百特醫療 (BAX) 2011 Q4 法說會逐字稿

Welcome to Baxter International's Fourth Quarter Earnings Conference Call. Your lines will remain in 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 and welcome to our Q4 2011 earnings conference call. Joining me today are Bob Parkinson, CEO and Chairman of Baxter International; Bob Hombach, Chief Financial Officer; and Dr. Norbert Riedel, Chief Science and Innovation Officer.

Before we get started, let me remind you that this presentation includes 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'd like to turn the call over to Bob Parkinson.

Thanks, Mary Kay. Good morning, thanks for calling in. As I've had the opportunity to reflect on 2011, I can tell you that I'm very pleased with the progress our Company continues to make financially, operationally, and scientifically. In fact, despite the global macro environment, competitive landscape, and ongoing uncertainty, Baxter continues to report strong financial results. This includes record sales and earnings for 2011, as you saw this morning, while accelerating investments in innovation, advancing our new product pipeline and pursuing other initiatives to enhance long-term growth, while returning significant value to our shareholders.

As you saw in our press release issued earlier this morning, adjusted EPS in the fourth quarter increased 5% to $1.17 per diluted share. For the full year, adjusted EPS was $4.31, which exceeded our original guidance range provided last January of $4.15 to $4.25 per diluted share.

On a reported basis, worldwide sales in the fourth quarter increased 3%, and after adjusting for the US multi-source generic injectable divestiture, sales growth was 4%. For the full-year 2011, worldwide sales increased 8%, or 5% after adjusting for foreign exchange and the divestiture. And we're particularly pleased with our continued ability to generate significant cash flow, which exceeded $2.8 billion for the year, while maintaining our disciplined capital allocation strategy of returning value to our shareholders through increased dividends and share repurchases.

As some of you may know, in October, Baxter achieved an important milestone in celebrating our 80th anniversary, providing an opportunity to reflect on our great heritage as a pioneer and innovator in the development of life-saving, life-sustaining therapies for patients and customers around the world. As you've heard me say many times, innovation is our most important strategic priority, and 2011 was an outstanding year as we significantly increased our R&D investment to a record level. This has resulted in a meaningful new product pipeline that's as strong today as at any time in our Company's history; one that's focused on enhancing clinical outcomes, improving the safety and cost effectiveness of treatments, and expanding access to care.

I'm specifically encouraged with our pipeline achievements in 2011, as we advanced more than 20 key R&D programs within late stage clinical development. Many of these programs have the potential to profoundly improve the treatment and delivery of care for chronic diseases like hemophilia, immune deficiencies, Alzheimer's disease, and end-stage renal disease.

Let me take just a moment to highlight a number of these accomplishments. Within our leading hemophilia franchise, we've achieved a number of milestones. For example, we've now completed the global Phase I/II clinical trial of BAX 817, a recombinant Factor VIIa therapy and plan to advance into Phase III in early 2012. We've also completed enrollment in the Phase I/III clinical trial of BAX 326, our recombinant Factor IX treatment for hemophilia B and expect to conclude this trial and file for US approval in 2012.

We recently announced the initiation of the Phase III trial of BAX 111, the first and only recombinant von Willebrand factor, which provides an alternative treatment option to currently marketed therapies that are plasma-derived. This is an exciting opportunity for Baxter with global market potential in excess of $300 million.

In December, ADVATE was approved by the FDA as the only factor-rate prophylactic treatment for both children and adults. The approval was based on a Phase IV prophylaxis study demonstrating that ADVATE significantly reduced median annual bleed rates in hemophilia A patients by 98%, representing a reduction from 44 bleeds when treated on demand to 1 when treated prophylactically. Of the two prophylactic regimens approved for use, the pharmacokinetic-driven dosing schedule of every three days offers some patients the choice of fewer infusions versus the current standard prophylaxis regimen.

Earlier this month, we announced the dosing of the first patients in a Phase I clinical trial of BAX 855, a longer-acting PEGylated factor VIII therapy based on the full-length ADVATE molecule. The Phase I results will serve as the foundation for advancing this important program through clinical development and determining whether BAX 855 can offer a treatment regimen requiring fewer infusions than ADVATE.

