07.27.10
5. Baxter International Inc.
$12.6 Billion
KEY EXECUTIVES:
Robert L. Parkinson Jr., Chairman and CEO
Joy A. Amundson, President, Bioscience
Peter J. Arduini, President, Medication Delivery
Bruce McGillivray, President, Renal
Peter Nicklin, President, Europe
Gerald Lema, Presidet, Asia Pacific
Carlos Alonso, President, Latin America
J. Michael Gatling, Vice President, Manufacturing
Cheryl L. White, Vice President, Quality
Robert M. Davis, Chief Financial Officer
Norbert G. Riedel, Ph.D., Chief Scientific Officer
Michael J. Baughman, Controller
NO. OF EMPLOYEES: 49,700
GLOBAL HEADQUARTERS: Deerfield, Ill.
Ask Robert L. Parkinson about growth strategies for his company, Baxter International Inc., and he most likely will respond with a verbal thesis about the importance of research and development. “We [must] continue to improve the productivity of new product development so we are able to optimize our R&D investment,” the chairman and CEO declared in an interview published within the firm’s 2009 annual report. “Research and development [R&D] is our most important strategic priority…”
Parkinson’s words are ironic, considering research and development was not a top priority when he arrived at the Deerfield, Ill.-based firm in 2004. During his first year at the helm, Parkinson cut expenses throughout the company in order to jump-start weak sales, and no department was spared. He ended research on an anemia drug and eliminated almost all funding for a system that disinfected donated blood—endeavors he described at the time as “pet projects.”
“R&D, just like anything else, tends to become pet projects,” he told a reporter for chicagobusiness.com. “You have to know how to kill projects. On the surface, that sounds counterintuitive, but you have to optimize.”
The ensuing five years have been transformative for Parkinson as he righted the listing healthcare conglomerate and navigated it back to profitability. Spending cuts are still made—though not at the rate or intensity of Parkinson’s freshman year—and they are less likely to be made in R&D. In fact, just the opposite has occurred—R&D spending has risen 72 percent under Parkinson’s leadership, going from $533 million in 2005 to $917 million in 2009, the highest total in the company’s history.
Baxter executives credit the nearly $1 billion investment in R&D with helping the company achieve record net sales, earnings and cash flows last year. Global net sales, according to Baxter’s 2009 annual report, totaled $12.6 billion, a 2 percent increase compared with the $12.3 billion the firm posted in 2008. More than half of that revenue, or $7.2 billion, came from foreign customers, though that figure represented a slight (1 percent) drop compared with the $7.3 billion the company reported in 2008. Managers attributed the diminutive drop in part to fluctuating exchange rates that rocked markets last year and strengthened the U.S. dollar. Executives said the instability in foreign exchange rates unfavorably impacted net sales by 5 percentage points.
Still, oscillating currency rates were no match for the company’s BioScience segment—the engine responsible for driving 2009 profits. Prompted by increased demand and better pricing for Gammagard liquid (sold as Kiovig in most markets outside of the United States)—a fluid similar to the body’s antibody-replacement therapy—IGIV (immune globulin intravenous) and other plasma protein products, sales in the BioScience segment climbed 5 percent to $5.6 billion. Continued adoption of Baxter’s advanced recombinant therapy, Advate, largely was responsible for generating $2 billion in recombinant product sales last year, a 5 percent increase compared with the $1.9 billion those products garnered in 2008 and a 20 percent jump compared with the $1.7 billion posted in 2007.
Plasma protein and antibody therapy products virtually had identical sales ($1.3 billion) and growth rates (10 percent and 12 percent, respectively). Regenerative product sales grew 8 percent to $442 million, while sales in the segment’s “other products” category fell for the second consecutive year, due mostly to lower international sales of FSME-IMMUN, a tick-borne encephalitis vaccine and a reduction in advance purchase agreements for the H1N1 swine flu vaccine.
While not as powerful an engine for growth as the BioScience segment, the Medication Delivery sector nevertheless delivered strong results last year, amassing $4.6 billion in net sales. The top revenue-generator—which remained unchanged from previous years—was global injectables, with $1.7 billion in sales, followed by intravenous (IV) therapies with $1.5 billion in sales, infusion systems with $858 million and anesthesia with $492 million. Baxter’s leaders attributed the rise in IV therapy sales to increased demand and improved pricing for IV solutions and nutritional products.
Infusion system sales fell 5 percent as problems with the company’s line of Colleague infusion pumps continued to haunt the firm. Baxter has not sold the Colleague pump in the United States since 2005 due to various defects, including battery and alarm failures, false alarms and inadequate infusion. The pumps, however, are still used in hospitals and clinics for medical infusion treatments (official estimates put the number of pumps still in circulation at 200,000).
