百特醫療 (BAX) 2010 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Baxter International's third-quarter earnings conference call. Your lines will remain in a listen-only mode until the question-and-answer segment of today's call. (Operator Instructions) As a reminder, this call is being recorded by Baxter and is copyrighted material. It cannot be recorded or rebroadcast without Baxter's permission. If you have any objections, please disconnect at this time.

I would now like to turn the call over to Ms. Mary Kay Ladone, Corporate Vice President, Investor Relations, at Baxter International. Ms. Ladone, you may begin.

Thanks, Sean. Good morning, everyone, and welcome to our Q3 2010 earnings conference call. Joining me today are Bob Parkinson, CEO and Chairman of Baxter International, and Bob Hombach, 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 details 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. Thanks for calling in this morning.

I'm pleased to announce that our third-quarter results reported earlier this morning exceeded the guidance that we provided last quarter, with adjusted earnings per share of $1.01 per diluted share. On a reported basis, worldwide sales increased 3%; and on an organic basis sales increased 4%, which compares favorably to our guidance range of 1% to 3%.

While Bob will provide more details on the third-quarter financial results and outlook for the remainder of the year, as you saw, we are reconfirming our earnings guidance at the high end of the range that we provided to all of you last quarter, which now includes adjusted EPS of $3.96 to $3.98 per share.

During the quarter, we continued to make progress on numerous fronts despite a continuing challenging environment. First, as we've discussed, Baxter and the market more broadly have been operating through a transition period in the plasma proteins market. Beginning in the second quarter, as you know, we implemented some specific actions to stabilize our share position.

I am encouraged with the progress that we are making with our demand-creation activities and commercial strategies, as evidenced by improved global demand for GAMMAGARD LIQUID. While we will continue to face some difficult comparisons related to healthcare reform and the termination of the WinRho agreement, our volume growth has accelerated.

Distributor inventory levels of GAMMAGARD remain balanced with underlying demand, and we finalized agreements with the majority of our US customers with terms that not extend through the end of 2011.

As I have mentioned in the past, we remain confident that the plasma business will be an attractive growth vehicle in the coming years due to an increase in end-user demand resulting from deployment of additional sales resources for those indications that remain underdiagnosed and undertreated; Baxter's introduction of new and proprietary administration technologies; expansion of new indications such as MMN; and of course the significant opportunity of a potential Alzheimer's indication.

Over the last several months we continue to enhance our market leadership with a number of commercial achievements, a few of which I would like to highlight. First, a new five-year contract with Novation, a leading healthcare supply contracting company of VHA Inc., the University HealthSystem Consortium or UHC, and Provista. This agreement provides Novation members access to Baxter's broad portfolio of products including IV solutions, drug delivery and parenteral nutritional products, large-volume infusion pumps, and IV administration sets and components.

We also announced in the quarter a manufacturing, supply, and distribution agreement with Kamada for GLASSIA, the first and only liquid alpha-1 proteinase inhibitor. Under this agreement, Baxter acquired commercial rights to GLASSIA in the US, Australia, New Zealand, and Canada.

Under a separate license agreement, we have been granted the right to process GLASSIA, and we'll seek necessary regulatory approvals to do so. GLASSIA was approved by the FDA in July 2010 and was recently launched in the US.

Also in the quarter we announced a collaboration between Baxter and Takeda for the development, production, and supply of cell culture-based influenza vaccines for the Japanese market. During the quarter, Takeda was selected as a recipient of a subsidy from the Japanese government to support an investment associated with the development and production of pandemic influenza vaccines. Takeda plans to apply for additional government funding under a second supplementary budget and further expand its collaboration with our Company.

Finally, we launched a number of new products during the quarter including ADVATE in Brazil; the US launch of TachoSil, an absorbable fibrin sealant patch for use in cardiovascular surgery; and the launch in Europe and Canada of the first and only 30-gram dose vial for GAMMAGARD LIQUID and KIOVIG. This new dosage form is the most frequently prescribed dose for primary immunodeficiency patients and will enhance user convenience.

Finally I would like to highlight that we continue to fund all of our key late-stage R&D programs, as evidenced by a number of milestones which occurred during the quarter. For example, we continue to extend our leadership position in hemophilia and recombinant proteins with the initiation of a global Phase 1/2 clinical trial studying the safety and tolerability of BAX 817, a recombinant factor VII/VIII therapy for the treatment of hemophilia A or B patients with inhibitors. We have also dose the first patient in our Phase 1/3 clinical trial for BAX 326, our recombinant factor IX treatment for patients with hemophilia B.

Also during the quarter we completed our Phase 1 recombinant von Willebrand clinical trial. We expect interim safety and tolerability data to be presented at the American Society and of Hematology Meeting in December of this year. In addition, we expect to initiate a Phase 3 trial in 2011.

During the quarter, we announced the approval in Austria and the Czech Republic for PREFLUCEL, our seasonal influenza vaccine manufactured using Baxter's proprietary Vero cell technology. Starting in the fourth quarter we expect to submit for approval in additional European countries through a Mutual Recognition Procedure.

In the third quarter, we completed enrollment in a Phase 3 clinical trial of GAMMAGARD LIQUID and KIOVIG for the treatment of multifocal motor neuropathy, or MMN. The trial includes approximately 40 participants and is being conducted in clinical sites across the US, Canada, and Europe. Given the required 15-month follow-up period, we expect to complete this trial in 2011.

Interim data from a Phase 3 clinical trial of HyQ was recently presented at the European Society for Immunodeficiencies Meeting in Istanbul, Turkey. HyQ is an immune globulin therapy facilitated subcutaneously by recombinant human hyaluronidase.

Interim analyses show that 28 out of 29 HyQ study participants with primary immune deficiency were able to infuse immunoglobulin under the skin using a single injection site at infusion volumes, intervals, and rates equivalent to their previous IV administration with immunoglobulin. As you know, we expect to complete this trial by the end of the year and file for approval in 2011.

We continue to advance our Phase 3 GAMMAGARD LIQUID trial for Alzheimer's. To date, we have randomized over 220 patients and are on target to complete enrollment in mid 2011. With an 18-month follow-up period, we currently expect to complete the trial by the end of 2012.

Finally, we recently finalized our IDE application for our home hemodialysis clinical trial and submitted it to the FDA. Upon acceptance of the IDE, we plan to start clinical trials in the US later this year or early 2011.