In the area of immune deficiencies, we continue to be successful in driving differentiation of GAMMAGARD LIQUID by offering various dosage forms, enhancing delivery options, and expanding the number of approved indications. As you know, early in 2011, we introduced the first and only 30-gram dose vial for GAMMAGARD LIQUID in the US; the most frequently prescribed dose for primary immune deficiency patients, which enhances user convenience. We received FDA approval for GAMMAGARD LIQUID 10% SubQ, allowing Baxter to participate for the first time in this fast-growing segment of the PID market in the US.

We're pleased with the initial market acceptance as we've secured both share gains and conversions of Baxter patients to this new therapy and we expect to continue to capitalize on the differentiation we've achieved with this product's favorable tolerability profile, speed of infusion, and low infusion site reaction rate, included in our label of 2.7%.

We also submitted HyQ for approval in the US, Europe, and Canada during 2011. HyQ allows for enhanced delivery of GAMMAGARD LIQUID subcutaneously, facilitated by recombinant human hyaluronidase. The regulatory submissions were based on results from a Phase III trial which met both its primary and secondary endpoints and were presented at the annual meeting of the American College of Asthma, Allergy, and Immunology in Boston.

We also received approval in Europe for GAMMAGARD LIQUID, or KIOVIG, as a therapy for multi-focal motor neuropathy. This represents the first and only centrally licensed indication for MMN in that region and Baxter's first chronic neurological indication. We also recently completed the Phase III MMN clinical trial and submitted for approval in the US, where we've been granted Orphan Drug status.

We enrolled the last patient in our first Phase III study for Alzheimer's in 2011 and expect to complete the trial by the end of this year. And earlier this week, we announced our plans to initiate a second confirmatory Phase III trial following a successful futility analysis that was conducted by the Data Safety Monitoring Board. It's important to note that the futility analysis is not an interim look and the trial remains blinded. However, the analysis indicated greater than a 20% statistical probability of success in achieving statistical significance in the primary efficacy outcomes.

In our regenerative medicine business, we achieved a number of milestones including the approval and US launch of ARTISS fibrin sealant for use in facial surgery and the US regulatory filing for TISSEEL fibrin sealant for vascular surgery, providing a broad hemostasis label.

As we previously mentioned, we're very pleased with the publication of data from Baxter's Phase II chronic myocardial ischemia adult stem cell program, which was published in the scientific journal Circulation Research. Results from the trial demonstrate that injection of the patient's own CD34+ adult stem cells into targeted sites in the heart have therapeutic benefits, such as reduced angina episodes and improved exercise tolerance. We look forward to moving into a Phase III clinical trial early this year.

And finally, we initiated our first home hemodialysis trial, which has the potential to deliver enhanced clinical outcomes and greater patient convenience to those with end-stage renal disease. The first US clinical study will assess device performance and safety in patients undergoing in-center hemodialysis and multiple trials are planned in the US and Canada to support CE Mark in 2013 and the US launch in 2014. These achievements depict just a handful of the programs in our pipeline that will present great opportunities for Baxter in the years to come. And I'm increasingly encouraged with our progress and we look forward to updating you on further R&D achievements in the future.

Throughout 2011, we also accelerated the pace of business development with several new business partnerships that complement our current businesses, enhance our product portfolio, and leverage our scientific, manufacturing and commercial capabilities. Some examples include the acquisition of Prism Pharmaceuticals, a specialty pharmaceutical company that developed and received FDA approval for NEXTERONE.

Second, we acquired Baxa Corporation, which complements Baxter's global portfolio of nutritional therapies and drug delivery systems, leverages our global footprint and leadership in the hospital pharmacy, and supports patient safety.

Third, we recently announced a definitive agreement to acquire Synovis, an acquisition that complements and expands Baxter's regenerative medicine and biosurgery franchise, including a number of devices and biological products for hemostasis, tissue sealing, and adherence.

And finally, we entered into a collaboration with Momenta to develop and commercialize follow-on biologic products, also known as biosimilars. With this collaboration, Baxter will leverage its leading clinical development and biologic manufacturing expertise, global leadership in injectables, and global commercial capabilities, while Momenta will provide its expertise in high-resolution analytics, characterization, and product and process development. This collaboration complements our early stage pipeline and allows us to expand our leadership and leverage our expertise and capabilities in biologics at a time when the global regulatory pathway for approval is becoming more evident.

