百特醫療 (BAX) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Baxter International first quarter earnings conference call. (Operator instructions) . I would now like to turn the call over to Ms. Mary Kay Ladone, Vice President, Investor Relations at Baxter International. You may

Thank you, and good morning, everyone and welcome to our Q4, 2008 earnings conference call. Joining me today are Bob Parkinson, CEO and Chairman of Baxter International; and Rob Davis, Chief Financial Officer.

Before we get started, let me remind you that this presentation, including comments regarding our financial outlook, new product developments, and regulatory matters contain forward-looking statements that involve risks and uncertainties, and of course our actual results could differ materially from our current expectations. Please refer to today's press release and our SEC filings for more detail concerning factors that could cause actual results to differ materially. In addition in today's call, non-GAAP financial measures will be used to help investors understand Baxter's ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in our earnings release issued this morning and available on our website. Now I would like to turn the call over to Bob Parkinson.

Thanks, Mary Kay. Good morning everyone and thanks for calling in this morning. We're pleased today to announce our financial results for the fourth quarter and full year, 2008, and also provide our outlook for 2009. Rob will provide more details in just a few minutes, but let me first start by saying that 2008 was an outstanding year for Baxter, we believe we are very well positioned for 2009 and beyond.

First, we exceeded all of our financial objectives for the year, achieving record sales, earnings and cash flow despite a very challenging global economic climate that developed particularly late in the year. World wide we succeeded in driving growth through geographic expansion, leveraging the momentum of our existing businesses, while concurrently pursuing selective new business development opportunities and accelerating our investment in research and development to its highest level in the Company's history. Adjusted EPS of $0.91 exceeded guidance for the quarter, and increased 20% versus the prior year. Full year adjusted EPS of $3.38 per share, increased 21%, and exceeded our original full-year EPS guidance range of $3.10 to $3.18 per share. Sales growth for the quarter excluding FX was robust, increasing 9%, which clearly reinforces the value and strength of our diversified business model and illustrates the solid fundamentals underpinning our portfolio.

I'm also particularly encouraged with the consistency of our improving margins. Adjusted growth margins in the fourth quarter and full year was approximately 51%, an historic level for the Company. Adjusted operating income as a percentage of sales was 22.6% in the fourth quarter and approximately 22% for the full year, which represents an improvement of over 100 basis points versus 2007. As we look forward beyond 2008 we continue to be enthusiastic about the margin expansion opportunities derived from improved product and business mix, intense focus on pricing opportunities, and disciplined control of manufacturing costs and productivity improvements throughout our global manufacturing footprint. Throughout 2008, each of Baxter's global businesses continued to our -- or contributed to our overall performance financially, operationally, and strategically.

So I would like to take just a moment to highlight some of -- a few of the achievements from across all three businesses. First, starting with medication delivery. We expanded our presence in the global anesthesia market with the continued success of Suprane, augmented by the launch of of Baxter's Sevoflurane in nine new markets across Europe. Our global anesthesia sales totaled more than $450 million in 2008, and grew 10% for the year. I would also like to highlight our nutrition business which was the fastest-growing business within medication delivery in 2008. Annual sales of our nutrition business increased 13% in 2008 and now exceeds $600 million on a global basis primarily as the result of increased demand for our proprietary multi-chamber container outside of the US.

We launched our V-Link Luer-activated device, the first needleless IV connector containing an anti-microbial coating that has been shown to kill 99.9% of specific common pathogens that cause catheter-related bloodstream infections including MRSA or "mersa". We completed a study of 50 patients using Hylenex or pediatric hydration.. Hylenex enables the dispersion and absorption of fluids drugs. The results from this study will be published in 2009. And on the Colleague front, despite some disappointments in 2008, we did continue to make progress, we have now remediated more than 100,000 of the Colleague single-channel pumps, and continue to be in active dialogue with the FDA relative to additional software modifications and. clinical evaluation of pump enhancements and potential changes to complete our current remediation plan. For this reason we have elected not to include revenue related to the US commercialization of Colleague in our 2009 guidance. We do hope to have more details to share with you in the coming months. In addition, we continue to move forward with a number of other initiatives that reflect our continued commitment to our infusion system business.

In the renal business, Baxter played an important role in supporting the passage of US Medicare reforms that are expected to make peritoneal dialysis a more competitive therapy option in the years ahead. Specifically the provisions eliminated incentives that currently favor the prescribing of hemodialysis and provide reimbursement for pre end-stage renal disease education. Studies have shown that given unbiased objective education on treatment options, about 50% of all patients would chose home therapy versus 8% of patients on PD today. These provisions have already been approved and become effective in 2010 and 2011. Excluding the impact of the Mexico tender, which we spoke of previously, we achieved 7% growth in PD patients in 2008. This was driven by increased penetration in the developed markets and double-digit patient gains in China and the rest of Asia.

We continue to strengthen our global leadership position and expand geographically as governments, particularly in the developing world, focus on providing increased access to treatment for patients with end-stage renal disease, and we also continued development to expand our leadership in home dialysis therapy with our partner DEKA on a home hemo-dialysis device which progressed well throughout 2008. We have now completed develop of a prototype and expect to begin clinical trials in 2009, leading to an anticipated market launch in 2011. Finally within bioscience, we're very pleased with the continued success of Advate. With annual sales of more than $1.5 billion Advate has now established a leadership position in the US, Europe, Japan, Australia, and an array of other companies. We continue to expand this position, with our industry-leading range of dosage strength, when enables more precise dosing and increased convenience for patients.