These achievements which I have just summarized depict just a handful of the programs in our pipeline that will present great opportunities for Baxter in the years to come. So with that, I would like to ask Bob to review our third-quarter financial results and guidance for the year in more detail, and then I will come back and provide some closing perspectives. Bob, if you would?

Thanks, Bob. Good morning, everyone. As Bob mentioned earlier, we are pleased with our financial performance in the third quarter, with earnings per share of $1.01 per diluted share, which exceeded our guidance range of $0.96 to $0.99 per share.

This was largely the result of continued momentum in the Medication Delivery business, improvement in antibody therapy and plasma protein dynamics, and our continued focus on expense management.

Let me briefly walk you through the P&L by line item before turning to our financial outlook for the remainder of 2010. Starting with sales, worldwide sales totaled $3.2 billion in the third quarter and increased 3%. Excluding foreign currency, sales increased 4%.

Sales growth in the US was 4%, led by double-digit revenue growth in Medication Delivery. On a reported basis, international sales increased 1%. Excluding foreign currency, international sales advanced 4% as strong double-digit sales growth in antibody therapy, plasma proteins, and biosurgery products was partially offset by soft sales in Europe across several product categories, most notably vaccine revenues.

In terms of individual business performance, and beginning with BioScience, global sales in the third quarter totaled approximately $1.4 billion, which was comparable to the prior-year period. Excluding foreign currency, BioScience sales increased 3%.

Within the product categories, recombinant sales of $526 million were flat to the prior year on a reported basis. Excluding foreign currency, sales increased 2%, driven by robust sales of ADVATE, particularly in the US where revenues advanced in double digits.

However, this performance was largely offset by lower sales in Europe, given the results of the UK tender and our decision to lower RECOMBINATE inventory levels in the US channel as we remain focused on driving conversion to ADVATE. Excluding these factors, recombinant growth was approximately 8% on a constant currency basis.

Moving on to plasma proteins, sales in the quarter were $346 million and increased 5%. Excluding the impact of foreign currency, sales increased 8%.

As you know, approximately 50% of the plasma portfolio is comprised of a broad array of proprietary products including FEIBA, an inhibitor therapy; ARALAST, a treatment for hereditary emphysema; and FLEXBUMIN, albumin provided in a flexible plastic container.

Contributing to the performance in this category was growth of ARALAST, double-digit growth of FEIBA, and strong demand for albumin outside the US. This was partially offset by lower sales of plasma-derived factor VIII and US albumin sales.

While we continue to see strong volume growth for albumin in emerging markets such as China, market demand in the US continues to be below last year due to lower hospital admissions and surgical procedures.

In antibody therapy, sales of $336 million were flat to the prior year. Excluding foreign currency, sales increased 2%.

US sales were $230 million, reflecting a decline of 4% versus the prior year. Strong volume in the quarter was more than offset by the impact of our commercial strategies to stabilize share and a 7 percentage point impact to growth related to healthcare reform and year-over-year comparison to WinRho.

Outside the US, antibody therapy sales of $106 million increased 9% as we continue to see strong growth in volume across the regions, which was somewhat offset by lower prices, particularly in Europe.

Sales in regenerative medicine, which includes our biosurgery products, totaled $130 million and increased 19%. Sales excluding foreign currency grew 22% and continue to reflect healthy growth across the core portfolio and approximately $15 million in incremental sales related to the ApaTech acquisition completed earlier this year.

Finally, revenues in the Other category within BioScience were down 40% to $49 million, due primarily to a difficult comparison related to advanced purchase agreement revenues recorded last year and lower sales of the [mice-vax] vaccine.

In Medication Delivery, sales totaled $1.2 billion, an increase of 5% on a reported basis. Excluding foreign currency, Medication Delivery sales grew 7%.

In the US, sales were strong and advanced 12%, while international sales, excluding the impact of foreign currency, increased 2%.

Turning to the product categories, IV therapies' sales totaled $417 million in the quarter and grew 5%. Excluding foreign currency, sales increased 7%. Strong US sales, which increased 18%, resulted from increased demand particularly for nutritional products due to competitor supply issues, as well as improved pricing.

Global injectables sales advanced 8% to $469 million. Excluding foreign currency, sales grew 9%. Contributing to this performance was strong growth of select pre-mixed drugs and multisource generics as well as significant growth in certain enhanced packaging offerings such as our MINI-BAG and MINI-BAG PLUS products.

Infusion systems sales totaled $213 million and increased 2%. Excluding foreign currency, sales increased 2%. Strong sales of SIGMA Spectrum pumps more than offset lower COLLEAGUE and access set revenues.

Finally, anesthesia sales totaled $127 million and increased 3%. Excluding foreign currency, sales increased 5% driven by growth of both SUPRANE and sevoflurane globally, despite declines in surgical procedures.

Moving on to Renal, third-quarter sales totaled $594 million and increased 3% on both a reported basis and when adjusting for foreign currency. US sales increased 2% as improved PD growth offset lower HD revenues.

International sales increased 3%; and excluding foreign currency, international sales increased 4%. Global PD sales totaled $487 million and increased 3% on both a reported basis and after adjusting for foreign currency. This performance can be attributed to building momentum in PD patient gains in the US, resulting in 5% growth in US PD revenues. In markets outside the US, patient gains in Latin America and Asia partially offset slower growth across Europe.

Lastly, hemodialysis sales of $107 million increased 4%. Excluding foreign currency, HD sales increased 5% as CRRT sales, the hemofiltration business that we acquired last year, offset lower sales of dialyzers in the US.

Turning to the rest of the P&L, gross margin for the Company was 51.5% in the third quarter, which improved sequentially by 20 basis points. However, the third-quarter gross margin is 130 basis points lower than last year's margin of 52.8% which is largely a result of the healthcare reform impact and cost inefficiencies driven by lower volume throughput in the plasma and vaccine businesses.

We successfully leveraged SG&A, which totaled $670 million in the quarter and was comparable to the prior-year period. Excluding foreign currency, SG&A increased 1%.

In addition, SG&A as a percent of sales was 20.8% in the quarter, the lowest level in several years, reflecting sequential improvement of 90 basis points, an improvement year-over-year of 60 basis points. While we continue to aggressively manage general, administrative, and discretionary spending across the Company, we are selectively investing in several key promotional activities aimed at demand creation, new product launches, and driving future growth of our higher margin products.

R&D spending of $207 million declined 9%, which can be attributed to the impact of foreign currency, completed clinical work on several programs, and lower milestone payments to partners.

