Baxter to Vend Vero Cell Vaccine Platform to Nanotherapeutics - Analyst Blog

Baxter International Inc ( BAX ) is set to divest its Vero cell technology and related assets to Nanotherapeutics, Inc. for an undisclosed amount. The company also announced that the divestiture includes its production facility in Bohumil, Czech Republic.

The Vero cell platform is used to produce vaccines including H5N1, H1N1 and seasonal influenza. Baxter is also selling its investigational vaccine programs for Ross River virus, Chikungunya disease and West Nile virus.

The divestiture is in line with Baxter's strategy of shedding non-core businesses prior to the upcoming split. In Mar 2014, Baxter had announced its intention to separate its biopharmaceuticals and medical device segments into two independent companies - Baxter International Inc. and Baxalta Inc.

While Baxter International will focus on lifesaving medical products, Baxalta will emphasis on the development and marketing of innovative biopharmaceuticals. As part of its plan, in July this year, Baxter agreed to sell two vaccines to pharmaceutical behemoth Pfizer ( PFE ) for $635 million.

The two vaccines include meningitis vaccine NeisVac-C and tick-borne encephalitis vaccine FSME-IMMUN/TicoVac. These vaccines are sold in some European countries and some markets outside the U.S. Pfizer will also gain partial control of Baxter's Orth facility in Austria where these life-saving vaccines are produced.

However, the Pfizer agreement is expected to hurt Baxter's fourth-quarter earnings and lower 2015 earnings by roughly 15 cents per share. Both the vaccines have combined sales of $300 million in a year. Nevertheless, Baxter believes that these divestitures will allow the pharmaceutical division (Baxalta) to focus more on core therapeutic areas of hematology, oncology and immunology.

Baxter recently filed an initial Form 10 Registration Statement with the U.S. Securities and Exchange Commission (SEC) in connection with the announced split. The filing outlines Baxter's plans to spin off at least 80% of the outstanding common stock of Baxalta through a tax-free distribution to Baxter shareholders, with Baxter retaining the remaining shares.

The retained equity stake by Baxter of up to 20% of Baxalta's shares will provide additional flexibility in the capital structures of the two new entities apart from enhancing shareholders' value.

Baxter expects to complete the business separation process in mid-2015, subject to conditions. However, we believe that the impending split will remain an overhang.

Further, higher operating expenses will continue to hurt profits at least over the next 12 months. Intense competition in the hemophilia franchise and lackluster hospital spending are other major concerns.

Currently, Baxter carries a Zacks Rank #5 (Sell). Better-ranked stocks in the medical products industry include ICU Medical ( ICUI ) and OraSure Technologies ( OSUR ). Both the stocks sport 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.

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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