5. Baxter International
$12.8 Billion
KEY EXECUTIVES:
Robert L. Parkinson Jr., Chairman & CEO
Ludwig N. Hantson, President, Bioscience
Carlos Alonso, President, Renal
J. Michael Gatling, Vice President, Manufacturing
Robert J. Hombach, Chief Financial Officer & Treasurer
NO. OF EMPLOYEES: 48,000
GLOBAL HEADQUARTERS: Deerfield, Ill.
Not long after assuming the top spot at Baxter International Inc., Robert L. Parkinson Jr. set forth to resolve the company’s longstanding problems with its Colleague infusion pump. The problems—mostly quality issues—had begun under Parkinson’s predecessor, Harry M. Kraemer Jr., in 1999, and dogged him throughout his five-year reign. Intent on avoiding a similar fate, Parkinson made the Colleague conundrum one of his top priorities in 2006, during his second full year as CEO.
Parkinson took some significant steps that year toward achieving his goal. By the start of his third anniversary as chief executive, Parkinson was hopeful that the company might finally be able to put its infusion pump nightmare to rest. But other crises were lurking on the horizon, each of them significantly more scary than the Colleague calamity: the tainted Heparin scandal, Wall Street’s meltdown and, the most frightening, the worst recession in eight decades.
Consequently, Baxter’s Colleague debacle languished. Then last spring, the U.S. Food and Drug Administration (FDA) brought the matter to an abrupt end. Frustrated with the “persistent safety problems” of all infusion pumps¬—including the Colleague—FDA administrators ordered the company to recall and destroy all Colleague pumps on the market; authorities said the action was based upon a “longstanding failure” on Baxter’s part to correct serious problems with the devices (battery swelling, inadvertent power-downs and service data errors, among others). Parkinson, however, claimed the design improvements suggested by the FDA were “close to impossible” to accomplish without fundamentally redesigning the pump.
Thus ended Baxter’s 11-year odyssey through the product quality looking glass. By July 2010, the company had put together a plan for collecting the estimated 200,000 infusion pumps still in circulation, as demanded by the FDA. The company offered customers its Sigma Spectrum pumps as a replacement or refunds, with the reimbursements ranging from the purchase price or the lesser of the pump’s depreciated value—a minimum of $1,500 for a single-channel pump or $3,000 for a triple-channel device. Baxter is executing its final Colleague recall plan through July 14, 2012, and will provide both service and support for customers still using the questionable pump during the transition period. The company incurred a special pre-tax charge of $400 to $600 million in the first quarter of 2010 to cover the cost of the recall. That charge lowered Q1 revenue by $213 million.
“We’re pleased to offer closure in definition to our customers as this has been a very high priority for our company over the last several years,” Parkinson said.
Finding closure to one of Baxter’s most trying and nagging problems of the last decade was perhaps the company’s crowning achievement in a year that created “significant headwinds” for the firm. In his letter to shareholders (included in the company’s 2010 annual report), Parkinson names the source of those headwinds—the global economic crisis, worldwide healthcare reform initiatives and continuing pressure in the plasma proteins market—and claims the convergence of those forces led the firm to lower its 2010 financial outlook to 1 percent to 3 percent from a range of 5 percent to 7 percent. Baxter also fine-tuned its adjusted earnings per share (EPS) to $3.92-$4, down from $4.20-$4.28.
The change was a wise move on Baxter’s part—the company’s adjusted EPS settled at $3.98, up 4.8 percent from its 2009 year-end adjusted EPS of $3.80. The numbers, however, do not include special charges that reduced net sales and net income in both years. When those special charges are taken into consideration, Baxter’s 2010 net income totaled $1.4 billion, or $2.39 per diluted share, a 36 percent drop in net income and 33 percent drop in earnings per diluted share compared with 2009. Executives said special charges last year reduced net sales by $213 million and net income by $946 million, or $1.59 per diluted share.
Though sales climbed 2 percent to $12.8 billion, revenue was tempered by healthcare reform legislation and the aftereffects of the worldwide financial crisis, which Parkinson claims slowed gross domestic product growth worldwide and curbed sales of plasma protein goods. Still, Baxter managed to eke out small gains in each of its three operating segments, with the Renal division garnering the highest increase (5 percent) followed by Medication Delivery at 3 percent and BioScience basically remaining flat compared with 2009. Revenue in each sector totaled $2.3 billion, $4.7 billion and $5.6 billion, respectively.