It's important to note that we continue to invest in all key R&D programs across the product pipeline. In fact, excluding the factors previously mentioned, R&D spending on key programs increased in mid-single digits.

The operating margin in the third quarter was 24.3%. And despite our challenges in a difficult macro environment, this is a new historic level for our Company. The operating margin increased sequentially by 160 basis points and improved 20 basis points versus the prior year as a result of our disciplined focus on cost management.

Interest expense was $24 million compared to $23 million last year, while Other expense was $5 million as miscellaneous expenses more than offset foreign currency gains.

The tax rate was 21.1% in the quarter, 240 basis points above last year, primarily due to a change in earnings mix between higher tax and lower tax jurisdictions.

Finally, as previously mentioned, adjusted earnings per share was $1.01 per diluted share, an increase of 3%.

Turning to cash flow, cash flow from operations was strong in the quarter and exceeded $1 billion. On a year-to-date basis, cash flow from operations totaled approximately $2.1 billion and includes the first-quarter pension contribution of $300 million. Excluding pension contributions from both years, on a year-to-date basis cash flow from operations improved by more than $300 million versus the same period last year. This represents a 17% increase in cash flow.

DSO ended the quarter at 56.2 days, which is lower than last year by two days. This is largely due to improvements in international DSOs, as our DSO in the US is less than 30 days.

Inventory turns of 2.4 reflect an improvement versus last year, primarily driven by better turns in both Medication Delivery and BioScience.

And lastly, during the third quarter we repurchased 3.6 million shares of common stock for $161 million. On a net basis, this amounts to repurchase of 2.7 million shares or $128 million. Year to date, we have repurchased 26.3 million shares of common stock for almost $1.3 billion, or on a net basis 20 million shares for over $1 billion, in line with our objective for the full year 2010.

Finally, let me conclude my comments this morning by providing our financial outlook for the fourth quarter and update you on our full year 2010 guidance before turning the call back to Bob. First, for the full year 2010, as you saw in the press release, we expect adjusted earnings per diluted share of $3.96 to $3.98.

By line item of the P&L and starting with sales, we expect full-year sales growth, excluding the impact of foreign currency, of 2% to 3%. Based on current foreign exchange rates, we now expect reported sales growth for 2010 to be in the 3% to 4% range.

For the full year, we continue to expect gross margin to a decline approximately 100 basis points from the 2009 gross margin rate of 52.4%. Given current foreign exchange rates we now expect SG&A to increase modestly year-over-year and R&D to decline in low single digits versus 2009. As we mentioned previously, we will continue to intensify our focus on managing costs throughout the organization.

We continue to expect interest expense of approximately $100 million and Other expenses to total approximately $25 million. Given our mix of earnings we now expect our tax rate to approximate 20%. And finally, we continue to expect a full-year average share count of approximately 595 million shares.

From a cash flow perspective, we now expect to generate cash flow from operations of approximately $2.8 billion.

Now, to expand on the full-year sales assumptions for each of the businesses. First, on a constant currency basis, we continue to expect mid-single-digit sales growth for Medication Delivery. For Renal, we expect sales growth to be in the low single digits on a constant currency basis. This is somewhat lower than our original guidance, primarily due to lower than expected HD sales.

As for BioScience, we now expect sales excluding foreign currency to be approximately flat, which is an improvement from our guidance provided last quarter. For the recombinant business, we now expect growth for the full year to be in low single digits, which includes the impact of healthcare reform, results of the UK tender, and anticipated reductions in RECOMBINATE inventories.

Second, we now expect plasma proteins sales to be flat and antibody therapies sales to decline in mid single digits, reflecting stabilization in our share position; improving demand; as well as healthcare reform and the difficult comparison related to the termination of the WinRho agreement.

Third, we expect regenerative medicine sales growth to exceed 20% reflecting the ApaTech acquisition and double-digit growth in the base business. And finally, we expect the Other category within BioScience to decline approximately 20%, reflecting lower revenues associated with advanced purchase agreements and other vaccines.

For the fourth quarter, as we mentioned in our press release, we expect earnings per diluted share of $1.09 to $1.11 and sales growth, excluding the impact of foreign currency, of 1% to 2%. Based on current foreign exchange rates, we expect reported sales to be approximately flat to the prior year.

I would point out that we expect sales growth to slow in the fourth quarter due to a number of factors including the difficult comparison related to H1N1 revenues, the anniversary of the Sigma distribution agreement and CRRT acquisition, as well as lower recombinant revenues resulting from the UK tender and reduction of RECOMBINATE inventories.

As always, I would be happy to take any questions on our financial performance and guidance during the Q&A. But now let me turn the call back over to Bob for his closing comments.

Thanks, Bob. Before we open up this morning's call to Q&A, I would like to briefly comment on some of the organization changes that were announced last week both in terms of some of the structural changes as well as changes in leadership. First, as you know, we announce that our Renal business will be combined with Medication Delivery to form a new business sector, Medical Products.

While the go-to-market channels and the clinical differentiation will certainly remain separate and distinct between these businesses, the back-end of the two businesses are actually remarkably similar. As a result, this new structure, I believe, will enhance both our effectiveness and efficiency over time.

Peritoneal dialysis solutions and IV solutions are comprised of similar product development and manufacturing technologies, as are the disposable set and electronic instruments utilized in their administration. There is a significant number of similarities and synergies not only in product development and manufacturing, but in supply chain and regulatory and quality systems as well.

Rob Davis, whom you all know and who has been running the Renal business, has been named President of Medical Products. Pete Arduini, who has served as President of Medication Delivery over the five-plus years, is leaving Baxter to assume the position of president and COO of Integra LifeSciences.

I am convinced that this new integrated structure for the Renal and Medication Delivery business units will pay significant dividends for our customers and patients that they serve, and also for our shareholders.

Ludwig Hantson was named as the new President of the BioScience business segment. Ludwig replaces Joy Amundson, who served as President of BioScience over the last six years, a period which saw significant growth and where BioScience was the major contributor to Baxter's overall success during that period of time.

We are very fortunate to have an executive with Ludwig's pharmaceutical experience. He spent the last 22 years of his career at Novartis and J&J before joining Baxter earlier this year. Baxter's specialty pharmaceutical new product pipeline is the strongest that it has ever been. And as we prepare for multiple new product launches in the coming years, Ludwig's capabilities and expertise will make a tremendous difference.

I would certainly be happy to expand on that if you would like during the Q&A this morning. So with that, why don't we open up the call for the Q&A?

(Operator Instructions) Bob Hopkins, Bank of America.