Also in the area of hemophilia we've made progress in the development of a recombinant form of von Willebrand factor another protein-critical for clotting for people with von Willebrand disease. von Willebrand disease is the most common hereditary bleeding disorder in both men and women and recently we announced the initiation of a Phase I clinical program. In immune therapy we initiated three Phase III clinical programs with the intent of expanding approved indications for Gammagard Liquid for IG IV. These trials include one evaluating the use of Gammagard Liquid for multi focal motor neuropathy or MFN a rare neurological disorder characterized by progressive limb weakness primarily affecting the upper extremities and another for the treatment of Alzheimer's disease. In addition, we recently announced the start of the Phase III trial combining Gammagard Liquid with Enhanze Halozyme's proprietary drug delivery technology for subcutaneous dosing of IV IG patients with primary immunodeficiencies disorders, Subcutaneous administration of Gammagard Liquid via a single site could allow patients to administer their dose of IG IV once monthly at home.

In regenerative medicine we continue to augment our biosurgery portfolio with the launch of ARTISS, the first and only slow setting fibrin sealant indicated for use in adhering skin grafts in burn patients. And, with the launch of Gelfoam Plus hemostatic device for use in surgical procedures, we also advanced several program with our partner Kuros BioSurgery AG, focused on the development and commercialization of a portfolio of hard and soft tissue repair products which, if successful, will allow us to enter the fast-growing Orthobiologics market. And finally, in the vaccine business we advanced both our pandemic and seasonal influenza programs. We are currently conducting two Phase III clinical trials utilizing our seasonal influenza vaccine candidate and we recently received a positive opinion in Europe for our candidate pandemic vaccine which provides us with the license and the ability to market the vaccine in the event of a pandemic. So all in all it has been a very productive year. Just to briefly summarize. Consistent with our strategic priorities, we accelerated on an adjusted bases overall R&D spending in 2008 by 20% to almost $900 million, a record level for the Company. We received approval for or launched an array of new products during the year initiated eight major Phase III medical trials, advanced numerous early stage internal programs and established new partnerships with companies like Nektar, Nycomed and [Inocalm] -- just to name a few.

In 2009 and beyond given our strong foundation and financial flexibility, we'll continue to advance our product pipeline and do so with disciplined project management, and increased productivity while balancing the pipeline with both short and long-term opportunities, and always with a continued focus on value creation. So with that let me turn the call over to Rob for a more detailed discussion on our Q4 results, also our outlook for 2009 and when Rob concludes his commentary, I have just a few additional comments in respect to this year before we then open up the call for q&a. -- so Rob?

Thanks, Bob. And good morning, everyone. As Bob mentioned, we are very pleased with our fourth quarter results, which include a strong organic sales growth, continued margin expansion, and earnings that exceeded our guidance. We're also very pleased with our ability to generate strong cash flow, and to deliver significant value to our shareholders through our disciplined Cap allocation strategy. Let me briefly walk you through the P&L by line for Q4 before providing you with the details on our financial outlook for 2009. Starting with sales, our reported sales in the quarter totaled approximately $3.1 billion, and increased to 4%. Excluding foreign currency, sales growth of 9% exceeded our guidance of approximately 7%, and was driven by better than expected recompetent sales robust growth across all major product categories within bioscience, and strong growth in medication delivery, particularly in the global injectables business. Sales growth in the US was 6%, the highest quarterly growth of the year. This was a result of consistent double-digit sales growth for bioscience, and an acceleration of growth in the medication delivery business. International sales increased 3% on a reported basis, and excluding foreign currency sales growth was 10% with strong growth across all regions in most major product categories.

Year to date, sales increase 10%, and sales growth, excluding foreign currency, was 6%. I would also like to remind you that in 2008, we annualized several items that created difficult growth comparisons for us over the past year or so, like the transfusion therapies divestiture, BeneFIX, Propofol and the Mexican PD tender, which all in total impacted our 2008 full-year sales growth by approximately two to three percentage points. In terms of individual business performance, let me start with medication delivery, which had fourth quarter sales totaling approximately $1.2 billion, an increase of 2% on a reported basis. Excluding foreign currency, medication delivery sales accelerated and increased 7%, which on an organic basis represented the highest quarterly growth rate of the year. This acceleration was primarily driven by improved growth in the US, where sales increased 5% driven by solid performance of IV therapy and anesthesia products, and positive growth in the global injectables business for the first time this year.

International sales in medication delivery declined 1% on a reported basis, but excluding foreign currency, sales increased 8%. For the full year, medication delivery sales of $4.6 billion, increased 8%, and excluding foreign currency, sales were up 5%, exceeding our full-year guidance of approximately 4% of growth. Turning to the product categories, IV therapy sales in the fourth quarter totaled $393 million and increased 1%. Excluding foreign currency, sales increased 7% and continue to be driven by solid demand for our IV solutions globally, US pricing improvements, and strong growth in our nutrition business. Infusion system sales totaled $222 million in the quarter and declined 6%. Excluding foreign currencies, sales declined 2%. As Colleague remediation revenues were more than offset by lower sales of access sets. Sales of global injectables increased 8% to $420 million, as a result of strong growth in the US. US sales increased 11%.

