Baxter International Inc. (BAX)
Q1 2010 Earnings Call
April 22, 2010 8:30 am ET
Mary Kay Ladone – VP IR
Bob Parkinson – CEO
Rob Davis - CFO
Mike Weinstein - JPMorgan
David Lewis – Morgan Stanley
Rick Wise - Leerink Swann
Bruce Nudell – UBS
Bob Hopkins – Banc of America
Larry Keusch – Morgan Keegan
Matt Miksic – Piper Jaffray
Glen Navarro – Bank of America
Previous Statements by BAX
» Baxter International Inc. Q4 2009 Earnings Call Transcript
» Baxter International Inc. Q3 2009 Earnings Call Transcript
» Baxter International Inc. Q2 2009 Earnings Call Transcript
Mary Kay Ladone
Thank you. Good morning everyone and welcome to our first quarter 2010 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 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 would like to turn the call over to Bob Parkinson.
Thanks Mary Kay, good morning everyone. Thanks for calling in. Our Q1 results we reported earlier this morning were very solid with adjusted EPS of $0.93 per share, an increase of 12% versus Q1 2009 which as you know was in line with our prior guidance.
As you saw, sales increased 11% for the quarter on a reported basis and on an organic basis sales increased 5% which was on the lower end of our guidance. Sales in all of the major businesses and virtually all of the product categories achieved or exceeded expectation with the exception of plasma proteins in the U.S.
On that point let me jump immediately to the obvious news this morning which is our decision to lower guidance for the year from $4.20 to $4.28 to $3.92 to $4.00 per share. While Rob will provide more details in just a few minutes it is clearly appropriate for me to address the basis of our decision to lower guidance at the outset this morning.
There is really primarily two key factors that led us to lowering our outlook for the year. The first of course is the incorporation of our best estimates for the recent healthcare legislation on the company for the remainder of the year. This is largely the impact, and this is primarily in our bio science business, of increased Medicaid Rebates and also the expansion of the 340B program which provides access to Medicaid rebates in the form of discounts to certain providers.
We estimate the total healthcare reform impact for 2010 to be approximately $80 million which is about $0.10 per share. The second factor is really what I would describe as the more protracted and pronounced impact of the transition in the global plasma protein market particularly with emphasis in the U.S. We will clearly discuss this in more detail in the Q&A this morning but what I would like to do is provide some color as it relates to the existing market dynamics, the basis of our projection for the remainder of the year but also our longer-term view regarding this business.
In the short-term it is evident that the market is growing more slowly than our earlier estimates particularly in the U.S. As I commented last quarter we also believe we have lost some unit share, primarily business we gained in late 2008 or early 2009, due to some competitive supply issues. As you know we have not taken prices up this year on Gammagard liquid but it remains the premium brand and is frankly subject to some competitive vulnerability particularly in select segments of the market. So as a result, we have and we will on a targeted basis selectively touch up prices.
While I continue to believe that we and the market more broadly are going through a transitionary period we in retrospect were clearly overly optimistic about the short-term market growth, our ability to retain market share and the near-term impact on the market of deploying additional sales resources for those indications that remain under diagnosed and under-treated. Despite our positive outlook on the growth of our business for the LRP, for the reasons mentioned we felt it was prudent to adjust down our projections for the remainder of 2010.
We do remain confident, as I mentioned, that this business will be an attractive growth vehicle in the coming years. The new and proprietary administration technologies such as our HYQ program which utilizes [inaudible] enhance technology, new indications such as MMN and of course the potential wildcard of an Alzheimer’s indication. We also, as you know, continue to expand sales force and marketing resources around the world to provide an access to patients who have not been diagnosed with primary immune deficiency.
Having said that, in the short-term we must objectively reflect the current market conditions in our forecast for the remainder of the year. As I said, Rob will provide more details later in terms of the forecast assumptions and the financial impact and we will get into more detail in the Q&A but I wanted to get all of this on the table up front this morning.
The other bio science businesses in the first quarter performed well. Recombinants, regenerative medicine, which as you know is our bio surgery business, and vaccines all generated double digit sales growth. We are also encouraged by the accelerating growth in the quarter of medication delivery and the solid growth of renal which I think very much exemplifies the balance of our diversified healthcare model.