百特醫療 (BAX) 2001 Q1 法說會逐字稿

Good morning ladies and gentleman. Welcome to Baxter international first quarter earnings release conference call. Your lines will remain in a listen-only mode until the question and answer segment of today's call. At that time, if you have a question, you will need to press 1 on your touchtone phone. This call is being tape-recorded. If you have any objections, please disconnect at this time. A replay of today's teleconference can be heard by dialing 1888-895-5621 or 1402-220-3441 and entering the pass code Baxter or 229-837. This replay will be available immediately following today's teleconference until April 23rd. I would now like to turn the call over to Mr. Neville J. Jeharajah Vice president of Financial Planning and Investor Relations at Baxter International. Mr. Jeharajah, you may begin.

Thank you so much. Good morning everybody. Thank you so much for taking pains to join us for our first quarter conference call and I am sure you have seen the press release now. As the press release indicates, comments regarding the outlook content, forward-looking statements, and of course actual results would differ materially from our current expectations. Please refer to our 10Q for more details. Now, let me introduce Harry M. Jansen Kraemer, Chairman, and Chief Executive Officer of Baxter International.

Thank you Neville. Good morning everyone. Joining me for today's call are David F. Drohan, our Corporate Vice President and President of our Global Medication Delivery Business, Brian Anderson, Steven J. Meyer, Douglas Shoemare, Nad Gonring, our Head Of Communication, Thomas Sabatino as well as Neville and May Kay. First, I would like to provide you with the first quarter highlights as well as with details on the business segments. Brian will then cover the financial results after David Drohan takes you through Medication Delivery and afterwards, I will give you summary of the year 2001 and we will open it up for question on any topics that anyone may have. First let me begin by saying that I am very pleased with our first quarter financial results, which continue the very strong momentum we have established over the last several years. I believe these results position us extremely well for the next several quarters of 2001 as well as 2002 and beyond. In terms of recent highlights, the acquisition of Serotec Biologics 00:02:40, which owns and operates 80 plants and centers recently closed. The announcement to build a new $170 million vaccine facility for both recombinant and cell-cultured dry vaccines. We initiated the phase I clinical study for recombinant C1 inhibitor for patients with hereditary angioedema, the acceptance of our file by the FDA for Extraneal and if you saw two days ago, I am very pleased to announce the settlement with genetic institute for the supply of both recombinant through the year 2007. We also made Jan Stern Reed 00:03:16 as our Chief Scientific Officer, which is a new position that will provide increased leadership and strategic direction to our global scientific initiatives across all of our businesses. We also announced several initiatives that will continue to more closely align the Baxter team members with our shareholders. These include changes to our long-term compensation program for senior managers, moving them to stock options, as well as the commencing 00:03:41of stock options to more than 41,000 Baxter team members around the world. So, every person at Baxter will have 100 stock options, which obviously will double to 200, when we do the stock split scheduled for May 30th. Also, we have recently converted 100% of our Board of Director compensation to stock options. We are one of the very few companies where every portion of compensation to our Board of Directors is in Baxter stock options. So, obviously we have got everybody on the same page for all 41,000 individuals at Baxter. In the quarter, sales increased to 11%. Even more importantly, excluding the impact of foreign currency, our sales growth was 16%, which was the highest level of internal sales growth in many years. The operating margins for the company in the first quarter, we continue to leverage our growth profit rates as well as our sales general administration ratio and even more important, this was all done while increasing our R&D by 24% in the quarter. As you recall from the annual growth conference in March, we have a number of research and development initiatives underway and I am very pleased with the progress we have made. David and I will go into more detail on some of these initiatives as we go through the call today. For the quarter, the operating margin ratio was 17.8% compared to 17.9% in Q1 last year as a result of the significant increase in R&D and our operating income grew 10% for the first quarter. Pretax and net income were up 12% for the quarter, diluted EPS was 71 cents for the quarter with growth of 9% way down the commitments that we had made externally. Lets first go through sales for the quarter. Sales from the first quarter of 2001 totalled 1 billion 757 million representing an increase of 11%. As I mentioned, excluding the impact of foreign exchange, sales were up very robust 16% for the quarter. The primary driver of the 5 percentage point foreign exchange impact was the continued weakening of the Euro versus prior year and as we had mentioned to you, we would be able to offset the foreign exchange impact at our net earnings line. Contributing to Q1 sales growth was 25 million in sales relating to our acquisition of Serotec 00:06:11, total US sales for the quarter were 855 million representing an increase of 18%, international sales of 902 million increased to 5%. The foreign currency impact on international performance was 10 full percentage points. Said another way, international sales growth was 15% excluding the impact of currency. Now let us walk through each one of the businesses. First, our Renal Therapy business. Sales for Renal in the first quarter totalled 457 million, which was 9% increase over Q1 2000. Q1 sales growth for Renal excluding the impact of foreign currency was 16%. US sales were 125 million, representing a very healthy increase of 23% in the quarter. International sales were 332 million, up 4%, but again the impact on currency was 10% points, i.e. international sales were actually up 14% before the impact of currency. A constant rate PD growth was in he mid single digits, and HD growth was in the high teens. Our Renal Therapy Services, which is our business outside of the United States running centers, continues to do extremely well. RTS sales in the quarter totalled approximately 60 million and grow over 30% in the quarter. As of March 31, we now have 200 centers in 13 countries with almost 20,000 patients. As you know, our RMS or Renal Management Services Disease Management Business had signed several new contracts that have increased the number of patients we manage in the United States. We now have five signed contracts in the first quarter with sales totalling more than $13 million. In terms of several highlights, in our Peritoneal Dialysis we continue good progress with our treatment educator program. Over the past two years, our treatment educators have met with more than 22,000 US patients. Today, in excess of 6,000 patients have actually started dialysis and over 30% of these patients are on PD. In terms of technological leadership in the area of PD, our key highlight for us continues to be Extraneal, the lone long-term solution. At the end of the first quarter, we had more than 6,600 European patients on this product, which represents 35% of our European PD patients. In terms of the 2001 growth initiatives and milestones the Renal business is focussed on several growth initiatives for 2001 in line with our integrated care strategy that ___00:08:59 explained in great detail last month. As you recall, our discussion included several clinical abstracts and studies, which support our approach of going forward. Our 2001 growth initiatives include continued focus on physician and patient education through our kidneydirections.com website or Stay-in-Touch programs and Kidney Patient Educator Program, and increased PD penetration through patient and physician education as well the introduction of new hardware and solutions. We expect to file the pediatric Home Choice 00:09:40 machine in the United States and Europe in the second half of 2001. We will continue to increase penetration of Extraneal in Europe, where we expect approximately 7000 kidney patients to be using the products by the end of this year. Our NDA in the United States for Extraneal was accepted during Q1 and we are on track to file in Japan by the end of this year. In addition, in the second half of 2001, we expect to initiate clinical trial in the United States, for Physioneal and submit our file for approval in Japan. As you know, Physioneal is a bicarbonate 00:10:17 based solution that neutralizes acid in the blood. We will continue to expand our HD business with additional dialyzer capacity and the introduction of a new synthetic high-flux 00:10:30 dialyzer, which we expect to launch by the end of this year. And, we will also continue to grow our RTS and RMS businesses. At constant rate I expect our Renal therapy services to grow more than 20% this year with sales totalling in excess of 300 million and our Renal Management strategies growing to approximately 100 million. In terms of the outlook for the year 2001 for Renal, given our strong Q1 results, our continued effects to drive PD penetration and we will expand our HD business as well as continue our investments in RTS and RMS, I expect our Renal sales growth a constant rate to be in the low teens