The strongest growth of the year as the negative comparison for Heparin was more than offset by mid-teens growth in our pharma partnering business, and strong growth of certain premixed and multi-sourced generic drugs. The international growth was once again the result of solid growth in our pharmacy compounding business. And finally, anesthesia sales totaled $131 million and increased 4%, excluding foreign currency, sales increased 7%, driven by the global penetration of Suprane, and growth of Sevoflurane. Moving on to renal. Fourth quarter sales totaled $557 million, and declined 7% on a reported basis. Adjusting for foreign currency, sales declined 3%. This was the continued result of a decline in hemodialysis sales and the difficult comparison created by the loss of the Mexican PD Tender in the first quarter of 2008. Renal sales for the full year, totaled $2.3 billion, an increase of 3%, with currency contributing five points to this growth, excluding foreign currency, therefore, sales declined by 2%.

Globally PD sales totaled $458 million in the fourth quarter, and declined 5% on a reported basis. Excluding foreign currency, global PD sales were down 1%. Excluding both the impact of the loss tender in Mexico and foreign currency, international PD sales were up approximately 4%, and global PD sales also increased 4%. This growth is due to the expanded use of peritoneal dialysis in many developed and emerging markets around the world. In the US we continue to see positive PD patient growth which resulted in a 7% increase in US PD sales. Hemodialysis sales in the fourth quarter of $99 million were down 18%, and excluding foreign currency, sales declined by 12%.

Turning now to bioscience. Bioscience sales totaled approximately $1.4 billion and increased 12%. Excluding foreign currency, bioscience sales increased 17% with double-digit growth across all major product categories. For the full year, bioscience sales were 16% to $5.3 billion. Excluding currency, sales increased 13%, which exceeded our expectation of more than 10% growth. Recombinant sales in the quarter of $506 million, increased 9% on a reported basis and were up 14% excluding the impact of foreign currency. As Bob mentioned earlier, Advate sales of more than $1.5 billion for the full year,exceeded our original expectations. While Advate conversion in Europe remained over 90%, international sales were still robust, and increased 20% for the quarter on a cost of currency basis.. US recombinant sales increased 7%, and conversion to Advate continues, in fact we ended the year with US conversion of more than 60%, compared to conversion of just over 50% in the US last year.

Turning to the plasma business. In the quarter, plasma protein sales of $330 million increased 10%, excluding the impact of foreign currency, plasma protein sales increased 12%. Performance continues to be driven by strong demand for plasma derived factor VIII, Albumin and ARALAST, as well as improved pricing. US plasma protein sales increased 18% while international sales increased 5% on a reported basis or 9% on a constant currency basis. Antibody therapy sales increased 10% to $309 million in the quarter and excluding foreign currency, antibody therapy sales grew 14% driven by strong demand for Gammagard Liquid and pricing improvements. Sales in the regenerative medicine business totaled $101 million and increased 6%. Growth, excluding foreign currency, was 12% in the quarter as a result of strong growth of both FloSeal, and CoSeal. Finally revenues in the other category totaled $113 million and included the large vaccine order of approximately $50 million that we discussed with you last quarter.

Now, turning to the rest of the P&L and starting with gross margin. Adjusted gross margin in the fourth quarter of 51.2%, improved sequentially by 60 basis points, and improved year-over-year by 180 basis points. This margin expansion is the result of favorable foreign exchange, improved business and product mix, pricing improvements across multiple businesses and manufacturing efficiencies. For the full year, I'm pleased to report that our gross margin of 50.7% improved 170 basis points versus the 49% we achieved in 2007, And, as Bob pointed out earlier, we believe we have further margin-expansion opportunities over our long-range plan. Turning to SG&A. SG&A of $674 million in the quarter increased 3% compared to the prior year. Excluding foreign currency, SG&A increased in mid-single digits. SG&A as a percentage of sales was 21.5%, reflecting a 20 basis point reduction versus the prior year. For the full year, SG&A increased 9% with foreign currency contributing approximately three points of growth.

R&D spending of $219 million increased 6%, and excluding currency, R&D grew in the high single digits. For the full year, R&D spending of $849 million increased 20%. This growth is the result of investments we are making across all three businesses, particularly in many of the programs that Bob mentioned earlier in his opening comments. Interest expense was $14 million, compared to $12 million last year, and other expense was $1 million in the quarter, compared to $4 million last year. Our tax rate in the fourth quarter of 17.3% was slightly lower than our guidance and reflected the impact of the R&D tax credit as we discussed with your last quarter as well as adjustments to valuation allowances. Excluding these items, our operational tax rate remains at approximately 19%. Finally, as previously mentioned, adjusted EPS in the fourth quarter was $0.91, an increase of 20%, and adjusted EPS for the full year of $3.38, increased 21%. Turning to cash flow, we had another very strong year. Excluding the $240 million pension contribution in the fourth quarter, cash flow from operations for 2008 totaled more than $2.7 billion. This represents more than a $400 million improvement over the $2.3 billion of cash flow reported last year, and exceeded our original cash flow guidance of $2.5 billion. Including the outflow related to pension contributions, cash flow from operations totaled $2.5 billion, an improvement of more than $200 million versus the prior year.

