Company Achieves Record Sales and Earnings in 2006 and Provides Positive Financial Outlook for 2007
DEERFIELD, Ill., January 25, 2007 – Baxter International Inc. (NYSE:BAX) today reported financial results for the fourth quarter 2006 and provided its financial outlook for the first quarter and full-year 2007.
Summary of Fourth Quarter Results
Baxter reported income from continuing operations of $433 million in the fourth quarter, an increase of 47 percent over the same period last year, and 14 percent on an adjusted basis. Earnings of $0.66 per diluted share exceeded company guidance of $0.60 to $0.62 per diluted share, and represented an increase of 43 percent on a GAAP basis and 10 percent on an adjusted basis. This performance was a result of strong sales growth, gross margin expansion and lower income tax expense.
Worldwide sales totaled $2.8 billion in the fourth quarter, an increase of 11 percent compared to the same period last year. Excluding a 2 percentage point benefit from foreign exchange, sales grew 9 percent and exceeded the company’s organic sales growth guidance of 7 to 8 percent. Domestic sales increased 11 percent to $1.2 billion, and international sales also increased 11 percent to $1.5 billion (an increase of 7 percent excluding a 4 percentage point benefit from foreign exchange).
All of Baxter’s businesses posted strong sales growth in the quarter. Sales within Baxter’s BioScience business totaled $1.2 billion, an increase of 18 percent from the same period last year. This growth was driven by record sales of ADVATE, Antihemophilic Factor (Recombinant), Plasma/Albumin Free Method (rAHF-PFM) for the treatment of hemophilia A, antibody therapy products, including GAMMAGARD LIQUID™ [Immune Globulin Intravenous (Human)] (IVIG) 10% Solution for the treatment of primary immunodeficiencies, specialty plasma therapeutics and biosurgery products. Medication Delivery sales increased 7 percent to $1.0 billion, with increased sales of infusion systems, intraveneous solutions and parenteral nutrition products, along with accelerated growth in the company’s drug delivery business. Renal sales increased 6 percent to $537 million reflecting accelerating gains in peritoneal dialysis patients globally.
“We are quite pleased with our strong fourth quarter results and are very well positioned as we move into 2007,” said Robert L. Parkinson, Jr., chairman and chief executive officer. “Of particular importance was our ability to significantly accelerate R&D spending, which is essential to support growth in the coming years.”
Summary of Full-Year 2006 Results
For full-year 2006, Baxter's worldwide sales increased 5 percent to $10.4 billion. Domestic sales totaled $4.6 billion, an increase of 5 percent from last year, while international sales increased 6 percent (with no impact from foreign exchange), to $5.8 billion.
Baxter's reported income from continuing operations totaled $1.4 billion, or $2.13 per diluted share, including special charges of $64 million ($0.10 per diluted share). On an adjusted basis, excluding special charges, the company reported 2006 income from continuing operations of $1.5 billion, or $2.23 per diluted share, an increase of 16 percent over last year. Details of special charges recorded in 2005 and 2006 are outlined in the financial schedules that follow the text of this press release.
Cash flow from operations totaled $2.2 billion in 2006, and Baxter generated $1.7 billion in free cash flow (cash flow from operations, less $526 million of capital expenditures). Baxter’s full-year cash flow performance exceeded the company’s guidance for 2006 of approximately $2.0 billion in cash flow from operations, and free cash flow of $1.4 billion.
“We are very pleased with the quality of our earnings results and the progress we have made financially throughout 2006,” said Robert M. Davis, Baxter’s chief financial officer and treasurer. “We are particularly encouraged with the strength of our cash flow, which is the best indication of our continued focus on working capital management and value creation.”
Increasing Investments in Research and Development
In 2006, the company accelerated its investment in research and development by 15 percent to $614 million, the highest level of investment in the company’s 75-year history.
“Rededication to science and technology will be an important driver of Baxter’s future growth and success,” Parkinson continued. “Over the last two years, our R&D organization has made great progress in applying disciplined prioritization and project management processes that are critical to ensuring increased productivity of our pipeline and higher returns for our shareholders.”
Examples of specific advancements include:
- Initiated a Phase II clinical trial utilizing adult stem cells to treat chronic myocardial ischemia, a severe form of coronary artery disease. This trial leverages Baxter’s proprietary technology to select stem cells for the procedure from the patient’s own bloodstream.