for full year 2001. Now, let us turn the BioScience business, Q1 sales overview. The Q1 sales for BioScience business totalled 631 million and were up 16% in the quarter. Sales growth excluding the impact of foreign currency was actually 22%. US sales were 309 million representing a 23% increase over the first quarter of 2000. International sales of 322 million were up 10% over prior year. Excluding the impact of foreign currency, international sales were up a very strong 20% for the quarter. At constant rates, Hyland Immuno sales were up approximately 25% and Fenwal sales were up in the high single digits. Let us first look at Fenwal. Fenwal is the blood collection and processing business and sales for the first quarter were up in high single digits. This growth was primarily due to continued interest in leuko-reduction. Leuko-reduction is the removal of white blood cells for transfusion products. In the first quarter, leuko-reduction sales totalled approximately 30 million with sales growth in the mid teens at constant rates for the quarter. We continue to believe that over the next several years, almost 100% of the US and European markets will convert to leuko-reduction. By the end of 2001, we expect the conversion rates both internationally as well as in the United States to exceed 80%. In fact, the American Red Cross has recently announced that they were accelerating their efforts towards 100% leuko-reduction. Our pathogen inactivation program with our partner Seros 00:13:00 continues to be on track. As you know, during the fourth quarter of last year, we submitted our file for marketing approval in Europe for platelets. During Q1, we completed the enrollment in the US stage III platelets study and we expect to file for approval later this year. In addition, we continue to make excellent progress with the plasma and red blood cells program. I give a tremendous amount of credit to Steve Isaac and the team at Serous working very closely with Greg Young and his team at Baxter Fenwal. Now let us turn to Hyland Immuno. Sales for Hyland Immuno in Q1 were very strong and were up approximately 25% at constant rates. This was driven by very strong growth in the biopharmaceutical area, which includes both plasma and recombinant products s well as Biosurgery. Let us first look at biopharmaceuticals. Biopharmaceuticals sales in Q1 were very strong, up over 20%, primarily related to the strong sales of recombinant factor VIII and our acquisition of Serotec. Recombinant factor VIII sales were up over 20% in the quarter, and as I mentioned earlier sales from Serotec acquisition totalled 25 million. With this acquisition, we are able to source additional plasma from our own collection centers and lessen our dependence on third quality plasma suppliers. In addition, we believe that access to high quality plasma is a critical factor in meeting the growing demand for plasma proteins and will help drive our leadership in the industry. A key highlight for the biopharmaceuticals business in the first quarter was a groundbreaking of a new 100 million-plasma fractionation facility in Los Angeles. Construction of a 40,000 square foot facility will allow US to increase production capacity, better leverage on manufacturing capabilities and continue to deliver innovative products to patients around the world. With our focus on expanding manufacturing capacity, we also announced that the Swiss Ministry Of Health has recommended GMP 00:15:06 licensure for our new Neuchatal Switzerland manufacturing facility. The state-of-the-art multipurpose facility has the flexibility to produce recombinant proteins such as recombinant factor VIII, our next generation protein free recombinant factor VIII as well as other proteins. In addition, at the March conference, we announced that we intend to add another suite at Thousand Oaks and will be constructing two additional manufacturing suites in Neuchatal. This would bring the total number of suites to eight with four at Thousand Oaks and four in Neuchatal. When all of these get completed over the next several years, our total annual capacity will be an excess of 2 billion factor VIII units. Now, let us turn to Biosurgery. Our Biosurgery business had a very strong quarter with sales growth over 30% primarily driven by strong sales of Tisseel in both United States as well as Europe. During the first quarter, Diplograph was launched in the United States. Diplograph is another new easy to used delivery device for the application of Tisseel fiber sealant. This is the latest addition to Baxter's portfolio of delivery devices, which includes the Tissomat and Sprayset 00:16:14 that was approved by the FDA last year. In terms of vaccines, our manufacturing capacity over the first quarter we have announced, the new production facility for cell culture dry vaccines, we anticipate construction on the vaccine facility to begin by the end of this year. In terms of overall highlights and milestones, as we mentioned at the annual growth conference last month, we will keep you informed on our milestone progress quarter by quarter. In summary, we are on track with virtually all of our milestones right where we said them they would be and every quarter, I will make sure that you know exactly where we stand. One overall milestone that we have definitely missed is for our vaccine business. I am very disappointed that we missed the milestone relating to the licensure of our tick-borne encephalitis vaccine in Germany. Therefore, we will not be selling this vaccine in Germany during this year. Vaccine sales in Germany totalled approximately 30 million and due to the seasonal nature of this product, the majority of the sales impact will occur in Q2 of this year. Nonetheless, I am very confident that vaccine will continue to be a major opportunity for Baxter's future growth and this issue will have zero impact on both our second quarter as well as the full year 2001. In terms of other product launch milestones, we expect to launch three products in 2001 including liquid IGIV, Mening C 00:17:55 in several European countries and protein C in Europe. In fact, we have received a favorable recommendation with respect to protein C for our license submission in Europe. Once approved, protein C would be administered to prevent excessive coagulation and life-threatening thrombosis in critically ill patients, mostly newborns and small children. In terms of clinical milestones, we continue to make excellent progress. Let me give a brief summary of our accomplishments during the quarter and our expectations for the rest of 2001. We continue to be very excited about our collaboration with Pharming related to the C1 inhibitor and we recently initiated a phase I clinical study to treat hereditary angioedema which affects approximately 50,000 individuals in Europe and North America. This study will be the first clinical study with any form of recombinant C1 inhibitor. In this study, the safety, tolerability clearance, and activity of the product will be investigated. In terms of our alliance with Arriva Pharmaceuticals, for alpha-1 antitrypsin, we expect the complete preclinical studies by the end of the year and initiate phase I studies shortly thereafter. Phase I clinical trials for our Mening B 00:19:14 vaccine have began in Belgium. This is a new vaccine to protect against a specific group B bacteria known as group B meningitis. Now, let us turn to the 2001 outlook for BioScience. As mentioned in a press release on Tuesday, Baxter and Genetic Institute reached a settlement for the purchase of bulk recombinant. Under the terms of its settlement, GI will provide all of the bulk recombinant factor VIII manufactured by GI in certain designated production facilities. As you know, we have had a very good relationship with GI over the last 15 years. I am extremely pleased to have resolved this dispute on a very favorable basis. The settlement will ensure the availability of bulk recombinant factor VIII manufacturing by GI all the way through 2007. Let me be a little more specific. Given the productions we dedicated to Baxter, we expect to receive approximately 500 million activity units from GI in 2001, and in addition, we expect approximately 300-350 million activity units each and every year from 2002 through 2007. So, obviously we are pretty happy about this. This settlement provides us with even more flexibility to meet the increasing demand for factor VIII by patients, especially due the recent issue faced by our competitors and the shortage of factor VIII in the market. In fact, given the shortage of product and the increased demand for plasma-derived factor VIII, Baxter is doing everything we can to provide as much product as possible to the marketplace. Given what we have already put in place, I now expect our recombinant business to grow in excess of 20% in 2001 and our plasma-derived factor VIII still grow for the year 2001 will actually be in excess of 10%. Therefore, for the full year 2001, I expect BioScience sales growth to be in the high teens at constant rates. Clearly, there is every reason to expect that the combination of the very strong recombinant sales as well as the very strong plasma-derived factor VIII sales will more than offset the shortfall in vaccine sales due to the situation in Germany with the ___00:21:51 as any vaccine. BioScience sales growth will be driven by Fenwal growing approximately 10% in 2001 and Hyland Immuno growth in 2000 in the 20% range which includes 100 million in sales from the acquisition of Serotec. Now I would like to turn it over to David F. Drohan, our Corporate Vice President and President of our Medication Delivery business and since March much better known as the Big Martin.