Our total DSO, which ended the year at 50.6 days, improved five days versus last quarter and is approximately three days lower than last year. Inventory turns of 2.5 turns were also better than last quarter. and were flat to last year. Capital expenditures for the year totaled $954 million as we continue to invest in appropriate capacity across our businesses to support our future growth. And lastly, as we commented on in this morning's press release, during 2008, we paid dividends totals approximately $550 million and repurchased 32 million shares of common stock for approximately $2 billion. On a net basis, this amounts to repurchases of 18 million shares or $1.4 billion, which exceeded our commitment of $1 billion for the year. Overall, I'm particularly pleased with our ongoing ability to generate strong cash flows. We continue to return significant value to shareholders as a result of our improved financial flexibility, capital allocation strategy, and disciplined financial management, while accelerating investments in R&D both internally and through selective business development activities that will position us well for future growth.

Finally, let me conclude my comments this morning by providing our financial outlook and guidance for 2009. As you saw in the press release, we expect earnings of $3.70 to $3.78 per diluted share. This guidance reflects a potential modest impact of sales due to the uncertainty of the global macro environment, continued expansion of gross and operating margins, select investments, marketing and promotional activities to support our growth going forward, and increased R&D spending. More specifically, we expect full-year sales growth excluding the impact of foreign exchange of approximately 7%. We expect our reported sales growth to be approximately flat to 2008, which does assume current exchange rates.

For the full year, we expect gross profit as a percentage of sales to improve by more than 150 basis points, reflecting continued expansion in bioscience, improved profitability in medication delivery and our core PD business, and a benefit from foreign exchange. We expect annual R&D growth in low single digits, given that more than 40% is outside the US; however, this growth is dampened by the stronger US dollar. Therefore, on a constant currency basis, R&D is increasing approximately 10%. We expect SG&A to decline in the low single digits. However, this growth rate is also impacted by a strong US dollar and on a cost of currency basis, SG&A would increase in low to mid-single digits. We expect a tightly manage general and administrative expenses, especially in light of the current environment, while investing in marketing and promotional activities to support the growth of our higher-returning, and higher-growing products. We expect to continue our trend of year-over-year operating margin improvement in 2009 with an improvement of approximately 200 basis points to approximately 24%. We expect interest expense of between 90 to $100 million, and other expense to total approximately $60 million. We expect our tax rate to approximate 18.5 to 19%, and finally, we expect a full-year average share count of 615 to 620 million shares as a result of our share repurchase activities. From a cash flow perspective, we expect cash flow from operations to exceed $2.6 billion, and capital expenditures to total approximately $1 billion.

Now, to expand on the sales assumptions for each of the three businesses. For the full year, 2009, we expect renal sales, excluding the impact of foreign currency, to increase in the range of 4 to 6%. This is the result of solid single-digit growth in PD, and flat to declining HD sales. For medication delivery, we expect sales, excluding foreign currency to also grow in the 4 to 6% range. This will be driven by several factors. First, at constant rates, we expect anesthesia to grow in low double digits,due to the demand for Suprane and additional market launches of Sevoflurane. Second, we expect the IV therapy and global injectables business to grow in mid-single digits, and lastly, we expect infusion systems sales to be flat due to lower Colleague remediation revenues year-over-year. Finally, for the bioscience growth, we expect sales growth excluding foreign currency, to once again exceed 10% driven by strong growth across the portfolio.

First, we expect recombinant sales growth in high single digits. Second, we expect plasma protein and anti-body therapy sales to grow in mid-teens. Third, we expect the regenerative medicine business to again grow in mid-teens, and finally, we expect the other category, which includes our vaccines business to grow in mid-single digits. For the first quarter, as we mentioned in our press release, we expect earnings per diluted share of $0.80 to $0.82, and sales growth, excluding the impact of foreign currency of approximately 7%. Based on current foreign exchange rates, we expect our reported sales in the first quarter to be approximately flat to the first quarter of the 2008. In summary, our 2009 guidance reflects the ongoing operational strength of our businesses, and ability to deliver sustainable growth. It is aligned with our long-range strategic and financial objectives Although we are operating in a volatile and challenging macro environment, the potential effects of which continue to evolve, we remain focused on delivering growth and making appropriate investments for the future. Now I would like to turn the call back to Bob.

Thanks, Rob, before we open up the call to q&a, I would just like to make a few closing comments. Clearly, 2008 was a very successful year for Baxter, financially, operationally, and strategically. And while we're certainly not without challenges, we believe our company is very well positioned for 2009, even in today's challenging global macro environment. The progress that we have made over the last several years to improve the quality of our balance sheet and financial performance will provide flexibility and yield great benefits in the coming months and years. The global economy will continue to struggle for the foreseeable future. The companies in many industries are faced with unprecedented and economic challenges.

While no company including Baxter is completely immune to potential impacts, given the medically necessary nature of our products, our diversified healthcare model and strong market positions, we're confident in our ability to drive improved performance and grow even in this uncertain environment. Our 2009 outlook is aligned with the solid underlying fundamentals we see in the markets in which we operate, and we remain committed to driving growth while investing in innovation and business-development activities to position us in the future. We look forward to seeing many of you at our investor conference on September 16th of this year in Chicago. At that time we'll provide more incite in to a number of our R&D programs in all of our businesses and will also provide an longer-term outlook on the financial performance of the Company with particular focus on strategic business segments that are critical to our future. In the meantime, we begin 2009 well positioned for continued success. With that we will open up the call for q&a.

Thank you. We will now begin the question-and-answer session. (Operator instructions) . Our first question comes from MIke Weinstein of JPMorgan.