Strong sales of regenerative and recombinants products kept the BioScience division from losing ground last year and maintaining its sales lead total. Regenerative goods garnered $527 million for the segment, a 19 percent increase compared with 2009, while recombinant products (boosted by increased sales of Advate) amassed $2 billion for Baxter. The 2 percent hike in plasma protein sales was driven by strong international demand for Feiba as well as anti-inhibitor coagulant complex, and improved domestic sales of Aralast NP (Alpha 1-Proteinase Inhibitor [Human]). Offsetting that growth, however, was a reduction in foreign sales of plasma-derived factor VIII and lower U.S. sales of albumin. Overall, plasma protein product sales totaled $1.4 billion in 2010.
Healthcare reform helped stifle sales of Baxter’s antibody therapy goods, though this product category also suffered from the termination of a distribution agreement for WinRho SDF, an immune globulin intravenous product used to treat immune thrombocytopenic purpura.
While not as powerful an engine for growth as the BioScience segment, Baxter’s Medication Delivery sector nevertheless delivered strong results last year, amassing $4.7 billion in net sales, a 3 percent increase compared with 2009. Global injectables was the top revenue-generator with $1.8 billion in sales, followed by followed by intravenous (IV) therapies with $1.6 billion in sales, infusion systems with $655 million in sales and anesthesia products with $525 million in sales.
Infusion systems products was the only category to post a sales decline in 2010 and it was a significant one. Executives attributed the 24 percent loss in this product category to the Colleague recall as well as lower sales of disposable tubing sets used to administer IV solutions. Infusion systems product sales plummeted to $655 million, according to Baxter’s annual report.
The 11 percent growth in global injectables products last year came from the robust sales of “certain enhanced packaging products” as well as generic goods. Growth in Baxter’s international pharmacy compounding and U.S. pharmaceutical partnering businesses also helped boost sales, as did the $112 million sale of its U.S. generic injectables business to Hikma Pharmaceuticals PLC in October 2010.
Baxter’s renal segment bounced back from a disappointing 2009 performance with a 5 percent net sales increase last year. Two of the factors that had little effect on revenue in 2009—the purchase of Continuous Renal Replacement Therapy products from Edwards Lifesciences Corporation and the growing number of peritoneal dialysis patients throughout the United States, Latin America, Asia and Eastern Europe— largely were responsible for turning around the fortunes of this segment. Net sales totaled $2.3 billion.
The strengthening U.S. dollar helped boost international sales by 5 percent last year and offset the 1 percent slide in domestic sales. U.S. revenue totaled $5.2 billion for the year ended Dec. 31, while international sales rose to $7.5 billion, according to the annual report.
“The company has responded to an evolving and challenging environment with new strategies, organizational changes and programs aimed at enhancing our commercial, operational and scientific effectiveness,” Parkinson noted in Baxter’s annual report. “These efforts allowed us to weather the headwinds in 2010, and we ended the year a stronger company.”
That strength now lies not in Baxter’s finances, but in the investments it has made in its future. The $915 million the company invested in research and development last year went toward late-stage research projects, early stage and exploratory work and product development. Baxter advanced a total of 14 R&D programs into Phase III clinical trials, regulatory review or commercialization in 2010.
Among the most significant of these advancements was FDA approval of the company’s Investigational Device Exemption application for its home hemodialysis clinical trial, which was expected to start this year, and the agency’s endorsement of TachoSil, an adjunctive hemostatic agent that features a collagen patch coated with human coagulation factors. The coating is dissolved by saline, blood or other bodily fluids to form a fibrin clot, which helps the patch stick to a wound and stop the bleeding.
One of Baxter’s main focal points last year was the enhancement of its organizational, commercial and operational effectiveness. To help improve operations, the company combined its Medication Delivery and Renal businesses last fall and formed a new segment called Medical Products. Parkinson said the move was designed to help lower costs and drive productivity as well as more efficiently serve customers.
To enhance its product lineup and scientific capabilities, Baxter formed several new
international business partnerships through both acquisitions and manufacturing supply and distribution agreements. Some of the more notable acquisitions include the $330 million purchase of ApaTech, an orthobiologics company in the United Kingdom that makes a synthetic bone graft material, and the procurement of the hemophilia-related assets of French biopharmaceutical firm Archimex SAS.
Baxter also extended its footprint on the other side of the world by signing a manufacturing supply and distribution agreement with Iraeli firm Kamada Ltd. The agreement gives Baxter exclusive distribution rights in the U.S., Australia, New Zealand and Canada for Glassia, a liquid alpha1-proteinase inhibitor for the treatment of alpha 1 antitrypsin deficiency.In addition, the firm finalized a collaboration with Takeda Pharmaceutical Company Ltd. for the development, production and supply of cell culture-based influenza vaccines, both pandemic and seasonal, for the Japanese market.