Thank you Harry. Good morning everybody. Before I get into the details for the quarter, let me first give you a brief overview of the Medication Delivery business. Medication Delivery is a $3 billion business and a global market leader in IV therapy, infusion systems, drug delivery, Anesthesia and Critical Care, Nutrition, and other special therapies. As you know, we have recently changed the name of this business from IV Systems to Medication Delivery, to more accurately reflect the description of our business today and much more importantly, where we are going in the future. Today Medication Delivery is a dynamic business with 75% of our sales coming from higher margin specialty products and base IV solutions representing less than 25% of our sales. That is a big turnaround since several years ago. Our 2001 growth initiative, Medication Delivery is focussed on several growth initiatives for 2001 and over the next several years and these include continued focus on geographic expansion, continued expansion of our high margin specialty product penetration internationally and broadening our portfolio by extending the scope of our products and entering new market segments. An example of this is extending our full line drug delivery provider strategy and extending our Anesthesia business into the broader Critical Care markets. Let me take a moment, I will just expand on each of these opportunities. For geographic expansion, as you know the Medication Delivery Business was the last of Baxter's business to globalize. We changed our focus. We built an infrastructure outside the United States to support our growth initiatives and at the same time, we increased penetration of our delivery devices and drugs by building upon the solid foundation we have in our base solutions business. Today, approximately 40% of our sales come from outside the United States and we expect that percentage to be in excess of 50% by 2005. Our specialty products strategy, we continue to shift our sales mix from the base solutions to higher margin specialty products. As you know from the growth conference in January, some of these products have margins double or triple the base solutions. Specialty products include anesthetic agents, premixed drugs, nutrition products, and delivery devices such as the Colleague pump. Specialty products leverage our focus on different core points. They give us a chance to sell the records to the clinician. These are the people who actually use our products. This differentiates us from the market and creates competitive advantage for our business. As we shared with you at our growth conference in March, we have made tremendous progress in continuing to expand specialty product penetration. Although, last several years, product sales from this category have increased dramatically, especially outside the United States, for example, in Europe, specialty product sales now accounts for over 65% of our sales compared to 40% in 1996. The third leg of our strategy is entering new markets and new segments. Through this new market expansion, I expect three of our businesses to each have sales in excess of a billion dollars by 2005. Let me get through that for a couple of seconds. First the Infusion Systems Business, which includes all of our hardware, fed 2000 sales of over 600 million dollars. We will grow this business by geographic expansion. You may recall that we released the German version of the Colleague pump in the fourth quarter of 2000. The French and Spanish versions will be launched this quarter and all other Nordic languages will be launched in Q3 and we will continue our expansions in these segments by leveraging in United States the 300,000 bedside devices we hold in our installed base and we will use that installed base for new revenues streams. These streams will come from software upgrades, from asset tracking, which will lead to asset management and eventually a fourth service business in the United States and eventually outside the US as our installed base expands. The last will be focused on data integration with the delivery of medication. This is a very exciting topic in the United States and around the world today. An example of that first probe is the acuity pump system and that is an agreement we have recently signed with Royal Challenge Protocol Division that allows our Colleague pumps to be integrated with the bedside monitoring system and with the hospital wide network for remote monitoring of pumps and for vital signs. We will have the opportunity with this system to expose medication urge realtime and this is a segment that is growing at 18%. Most of you know that we purchased certain acquisitions from Sabratek last year. Among those, we acquired technologies that are going to allow us to expand into telemedicine and e-health. Secondly, our Drug Delivery Business with $500 million in annual sales, growth opportunities in that business includes expanding from basic delivery systems to new platforms. Our goal is to continue to be the partner of choice for pharmaceuticals companies. As I explained in the annual growth conference in March, we have a number of relationships with many of the top pharmaceutical companies including virtually all of the largest pharmaceutical companies in the industry. In 1996, we had 19 drugs in various platforms. Today, we have 64 drugs with 21 more under development and 46 more under negotiation. I am pleased to say these negotiations are on target. In 2001 in our drug delivery business we launched 6 new drugs, 3 in the United States, and 3 internationally. These include Premixed rubber block in the United States in Q1 and we expect famotidine to follow in the near future. Lastly, I would like to look at our anesthesia and critical care business. It has also had 2000 sales of approximately $500 million. New market opportunities to this business include expanding our current franchise beyond the operative setting to the perioperative and critical care settings. An example of this is PSA 4000 device, which integrates the monitoring and medication delivery. We will continue our commitment to innovation through internal development, alliances, and acquisitions. We are going to expand our call points to increase our opportunities in the expanding office base and ambulatory anesthesia market. In 2001 some highlights, we anticipate continued success for our generic propofol product and the Europe launch toward the year-end. As I mentioned a moment ago, rubber block, which is our proprietary beta-blocker, will be a premixed in the US was released in Q1 and were exploring opportunity in Europe in the future. Our alliances with Physiometrics PSA 4000 product, we are very comfortable, we are on track there. We have 800 + devices in evaluation and approximately 70 institutions. And lastly, in the anesthesia critical car business, I would like to give a very brief update of our alliance pharmaceutical agreements. By the way, this is a public ________ 00:29:51 company and I can't really disclose much more details than that was seen in the press releases. And there has been several press releases in the last few months. Thus, you know from these disclosures, we continue to work with alliance and analyzing the data from the clinical studies, and determining best next steps for both companies. I would like to take a moment to switch to manufacturing cost reduction. With these growth initiatives that I have just described, they are extremely important to us, but this does not mean that we are going to stop our continued focus on operational excellence and the reduction of manufacturing costs. In fact, we are well positioned to deliver our goal of reducing manufacturing cost by 15% over the next five years. We are targeting a 3% reduction in 2001. So in summary, given the growth initiatives the operational excellence that we have been very good at and we will continue to do that we have under way I am confident that we will drive sales growth an excess of 10% and leverage our earnings growth significantly over the next several years. Let me take a moment now to talk about first quarter 2000. Q1 sales for medications delivery were very strong and totalled $669 million. Sales growth in the quarter was 8% at actual rate. Excluding the impact of foreign currency, medication delivery sales were up 12% for the quarter. US sales of $421 million grew 13% in Q1 and international sales of $248 million were flat the prior year. Excluding foreign currency international sales were up 9%. Our sales growth continues to be driven by strong sales of our Colleague pump and growth in our anesthesia product line. In fact, worldwide placement for the Colleague pump continued to meet our expectations. In the first quarter we placed over 10,000 channels. For full year Colleague will continue to grow with about 50,000 channels this year and we expect once again to place 60,000 total device channels. And always keep in mind the number of channels we place drive sales with disposable set. In general, more than 10 per sets are used per month per channel. The Q1 sales from the infusion systems unit in which all the hardware rests earned excess of 20%. Our Q1 sales growth for anesthesia was over 20% at constant rate primarily driven by propofol. Propofol continues to be a key driver of growth for Q1 sales over $30 million. So, overall the 2001 outlook given the growth initiatives I discussed earlier strong sales growth in the base business and in our specialty franchises including drug delivery and anesthesia. I expect medication delivery sales growth in 2001 will once again be in the high single digits at constant rates. Now, let me turn this over to Brian P. Anderson our CFO.

