Baxter Inks Deal with Chatham - Analyst Blog


Global medical products and services company, Baxter International, Inc. ( BAX ), recently inked a global agreement with Chatham Therapeutics, LLC. Per the deal, Baxter will use Chatham's gene therapy know-how to develop and market new products for curing hemophilia B.

Baxter believes that investment in research and development (R&D) will further expand its BioScience segment's hemophilia product portfolio and be accretive to future sales. Bioscience sales were $1,462 million, up 4% (up 5% in constant currency) year over year, in the most recent quarter. The performance was attributable to higher demand for products utilized in the treatment of hemophilia and immune disorders, such as Advate and Gammagard Liquid (Immune Globulin Intravenous - Human), several specialty plasma-based therapeutics and vaccines.

Baxter wishes to run clinical trials on Chatham's unique Biological Nano Particles ("BNP"), a gene therapy technology, which has generated successful results during initial trials. The company paid $25 million for the program during its initial trials (which it will record as a special pre-tax in-process R&D expense in the second quarter of 2012) and plans to invest further, subject to certain terms and conditions.

The company has already been conducting several researches in hemophilia, including the BAX326 clinical trial for treating hemophilia B. It plans to file for an U.S. approval of BAX326 by late 2012.

Privately-owned Chatham Therapeutics, LLC is an associate of Asklepios BioPharmaceutical, Inc. ("AskBio"), which focuses on developing gene therapy based treatments for both hemophilia A and B.

The news regarding Baxter still remains mixed. On the positive side, Baxter's focus on life-sustaining products, which are not commoditized, partly insulates it from an economic downturn. The company is able to generate recurring revenues, and consistent cash flow, owing to its focus on chronic diseases. Among other positive factors, Baxter retains a strong product pipeline with several products in late-stage clinical development.

Baxter struck a deal, in December 2011, to buy Synovis Life Technologies, a well-known provider of mechanical and biological products for the repair of soft tissue utilized in a large number of surgical operations. The acquisition will further expand Baxter's offerings in the area of biosurgery and regenerative treatment. 

Earlier, in November 2011, Baxter completed its acquisition of Baxa Corporation. The takeover highlights the company's continued commitment toward patient safety and nutrition. It also permits Baxter to provide a wider set of solutions for the safe preparation and delivery of IV medication. Baxa's know-how will benefit patients across the globe.

On the flip side, despite resilience in Plasma Proteins and Antibody Therapy sub-segments, we are concerned about stagnation in sales, a slightly somber outlook for hospital spending and tightening of reimbursement. We also account for the unfavorable impact of foreign exchange translation and possible dilution associated with the company's acquisitions of Baxa and Synovis.

Improved execution has lifted sentiment somewhat toward Baxter. It is a good bet for value investors willing to wait as fundamentals improve further. Among others, the company competes with Becton, Dickinson and Company ( BDX ) in certain niches. We currently have a Neutral long-term rating on Baxter. The stock currently retains a Zacks #3 Rank, which translates into a short-term "Hold" recommendation.

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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 The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BAX , BDX

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