Great. Good morning. So I just wanted to start out with some questions on BioSciences. First of all, on the slight change in thoughts on the recombinant line. First of all, from a macro perspective should we read into what you are saying that that line item should decelerate from the 2% growth that you put up here in the third quarter?

And then more specifically, could you just, if you would, just try to quantify the impact of the UK tender and of the RECOMBINATE inventory reduction and how long that might be a drag? Thanks.

Yes, Bob. Let me start, and then Bob and Mary Kay can maybe add some additional information to try to be helpful. You know if you adjust for, as we said in the comments, both the UK tender and reduction in RECOMBINATE inventories in the US, overall recombinant sales globally grew in the say 7% to 8% range in Q3, which is pretty consistent to what it has been running.

Our sales outside the US -- again, adjusted for the UK tender -- in all other O-US markets actually grew fairly strong double digits. So the momentum in the business continues.

The loss of the volume in the UK tender clearly is meaningful. I think we had annualized sales in the UK -- Mary Kay, correct me -- of approximately $100 million.

Yes, it was actually over $100 million.

A little bit over that, a little bit. So frankly, Bob, much of that we ultimately lose is still being sorted out. That tender occurred in two different waves, and not all the patients have converted. Obviously we are watching that very closely over time in terms of things like inhibitor formation and the like.

So relative to the dynamic in the US, then, this is really a continued effect of conversion from RECOMBINATE to ADVATE. Actually ADVATE in the US in third quarter -- correct me if I am wrong, Mary Kay -- I think grew double digits. Did it not?

Yes.

So it is evident that a couple of our wholesalers are overstocked on RECOMBINATE, and they have reduced their inventories during the third quarter. I would tell you for the fourth quarter we would expect that to continue, in answer to your question.

So as we move into the fourth quarter, that inventory reduction that I described will continue. We are going to continue to incur the impact of the UK tender.

But the rest of the dynamics globally of the RECOMBINATE business and the hemophilia business I think continue to be pretty strong. (multiple speakers) add to that, Mary Kay?

Bob, this is Mary Kay. I would add that we have a difficult comp last year in the US, where I think we saw double-digit 11% growth in the fourth quarter. So you should expect Q4 sales in the recombinant category to actually be lower than the prior year. That is a result of the de-stocking opportunity that Bob is talking about as well as the UK tender.

Okay, and then just one follow-up also on BioSciences. I was wondering if you could quantify the impact of the Octapharma situation on this quarter. Was there any benefit that you saw from that? And just some thoughts on that and how that might impact the business going forward.

Yes, there was really little to no impact in our third-quarter results, Bob, as a result of that. We have reflected modest impact in our fourth-quarter guidance that Bob took you through. I think it is still too early to project what the longer-term impact of that will be, as various regulators are taking various positions on that and so on.

So you are probably as close to that as we are. But in terms of our own results, little to no impact in the third quarter, and modest projection in Q4.

Modest in like the $5 million to $10 million area?

Less than that.

Okay. Thanks very much, guys.

Go ahead, Bob.

I'd say actually slightly higher than that.

Oh, is it really?

Globally.

Oh, globally. Okay, yes.

Kristen Stewart, Deutsche Bank.

Hi, thanks for taking the question. I was just wondering if you could just maybe just give us a little bit more color on some of your commentary on the end markets within IVIG. You had expressed a little bit of confidence in what you are seeing.

Then also can you just give us an update on how much, in terms of like the percentage of outstanding contracts you have secured up for 2011, as we look down the road and kind of think about how 2011 may shake out for IVIG? Specifically to the US.

Kristen, this is Bob Parkinson. Let me kick it off and we will do a team response here, because there's multiple aspects of your question. Let me start with the second piece.

I would say the majority of our hospital contract businesses -- I think I touched on it in my prepared comments -- is actually secured now through year-end 2011.

In terms of market dynamics, I think we would characterize the underlying market growth, to the best of our abilities to quantify this in the US, probably mid-single digits on IVIG right now. Clearly it is more robust O-US, probably approaching high single digits.

Bob, Mary Kay, you want to add any facts to that?

No, I think that is pretty accurate. We have seen some good growth, Kristen, coming out of the PPTA data that you all see, as well as -- we have talked about this in the past -- we track our own redistribution data, which has shown an acceleration in volume as well, which is sales of our product going from the distributors into the end-user and into the hospital channel.

Perfect. Then can we just get an update on SIGMA? I know this quarter you guys had said you had pretty good sales there. Where do you stand from a manufacturing standpoint of just ramping up production of the pumps?

You know, we're not going to quantify existing production capacity, Kristen. I think suffice it to say that we have been and are continuing to ramp up production to convert as many of the installed base of the COLLEAGUEs as we possibly can over the next two years.

It is still too early to tell I think in terms of what the share shifts may or may not be over time. But we are doing everything we can, putting all the resources, and ramping it up as significantly as we can. So I will just leave it at that.

You also just commented on some of the impact of healthcare reform in WinRho. Can you just remind us what that was for the IVIG business again?

Yes, Bob, do you know? Or Mary Kay?

Yes, it had a 7-point impact overall on the antibody therapy line, and that is the combination of WinRho and healthcare reform.

Perfect. Thanks very much.

Bruce Nudell, UBS.

Good morning. Thank you so much. Could you remind us in aggregate how much -- in dollars, the healthcare reform accruals that you have made so far this year? I know you were very conservative in how you constructed that, assuming almost entire conversion of hospitals and institutions that were eligible for 340B. How much of that has actually occurred? And is there a potential for reversal of that accrual?

Yes, Bruce, this is Bob Hombach. Yes, we continue to accrue towards the number that we have been projecting up to this point. We are still at a stage where the visibility to how many hospitals are actually going to avail themselves of the opportunity to sign up for 340B is still not crystal clear.

We project about 40% of those who could have applied have applied. But there still is time for them to do that as we approach the end of the year.

So unfortunately this one is not want to become clear to us towards the end of the year -- and maybe not even by the end of the year. So at this point we continue to accrue towards what we originally projected.

I see. So the reversal, if it occurs, has to occur next year?

Well, no. We will take a view -- there is the aspect of -- about the retroactive nature of this potentially back to January of 2010. But I believe if hospitals don't sign up by the end of this year that may not be available to them. And that is certainly something that we originally factored into our accrual. So that we would certainly adjust for as we end this year.

But I guess of the $80 million or so healthcare reform, how much is 340B-related and therefore uncertain?