Thanks a lot David. Good morning everybody. If you turn to page 6 of your press release I would like to walk you through the P&L for the total company and deliver more detail. As Harry stated, sales growth in the quarter was at 11% and excluding the impact of foreign currency, sales growth was a very strong 16%. The gross margin rate in the quarter was 43.9% and this is 50 basis points higher from the gross margin rate of 43.4% in last year's first quarter. However, relative to the fourth quarter of last year it is 100 basis points lower than the gross margin rate on the fourth quarter of last year. And as you know, typically the fourth quarter in each year is usually our strongest gross margin quarter given the seasonality of hardware purchases by our customers, primarily based on medication deliver business. Turning to SG&A in the first quarter this year SG&A were 19.5% of sales compared to 19.9% in last year's first quarter. I continue to be very pleased with our overall management of SG&A and I expect to continue to leverage our expenses each and every year and reduce SG&A as a percentage of sales. This is really a key driver in our efforts to continue to improve operational excellence while at the same time making the investments we need to make to increase the overall growth rate of the company. R&D in the quarter was 103 million compared to 83 million last year and as Harry mentioned earlier, a very significant 24% increase in the first quarter year over year and this primarily relates to the continued investment in our BioScience business. The operating margin in the first quarter was 17.8% compared to an operating margin ratio of 17.9% in last year's first quarter. The year is really off to a great start and as a result, I expect that we will achieve our full-year operating margin growth in excess of 19%. Net interest in the first quarter was 19 million and for the full-year, I would expect interest expense to be about 100 million a quarter, very similar to the first quarter. Both pretax and net income grew at 12% for the quarter and very much in line with our expectations. The share account was 303 million in Q1 and this includes the 1.4 million shares that were issued in connection with the acquisition of Sabratek that Harry mentioned earlier. Earnings per share in the quarter were 71 cents per share an increase of 9% and in line with the expectations that we communicated earlier. Before going into the details on cash flows, you turn to page 7 of your release that will be helpful. Operational cash flow in the first quarter of this year was an outflow of $111 million compared to an outflow of $159 million of last years. Recall in the last few years, we have generated almost $600 million in cash flow for the full year and I am very confident that in 2001, we will also generate in excess of $500 million. Our receivable days outstanding was 60 days at the end of the first quarter down nine days from last year's, we have sold 69 in last year's first quarter. We also continued to show modest improvement in inventory return which were 2.9 turn in this year's first quarter versus at 2.7 turns last year and continuing to improve the velocity of working capitals is a very high priority of mine and the rest of the management team. Capital expenditures for the quarter was $131 million this year compared to $116 million last year and as you know a significant portion of this investment continues to be capacity expansion in the BioScience business. With respect to share repurchases and dividends in the first quarter of this year, we paid our first annual dividend, which amounted of $340 million and we did not repurchase any shares this quarter. We ended the quarter with the net debt to capital ratio of 39.2% as I have mentioned in prior calls we will make share repurchases consistent with our overall capitalist structure objectives of maintaining our debt to capital ratio in the 40% range which is really the optimal capital structure for that business. Now, I would like to turn it back to Harry for his summary and rap up before we go to Q&A.

Okay thanks Brian. In terms of Baxter's 2001 commitments, I believe that the many we have generated will continue throughout the year 2001 and beyond. Given that 2001 growth initiatives that David, Brian and I outlined, I believe we are very well positioned to continue to increase the growth rate of the company and at the same time deliver very strong financial results. Let me be very specific about our 2001 commitments in the four major categories. In terms of sales growth given our capacity expansion at Thousand Oaks, new products introductions and the successful integration of recent acquisitions, we continue to expect our year 2001 sales including the impact of foreign exchange to grow at an accelerated rate of low double digits. At constant currency, I expect sales growth for the year 2001 to be in the mid teens. Now, let us look at each of the three businesses at constant exchange rates. First, medication delivery sales growth as David indicated will be in the high single digits, our Renal sales growth will be in the low teens and our BioScience sales growth will in the high teens. This growth of BioScience includes approximately 100 million in sales from the acquisition of Sabratek that I have mentioned earlier. Now, let us turn to the operating profits. Our operating income ratio or operating earnings as a percentage of sales has increased each and every year since 1993 from a level of approximately 10% to 18% in 1999, 18.8% in the year 2000 and its volume indicated it is our expectation to leverage our operating profit margins even further in 2001 to more than 19% of sales. Third, our net earnings after tax before year 2001 including the impact of all foreign currency, we expect to be in the mid teens. As we had stated previously, our net earnings growth after tax in the first half of 2001 will be in the high single digits and our earnings growth in the back half of 2001 will be in the mid of high teens. Given that an overall wheeled efforts earnings growth for full year 2001 in the mid teens. Turning to the fourth category, operational cash flow as a total company we will once again generate in excess of $500 million in operational cash flow and that after investing more than $600 million in capital expenditures and more than $400 million in Research and Development. So, in summary I am extremely confident that Baxter is very well positioned and I am very excited about the outlook for Baxter for the remainder of 2001, 2002, and beyond. At this point, David Drohan, Brian Anderson, and the rest of the team would be happy to answer any and all questions from both security analysts and our shareholders.