Good morning, congratulations on another good quarter. Let me start by asking a few financial questions that would probably be helpful. I would say, one, that with the 2009 guidance, if you could -- I think it would be helpful for everybody if you talked a little bit about the gross margin drivers, you can calling for more than 150 basis points of improvement at the end of 2009. I can add commentary as the drivers behind that would probably be helpful for everybody. Two, the shares outstanding guidance seems to imply about 550 million of net repurchases based on where the stock is at today. Is that right? And third a billion dollars in CapEx in 2009 is higher than what we were modeling. We could like to get some insights into that. Thanks.

Okay. Thanks, Mike. Let me start with the gross margin discussion and Rob can think a little bit responding to the buy-back question and CapEx. You know, as we discussed previously, there's a number of factors that give us a basis of optimism, I think in terms of continued gross margin expansion going forward. It starts with what I would call business mix as you listened to Rob's detail on guidance for next year, clearly our bioscience business is projected to grow at a faster rate than the other businesses. As you know it is a higher-margin business, and so that is a continued contributor to gross margin expansion.

Having said that, within each of our businesses, particular business units that have higher gross margins, are growing at a faster rate, we highlighted in medication delivery, for example, the growth year to year, '08, versus '07 of our anesthesia business, and our nutritionals business both of which have higher gross margins, than medication delivery overall and again for '09 and we are projecting these business units to grow at a faster rate than medication delivery, so those are examples of business units that are higher margins growing at a faster rate.. So again, business mix lead by bioscience, business unit mix within the various businesses, all of our higher growth vehicles tend to be -- these are units or businesses that are higher gross margins. Of course, I think the hallmark of our company is our focus on manufacturing efficiencies, yield improvements in our bioscience business, value-improvement programs, medication delivery, renal and so on, and we continue to pursue manufacturing efficiencies in our global manufacturing footprint with a passion.

The final thing I would say, Mike, is our focus on price, and we are pursuing price aggressively in those businesses or business segments where we think opportunity exists. We're all aware of the pricing opportunities that continue to exist within plasma proteins, but our pricing improvement story is actually much broader than that, and a good example of that, again, being our core IV business in the US, we're experiencing price improvements to a greater degree than we have in years. So those are -- those are really the primary drivers for gross margin expansion. I don't know if you want to add anything to that, Rob, before we move on to the other two pieces of Mike's question.

No, I think --

Why don't you address the buy-back question and also the CapEx.

Sure. Actually, Mike, we're assuming on a net basis $750 million of purchases. So it could be just in the way you are phasing those, but that's currently what we're operating to, and obviously, as we move through the year, that's something we will continue to evaluate, as we did in 2008. With regard to the capital expenditures, the $1 billion is really a good story, and what it really tells you is that as we continue to become more confidence in the continued growth of our business, as we continue to see the need for capacity expansion across all of the businesses, and to invest in our R&D infrastructure, that's lead us to increase investments from where we originally expected.

I would point out that it's not due to programs which are costing more or being significantly extended in time. It is truly due to the fact that we (inaudible) capital investment opportunities to drive growth, more than we expected. So that's really what's behind the $1 billion.

One follow-up then I'll let others jump in here. Bob, you grew organically 9% on the top line this quarter, which was obviously a very strong quarter for Baxter and you are guiding at a starting point of 7% for 2009. It would -- it would certainly appear and the street's assumption that the economy is not having a significant impact on our your business. Are there any touch points that we should be watching as you move through 2009? And how good is your visibility relative to your different businesses right now? Thanks.

Yeah, there's a lot there. Let me try to be pretty succinct here. First of all the 9% was benefited -- benefited to some degree based on vaccine sales and -- in the fourth quarter, but I think if you look over the last year or two, we have pretty consistently when you adjust for FX, the TT divestiture, the BeneFIX loss and so on, been running organic growth around the 8% range. Our organic projection -- growth projection for next year as Rob mentioned is 7%, candidly, that reflects some modest impact to, really, the potential impact of the global economic environment in which we operate. Nobody has a crystal ball. I mean, we think we are very well positioned because of the medically necessary nature of our products.

Frankly, people are not going to go off of dialysis therapy or therapy for hemophilia or immune disorders because of the economy. I would say that if you look at our medication delivery business, we know that many hospitals are experiencing a softening in hospital admissions to some degree surgical procedures, frankly whether or not those are procedures that consume IV solutions to a great degree and so on, we don't really know, and through the fourth quarter, we haven't really experienced anything, but we thought it prudent as we pulled together our plan for next year, to reflect something there, but I think we have pretty high confidence level that we can deliver the 7% organic growth. The other things in the economy, since you raised it, and this is probably a basis for other follow-on questions so we ought to address it at the outset, we do believe we will be begin experiencing some DSO deterioration because of the economic environment in 2009, although interestingly in the fourth quarter we had our best DSO quarter in a long time, including in the US, so go figure.

In terms of emerging and developing markets as their healthcare budgets get scrutinized, perhaps reduced to some degree, we may be experiencing some impact on lower volumes and access to some of the tenders, although as of yet we haven't seen that. And, of course, the other practical area that hospitals are dealing with particularly in the US because of cash constraints and liquidity constraints, and so on, is CapEx spending, and, as we have very little that really is impacted by that, a bit of an irony it may even serve to secure our Colleague base longer and the (inaudible) erosion experienced over the last couple of years. . So I I'll stop there. There may be some specific follow ups to that Mike, but I'll just conclude

Perfect. Thanks for taking my question.