These transactions reflect our intent of being more proactive on the business development front going forward and they also exemplify the types of opportunities we will pursue; those that complement our existing portfolio and expand our market-leading positions, leverage our global footprint, channel our customer relationships, capitalize on our core scientific or manufacturing capabilities, and provide for low integration risk and a higher confidence in achieving success.

As always, I'd be happy to address any questions on these or other topics, during the Q&A. With that, I'd like to ask Bob to review our fourth quarter financial results and guidance for 2012 in more detail, and then I'll come back to provide some closing perspectives. Bob?

Thanks, Bob, and good morning, everyone. As Bob mentioned, earnings per diluted share in the fourth quarter, excluding special items, increased 5% to $1.17 per diluted share, which was at the high end of our guidance range of $1.15 to $1.18 per diluted share. As we mentioned in our press release, our GAAP results include after-tax special items of approximately $200 million, or $0.35 per diluted share. Approximately 35% of this charge is non-cash.

The special items primarily include costs associated with a business optimization initiative pertaining to certain manufacturing and business operations around the world. These actions include the elimination of a number of positions as we continue to streamline our international operations, rationalize our manufacturing footprint, and optimize our general and administrative infrastructure. Annual savings are expected to total approximately $0.12 per share when fully implemented in 2014.

For 2012, savings will equate to approximately $0.05 per diluted share, which is in addition to an incremental $0.03 of savings related to our actions implemented throughout 2011. Additionally, the Q4 charge includes certain asset impairments principally related to write-down of the Company's Greek government bonds.

Now, let me briefly walk you through the P&L by line item for the fourth quarter and full-year 2011 before turning to our financial outlook for 2012. Starting with sales, worldwide sales totaled $3.6 billion in the fourth quarter and increased 3%. Foreign currency did not impact sales growth; therefore, growth on a constant currency basis was also 3% and in line with our guidance range of sales growth in the 2% to 3% range. Excluding the US multi-source injectables divestiture, Q4 sales growth was 4% on both a reported and constant currency basis.

For the full year, global sales increased 6% to $13.9 billion. Excluding foreign currency and the impact of the US multi-source generic injectable divestiture, sales growth was 5%.

In terms of the individual business performances, beginning with BioScience, global BioScience sales of $1.6 billion increased 3% in the fourth quarter, both on a reported and constant currency basis. For the full year, global BioScience sales of $6.1 billion increased 7%, or 5% excluding foreign currency.

Within the product categories, recombinant sales of $578 million advanced 8%. Excluding foreign currency, sales grew 7%, with balanced growth between both the US and international markets. On a year-to-date basis, recombinant sales exceeded $2.2 billion and excluding the negative impact of tenders, full-year recombinant growth on a constant currency basis was in mid-single digits, consistent with global market demand.

Moving on to plasma proteins, sales in the quarter were $397 million and declined 4% versus the prior-year period. On a constant currency basis, sales declined 2% despite a sequential increase in revenues of approximately 12%. This was primarily the result of a difficult comparison to last year, given the phasing of tenders.

In addition, the decline in sales can be attributed to two items -- timing of plasma-derived Factor VIII shipments related to a large Brazilian tender and temporary supply constraints and delays in the clearance of shipments in China resulting in back orders of approximately $15 million. Excluding these items, sales growth for the plasma protein category was in mid-single digits. For the full-year, plasma protein sales exceeded $1.4 billion and increased 5% on both a reported and constant currency basis.

In antibody therapy, sales of $406 million increased 5%. Excluding foreign currency, sales were up 6%, driven by a robust demand for GAMMAGARD LIQUID, particularly in the US, and the successful launch of our SubQ therapy. As you know, Octapharma returned to the market on a global basis and we annualized the benefits of their absence in the fourth quarter. Excluding the Octapharma benefit from both years, sales growth in the fourth quarter for antibody therapy on a constant currency basis was approximately 10%. For the full-year, antibody therapy sales exceeded $1.5 billion and increased 14% versus 2010, or 13% on a constant currency basis, faster than market demand.

As we previously mentioned, our full-year results included a benefit of approximately $100 million in sales related to meeting demand previously served by Octapharma.

In the fourth quarter, sales in regenerative medicine, which includes our BioSurgery products, totaled $150 million and increased 3% on both a reported and constant currency basis. High single-digit growth of our surgical sealants was offset by lower ACTIFUSE revenues resulting from our planned transition to a direct sales model from ApaTech's former distributor model, as we've discussed in previous quarters.