Thank you, we will now begin the question and answer session. If you have a question you will need to press the #1 on your touchtone phone. You will hear an acknowledgment to say you have been placed in queue. If your question had been answered and you wished to be removed from the queue please press the pound sign. Your questions will be queued in the order that they are received. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, if there are any questions please press the #1 on your touchtone phone. Our first questions if from Anne Malone with Salomon Smith Barney. Please state your question.

Hi good morning. I will pose it as one, but I have to admit it, two prongs. Harry M. J. Kreamer Jr: I appreciate your honesty, Anne.

Let me try. May be it is just me, but do not know if I have ever heard you be that exact about the activity units from GI, so what I was wondering is that there are any way you could put in contact for respective for what you thought you were going to get out of them before and the second prong to it is then when you talk about the plasma and recombinant you can use them well there it can offset the tick vaccine team numbers. I have to admit it I would think that those numbers more than offset it, so could you all support the tick vaccine number in context to what you saw in Germany. Harry M. J. Kraemer Jr: Sure, in fact, let me put the whole thing in context for you, okay. If you think about what we talked about on the October call, as well as the January call, and then what we talked about last time in March. We indicated as we look at the overall weighted average basket year off probabilities, growth rates, what we expected etc., I know some folks were little concerned of what happens if GI, you are shot, or what happened of this, and what happens of that, on a weighted average perspective, I guess the way I would say is given what we now know, I feel more confident than ever that the overall direction that we have stated as our commitments would be very comfortable. If you say to me please Harry, how comfortable are you a bit high intermittent growth will be in the 20% range, very comfortable, how comfortable are you in the overall vial signs would be in the high teens, very comfortable, what is the overall probability that including the impact of foreign exchange, we will have sales growth in the real double digits clearly and when you take a look at the overall piece, you know there is a lot of put and take in this so clearly, you know having vaccine missed by $30 million is less than half of 1% of our sales. So is that something that worries me? No. So I guess overall, you know we are pretty confident where we are and clearly Anne, if we were not feeling pretty good about it, something tells me we wouldn't be growing our R&D by 24% in the quarter.

And all that makes sense, and I have to admit, your confidence came through loud and clear, but the $30 million, now I got that. That is what you were saying you could do with the tick vaccine. But, when you mentioned those specific numbers on activity units from GI, what you if you get this here and what if you get 2002 through 2007, I have to admit I do not have on my notes the contact of what you thought you might get before. So is that the same as what you saw you get higher or lower etc.

Yeah. I wont say it is in the range, Anne. You know I got Thomas Sabatino, our General Counsel here sitting with a little frown on his face, when we go through the settlement, we got the situation with GI well in hand relationships are going really well. So, you know, we are pleased, they are pleased, and we are all pleased.

Well, if Tommy wants that detail, I will be okay too.

Okay. I will let you do that off line with Tommy.

So, just to recap, you thought you missed about 30 million of vaccine you are getting about within the range from GI, but in general you feel so good about plasma recombinant taking more than offset for $30 million.

Yes, the other thing you did not mention is that we now clearly are expecting our plasma factor rate to be growing. I know, I go through this print.

I apologize, yes that is the switch on and that is related to Cerotic. Harry M. J. Kraemer Jr: No that is really just the fact that we continued to improve our yields.

Okay, so internal projects to get the yield up means growth, as opposed to 00:46:21____ versus decline.

Remember now, you well know, Anne that we have got a situation where more of our competitors who are having more problem getting product off the door, and if you thought that, you know, there was a crisis out there earlier related to products, you can imagine what it is like now. We are doing everything possible to increase the yields. We are in the position, Anne of selling every unit at factory rate whether it is recombinant based, plasma based, you know we are doing a frank up the additional plasma, _______00:46:52 and it is all hands on deck and Thomas Glanzmann and Gordon Boostenbark and the entire team are really doing a great job. A great enough job as we go through the strategic and operating plans, you know I am very confident these folks are going to deliver on exactly what they said they would do.

Okay that clears up everything. Thank you. Dan Lemaitre with Merrill Lynch. Please state your question.

Yeah, good morning, everybody. I want to get a pick up where Anne left off, I just wondered given the necessity of having build a facility in ________00:47:28 in order to get approval. Are you assuming that what you should tell possibly getting approved sometime, assuming that there will be a full year of output from at least one line in 2002, and does that change what our expectations ought to be for recombinant factor VIII sales next year?

Dan, I would not assume that. What we have stated is that by the end of 2002, beginning of 2003, we would expect, and god knows, you know, as well as anyone, you know, the volatility in this, but we feel pretty comfortable by the end of 2002 beginning of 2003, we will have two more suites on line. So, you know clearly we will make sure as we manage our inventory levels knowing that there are going to be significant amount of additional capacity come in on line and we will work it out the way we did last time to make sure we got that flexibility.

Well, and if I could just followup on that, since you did not mention the inventory, I suspect prior of the disconnect area and also I am trying to reconcile some of the comments you just made and some of our sense where the capacity is. Can you discuss where your factor VIII inventory are and just what you feel you had to do to bring them down in order to meet the demand of late and what kind of a cushion you might be building, because it just feels like there should be an ability to push that number significantly above 20% this year, and may be 20% again next year, given what has just happened with your internal capacity and with the settlement.

Dan, I am not going to give into that level of detail, I guess I would say to you, we are always trying to make sure that we are balanced in this and that we do not get overly optimistic, but clearly given everything that is going on, we are feeling very good about it. You know, do we have plans to increase expectations. No, you guys just got through this conference four weeks ago. We have got so many opportunities right now to invest and you were the folks to comment on the fact that we do need to crank up our R&D levels. So, I got to say if I were you folks, and I was looking at could this happen, could that happen all these things could happen. Are we running in a scenario where on a normal distribution things are all sort of looking through the right off the curve. Yes, but we have got enough investment opportunities and while we will focus coming out of this conference or not worrying, or I am not really getting cranked up worrying about the next six quarters. I am really thinking 2003, 2004, what can we do, Dan. Here is almost the strategic perspective. How can we make sure that we make every commitment we are laying out for you folks, and at the same time increasing our level of our investment and making sure through operational expense, we will set the company up for the next 5-10 years. That is what we are doing and notice, I am not saying to you that we are going to reduce expectations in order to fund this R&D; we are going to do both. But at every opportunity we have, whether it is additional plasma _______ 00:50:50, Glanzmann and Boozenbark, and these guys are doing a great job with the yield improvements, what we were able to get from GI, a lot of that is going to reinvested. But, if you are asking me, as sort of Anne was hinting at, what is the level of confidence, we are feeling pretty good.