Hey, Mike, it is Mary Kay too, I would also like to add to Bob's comments in terms of the sales growth guidance.. One thing we didn't mention in our prepared comments is that transfusion therapy sales will be declining in 2009 to be about $50 million for the full year. That's versus 2008 of about $170 million, so that also has about a 1% impact on our overall sales growth.

Yeah. Great. Okay? Next?

Thank you. Our next question, Rick Wise of Leerink Swann is on the line.

Good morning, everybody. Bob let me talk about a strategic issue first. Acquisitions, I think have been on your mind from the beginning as a potential growth driver. Couple of parts. Do you think the environment is more attractive? Is Baxter now more likely, given what should be better pricing and availability? Are you more inclined or less inclined now in the next 12 months if there are any areas you want to highlight be happy to hear that as well.

Sure. Thanks, Rick. First of all, let me say this, if you look back over the last several years, of course, you know, our BD activities have been limited largely to licensing acquiring smaller products that are complementary and so on, but I think our strategy of focusing internally on really extracting value that exists in our existing core businesses has proven to be the right strategy. Given our improved financial results. And not distracting the organization to acquisitions and -- and so on.

I would say that while there continues to be great opportunity for growth margin expansion going forward in our existing businesses we're in a position now as a company both in terms of our improved financial position over the last few years, and I also think importantly, our organizational capabilities to now be a bit more expansive in evaluating opportunities, and perhaps bringing things in, including acquisitions, and it is happening at a time, whereas you pointed out -- or referenced, Rick, in your question -- the environment is -- or implied in your question -- the environment is such that there may be -- it may be a more target-rich environment right now, and so clearly we're very open minded to that, but we're also very cognizant of our need to be disciplined and not do deals for the sake of doing deals, but doing deals that we are confident will create value for our shareholders. We have our BD teams evaluating opportunities, we're looking at it. Like I said, we have the financial wherewithal and now the organizational wherewithal to perhaps do some things, and you all will be the first to know.

Okay, sounds good. The -- on Colleague, you highlighted that you are not assuming everything gets resolved this year. What is left to resolve if it's worth discussing? On the competitive front there has been some major GPO contract wins for one of your competitors. And maybe just the last part of that, if Colleague were to come back -- can you help us think what that might mean for any given quarter or any 12-month period, (inaudible) just to put things in perspective sort of year one of the resolution of this situation?

Yeah, first of all, Rick, relative to the GPO situation, I'm not sure that any of our competitors have carved out a unique position with any GPO that is really created an obstacle for us, or a barrier in terms of Colleague going forward. There have been GPOs that have made multiple awards to all suppliers, but it doesn't necessarily close the door to us, so I think it's important to clarify that at the outset. If you hearken back to the time when we were commercializing Colleague in the US, we were generating roughly $150 million of sales associated with placement of hardware in any given year. That does not include, of course, the disposable trail that's associated with that, so that's probably the best kind of high-level number I can give you in response to when we get back in a position where we can recommercialize what one might expect on an annual basis.

I suppose one could also suggest that there may be some pent-up demand in accounts that have not been able to buy Colleague, but hopefully at some point will be able to. But I don't really want to speculate what that might be. But that's kind of an order of magnitude response.

Last quick one. When should we expect to see the Phase III, IGIV data, and if there are any other indications on the growing clinical trials and market opportunities that might pop up through the year? Thank you.

Are you referring to Rick on the first part -- Alzheimer's?

I'm sorry, yes.

Why don't you go through the Alzheimer's as well as some of the other Phase III initiatives.

On Alzheimer's, Rick, we just started the Phase III. That is an 18-month trial with 360 patients. We're anticipating right now about 12 months for the patient enrollment. And we will not have an interim look at that data. So it's going to be a couple of years before you see any Phase III results on the Alzheimer's trial. You will see, though, in 2009, the Phase II, 18-month results, and at this point in time, we -- we can't give you a time frame for that. That's really being handled by Dr. Ralph Gannon, and when he decides on his opportunity to present that information we will let you know where that will be and when that will be. We also have ongoing -- as Bob mentioned earlier in his comments -- a Phase III for MMN, and that's about a 40-patient trial. 15 months follow-up, so that probably -- you won't see anything until 2010 on MMN.

Thanks very much.

How about Enhanze?

And also we did start as Bob mentioned the Phase III IGIV trial combined with Enhanze, the -- Halozyme technology, and I know that is also a 12 month trial, so that, . again, that will be 2010 before you see any

Okay. Appreciate it.

Next question?

Bruce (inaudible) is on the with UBS. Please state your question.

Thank you. Lots of clients have expressed concerns to us regarding the fact that the economy is bringing more people in to the plasma collection centers. Clearly, your ability to take price in plasma products, and we're estimating almost 10% this year, suggests to us that the supply/demand balance is just fine for IVIG in particular. Could you comment on the -- that phenomena with regards to drawing people in the collection centers, and, what the kind of relative rates of intrinsic demand versus supply might be for IVIG globally? Thank you.