I would say significant portion of it is 340B related.

Yes, the biggest impact -- as you know, Bruce, there was the Medicaid rebate impact; and then there is the increase in the discount to those 340B entities that were already a 340B entity. And then there is these new eligible entities that Bob is talking about, where we believe about 40% have already signed up. And that was the biggest piece of our healthcare reform impact.

Okay. So about 40% of that has been exercised, you know of?

That is correct.

Okay, great. My only other question is with regards to recombinant demand in the United States. If we -- do you think PPTA is a decent surrogate at this time for underlying volume demand in high single digits at this instant?

Yes, I think our view on that has been that looking more at the rolling 12-month data versus the month-to-month or quarter-to-quarter is a better view. But yes, I think that kind of mid to high single digit underlying growth is reasonably accurate.

Yes, I think, Bruce, too, if you go back to our investor conference we talked about recombinant sales growth in I think the 6% to 8% range. But that assumed slower growth here in the US in the mid-single digit, probably 4% to 5% range.

We're in now -- last year looked stronger than that from PPTA data on a rolling basis.

Yes, that would be correct.

Okay, and is the home dialysis 510(k) or PMA?

I'm sorry, what was that?

Is the home dialysis, IDE -- is it a 510(k) or a PMA?

Our assumption currently is a 510(k).

Thank you so much.

David Lewis, Morgan Stanley.

Good morning. Bob, just coming back to IVIG here for a second, obviously the number was much stronger than we were expecting. So can we just first of all talk about rebate activity?

You talked about being targeted off the second quarter. Did you see an expansion of rebate activity at the Company? And should we expect a further expansion heading into the fourth quarter?

When you say rebate activity, specifically what are you referring to, David?

You talked about targeted pricing. Our sense is that you have used rebates as a method for engaging in targeted pricing with customers. I think surgical strike pricing, something like that, was your commentary off the second quarter.

I am just wondering if we have gone from surgical strike pricing with rebating and targeted price cuts to a broader action in the third or fourth quarter.

No, not really. I think that the activities we have undertaken are very much aligned with what we have been messaging from the start. Yes, there are contracts that involve rebates, David. But no, I think what we have executed really over the last three to six months here has been very much in line with what we described to all of you at the outset.

Great. So just maybe two more quick questions and just starting with one follow-up. So in this particular quarter, Bob, you had to describe the source of upside for your IVIG business both US and worldwide, do you think it was conservative expectations? Was it better share gains? Maybe give us more color on what you think drove the relative upside.

Well, I think the actions we have taken clearly were very effective, and they were effective very quickly. The price premium on GAMMAGARD, clearly we closed that very significantly, and the market was very, very responsive to that not only in terms of retaining volume in the short term but allowing us to secure contracts, as I mentioned in my comments, now for the majority of our US hospital business out through the end of the year 2011.

So I think that is probably the primary aspect of the stronger volume that we reported in the third quarter in the US. Clearly, volumes outside the United States continue to grow very nicely.

Yes, David, I would add there was a lot of assumptions that went into our original guidance reduction. If you remember, we had said at that time that the market growth was in low single digits. Clearly we're seeing that market growth has accelerated, as Bob mentioned, to mid-single digits.

As well as we had assumed additional share loss, which obviously we are not seeing that.

Perfect. Just one last financial question. Just to give us two dynamics in the quarter that did the opposite of what we were expecting, gross margins were better but tax rate was much higher.

Maybe the question is about the sustainability of those gross margins. Back in your LRP late last year you talked about the expansion of tax rate for your Company the next three to four years. Is this the first sign of that in your mind? Or is this more about mix?

So net-net, what can we expect as it relates going forward in terms of gross margin and tax rate trends? Thank you.

Yes, I will start with the tax rate. Clearly, the mix of earnings this year has been quite a bit different than we originally projected. The underperformance in Europe really across all three businesses in a place where we have got pretty efficient tax structures has negatively impacted the rate. And on the other side of the equation, very strong performance in the US particularly by Medication Delivery in a high tax environment. So it is primarily a mix shift there.

We did anticipate some of that as we go forward here, but this has happened to a larger degree. So as we look to 2011 we will have to evaluate the Europe-US mix of earnings as we think about the tax rate going forward.

In terms of gross margin, clearly the stronger performance in the quarter by the BioScience business and what I would characterize as the faster recovery in the IVIG space in particular certainly helped margins. As we go forward here, though, we are going to be faced with starting to feel the impact of the slowdown in collections and slowdown in throughput in the plasma business starting to roll out to our P&L, given the long inventory hold periods. As we started taking those actions late last year and early this year, we are starting to feel the impact of that as we go into fourth quarter and that will be a headwind as we go into 2011 on margin.

Great. Thank you very much.

David Roman, Goldman Sachs.

Good morning, everybody. Wanted to see, Bob, if you could update us on your latest on thoughts on the pharma tax for next year. I think you provided some numbers earlier this year.

And then any thoughts on how that might flow through just from an accounting perspective? And then I have one follow-up on the plasma business.

Yes, so we have estimated at this point the pharma tax is going to be $30 million to $40 million and at this point don't know for sure what the geography is going to be on the P&L for that one.

I think the med device one a couple years down the road is a little clearer that that is an excise tax that probably ends up in SG&A. But the pharma tax between revenue and SG&A is still an open question.

Okay. Then from an operating expense perspective you called out SG&A as one of the lowest levels it has been in several years. R&D also as a percentage of revenue -- and I know currency has an impact there -- that also was fairly low as a percentage.

So maybe going forward, could you help us think about the sustainable level of discretionary spending?

One of the other things you talked about earlier this year was pulling back on some of the sort of wild-card type investments in that R&D line. Did that have any contribution this quarter?

And then how -- is 6.5% a number in R&D to think about, or is 7%, where we have been running?

I think it will stay in that range going forward, David, the 6.5% to 7% range. As we commented, every one of our major programs remained fully funded. I think Bob commented that in fact of our significant programs actually our R&D in the quarter actually increased in mid single digits versus last year.

The reduction was largely associated with the culmination of a couple key programs, one of which is the flu program. So our level of spending on our flu vaccine programs is down significantly.

Also some payments to partners in a couple of R&D collaborations and so on were the significant contributors to the lower spending level in Q3.

But I don't think you should interpret the Q3 results as at all a change in strategic direction. I think it is important that we maintain some level of -- call it exploratory or early-stage funding. I think that is very important. We are committed to continue to do that going forward. I don't know, Bob?

