Baxter International Inc (NYSE:BAX) Q2 2019 Earnings Conference Call - Final Transcript

Jul 25, 2019 • 08:30 am ET

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Baxter International Inc (NYSE:BAX) Q2 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Jose Almeida

were negatively impacted due to the strategic exit of the US in-center hemodialysis bloodlines business. Performance was also impacted by a recall and certain manufacturing challenges at one of our facilities that produces Revaclear dialyzers used for hemodialysis. This is creating a temporary supply-constrained as we have been selectively slowing down production lines at this facility to address this situation. However, Revaclear production is now ramping up and we expect to return to healthier inventory levels over the next few months.

We do expect to incur incremental costs in the second half of the year as we work to enhance our production capabilities at this facility. I also wanted to take a moment to discuss the recent advancing American Kidney Health initiative announced by the White House earlier this month. As proposed, it would have a transformative impact on the treatment of end-stage renal disease or ESRD in the US.

This is part of an emerging trend taking shape in worldwide as payers, clinicians and patients increasingly embrace home PD as a frontline ESRD treatment option based on key economic therapeutic in lifestyle benefits. Baxter is the pioneer and global market leader in home PD and we fully support this initiative to broaden the adoption of home dialysis across the United States.

As noted in our release this morning, we anticipate capital investments of $500 million to significantly increase our production capacity and meet new patient needs in line with proposed CMS models. These investments will be scaled to align with the patient and market dynamics across the innovation curve, increased demand would in turn help accelerate Renal Care growth and contribute positively to Baxter's previously communicated financial estimates.

We are working to model the anticipated impacts and expect to be in a better position to provide additional information about what this initiative means for Baxter once the role is potentially finalized later this year.

Moving on, our Medication Delivery business returned to solid constant currency growth globally. We are now emerging from a challenging performance comparison to the spike in demand for large volume IV solutions in the first half of 2018. Growth this quarter benefited from the continued uptake of our new infusion pumps, Spectrum IQ in the US and Evo IQ in selected international markets and related disposables.

Increased sales for Mini-Bag Plus in the US and Large Volume IV solutions internationally also contributed to the growth in the quarter. Mid-single digit constant currency growth in our pharmaceuticals business was driven by increased demand for Baxter hospital pharmacy compounding services. The contribution from recent launches of injectable pharmaceuticals such as dexmed and the Baxter, a MetaBot business. This strength helped offset the expected impact of generic competition in the US for BREVIBLOC and cyclophosphamide.

The pharmaceutical business remains a key growth driver for the company and we will continue to benefit from new product launches, including the recent approval of Myxredlin, the first and only ready to use insulin for IV infusion in a hospital or acute