For the full-year, regenerative medicine sales of $580 million increased 10% or 8% on a constant currency basis, despite global weakness in surgical procedures.

Finally, revenues in the other category, which includes vaccines, totaled $44 million in the fourth quarter and declined 16% versus the prior year. This is primarily due to a benefit in 2010 from one-time orders for our meningitis C vaccine that did not recur in 2011.

In Med Products, global sales in the fourth quarter totaled approximately $2 billion, reflecting an increase of 3%, or 2% on a constant currency basis. Adjusting for the US multi-source generic injectables divestiture, reported sales growth for Medical Products was 6%, or 5% on a constant currency basis.

For the full year, excluding the prior-year COLLEAGUE charge, Medical Products sales of $7.8 billion increased 6% and on a constant currency basis, sales increased 3%. Also, after adjusting for the divestiture, full-year sales growth was 8%, or 5% on a constant currency basis.

Now, turning to the product categories, renal sales in the quarter totaled $664 million and increased 6% on a reported basis. Excluding foreign currency, sales growth of 5% was driven primarily by global PD growth of 8%, which was partially offset by the continued loss of PD patients to another US service provider and lower HD revenues.

I'd mentioned we continue to be pleased with the ongoing momentum in patient gains in the US given recent reimbursement changes and solid patient growth across Latin America and Asia. Sales in the global injectables category of $487 million declined 2% and excluding foreign currency, sales declined 3%. Excluding the divestiture, growth of this category was 10%, or 9% on a constant currency basis, resulting from strong growth in our compounding business, as well as a robust demand for MINI-BAGS and certain injectable drugs.

IV therapy sales totaled $469 million and rose 4% on both a reported and constant currency basis. Contributing to this performance was the addition of Baxa sales to our nutrition franchise, which totaled approximately $20 million, as well as strong growth of IV solutions in the US. Infusion systems sales totaled $235 million, reflecting growth of 2% on a reported and constant currency basis. Growth was the result of expanded placements and sales of the Spectrum Pump.

Finally, anesthesia sales of $147 million increased 4% on a reported and constant currency basis, driven by solid demand in the US, primarily for Suprane and other critical care products. This growth was partially offset by competitive pricing pressures for generic sevoflurane.

Turning to the rest of the P&L, gross margin for the Company was 51.8% in the fourth quarter, an improvement of 90 basis points sequentially and 180 basis points versus the prior year. Margin expansion in the quarter was primarily the result of mixed benefits derived from across the portfolio and improved manufacturing efficiencies in the plasma business. For the full year, gross margin was 51.4%, which is 30 basis points higher than the 2010 gross margin of 51.1% and in line with our full-year guidance.

SG&A totaled $748 million in the quarter and increased 6% versus the prior year period. Excluding foreign currency, SG&A increased 5% as incremental pension expense and investments in a number of promotional activities focused on upcoming new product launches were partially offset by business optimization savings and aggressive management of discretionary spending. For the full year, SG&A increased 7% with FX contributing 3 percentage points of growth and as a percent of sales, the SG&A ratio of 21.1% was flat to 2010.

R&D spending accelerated in the fourth quarter to $254 million, representing an increase of 11%, as we continue to fund in advance a number of late-stage programs, several of which Bob mentioned earlier. R&D for the full year totaled $946 million, a new record level for the Company.

The operating margin in the quarter was 23.9%; a sequential improvement of 20 basis points from the third quarter and the highest quarterly operating margin during 2011. For the full year, operating margin was 23.5%; an improvement over 2010 by 20 basis points, primarily a result of gross margin improvements.

Interest expense was $15 million compared to $19 million last year. This reduction is primarily a result of a benefit from higher rate debt that matured last year and higher interest income. The tax rate was 20.4% in the quarter; in line with our expectations and similar to last year's rate. And finally, as previously mentioned, adjusted EPS was $1.17 per diluted share; an increase of 5%. For the full year, adjusted EPS was $4.31, representing an 8% increase.

Turning to cash flow, cash flow from operations in the quarter totaled $892 million compared to $935 million in the prior year period. The reduction versus the prior year is the result of $89 million in payments, primarily related to the infusion pump recall. On a full-year basis, cash flow from operations exceeded $2.8 billion compared to $3 billion last year. After adjusting for pension and the payments principally related to COLLEAGUE, cash flow from operations exceeded $3.3 billion.