Yeah, Bruce, this is Bob. Let me start and then maybe Rob or Mary Kay could support my comments. First of all I don't believe the number of people coming forward willing to donate plasma has any impact relative to the overall supply. The supply is a function of installed capacity, which as you pointed out, and we continue to believe is well balanced with demand. If anything I suppose it it might imply over time, cost of selecting plasma may go down, although we haven't experiences that to date. I don't see that phenomenon, in other words more people presenting at the plasma center to donate plasma and getting paid to do that as really a relevant variable in terms of the supply equation. (inaudible)

Yeah, I would just add, it is important -- because we have gotten this question a lot -- it's important to understand that the bottleneck today in the supply side of the equation is the collection capacity in the industry. So -- so if you are running your censer at capacity, which we largely are. We have been able over 2008 to do a great job, frankly, our bio (inaudible) have done a great job of squeezing additional yields from our existing footprints. But once you reach capacity in the center, the number of people presenting doesn't change the capacity of the people you can move through. That's why we continue to believe this has not had any impact on total collections.

I think to Bob's point, it continues to cause you to rethink, how do you price the collections? How do you market for collections? The other thing I would note that where you have seen some is there's -- at least anecdotally, we have heard there is a reduction in people donating plasma -- free plasma, if you will, whole blood to the American Red Cross, and similar organizations in hopes of trying to do it to a fee-based center. But, again, if the capacity is limited that will change the total numbers. On the second part of your question, we continue long term to believe we are going to see from a total market perspective, growth in volume, mid-to high single digits, and growth in price of low to mid-single digits longer term. We did better than that in both categories in 2008, and we will see how it plays out during 2009. I think the important thing here -- and we have talked a lot about this externally, is really to understand the demand side of this picture. We are increasingly confident in the robustness and sustainability of the demand.

As you heard we're driving new indications. We're seeing favorable demographics, so all of the factors are really driving the demands stronger, and to us that's the real key, now all we have to do as an industry is make sure we keep supply up with demand, keep it in balance, and we're confidence we can do that. No change in our view of stability. No change in what we see as collection growth. It's steady as she goes.

Terrific, and just one follow-up, can you talk a bit about the dynamics you see in the dialysis segment next year, and how you arrived at -- I guess mid-single-digit growth in PD?

Sure. This is Bob, Bruce. I -- probably -- I would differentiate the US market versus, let's say emerging developing markets, which continue as we commented, and as you know to be the primary driver for growth. The most significant event that transpired in the US in 2008, of course, was a -- Medicare legislation that relates to both patient education, to -- to ensure that all patients that need to be treated are aware of the various therapies that are available, including PD. That has not been the case, and that is going to be required in 2010.

And then, of course, new reimbursement, composite rate reimbursement in 2011 -- which, frankly, we believe will level the playing field in terms of the economics-- the economic decision that -- that -- or that comes in to play in terms of selecting therapy, HD or PD, so we think these are external events that will set the stage for enhanced PD growth, perhaps significantly. Let's say 2011, and beyond. So that's a very positive development. We anticipate that an emerging developing markets, China being a great example, we're going to continue to experience strong growth where many of these markets PD is much more broadly embraced than HD, and to a large degree it is because you don't have some of the economic dynamics that exist in the US market.

As I referenced in my prepared comments, you've heard us say before, when presented with options of therapies, 50% of the patients in virtually every country around the world, frankly would prefer to be on home dialysis. The convenience associated with that from a cost point of view, typically delivering therapy in the home is a lower cost than in the center for -- I think some obvious reasons and finally for many patients the clinical outcomes are enhanced, and so while the last couple of years has been a challenge in our overall renal business in a number of ways, we continue to be very bullish about the long-term prospects of the renal business, and I think this is one of the areas we'll expand on in our September investor's conference to give you a little bit more incite as to the basis of our confidence in the years ahead.

Thanks so much.

David Roman of Morgan Stanley is on the line with a question. Please state your question.

Good morning.

Good morning.

One follow-up question on demand for Rob's comments and two questions on investment maybe for Bob. Rob, you mentioned a driver being the demand side not the supply side. Obviously emerging markets have been a component of that. It looked like international growth in some of the biosciences units was weaker in the fourth quarter, obviously not carrying forward in your '09 guidance, but can you comment on any softness in South America, any of the Brick countries, Russia or China for the morning demand for therapeutics.

Yeah, the short answer is we saw no softness that would be anything going on in the broader economy. It was really timing of how things moved through the quarters, and in fact in Russia as an example, we had a successful launch tender, so there's no -- you should take no sign, and I would look to our 2009 guidance as confidence of that.

Yeah, I would also, David, remind you, that we talked about this back in Q3-10. We had most of our tenders in Q3 this year, and last year they were in Q4, so we had a really difficult comp across the plasma protein in 2008 in the fourth quarter.

Okay. Very helpful. And maybe Bob, two questions on investment. First on capital spending. Obviously close to $1 billion this year. When you think about the level of your investment, you think into the out years in 2010 and beyond. Is this level of investment in manufacturing and fractionation give you the confidence that perhaps in a pricing environment that is less favorable in 2010 and beyond, these type of investments are going to enable you to still increase gross margins at the kind of rates we've seen historically of 100 to 150 BIPs a year.

I don't think-- regarding the second part of your question, given the fairly dramatic ramp up in plasma pricing, if you go back over the last couple of years, while we're confident in our ability to deliver low to mid-single-digit price increase going forward, because they are not going to be the same degree going forward as in the past, that particular dynamic will have kind of a modulating effect, but I would say relative to CapEx spending, you can expect that kind of $1 billion range going forward. I'm hopeful that that's the case because as Rob pointed out earlier, this is an investment largely in capacity to support, not only volume growth of existing businesses, but new indications for products and new products and so on. So I would expect that around this level -- maybe not every year, but I think, really, our annual spending on CapEx has ramped up, but I think it is a good news story, and we would anticipate that is going to be continue.