Okay, thanks.

Rick Wise with Bear Sterns is online with a question. Please state your question.

Good morning Harry. The leucocyte reduction opportunity, if we assume that the US market converts 100% how big will that be, it looks like, can you talk about the opportunity for Baxter?

I would say it is definitely an opportunity, we would say that for 2001 the growth in leuco reduction would be in the 30% range. So, that is another area that we are feeling pretty optimistic about Rick. Basically, everything we told you if anything Rick is probably going to accelerate. I mean, you may have seen the announcements from the American Red Cross that they basically are going to accelerate all their efforts. So, you know 80% could actually end up being on the low side.

So, that means we should assume that business grow 30% to the next foreseeable future?

Yes. I would say so for the leuco reduction yes.

Just to make sure, I understood again, going back to the fact rate issues. Are these suites actually in your control and so you are in effect running them and therefore, you might have the possibility or the potential to increase the yield from them in some way, shape, or form, or are those numbers you gave us, are sort of static as of today?

Again, I am getting that look, Rick from Tommy. The bottom line is we have the contractural commitment to receive specific quantities coming out of specific suites. But, it is GI that basically is in control of that process, not us.

We cannot specify any quantities, Rick, as much as all the output we will get if there is a change in the yield we will get that change.

We are not managing that and we are not dropping that.

Okay. Thank you very much.

Matthew Dodds with SG Cowen is online with the question. Please state your question.

Hi, Harry. I have also got a question on factor VIII, but I get a bonus question I will throw on David's way.

But why don't you start with Dave. He is anxious here.

Okay. On propofol, have you changed your expectations for 2001 at all, I think in the past you said that product would be declining this year, where it sounds like AB is a little bit delayed so I am wondering if your thought process has changed.

Yeah. Thanks Matt. If AB does not come with a product, yes, our projections will change in propofol.

But you have not changed that right now.

You know, it is all a rumor, we are hearing the same things you are hearing, but we had a good first quarter and if they do not show, will have a good second, third, and fourth quarter.

Okay and per factor VIII?

Yeah.

Is it 20% growth all units based or is there some pricing in there.

I would say that great majority would be unit based.

If you look at the pricing for a second, if you look what is happening in the market, I think Bayer has pretty much got an black eye here with this reduction of capacity, which is hurt Avantis as well, so as your contracts come up, I know you do not not want to cater the market, I know it is a fine opportunity to gain some additional leverage on the pricing front.

Matt, I mean, you have obviously done the homework here. There is clearly the opportunity, however, little back to Dan comment, I mean, we are really looking at this over the next five to ten years. Could we increase prices substantially? Yes. Will we? I would say, absolutely not. You know, what we are really trying to take a very reasonable view of what makes the sense you know, short-term, intermediate, or long-term. I mean, we feel a real social responsibility here as a total company. You are absolutely right. I mean, we are in a situation where everybody constantly talks about the fact how long can this last, and I keep coming back to the fact that Thomas went through his presentation, and I think Walter redid as well. You know, we are in the situation where we are only giving product to 25% of the world's population and very low percentage of that is being able to be used prophylactically. So, you know, we are going to crunch up and crank up this much capacities we possibly we can. If you had said to me five years ago that I think we will be having a lot of plasma capacity, not obvious. Now we will do that as fast as we can.

My rationale is this more competition on the customers side for your product and is it going be under your control on the pricing front if there is lot of people bidding for your product.

I am sorry, say that again now.

Yes there is more competition for general contracts, and Bayer cannot deliver, and you only have so much product, could not there be increased price competition from the costumer side. Harry M. J. Kraemer Jr.: There could be, but again this is all going to come down to, you know, how much do you want the actual patient to have to pay for the product.

Okay. Thanks Harry.

Okay.

Sheryl Zimmer with Deutsche Banc is on line with the question. Please page your question.

Hi guys. Can you just, or Harry, will you be willing to just talk about roughly where yields are currently, per B and C. Are you still continuing thinking about additional capacity and then, separately, I guess, related, would you consider manufacturing any Gen 1 battery in New ______00:56:40, and if so, could that push up the timing of getting of getting product out of Switzerland?

You know, we are looking at that, and I would say there is the definitely the possibility we could. You are right on. I think a lot of this is going to be the timing and lot of this is going to be the yield, but we are going through all the potential tradeoffs. And as we get better and better, with this the opportunity to constantly improve the yield is definitely there.

And then just in terms of Gen 1, other ______00:57:11 has that been contemplated?

Yes.

Okay. Can I ask one quick other question?

Go ahead Sheryl.

Okay. This I think you touched on this a little bit, but could you just sum up for us the reasons for the big gap between earnings growth in the first half and the second half of 2001?

You know, Brian, you want to take that one, to talk a little bit about the, what we went thorough this conference, but just to give a little sense of the impact of current scenario.

Clearly, on the year over year impact on currency is the biggest single driver, and I think at the top line we will continue to see low Gen growth pretty even through out the year. So, it really is much more of a currency impact, particularly, if you look at the Euro year-over-year.

And Sheryl, if you remember because some people are really into this and really good at the accounting and others it is sometimes so it goes hot and cold when steam goes through these currency impacts always remember that the big bulk of what happened happens through gross profit, and happens on the lag with the inventory turn, because often we get this question that now the currency is 95. So, that wants to help for this. People do not realize when returning our inventory, you know, three times a year the impact that has on lag. So, as Steve and the team done a really good job of going through hedges, yes, but obviously that happens on the lag basis.

Okay, thank you very much.

Scott Davidson with USBancorp Piper Jaffray is on line with the question. Please state your question. Scott Davidson. Thanks. Good morning everyone.

Good morning.

Thinking a little bit deeper into the R & D expense. First of all, can you just may be update your guidance in terms of R&D as it presented to sales for the year?

Well, looking at that as a percentage of sales for the total company gets a little interest in just because of the different mix of businesses, may be another way to say it that would be overall I think R&D numbers in the lets us call it $100 million of quarter range, I think it is very reasonable.

Mathematically it turns out to be shorter than lets call it 5.5% range. But, remember that includes a mix including medication delivery and clearly they do not spend in R&D anywhere close to an overall average. So, you almost have to look at business by business.