Capital expenditures of $960 million were similar to the prior-year period, resulting in free cash flow, excluding pension and other payments in excess of $2.3 billion. DSO ended the quarter at 53.5 days; an improvement sequentially, but one day higher than the year-end DSO in 2010. And inventory turns of 2.7 also improved sequentially, but were lower than last year.

And lastly, during 2011, we repurchased approximately 30 million shares of common stock for approximately $1.6 billion, or on a net basis, 20 million shares for approximately $1.2 billion, higher than our original objective.

Finally, let me conclude my comments this morning by providing our financial outlook for the first quarter and full-year 2012. First, for the full year, we expect earnings of $4.47 to $4.59 per diluted share. This guidance includes a net headwind of approximately $0.25 per diluted share for non-operational items including incremental pension expense and the impact of foreign currency, particularly in emerging markets. By line item for the P&L and starting with sales, we project full-year sales growth of approximately 2%. Excluding foreign currency, sales growth will be in the 4% to 5% range, as foreign currency is assumed to have a 2% to 3% impact on top line.

This outlook includes incremental sales from the Baxa and Synovis acquisitions of approximately $160 million and $65 million, respectively. The contribution from these acquisitions is more than offset by the impact of Octapharma, the difficult first quarter comparison resulting from the US multi-source generic injectable divestiture and other headwinds we've discussed.

We expect the full-year gross margin rate for the Company to be flat to modestly below the 2011 gross margin of 51.4%, as operational improvements of approximately 50 to 100 basis points are offset by a number of headwinds, primarily dilution from recent transactions and the impact of foreign currency and pension.

We expect SG&A to grow in low single-digits and R&D to grow in low to mid-single digits for the year. Interest expense for the year will total approximately $80 million and other expense, including non-controlling interest, will be in the $20 million to $30 million range. We assume a tax rate of approximately 21.5%, flat with 2011, and a full-year average share count of 550 million to 555 million shares, which assumes approximately $1 billion in net share repurchases. From a cash flow perspective, we plan to generate cash flow from operations of more than $3 billion, which includes an outflow of approximately $250 million related to the finalization of the COLLEAGUE consent order.

Now, to expand on full-year sales assumptions for each of the businesses. First, on a constant currency basis, we expect Medical Products sales to grow in mid-single digits. By product category, IV therapy sales will grow in high single-digits and as you know, this category includes the nutrition business and will benefit from the Baxa acquisition that closed in the fourth quarter. Anesthesia and global injectable sales will increase in mid-single digits, while infusion system sales will decline approximately 5%, reflecting a tough comparison for Sigma as we complete the consent order later this year. And lastly, we expect renal sales to grow in low single-digits.

For BioScience, we project sales growth excluding foreign currency in mid-single digits. This includes low single-digit growth for recombinants, reflecting the impact of recent tenders and plasma protein sales growth in mid-single digits.

For antibody therapy, sales of low-single digits reflecting robust underlying demand and a modest benefit related to our HyQ launch in the second half of 2012, both of which are partially offset by the impact of Octapharma. We expect regenerative medicine sales to grow approximately 20%, which includes the addition of Synovis, and finally, we expect the other category within BioScience to decline approximately 5%, driven primarily by lower third-party plasma sales.

For the first quarter, as we mentioned in our press release, we expect earnings per diluted share of $0.98 to $1 and sales growth, excluding the impact of foreign currency, of approximately 2%. Based on our outlook for foreign exchange rates, we expect reported sales to be comparable to sales achieved in the first quarter of 2011. Thank you and now, I'll turn the call back over to Bob for his closing comments.

Thanks, Bob. As I mentioned earlier, I'm quite pleased with our 2011 financial and operational accomplishments. We achieved organic sales growth of 5% and earnings per diluted share increased 8% on an adjusted basis. We generated strong sustainable cash flow of more than $2.8 billion and returned significant value to our shareholders.

We meaningfully advanced our new product pipeline that's as strong today as any time in our history. We accelerated the pace of business development initiatives that complement our current businesses, leverage our capabilities, and provide enhanced growth in the future.

And culturally, we continue to respond to an evolving and demanding environment, with new strategies aimed at enhancing our commercial, operational, and scientific effectiveness, while continuing to focus on maximizing growth opportunities across the portfolio and managing costs throughout the Company.

