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Baxter International Inc. (BAX)
Q2 2009 Earnings Call
July 16, 2009 8:30 am ET
Mary Kay Ladone – Vice President, Investor Relations
Robert L. Parkinson, Jr. –President & Chief Executive Officer
Robert M. Davis – Chief Financial Officer
Matt Miksic – Piper Jaffray
Bob Hopkins- BAS-ML
Benjamin Andrew - William Blair & Company
Michael Weinstein - J.P. Morgan
Frederick Wise - Leerink Swann
Glenn Novarro - RBC Capital Markets
David Lewis - Morgan Stanley
Matthew Dodds - Citigroup
Previous Statements by BAX
» Baxter International Inc. Q3 2009 Earnings Call Transcript
» Baxter International Inc. Q4 2008 Earnings Call Transcript
» Baxter International Inc. Q3 2008 Earnings Call Transcript
Mary Kay Ladone
Good morning everyone. Welcome to our second quarter 2009 earnings conference call. Joining me today are Bob Parkinson, CEO and Chairman of Baxter International, and Rob Davis, 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 expectation. 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 Web site.
Now, I’d like to turn the call over to Bob Parkinson.
Robert L. Parkinson, Jr.
Good morning everyone and thanks for calling in this morning. We are pleased today to announce our financial results for the second quarter and also provide you with an update on the full year 2009 outlook.
As you all saw in the press release issued earlier this morning, EPS of $0.96 exceeded guidance for the quarter and increased 13% versus the prior year. This was the result of strong underlying fundamentals across the portfolio, operational leverage, improved margins derived from product and business mix, continued intense focus on pricing opportunities, and manufacturing cost improvements, as well as the benefit from our ongoing share repurchase program.
While we continue to be very vigilant in monitoring the landscape in which we operate, to date we've not experienced any meaningful macro economic impact on the underlying demand for our products. As I've mentioned to you all in the past, we continue to believe that we are well positioned, given both our geographic reach and the medically-necessary nature of our product line to meet financial objectives in both the short and the long term.
I am pleased with the second quarter sales growth which, excluding FX, was 8%. And excluding transfusion therapies from both years, increased 9%. This represents an acceleration on a constant currency basis versus the first quarter growth rate of about 7% as strong growth from across the portfolio offset lower-than-expected FSME vaccine sales, primarily in Germany.
Gross margin in the second quarter, as you saw this morning, was 52.4% and operating income as a percentage of sales was approximately 24%. Both key metrics showed significant year-over-year improvement.
In addition, we continue to advance and expand our product pipeline through investments in research and development augmented by business development initiatives.
In the quarter, R&D spending increased 4%, which was low double digits on a constant currency basis.
A few recent achievements that I would like to highlight:
First of all, the completion of patient enrollment in the pivotal Phase III study of GAMMAGARD LIQUID with enhanced for the treatment of primary immunodeficiency disorder (PID). Approximately 80 patients who will receive monthly subcutaneous injections have now been enrolled;
Also the testing and evaluation of the H1N1 influenza virus and the start of full-scale production of a commercial pandemic vaccine utilizing Baxter's Vero cell culture technology;
The initiation of a Phase III study, following successful completion of a Phase II trial, evaluating to seal fiber and sealant as a hemostatic agent in vascular surgery. These studies are being conducted for submission to the Food and Drug Administration in support of a broad hemostatis indication for this product in the United States; and
Finally, the signing in the quarter of the definitive agreement with Edwards Life Sciences Corporation for the acquisition of their hemafiltration business, also known as continuous renal replacement therapy, or CRRT. CRRT provides a method of continuous and adjustable fluid removal that can gradually remove excess fluid and waste products that accumulate with the acute impairment of kidney function and is usually administered in an intensive care setting in the hospital.
We are very pleased that we continue to make or exceed our short-term financial goals as reflected by the strong sales and earnings performance for the first half of 2009 while being able to continue to invest in creating long-term value for our shareholders. These results, and also the outlook for the year, validate the strength of the diversified health care model and reinforce our confidence in achieving longer-term objectives as we accelerate the pace of R&D investment.
I am increasingly encouraged by the progress that we're making to spur innovation throughout the company and we all look forward to presenting details on our evolving pipeline at our investor conference on September 16, 2009, in Chicago. Of course, at that time we will also provide you with an update on our longer-term financial objectives and outlook for the company.