Okay, and the second major investment obviously would be in R&D and I wonder if you think about the growth trajectory of your three major business units, and think about your relative level of R&D across this,you get into the aggression of the pipeline in its various segments, I wonder if you could tell us kind of right now, where you are feeling more comfortable, and where you are feeling less comfortable.

I think we have great pipeline opportunities in all three of our businesses, and I won't take the time this morning to enumerate those, having said that we have ramped up our R&D investment in bioscience at a faster rate than the other businesses, and I think for some fairly obvious reasons. I think one of these I'm most pleased about as I reflect back on the last four or five years, is that as a result of our improving financial performance, we have been able to fund a fairly dramatic ramp up in R&D, and the nature of our pipeline has changed.

Because if you go back five years ago, most of the stuff was near-term kind of opportunistic kinds of programs, and today we have a great balance of, yes, some of those kinds of programs, but things more of a pharmaceutical nature, largely in our bioscience business, which are longer term R&D programs, may have a higher element of risk but of course, the payback intended with that is higher, so and again as we mentioned in the prepared comments, we're projecting again in '09 to grow R&D at a faster rate than top-line organic growth, which is a strategic priority for the company. But, again, on this whole R&D question, it will be one of the primary areas of focus in our September investor conference, because we realize, we haven't been terribly detailed on the pipeline, and that will provide an opportunity, I think to be a little more explicit than we have been in the past.

Okay, thank you very much.

Yep.

Benjamin Andrew of William Blair is on the line with a question. Please ask your question.

Good morning, just wanted to follow up on one quick question. You mentioned during the discussion about delivery that you saw some lower access set sales in the quarter. Was there something unusual there, or is that something we should be keeping an eye on a little more closely for '09 as well?

You know, Ben, I'm looking at that, really, from a dollar perspective, wasn't real material, but the sales level in that business is so small that a small amount reflects a larger percentage, so I think we were down 3, 4, $5 million in the quarter.

Oh, okay.

The other thing, let me just add to that just to be very direct, because that's associated with Colleague placements, and Colleague channels, we saw no meaningful deterioration in the fourth quarter of our channel base. So if you see that softness in access sales don't conclude that's because our channel base or Colleague in the US declined dramatically, it did not. It really is more of a quarterly dynamics. Given the smaller numbers and the percentages and so on (inaudible).

Okay, and one other question on anesthesia. You talked about continued geographic expansion. If either -- maybe roll us through some of the particular countries you going after, or if another way to look at it is kind of percentage of opportunity that's being opened up in '09, and is there a material amount more or less for 2010 and beyond to kind of sustain that anesthesia growth.

Let me comment maybe on the second part of the question, first, Ben. Yeah, there is material opportunity for growth throughout the LRP, which is why we describe anesthesia as a strategic business for Baxter. We are the only company that has the full array of inhalation agents. It's not a therapeutic area where the current products that are used are being obsoleted by next generation technology, so it's a great example of our global position, geographic expansion, as healthcare budgets grow around the world, surgery procedures developing in emerging markets grow at a faster rate. We're going to be there very well positioned with the full line of products to participate in that growth, so this is a long term -- this is a long-term strategic business and priority for Baxter. In terms of -- the first part of your question, markets we're going to expand in, I don't want to really get into detail of that --

I think competitive reasons, we don't want to get in to announcing --

Yeah, good idea.

Okay. That's all I had, thank you.

Okay. Ben. Thanks.

Great. We have time for one more question.

Kristen Stewart of Credit Suisse is on the line.

Thanks for taking my question. I was wondering if you could help give us a sense in terms of maybe some of the bioscience products, what percentage would Medicaid be a payer? And are you at all concerned about what some of the reimbursement could look like as states come under increasing financial pressure, and whether or not in this more difficult time, you might see any changes to maybe some of the (inaudible)

Sure. Let me start maybe at the high level and then Rob and Mary Kay can think about this (inaudible) We have always said that reimbursement pressures exist for our primary products in the (inaudible) including, certainly in the hemophilia sector in our bioscience business, and as you know the vast majority of those patients are not Medicare, they are Medicaid reimbursed and evaluated on a state-by-state basis. I think there is reason to think that given the economic environment, clearly those pressures are going to continue to be evolutionary , but they have existed for a long time. There are a lot of dynamics why those pressures have not manifested themselves in a more precipitous climate.

So, again, our position would be the reimbursement pressures will continue to be evolutionary in nature. We do not see any kind of revolutionary event, necessarily, that is going to fundamentally change the slope of that line for the Medicare reimbursed products. Rob and Mary Kay, I don't know if you want to add to

Yeah, just to give you a sense for IVIG as an example, it's about 15% under Medicaid and then for our hemophilia products a a little bit higher. But both we still have a majority of our business outside of this (inaudible) to Bob's point, we see it as evolutionary. That being said, as we think about Bob's comment on the macro environment, and how we think about our 7% organic growth, obviously we have contemplated all of that, as we came up with our expectations for 2009.

Okay. And are you seeing anything with Wythe's launch of their new plasma (inaudible)

No. It's -- we continue to believe we are very well positioned, and are very confident in our ability, and the value of our product relative to the competitors.

Thank you very much for taking my questions.

Thank you.

Thanks, Kristen.

Ladies and gentlemen, this concludes today's conference call with Baxter International. Thank you for participating.