As a result, throughout 2011, we strengthened our foundation and we remain very confident in the long-term growth prospects for our Company. We plan to expand upon this later this year when we host an investor conference in Chicago. Additional details will be made available from Mary Kay to all of you in the coming weeks. With that, thank you, and let's now open up the call to Q&A.

(Operator Instructions) I would like to remind participants that this call is being recorded and a digital replay will be available on the Baxter International website for 30 days at www.baxter.com. Mike Weinstein, JPMorgan.

Bob, can you update us on your plans for upgrading the old LA fractionation facility and tell us how that plays into your guidance for 2012?

Yes, this is Bob Parkinson, Mike. Let me kick this off and then Bob and Mary Kay can augment my comments. As you know, we continue to see very steady long-term growth in demand for plasma-based therapies, including IG. Our estimates are that market demand continues to grow in certainly the strong mid single-digit range over time.

We continue to make very good progress in transitioning manufacturing to new LA frac. I think last year we had the majority of our production now move to new LA frac. Obviously, given our strong pipeline of new products, our current plans include utilizing capacity -- as we've discussed before, in the old LA facility at least for some number of years.

As a result of that, we need to shut down old LA to make the necessary investments to upgrade the facility. So, we can keep it in play over the longer-term. We plan on doing that really in the beginning of the second half, Mike, of 2012. We haven't defined a specific date, but it will be early in the second half.

In the meantime, we've been able to adjust the scale of our operations successfully within the existing global manufacturing footprint -- between new LA, Vienna, Rieti, Italy, and through yield improvements and flexibility in the global network. We've been able to respond appropriately to demand.

Beyond keeping old LA frac in commission, as we've discussed before, given expansion of IG indications, the continued strong growth of plasma proteins over time, we have initiated a greenfield development process for a new site. We haven't arrived at a final decision in terms of site selection. We expect to do that shortly.

Certainly, we'd be in a position in our investor conference this fall to share more specifics in terms of the overall capacity demand for plasma proteins, the role that the new facility -- the greenfield site will play in that over time. That covers the overall situation. Specifically, early second half of the year, we'll take old LA out of production to make the necessary upgrades things.

Bob, is the decision to wait to the second half so that you can build inventory in the first half of the year? And then how does taking it down in the second half impact your ability to launch IG?

Bob, why don't you comment on the inventory build --

Yes. Absolutely. As you know, we've been running very tight on inventory. In fact, with very strong demand for our product, periodically experiencing back orders. With Octa returning to the market, the expectation is that we'll be in a better position to start building some inventory in advance of the shutdown in the back half of the year and be in better shape that way. That will allow us to maintain supply and support some modest growth as we indicated in our guidance.

I would say from a cost perspective, very modest impact to cost in 2012. Some impact to '13, but I would say a slight headwind, nothing significant. We're confident we'll be able to take it down, do the necessary upgrades and get back up in production in 2013, and support future growth very nicely.

Coming back to it, how does that impact the ability to really launch HyQ and go after CSL's business?

I think our approach, initially with HyQ, given that this is a paradigm change in treatment is to have a controlled launch, ensure that those patients and treaters that first go on the product understand how to administer it appropriately, build a good track record and good word-of-mouth amongst the community, and then drive the momentum going forward. Our expectations for HyQ for 2012 are modest in any case. We certainly expect to build a strong foundation so that we can gain some momentum in '13 and we'll have the production available to support that momentum as we go forward.

Mike, I'd also add that Octapharma, in terms of our guidance, we've actually eliminated the $100 million of benefit we received in 2011. So, that the guidance of low single-digits, if you excluded that $100 million benefit, would be in high single-digits, which is faster than the market growth.

Got you, that's helpful. Let me just ask one question for Bob Hombach again. The first quarter guidance reflects flat to low single-digit EPS growth. Can you just provide a little bit more color on why the first quarter EPS growth would be lower than the balance of the year? Thanks.

Yes, a couple of factors there. The first quarter tends to be a lower quarter from a margin perspective. Certainly, given where FX rates are at the moment, that certainly poses a bit of a headwind for us as we go into the first quarter here. Really, FX from a headwind standpoint will be there for most of the year, as we indicated in our prepared comments.