Great and then ___00:59:50 foreign exchange was a favorable moving exchange rates early in the year, it was part of what .... I perceive led to some of the increases in guidance in the March and I was wondering now that recent cuts really in the wrong direction here. Are there any threshold exchange rates upon which your guidance is predicated, you know, IE and I think you have said at one point that if the Euro to US dollar exchange rate drops below 0.90 Euro, you know, that might impact and Thomas can you just address that issue sort of generally?

In general, one of the things that Steve and the ____ 01:00:32 team did was take advantage of rates when they strengthened and I am locked in at rates north of 9 that we were pretty comfortable with. So, in terms of earnings exposure to the rest of the year, we do not let it see that as a major concern. But, yes we did take advantage of the object and the rate at the time that we are ___01:00:59.

What about top line exposures that you got?

Top line exposure as we have said pretty consistently we cannot help with that. So, from, you know, 3% of point or so impact based on every thing we know today.

Great. And then just last thing. This tax rate was achieved lower than we had booked for, can you just revisit your expectations for the year in terms of that?

Still feel about 26%.

Great.

For the overall year and I have got Steve here, let me ask him to just spend a minute, you know, overall hedging strategy if you will to give you a sense for, you know, what he does in treasury.

I think Brian, we have mentioned up for a while here. Just have to remember year-over-year in the first half of the year we were coming up to Euro in 2000 that was well more than 1 to 1, it was 105 or better, and that's why the growth in the first half is lighter this year than in the back half. Secondly, hedging has been done and I am very comfortable with the level of hedges we gotten done not only in 2001, but 2002 as well. So, we all try to look a couple of years out sales will definitely hop around as rates change in Euro with huge ___01:02:19, but there is a whole variety of currencies that have been very weak to the dollar. Australian dollars, Swiss pound, etc have improved are weak. So, sales will continue to be impacted, but generally through 2001 and 2002 we feel good about all we got hedged for the impact on earnings.

Thanks.

Glenn Reicin with Morgan Stanley is on line with the question. Please state your question.

Good morning.

Good morning Glenn.

Hi, just a couple of real short questions. Was ____ 01:02:50 the only acquisition in the quarter or are there still left overs in last year?

That was pretty much achieved.

Okay. I think the 20% growth rate in the quarter for your company, can you give those same year-over-year kind of numbers for ___ 01:03:06, IVIG, other plasma derived products and _____01:03:10?

That's in your case raising your hands should give you a call and get into that detail.

Okay and then along the same line, what about this PD versus HD in the quarter, what kind of growth?

Sure. PD, thanks for asking that one Glenn. PD growth in the quarter was in the mid-single digits, we sort of held PD penetrations so, rather than just decline that's gone on we are actually at a point now where we are maintaining PD penetration, and HD growth for us in the quarter was in excess of 20%.

Right. And then, along the same line Harry you gave us a 30 million number this year, but you did not give us anything compared against last year?

Our RMS growth year over year is probably in the 20% range.

I thought it was more given the contracts with RMS...

Did you say RTS?

RMS.

Oh, RMS? Of a small-based ____ 01:04:05 it is very high.

Was that 5 million last year or something?

Certainly on that range. Yeah.

Okay, thank you very much.

Sure.

Glenn Navaro with Credit Suisse First Boston is on line with the question. Please state your question.

Yeah. Another question on renal sales. The US number was up very strong better than 20% and I don't think we have seen growth like that in a long time. Can you elaborate a little bit further on it was it just the contract sale? Thanks.

Contract sales were very big piece of that chief. And overall, I think now I know I went through this in a lot of detail at the meeting, but I think a combination of this sort of team being put in place just the overall strategy that he has got, remember all of the RMS portion plan, as you know, is in the United States. So, that helped that as well. Particularly, year over year, for both the hemo-piece and PD, I think, we are getting some increased confidence for moving in the right direction.

How sustainable is 20% growth? Can we see this in next three quarters or is it is just a one-quarter issue?

I would say chief given the momentum, given some of the things that _____01:05:18 talked about relates to the dialyzers and the equipment, I think, HD sales you will see quarter by quarter in that 20% range Glenn.

And you are referring to worldwide or US. I am referring to US sales.

I would say worldwide.

And US in that range as well or slightly slower?

I would say in that range, yes.

Okay. Great. Thank you.

Mike Weinstein with JP Morgan is online with the question. Please state your question.

Good morning everybody.

Good morning Mike.

I was actually hoping to get out some of these issues that from the numbers that Glenn was pointing to have been rising and may be just get a better sense where the upside within the _____01:06:01 business is coming from this versus our model. Can you just maybe highlight any other areas of strength whether any body therapy ____ 01:06:09 business versus may be your own expectations?

I would say that the bile surgery definitely had a very good quarter. IVIG did okay. If you want me to highlight I would say Mike definitely bile surgery had a very strong quarter.

That is still relatively a small number versus, you know, the total entity.

Yeah, but you are asking me outside US, but typically the clearly recombinant was the, you know, the big martini here.

Right. And I am ____ 01:06:47 on the guidance on the recombinant factor 8. Because their ____01:06:52 will be put out after the settlement announcement, but your comments today indicate the high end of our range of expectations of what we get from AHP and that would say if you want it to this year as the inventory factor, your sales will be well north of 30%. So, the assumption is rather I am being very cautious for some combination of being conservative and building up a fair amount of inventory. Is that accurate or are we missing something here?

Well, remember the HP numbers are false. So, we have got to make sure you got ____ 01:07:28 and no one knew you probably do then I would say that, you know, are we being little cautious, you know, may be or are we trying to make sure that again all cards up here that when you think about the additional ____ 01:07:40 that we have got coming on line, I have admitted it is not going to come in till the very end of 2002. So, one of the things Mike we have got is this constant issue of making sure that we do not end up adding so many patients that then all of a sudden we cannot serve them. So, this inventory piece that Brian talked about it is real. But, your numbers Mike was typically right on. If we were looking at this as just ship it, getting those 30% number is mathematically reasonable. There is a lot of social pieces that get involved in this that would, you know, if you think about it we cannot be very sensitive to global basis.

Harry, I think that for me the most interesting comment made on the call was reference into that first quarter, you know, we are really focussed on that first quarter so much that Mike you think that next quarter is relative to our expectations or somewhat on good control in the bag, is that what you meant to say there that, you think the next quarter looks like we are in very good change and now it is just a matter about trying to get that ramp up ___ 01:08:47 that you have been talking about the last two minutes.

I think that is pretty well stated Mike.

Thank you guys. Great quarter.

Thanks Mike.

David Gruber with Lehman Brothers Inc is on line with the question. Please state your question.

A couple of questions relating to fractionation. Harry could you comment on the potential impact for plasma shortages in the US given our likely broad vision of European blood supply?

Well, I think what is going to end up doing David is just further increase the demand and quite frankly it is exactly that logic that led us to two things. Cerotic and I think we talked about at the conference the fact that we are going to be opening up our own facilities, Thomas did we state how many?