- Announced preliminary Phase I/II clinical results of Baxter’s candidate H5N1 pandemic influenza vaccine, suggesting the vaccine is well tolerated in humans and may provide wider cross protection for a larger number of people before and during a pandemic. This represented the first clinical evaluation of a cell-based H5N1 vaccine, and is the first clinical demonstration that a candidate H5N1 vaccine can induce antibodies that neutralize widely divergent strains of H5N1 virus.
- Supported Phase II clinical trials involving the use of intravenous immunoglobulin (IVIG) to treat Alzheimer’s disease, which are being conducted by researchers at New York-Presbyterian/Weill Cornell Medical Center in New York City.
- Advanced the company’s hemophilia portfolio through partnerships with Nektar Therapeutics and Lipoxen Technologies, leveraging each company’s expertise to develop new therapies to reduce the frequency of injections required to treat blood-clotting disorders.
- Initiated a Phase II clinical trial involving the regeneration of bone using a product co-developed by Baxter and Kuros Biosurgery AG. The product is based on a combination of Baxter's TISSEEL fibrin sealant and Kuros' proprietary biologics and associated binding technology.
- Initiated the development of a recombinant form of von Willebrand factor (VWF), a protein critical to the normal clotting of blood. Preclinical results, presented at the American Society of Hematology meeting in December, suggest that Baxter’s recombinant VWF therapeutic protein has similar properties to plasma-derived VWF.
- Collaborated with Halozyme Therapeutics in the clinical and commercial development of Hylenex, a liquid injectable formulation of recombinant human hyaluronidase that can simplify the delivery of medications and fluids through the use of subcutaneous infusion.
First Quarter and Full-Year 2007 Outlook
For full-year 2007, Baxter expects to achieve organic sales growth of 3 to 4 percent. This guidance reflects the divestiture of the Transfusion Therapies business before the end of the first quarter and excludes sales of the company’s COLLEAGUE infusion pump in the United States, which may resume before the end of 2007. Excluding Transfusion Therapies revenues in both 2006 and 2007, Baxter expects organic sales growth of approximately 7 percent, reflecting a continued acceleration in sales growth compared to 2006.
The company expects earnings for full-year 2007 to be $2.47 to $2.53 per diluted share, and to generate cash flow from operations of approximately $2.3 billion.
For the first quarter 2007, the company expects organic sales to grow 5 to 6 percent, and earnings of $0.54 to $0.56 per diluted share. This guidance reflects the divestiture of the Transfusion Therapies business during the first quarter and ongoing transition service revenue to support this business’ ongoing operations.
A webcast of Baxter's fourth quarter conference call for investors can be accessed live from a link on the company's website at www.baxter.com beginning at 7:30 a.m. CST on January 25, 2007. Please visit Baxter's website for more information regarding this and future investor events and webcasts, including investor presentations, a company-sponsored Investor Conference in Chicago on March 14, and the company’s Annual Meeting for shareholders in Chicago on May 1.
Baxter International Inc., through its subsidiaries, assists healthcare professionals and their patients with the treatment of complex medical conditions, including hemophilia, immune disorders, cancer, infectious diseases, kidney disease, trauma and other conditions. The company applies its expertise in medical devices, pharmaceuticals and biotechnology to make a meaningful difference in patients' lives.
This release includes forward-looking statements concerning the company's financial results. The statements are based on assumptions about many important factors, including the following, which could cause actual results to differ materially from those in the forward-looking statements: demand for and market acceptance risks for new and existing products, such as ADVATE, and other technologies; future actions of regulatory bodies and other governmental authorities, including the FDA and foreign counterparts, that could limit or suspend product development, manufacturing or sales or result in sanctions; product quality or patient safety concerns leading to product recalls, withdrawals, launch delays, litigation, or declining sales; product development risks; inventory reductions or fluctuations in buying patterns by wholesalers or distributors; the impact of geographic and product mix on the company's sales; the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies; reimbursement policies of government agencies and private payers; the availability of acceptable raw materials and component supply; the ability to enforce company patents; patents of third parties preventing or restricting the company's manufacture, sale or use of affected products or technology; failure to satisfy closing conditions related to the sale of the Transfusion Therapies business; and other risks identified in the company's most recent filing on Form 10-Q and other SEC filings, all of which are available on the company's website. The company does not undertake to update its forward-looking statements. Financial schedules are attached to this release and available on the company’s website.
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