But as we get through the first quarter, as we annualize out the impact of the divestiture, we did book revenues to the tune of about $50 million to $60 million related to the multi-source generic business in the first quarter of last year. That will annualize after the first quarter and have a bit more of a normalized growth rate beyond that.

Great. Thank you, guys.

David Lewis, Morgan Stanley.

Maybe a couple questions for Bob Hombach -- Bob, just real quickly, on cash flow, you're guiding to cash flow from operations up year-on-year, but there are some pretty significant hits this year, specifically in pension, as well as the deliverables related to COLLEAGUE. Can you just help us understand your net-net, how you think underlying cash trends are trending into '12, when will we see a normalized cash quarter you think in 2012?

Until we get the COLLEAGUE consent order done, we won't see a normalized quarter until the third quarter. We're targeting July as when the due date is to finalize that. The amount of cash we've assumed out the door related to COLLEAGUE in 2012 is slightly higher than it is in 2011. Those are comparable year-over-year and aren't driving a difference. You're right, we did have a pension contribution in early 2011 that we're not expecting to make a pension contribution in 2012. Nothing else really material to discuss around the overall working capital and cash flow assumptions.

Again, our guidance, we said, exceeds $3 billion, so we'll see how things play out. Generally, I'm very comfortable with how we've managed the inventory and DSO situations in a very tough environment, particularly DSO. You did see some slight deterioration year-over-year, but certainly nothing dramatic and it's one we're very focused on managing going forward.

Okay. Two quick ones here -- Bob one more financial and one for Bob Parkinson. Just on the $0.20 to $0.25 for currency and pension, could you just give us the relative break out there between pension and currency -- or specifically, just what the pension expense, alone, is?

Yes. Maybe, I'll spend a bit of time on this because I think it's relevant for a lot of other folks as well. Pension is, as we projected, $0.09 of a headwind year-over-year. So, looking at the residual of $0.16, that's the midpoint of our estimate of the impact of foreign exchange. Historically, we've talked about FX being a fairly muted impact at the bottom line for the Company, a combination of having natural hedges and the use of financial hedges, and a bit of a portfolio effect in the emerging markets for us over time. In fact, if you look at 2011, despite volatility where a tailwind for us in the front half of the year and a headwind in the back half, we end the year with approximately $0.03 of a net impact on FX on the full year 2011.

Favorable.

Yes. Net-net, not a much of an impact to speak of on the base of $4.31 of earnings. But as we move into 2012, clearly we're projecting a much more pronounced impact. Maybe I'll just take a minute here and walk everyone through the drivers, because I think this is important.

As we've talked about regularly, Baxter has about 60% of our revenues outside the US. We've increasingly highlighted for investors that now, slightly more than 20% of our revenues come from emerging markets, and in fact, emerging markets have been growing 2 to 3 times the rate of developed markets over the last five years. The mix of our business certainly has shifted towards emerging markets to a much greater degree.

As we've highlighted in the past, for development markets, we have the ability through natural hedges, given our manufacturing footprint, which we have in places like Europe and Canada and Japan, Australia, and so on. We have some natural hedges there, but also we utilize financial hedges in those developed markets.

I would pause here to say as we've talked about in the past, by policy, we hedge 80% of our projected exposures and by the nature of hedging, when you're looking at 12 to 18 to 24 months out, you have to be careful in your projections to ensure that you don't get yourself in an overhead situation, hence the 80% with a 20% buffer. But what that does mean is we do have some residual exposure muted, but some residual exposure in the developed markets.

As we've said in the past, with emerging markets, we do not hedge, we do not utilize financial hedges and we have modest natural hedges -- some manufacturing facilities in Latin America, Eastern Europe and so on. But nothing near the degree we have in the developed markets. Our bottom line drop through exposure on the emerging markets is much more leveraged.

To frame that exposure for you then, looking at it by region. So, within Latin America, from an operating profit perspective that would be exposed to foreign currency, think of that in terms of $300 million to $400 million of annual profit. That's primarily Brazil, Colombia, and Mexico. For Eastern Europe, which is primarily Russia, Poland, and Turkey -- again, about $300 million of operating profit on an annual basis.