Baxter’s ostensible never-ending nightmare over the Colleague pumps lingered in 2009 as the company issued both an Urgent Device Correction letter to customers and a U.S. Food and Drug Administration (FDA)-ordered Class I recall within seven weeks of each other. The Urgent Device Correction letter notified customers about failure codes in Colleague pumps that could potentially disrupt infusion treatments and it warned them about the possibility of overheating and fires due to improper cleaning and/or compromised battery harness insulation.
Baxter’s Colleague nightmare, however, is far from over. Fed up with the recalls, repeated meetings with Baxter management, the seizure of pumps and the 56,000 customer complaints, the FDA earlier this year ordered the company to recall and destroy all models of its Colleague infusion pumps. The agency also ordered Baxter to provide refunds to Colleague pump owners or replace pumps at no cost to owners.
The litany of problems with the Colleague pumps also prompted the FDA to launch a new initiative earlier this year to address pump safety. Part of the initiative requires manufacturers to perform more testing on the devices before they can be sold to customers.
To offset dwindling international sales of the Colleague pumps and bolster its infusion pump business, Baxter shelled out $100 million in April 2009 for a three-year distribution agreement with Sigma International General Medical Apparatus LLC, a privately held infusion pump maker based in Medina, N.Y. The price tag also included a 40 percent equity stake in the firm.
Infusion system sales were not Baxter’s only weak spot last year, though. Sales in its Renal segment fell 2 percent to $2.2 billion for the year ended Dec. 31 despite rising numbers of peritoneal dialysis patients throughout the United States, Latin America, Asia and Eastern Europe. Executives blamed foreign exchange rates for the sales decline.
Net sales of peritoneal dialysis and hemodialysis products were flat but somewhat offset by revenue from the sale of Continuous Renal Replacement Therapy products (CRRT) from Edwards Lifesciences Corporation. Baxter purchased the CRRT product line from Edwards last summer for $65 million in an effort to expand its CRRT business into new markets such as Europe and Australia. Edwards’ CRRT products generated $50 million in revenue in 2008.
Despite disappointing sales in its Renal segment and infusion pump business, Baxter still managed to carve out a net income of $2.2 billion, or $3.59 per diluted share—an increase of 9.5 percent and 13.6 percent, respectively, compared with the previous year.
The company’s gross margin and cash flows grew by significant margins as well in 2009. Its gross margin climbed 6.4 percent to $6.5 billion and cash flows rose $394 million to end the year at $2.9 billion.
$12.6 Billion
KEY EXECUTIVES:
Robert L. Parkinson Jr., Chairman and CEO
Joy A. Amundson, President, Bioscience
Peter J. Arduini, President, Medication Delivery
Bruce McGillivray, President, Renal
Peter Nicklin, President, Europe
Gerald Lema, Presidet, Asia Pacific
Carlos Alonso, President, Latin America
J. Michael Gatling, Vice President, Manufacturing
Cheryl L. White, Vice President, Quality
Robert M. Davis, Chief Financial Officer
Norbert G. Riedel, Ph.D., Chief Scientific Officer
Michael J. Baughman, Controller
NO. OF EMPLOYEES: 49,700
GLOBAL HEADQUARTERS: Deerfield, Ill.
Ask Robert L. Parkinson about growth strategies for his company, Baxter International Inc., and he most likely will respond with a verbal thesis about the importance of research and development. “We [must] continue to improve the productivity of new product development so we are able to optimize our R&D investment,” the chairman and CEO declared in an interview published within the firm’s 2009 annual report. “Research and development [R&D] is our most important strategic priority…”
Parkinson’s words are ironic, considering research and development was not a top priority when he arrived at the Deerfield, Ill.-based firm in 2004. During his first year at the helm, Parkinson cut expenses throughout the company in order to jump-start weak sales, and no department was spared. He ended research on an anemia drug and eliminated almost all funding for a system that disinfected donated blood—endeavors he described at the time as “pet projects.”
“R&D, just like anything else, tends to become pet projects,” he told a reporter for chicagobusiness.com. “You have to know how to kill projects. On the surface, that sounds counterintuitive, but you have to optimize.”
The ensuing five years have been transformative for Parkinson as he righted the listing healthcare conglomerate and navigated it back to profitability. Spending cuts are still made—though not at the rate or intensity of Parkinson’s freshman year—and they are less likely to be made in R&D. In fact, just the opposite has occurred—R&D spending has risen 72 percent under Parkinson’s leadership, going from $533 million in 2005 to $917 million in 2009, the highest total in the company’s history.
