which includes the impact of its Gambro acquisition. For 2013, the company expects reported revenue growth of 6% (7% at CER). Excluding the impact of foreign exchange rate and the Gambro acquisition, Baxter continues to expect sales growth of approximately 4% (or 3% including the impact of foreign currency). The company expects to generate revenues from the Gambro acquisition of approximately $500 million for the year.

Moreover, the company anticipates adjusted earnings per share in the range of $4.65 to $4.67 for 2013. The Zacks Consensus Estimate for 2013 earnings per share of $4.66 lies within the guided range. Baxter continues to expect cash flow from operations to be $3,300 million for 2013.

The recent collaboration with Cell Therapeutics is expected to benefit Baxter's oncology business. It will also strengthen its position as a solution provider for hematology and rare diseases.

Currently, Baxter has a Zacks Rank #3 (Hold). While the stock remains on the sideline, medical product companies such as Bio-Rad Laboratories, Inc. ( BIO ) and NuVasive, Inc. ( NUVA ) are expected to do well. Both of them carry a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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