Yes, I would just say add on R&D a couple things. One, from a foreign exchange standpoint our R&D spend, almost 50% of it is outside the US, primarily in Europe. So FX has a slightly bigger impact on the R&D line than it would have on SG&A and others.

The other thing I would say is the exploratory funding, which is modest generally, is really where we rationalized this year initially. Plus we took a charge in the fourth quarter of 2009 to rationalize some of our R&D operations, primarily on the device side. So we are seeing the full benefits of that coming through as well. So I think those two factors have driven that down.

On the SG&A side in terms of sustainability of the discretionary spend actions that we have taken, as we indicated we're really focused on the back-office G&A lines to try to constrain, spending, particularly around headcount growth there. But we continue to fund the promotional activities around demand creation and new product launches that we think are going to be important to drive the top line going forward.

So we don't think we have compromised that aspect of our spend at all here, and still have room to continue to drive some cost reductions.

Okay, great. Thank you.

Mike Weinstein, JPMorgan.

Thanks for taking the questions. First, maybe just turning to the Med Delivery business. I was hoping you could just shed a little bit more light on the growth in the US for IV therapies, which was up 18%, and then infusion systems, which was 8% despite obviously the issues with COLLEAGUE. Both very strong numbers, and particularly infusion systems with what is going on with COLLEAGUE. So maybe you can help us out there.

Yes, let me kick this off, Mike. This is Bob Parkinson. Yes, a number of different pieces.

Obviously first of all at a high level we are very pleased with the growth of our Med Del business, particularly in the US. We were advantaged in the quarter to some degree by some competitive supply issues, particularly in the area of nutritionals and some of our multisource generics and so on.

I also commented in my prepared comments in the highlight the contract that we signed with Novation. We have probably picked up a little bit of business there as well, which certainly is sustainable going forward.

So the nutritional business continues to do very well not just in the US but on a global basis, which is helpful as you know in terms of margin profile. And what are the other pieces that I am missing? Those are really the biggest pieces.

Yes, we have definitely seen some good pricing improvement in the base IV business. And as I mentioned in my comments, some competitor issues on the nutritional front in the US provided opportunity there as well.

I would just add, Mike, IV solutions year-to-date are up double-digit in the US. That is driven by some of the market share gains I think Bob was discussing, as well as the improved pricing environment.

And then Bob mentioned the nutritional competitive issues, that we're picking up some share there.

Okay.

Then on the infusion systems front we have some competitive wins with the Spectrum pump, and that continues to do very well in the marketplace. So while customers are currently evaluating their options -- as we provided them with the COLLEAGUE transition guide only in September here -- during the quarter, again, we did see some competitive wins and some nice growth with the Spectrum pump.

Great. Before we get to January I want to make sure we're thinking generally about 2011 correctly. It seems like on the call here you highlighted a few items that will impact the P&L. There is obviously impact from healthcare reform next year. You talked about lower throughput for plasma proteins, and that is starting to show up maybe in the fourth quarter and into next year. And then lower growth in recombinants, which is obviously a high-margin business for you, as well as a couple of other items.

Should we be thinking about 2011, after the margin gains this year, of 2011 in which we will probably not see operating leverage down the P&L? Or is that still possible?

I think it is too early to call that, Mike, frankly. But yes, there are -- look, there are headwinds. If you look at some of the dynamics that we continue to manage through and we have incurred in 2010, they just don't all go away come December 31, okay? As much as we might like that.

So while we continue to be optimistic about the future in many ways and for many reasons, there are a number of these headwinds that are going to continue.

The other thing I would tell you that you didn't mention is just the underlying surgical procedure volume and so on. One of the things that as you look in the detail about the quarter that was softer than we anticipated was our biosurgery business. When you adjust out for the ApaTech acquisition last year the rest of our biosurgery business was about 9%, 10% growth for the quarter, which is lower than what it has been and, frankly, I think is an indication of the continued softness in underlying surgical procedures.

So I'm not trying to paint too negative of an outlook here, but I think we have to be realistic as we go forward, to say a lot of positive things going, but there is going to be some headwinds that are going to be sustainable. And I guess maybe close where I started, I think it is too early to project what the net effect of those are. But I think just a lot of variables we all need to continue to watch.

I appreciate that. One last follow-up. With you locking in a lot of your 2011 contracts for IVIG at this point, can you give us a sense of where those are coming out for pricing relative to 2010?

Well, without being too specific for a lot of reasons, let me just give you some kind of general direction, Mike, which hopefully will be helpful. We had, going into all this, let's say a year ago, probably I would say high single digit kind of price premium on GAMMAGARD versus the rest of the products in the market. That premium has closed significantly.

We still are the premium product, but that premium has closed fairly significantly. I would tell you the contracts that I referenced that we have now signed, extending through the end of 2011, have really been at what I call the touch-up prices. Okay?

So we didn't need to offer additional price discounts to secure that volume. So hopefully that gives you enough input you can put your arms around it.

That's good. Thank you, Bob.

Rick Wise, Leerink Swann.

Good morning, Bob. A couple things. One, just a high-level follow-up.

Post the management changes and the combination of the Med Delivery and Renal businesses, I am just curious what you have charged Rob with doing in combining those two businesses, and what you see the opportunities are.

Is it -- do you think they're going to be incremental sales opportunities because of bundling, or customers, or --?

Maybe talk if you could about your thoughts about what kind of operating margin benefits you think we could see, if any.

Yes, great question, Rick. Again I'm not going to quantify the potential margin enhancement opportunity at this stage. Having said that, clearly I wouldn't have made this change if I didn't think there weren't meaningful opportunities here.

I would start by saying I think the biggest opportunity is as much effectiveness, enhancing our effectiveness, as it is in terms of taking cost out. Both are opportunities.

But let me give you some examples of that. First of all, bundling. You mentioned that; I don't see any bundling opportunities.

In terms of the go to market, detailing PD solutions to a nephrologist will always remain a separate and distinct activity from detailing SUPRANE to an anesthesiologist, okay? Those will remain separate and distinct.

But I think in the back-end of the business, starting with manufacturing -- okay? You don't go -- very few of our solution plants around the world manufacture both IV solutions and PD solutions, okay? Manufacturing was a separate organization that also reported to me, and now that has reported in to Rob as part of the consolidation of Renal and Med Del.

So I think the integration of manufacturing and supply chain where there are, as I commented, significant overlap and similarities between the Renal business and the IV business. And again not just on the solutions, but on the disposable sets and the instrumentation, whether that is an infusion pump or a HomeChoice cycler, tremendous synergies there.