No.

Okay. Lets call quite a few. This whole issue of how much additional plasma can we source and we can drive through our own facilities is a very significant upside that you know we are now banking on that a couple of years ago I did not really see that become an issue, but you are absolutely right. I think this is going to get a lot worse before it gets better. Can you comment on this? On this issue, most of what you read David is absolutely true.

Okay, and then in that regard to followup. Could you provide us an over view of your current plasma fractionation capabilities in terms of facilities locations, and the opportunity to expand IVIG, factor VIII, and albumin, and then also are most of your competitors, I mean, ____01:10:31 on a constant decrease still, I think, buyer and they are heavily dependent on importing from Europe. So, how do you see those comparative of when I am changing little bit?

Again right on David, let me, in fact this is interesting just the fact that you guys are asking this I mean shows people are on top of what's happening in this industry because we talk a lot about the peace related to the recombinant side, but bottom line is you got four facilities what we referred to as Los Angeles, which is Glen Dale, Vienna Austria, Rochester Michigan, and _____01:11:07 Italy. And if you take those four facilities we are talking today about roughly let us call it about four million liters daily. And basically, what we are attempting to do over the next, lets call it three four years is getting that number closer to six million liters. So, you know, you got the HP 12, so that you start to think through the implications with IVIG and everything else. So, you are right on.

And is it fair to assume that you know given the buyer and ___ 01:11:48 problems that are out there, that this is going to turn into a recombinant factor VIII situation were demand exceeds supply and it is just a question of getting capacity in making it?

That's my view David.

Okay, fair enough thanks.

Lawrence Keusch with Goldman Sachs is on line with the question. Please state your question.

Yeah. Harry, the issue with the kickback scheme in Germany, why did that not get _____01:12:17 and then the question is what sort of the underlying base back that we see in business that we can sort of look at as we move through the next several quarters given that it sounds like there could be some variation here?

Clearly there is going to be variation in fact that is the duty of how we try to give the other details of this on a quarterly basis, and I can tell you the variants will be the 30 million. You know, ___ 01:12:42 has pulled a lot of things out of the fire getting this turned around in time for the second quarter not obvious that is going to happen. So, I would rather just sort of drop that on up to...that is what probably going to recur. But you know, ___ 01:12:55 and the team have done a lot of phenomenal things in the past. I am not counting on it. So, I think overall, and as you know we are starting up on pretty small base, I think, we articulated sales for the vaccines, you know, let us call it somewhere less than a 100 million.

Okay. And the reason it did not get licenses, is that just a timing issue?

Yes.

Okay. And then one other question on the other income there is an expense of 7 million this qiuarter. I do not know if I have heard what exactly that was related to.

Larry that is primarily as usual, foreign exchange and minority interest, you know, our guidance is typically, you know, sundry income or expense within plus or minus 10 million so, that is right in the range of what we would normally expect.

Okay perfect. Thank you.

We will take two more questions, but since you asked Larry one of the things that I was teasing Brian before we started the call, is that when I was in his job I had this real bad habit of talking about sundry and other income, or whatever. And Brian basically decided we are not going to waste time talking about that one anymore. So, from now on, we are not even going to mention it unless somebody brings it up, and I am naturally hoping nobody waste time to bring them up.

Ben Andrew with William Blair is online with the question. Please state your question.

Thanks. Briefly, I wanted to touch base a little bit more on the tax rate, it was a touch lower in the quarter, and I was curious that may be if you could work us through what the dynamic was there or that was just a normal?

That was really just a tab low and that is just based on the sourcing of income, you know, in our different jurisdiction. So, I think overall, you know, the 26% guidance for the year that I indicated earlier is what might expectation right now. So, you know from quarter to quarter the sourcing of the income might cause very minor variations that the 26% guidance, I think, is pretty solid.

And just briefly, the followup, Harry you talked about the recommendations from the Swiss Ministry of Health with the Ministry of Switzerland facility. Is that kind on plan or is there is an opportunity for a genuine launch out of these facilities at some point relative in the near future?

That sort of what I am sure what I am pushing Glanzmann and we look as obviously if we could get this every quarter this happens earlier, is obviously you know additional dollars that we could invest in so of these growth initiatives. So, is it possible Ben, yeah, with a high probability at this time I would say probably no.

Yes thanks. 2

Take one more question.

Bruce Crana with ABN Amro is on line with the question. Please state your question.

Hi Bruce.

Hi, good morning everyone. Lot of this has been talked about, so this is really just sort of clarification type of question. But, Harry did I understand you did say with respect to ___ 01:16:03 that the way we are thinking of those ___ 01:16:06 is 75% protein free and 25% first generation.

No.

I am sorry.

I basically said there will be four ___01:16:17 all four __ will be recombinant, and I think may be the confusion when Shirley was asking, you know, could some of it be Gen 1 versus Gen 3, the answer to that is yes. It is all possible. But, it will all be recombinant product. When I was then talking about in today's question was really that under plasma basis we have got four manufacturing faculties with the four million. That's four different facilities than the two recombinants.

Okay. And the ___ 01:16:50 timing there?

Probably, two to three years.

And lastly, on the LA fractionation facility, when do we see that in full production or ....

I would say probably two years.

What does that represent in terms of percentage capacity gain?

Well, I think what I mentioned chief a little earlier was if you look at the millions of liter capacity that we have for plasma today is 4.1, and we are saying that it is going to get pretty close to 6. This would be a definite reasonable proportion of that increase.

Okay. And just from, sort of, 30000 ____ 01:17:43 when you look at the US factory market on a nonrecombinant basis, and let us assume the over all trend is towards the factor of recombinant product versus a plasma based products. Do you think that capacity logically winds up going HUS?

No, again just given the demand, no I do not think you could say that Bruce. I think, we will honestly, I think, we would assume that four to five years ago, but not the case. People around the plasma products, the physicians are happy with the plasma product, you know, are comfortable with that. In a sense, and said in another way, and I think this gets facilities things the biggest issue in this whole area is the security of supply. And if you got a product that works that you are comfortable with rather than dealing with potentially switching the source and the security of the source is the biggest thing on peoples mind.

So, when you think of the US market, you think of recombinant versus plasma base rate, sort of, staying where they are in terms of penetration?

Again, a lot of this is going to dependent on how much capacity gets added, peoples' level of comfort that is really sustainable. My personal view, in fact, Glanzmann will be with me on the call next time that is probably a good one to ask him. My guess, which would not be as good as Thomas's would be overtime, it will continue evolve for the higher percentage of recombinant. All other things are equal.

Okay thanks.

Okay. I very much appreciate everybody calling in. I hope everybody has a good day, a good week, and we will talk to everybody next quarter. Thank you.

Ladies and gentlemen this concludes today's Baxter International Conference Call. Thank you for participating.