Baxter executives credit the nearly $1 billion investment in R&D with helping the company achieve record net sales, earnings and cash flows last year. Global net sales, according to Baxter’s 2009 annual report, totaled $12.6 billion, a 2 percent increase compared with the $12.3 billion the firm posted in 2008. More than half of that revenue, or $7.2 billion, came from foreign customers, though that figure represented a slight (1 percent) drop compared with the $7.3 billion the company reported in 2008. Managers attributed the diminutive drop in part to fluctuating exchange rates that rocked markets last year and strengthened the U.S. dollar. Executives said the instability in foreign exchange rates unfavorably impacted net sales by 5 percentage points.
Still, oscillating currency rates were no match for the company’s BioScience segment—the engine responsible for driving 2009 profits. Prompted by increased demand and better pricing for Gammagard liquid (sold as Kiovig in most markets outside of the United States)—a fluid similar to the body’s antibody-replacement therapy—IGIV (immune globulin intravenous) and other plasma protein products, sales in the BioScience segment climbed 5 percent to $5.6 billion. Continued adoption of Baxter’s advanced recombinant therapy, Advate, largely was responsible for generating $2 billion in recombinant product sales last year, a 5 percent increase compared with the $1.9 billion those products garnered in 2008 and a 20 percent jump compared with the $1.7 billion posted in 2007.
Plasma protein and antibody therapy products virtually had identical sales ($1.3 billion) and growth rates (10 percent and 12 percent, respectively). Regenerative product sales grew 8 percent to $442 million, while sales in the segment’s “other products” category fell for the second consecutive year, due mostly to lower international sales of FSME-IMMUN, a tick-borne encephalitis vaccine and a reduction in advance purchase agreements for the H1N1 swine flu vaccine.
While not as powerful an engine for growth as the BioScience segment, the Medication Delivery sector nevertheless delivered strong results last year, amassing $4.6 billion in net sales. The top revenue-generator—which remained unchanged from previous years—was global injectables, with $1.7 billion in sales, followed by intravenous (IV) therapies with $1.5 billion in sales, infusion systems with $858 million and anesthesia with $492 million. Baxter’s leaders attributed the rise in IV therapy sales to increased demand and improved pricing for IV solutions and nutritional products.
Infusion system sales fell 5 percent as problems with the company’s line of Colleague infusion pumps continued to haunt the firm. Baxter has not sold the Colleague pump in the United States since 2005 due to various defects, including battery and alarm failures, false alarms and inadequate infusion. The pumps, however, are still used in hospitals and clinics for medical infusion treatments (official estimates put the number of pumps still in circulation at 200,000).
Baxter’s ostensible never-ending nightmare over the Colleague pumps lingered in 2009 as the company issued both an Urgent Device Correction letter to customers and a U.S. Food and Drug Administration (FDA)-ordered Class I recall within seven weeks of each other. The Urgent Device Correction letter notified customers about failure codes in Colleague pumps that could potentially disrupt infusion treatments and it warned them about the possibility of overheating and fires due to improper cleaning and/or compromised battery harness insulation.
Baxter’s Colleague nightmare, however, is far from over. Fed up with the recalls, repeated meetings with Baxter management, the seizure of pumps and the 56,000 customer complaints, the FDA earlier this year ordered the company to recall and destroy all models of its Colleague infusion pumps. The agency also ordered Baxter to provide refunds to Colleague pump owners or replace pumps at no cost to owners.
The litany of problems with the Colleague pumps also prompted the FDA to launch a new initiative earlier this year to address pump safety. Part of the initiative requires manufacturers to perform more testing on the devices before they can be sold to customers.
To offset dwindling international sales of the Colleague pumps and bolster its infusion pump business, Baxter shelled out $100 million in April 2009 for a three-year distribution agreement with Sigma International General Medical Apparatus LLC, a privately held infusion pump maker based in Medina, N.Y. The price tag also included a 40 percent equity stake in the firm.
Infusion system sales were not Baxter’s only weak spot last year, though. Sales in its Renal segment fell 2 percent to $2.2 billion for the year ended Dec. 31 despite rising numbers of peritoneal dialysis patients throughout the United States, Latin America, Asia and Eastern Europe. Executives blamed foreign exchange rates for the sales decline.
Net sales of peritoneal dialysis and hemodialysis products were flat but somewhat offset by revenue from the sale of Continuous Renal Replacement Therapy products (CRRT) from Edwards Lifesciences Corporation. Baxter purchased the CRRT product line from Edwards last summer for $65 million in an effort to expand its CRRT business into new markets such as Europe and Australia. Edwards’ CRRT products generated $50 million in revenue in 2008.
Despite disappointing sales in its Renal segment and infusion pump business, Baxter still managed to carve out a net income of $2.2 billion, or $3.59 per diluted share—an increase of 9.5 percent and 13.6 percent, respectively, compared with the previous year.
The company’s gross margin and cash flows grew by significant margins as well in 2009. Its gross margin climbed 6.4 percent to $6.5 billion and cash flows rose $394 million to end the year at $2.9 billion.