The strategic objective of this is really to enhance effectiveness. I will just give you one example and then I will stop and not belabor the point. But in terms of R&D productivity, okay? To focus our R&D efforts and integrate where historically we have had fragmented R&D supporting the Renal business versus the Med Del business. Given the fact that the core technologies are oftentimes very similar, I believe by bringing those together there are significant opportunities to enhance our new product development, frankly. So clearly that has an effect over time on accelerating the revenue line.

Now, having said that I think there also are structural synergies, cost synergies that over time we will figure out how to take cost out as well. So this is really dual objectives. How do we enhance our effectiveness? There are many ways.

I think we can enhance our top-line growth while taking structural costs out of the business. And I think Rob for a lot of reasons is the perfect guy to oversee those (multiple speakers).

Yes. On PD's results, Bob -- also looked pretty encouraging. We have talked to a bunch of nephrologists that are thinking that home dialysis PD and home HD are going to benefit from the new reimbursement rules, but it's going to be a more gradual increase.

Are we seeing something, some moves ahead of the new reimbursement? Maybe give us some sense. Are you more optimistic about driving PD penetration from the -- whatever it is, 7% to 8%, to 10%, 15%?

Yes, well a couple of comments. We are seeing encouraging sign that there already is movement. If you look at our PD patient growth in the US through the first three quarters of the year, it is the strongest that it has been in years. I think the primary driver for that is the market getting ready for reimbursement change.

I do think you're right, Rick; it will be gradual over time. But it will be sustained and it will be meaningful.

So, yes, we are starting to see already encouraging metrics that would indicate that that is coming about. It is interesting, as you just read articles even in the lay press and so on, this theme of dialysis in the home. Frankly whether that is PD, which clearly plays to a Baxter strength, or home hemodialysis, which is our number-one R&D program in the Renal business, are clearly aligned with that trend that is underway.

I think it is becoming increasingly recognized. There was an article just a couple weeks ago I think in the personal section of the Wall Street Journal that did a good job of describing some of the dynamics here. Whether it is patient convenience, whether it is cost of delivering the therapy, or at the end of the day enhancement of clinical outcomes, there's a lot more people -- and both patients and clearly nephrologists -- that are thinking about providing these treatments in the home environment. So this macro trend if you will clearly is playing into the strategies that we have defined in the Renal business.

But back to the last part of your question, too early to quantify this. But I think it will over time continue to accelerate the growth of Renal which is, frankly, the bet that we have been placing over the last few years. The Renal business, as you know, has been relatively flat over the last few years, but we felt that there was long-term change that existed here and we're at the early stages of it. So we are encouraged by those developments.

A last quick one. I know most of your cash is O-US. I am hearing talk about a tax holiday possibility. If that would happen, what would your redeployment priorities be in the US? Maybe just any update on your thoughts about the portfolio and acquisitions to leverage some of these changes you are talking about? Thank you.

Yes, I will take the tax holiday. I think that is a fairly recent piece of news that that is being discussed more actively. I think it is too early to really know whether there is a good chance that is going to happen.

You are right, the majority of our cash is offshore; and certainly any opportunity to bring it back in a tax-efficient manner would be attractive to us. But I think it is way too early to be thinking about that concretely. (multiple speakers)

Yes, I mean look, Rick, nothing new on the BD M&A -- or from an acquisition front, other than our intent which continues to be what I have described before. I spend a lot more of my time on this.

Clearly we have the financial latitude to do some things; and I am hopeful going forward that we will. But they are not the kind of things you can become aware of until we finalize them and communicate them. But the strategic intent remains there, and the financial flexibility to support that clearly is there as well.

Thanks, Bob.

Larry Keusch, Morgan Keegan.

Okay, thank you. Perhaps for -- well for either Bob. As you think about gross margin on a go-forward basis, can you just review with us what are the puts and takes that we should be thinking about as we think for the fourth quarter and on a go-forward basis?

Do you want to do a Frick and Frack here, Bob? (multiple speakers) Bob and Bob. Anyway, go ahead. Why don't you kick it off? I've got a few things. I mean, there's a lot of elements to this.

Yes, I mean I think the underlying dynamic of higher margin products growing faster over time I think very much is still intact. There are some nearer term things in the fourth quarter that we are going to have to deal with. I mentioned the inefficiencies in manufacturing, collection, and plasma beginning to impact the margin here. That will play out into 2011 as well.

Foreign exchange does have an impact as well. At times when currencies are -- the dollar is stronger against foreign currencies, we do hedge; and so that tends to have lower sales but margin stays the same, so the margin gets a benefit. As the euro and other currencies have appreciated against the dollar here, that will be a little bit of a drag in the fourth quarter as well. So it is not a significant move; but it is enough to shift things one quarter to the next.

So as we go forward I think the plasma dynamic and FX are two things that could be headwinds here in the near term. But certainly the underlying dynamic of mix driving margin benefit I think is still very much intact.

Yes. I really wouldn't add anything to that. The mix component. Clearly the margin differences of our core businesses remain fairly significant, with the higher margin BioScience business. So clearly stabilizing the growth particularly focused on plasma proteins is critical there.

So we will see how the business mix and the business unit mix play out going forward. The business units in our Medical Products business, nutritionals, anesthesia, and so on, as you know, Larry, continue to be a promotional priority. So to the degree our business units and businesses that are higher margin can grow faster, that continues to be the area of focus.

Is it safe to assume that just given the very nice margin expansion we have seen in Medication Delivery that we probably should not be thinking about those magnitudes on a go-forward basis either?

Probably not to the same degree, no.

Okay. Then just separately as I think about the overall portfolio of the Company, I guess I just want to understand, Bob, how strategic do you think the vaccine business really is to Baxter over a longer time period?

Yes, I think it continues to be of significant strategic interest to us. Okay?

We have talked about this before. Clearly there's been fits and starts with last year's H1N1 situation and so on and so forth. But even in the third quarter, and I commented on this, our collaboration with Takeda -- I believe that we are going to figure out ways to monetize our Vero cell technology, but in ways that aren't necessarily conventional in terms of producing and selling directly to the market our own vaccines.

I think the collaboration with Takeda is a good example of that. We continue to have dialogue with other countries who are and continue to be focused on preparedness. And with not so much an H1N1, but still the concern about an H5N1 where our technology has some particular advantages.

Think the registration or the licensure in the third quarter in Europe with PREFLUCEL, our influenza vaccine, is also very encouraging. We are going to move forward to get that product registered throughout the world, including the US, and participate in that market as well.

Then there are some other vaccines which we commented on our last investor conference that are in our pipeline and so on. So yes; I continue to be very interested, Larry, in the vaccines business.

So I know looking at the sales, the revenue results every quarter and so on, it is a mixed bag based upon what is particularly happening at that point in time. But don't interpret that as any less interest in terms of the strategic value of this business.

Okay, terrific. Thanks very much.

Matt Miksic, Piper Jaffray.

Hi, this is Matt Miksic, thanks for taking our questions. I wanted to discuss some odds and ends here, follow up on a couple things that you have talked about, Bob.

One was on the combination, Med Delivery and Renal. I don't know if you have talked about what some of the front-end, back-end opportunities are. Can you quantify any of those? Have you quantified them?

It sounded from Bob Hombach's comments that you have maybe already started to see in this quarter some of the benefits of that. Some color on that would be helpful. And then I just have a couple of quick follow-ups.

Yes, look, we haven't really incurred any benefit from that change. It was just recent in terms of the Med De- Renal integration into Medical Products, if that was your question, Matt.

But -- and we haven't quantified specifically what the opportunity there is long-term. But as I commented -- I think it was in response to Rick's question earlier -- you don't make structural changes organizationally lightly, okay? Because it impacts a lot of things.

And we would not have done it if we didn't think there was not material opportunity that was represented by this organization change. As I said before, it is going to manifest itself in a couple different ways. I think enhanced R&D productivity; the improved commercial focus and prioritization. It will help accelerate the growth of our revenue line over time. But there also are structural cost advantages that will be incurred where we have overlap and redundancies in a lot of the back-end components of getting product to market in both the Renal and the Medication Delivery business, both in the US and on a global basis.

So that benefit will cascade out over time. It will be evolutionary. But again, maybe to close where I started here, we wouldn't have done it if we didn't think the opportunity was reasonably material over time. But I think it is premature to quantify that.

Okay, is that something that you think you will be able to put some numbers to or some more detail to maybe when you talk about 2011?

Probably not.

Okay, so just something that is kind of -- buried in there will be some flexibility that we will see the general benefit from, I guess, is the way to look at that.

Yes, I think that's right.

Okay. Then one follow-up on -- you talked about volumes, procedure volumes, hospital admissions having an impact -- the general thing that is impacting everyone else -- having an impact on Renal and Med.

Wondering how to reconcile what has been a gradually improving US, say, IVIG market with that dynamic. Just because I remember when the IVIG market was slowing, I think we were scratching our heads thinking -- is it admissions? Is it patients going to see the doc less? Any way to reconcile that?

I think that is a tough one. I just think there are so many variables in the IVIG market that make it much more elusive to track down with underlying procedures. Unlike say medical devices, like our biosurgery products.

Whether it is adjustment of inventory in the channel, whether it is change in the channel from hospital versus pharmacies, whether it is reimbursement pressure for very expensive therapy where there are various reactions but then over time settling out; an array of competitive dynamics with suppliers that a year or so ago may have been out of the market, to get back in.

There are a laundry list of variables. And I just think it is really difficult to associate underlying surgical procedure or hospital admission volumes with what is going on in IVIG. That is really analytically a tough one to connect the dots.

Okay. Then finally, on pumps, just -- I don't know if you had talked about what to expect here in the rest of the year. I guess we are getting to a point soon where you're going to start replacing COLLEAGUEs with SIGMAs potentially or are going through that process.

This was a pretty strong quarter. Should we see some moderation in the fourth quarter? I guess how should we think about the rest of the year in pumps?

Yes, look, we have been replacing COLLEAGUE with SIGMAs now for the better part of the last year since we did the deal I think with Sigma. Clearly that has accelerated to some degree as a result of the consent order that was finalized a couple of months ago.

It is very early on. We have seen very little, if any, share shift frankly. In other words, hospitals opting to go to a competitor versus waiting for their SIGMA pumps and so on. But I would emphasize that is still early.

So as we go into the fourth quarter -- Mary Kay, help me out here. Are there some dynamics last year? I don't want to miss anything.

Yes, sequentially we expect it to be just as strong as it was in the third quarter, Matt. But remember year-over-year we started selling SIGMA in the fourth quarter last year, so we do have a difficult comp to the fourth quarter.

Okay, so sequentially tough -- I mean, year-over-year tough. But no wobble here we should see all of a sudden in terms of this FDA process?

That is correct.

Yes, I mean customers are just now giving an indication of -- an early indication. The actual activity is going to be in 2011 before we really see any actual swap outs or refunds and so on, which will be something we have to factor into our guidance for 2011.

Then last on Renal, you had talked I think one of the earlier questions on the opportunity there for PD. Do you have a number where pump, PD penetration is currently in the US, Bob? Or I don't know if Rob is on.

But any kind of update as to where you think it is, and maybe a number as to next couple years where do you think it could go?

Yes, I don't want to give you a number. I think actually over time (technical difficulty) new metric. It won't be PD penetration, it will be home therapy penetration. And that is an orientation that is aligned with our strategic intent with the development of home HD. Very much aligned with the change in reimbursement practice.

So I think the historic metric of PD penetration will become increasingly passe.

Fair enough. Thanks again for taking the questions.

Sean, we have time for just one more.

Ben Andrew, William Blair.

Two quick questions, Mary Kay or Bob, maybe. Can you help us understand what is going on with your pace of collections in plasma? Have you dialed that back up? Or are you still working down your raw materials inventory?

Yes, I would say in the third quarter collections were still down year-over-year. So at this point we have made no change to collections.

Okay. Just finally, the home hemo side, Bob. You were talking a fair bit about that on this call. Do you think that the first study coming out of the IDE is going to be and in-center study or an in-home first?

It will be an in-center.

In-center? And so how long do you think that will take to run, and when can you start on the in-home trial?

That is what we are finalizing, Ben, with the FDA. We have just submitted to them the finalized IDE. And once that is accepted we can provide you with the details on that clinical trial design.

Okay, so it will be at least a 510(k) Class IIb filing; but there is some uncertainty whether it will turn into a PMA over time. Is that right?

I don't believe that we believe that there is any uncertainty. At this point, we believe it is a 510(k) based on our discussions with the FDA.

Okay, great. Thank you.

Ladies and gentlemen, this concludes today's conference call with Baxter International. Thank you for participating. Everyone have a wonderful day.