Then in Asia-Pacific, and there, we'd exclude Japan, Australia-New Zealand, and China -- because of the stability of the currency. So, all of Asia excluding those three is another roughly $300 million of operating profit on an annual basis. You add that up, that's $900 million to $1 billion of profit exposed to currency in emerging markets. As you've seen, there's been quite a bit of volatility. Given where we're sitting today, and where rates are today relative to where they were on average in 2011, if you assume an 8% to 10% weakening across that basket of emerging market currencies, that's $80 million to $100 million of incremental exposure that we're factoring in here. You add to that the slight 20% residual impact from the developed markets that goes unhedged, and that's how we get into this $0.15 to $0.18 range of FX exposure.

As you would imagine, given the volatility, we've assumed somewhat conservative rates relative to where market rates are today. There's been a bit of a run up here in the last few days, but given the volatility, I hesitate to call it very conservative. That's the picture. If I step back and think about, as a large US multinational corporation, and thinking about the long run, being long in the emerging markets, whether it's from a growth perspective or a currency perspective, is exactly where we want to be.

We continue to see great opportunities there, but in times of financial crisis like this where the correlation between those currencies and the US dollar is all going one way, it creates this outside exposure that we're having to factor into our guidance year for 2012. Thanks for bearing with me, but I think it's important that people understand the breadth of the issue for us.

Thanks for the detail and I think the other Bob owes you a gold star. Maybe one more quick one for Bob Parkinson. Bob, there's been a lot of concerns here in the quarter regarding European austerity, you've talked a lot about old Europe pressures. We've been surprised about where that pressure's coming from, I think it's a little different than where the investor sees between your plasma business versus your injectable and nutritional business. Can you talk to where you're seeing the pressure and which businesses for Baxter are proving to be more robust? Then, which businesses are seeing more pharmaceutical-like pressure? Thank you.

The negative impact of the austerity measures, first of all, is what I'll call general softness, David, in underlying demand. But these are the things we see globally. Surgical procedures and things of that nature are somewhat softer than what's been reflected historically. That would run across virtually all of our businesses, certainly even our IV business and so on and so forth.

But the other pressure that's probably more pronounced and is more associated with our BioScience business would be pricing pressures with governments who clearly are under the gun to implement austerity measures. Given healthcare spending and what a large item it represents on national budgets and so on. We continue to see governments virtually unilaterally implementing various pricing actions. That impact is more pronounced in things like biosurgery where people are making trade-off decisions in terms of clinical options that they have. Also, most of our BioScience products, which are more expensive. As an example, countries like France implement actions in terms of taking prices down. It's a haircut, David.

It's not as pronounced as what you would see with some of the tender actions, let's say on hemophilia, because encouragingly, we haven't seen the expansion beyond the Anglo markets of the tender activity for hemophilia. We think we've captured, in our guidance for next year, those known pricing actions that will be taken on a country-by-country basis. We, also, think we've reflected the underlying softness of demand. But I think we have to be cognizant of the fact that, given the extreme austerity measures and pressures that exist -- that unlike the US, governments in Europe most notably, really have a history of implementing unilateral actions for which there's not a lot of control.

We think we've captured it, but like I say, given the environment, I think we have to be cognizant that there could be more there. By the way, this is an ongoing thing. It's why I talk about dealing with the new environment in our Company and our culture and so on. This isn't something that's going to pass through this year -- or through the end of 2012, it's going to be with us.

Very helpful both of you, thank you.

David, I would just add is that what we included in our 2012 guidance was what we had discussed throughout the fourth quarter of about $30 million to $40 million related to austerity measures. That's pretty balanced between both BioScience and Medical Products. I'd just highlight that the majority of the impact is really coming from vaccines within the BioScience business. And within Med Products, it's really between IV therapy, where our nutrition products are being impacted, and then some impact in renal.

That's helpful. Thanks, Mary Kay.

Very helpful, thank you.

David Roman, Goldman Sachs.

I was wondering if you could walk through the impact of M&A on the guidance? I know you provided some perspective with respect to dilution at the time you announced the deals. But how much of the dilution that you provided then, is either going through GAAP or ongoing earnings?

Within the guidance that we provided, the incremental dilution is about $0.05. A couple things I'd note -- one is we did take about $0.01, roughly, in Q4 here, because we did close the Baxa acquisition a little earlier than we thought. Some of what we were projecting for '12 occurred in '11. Then, as we've looked at this further, there are certain aspects of the transaction costs that we're likely to special out going forward. But the big chunk of this really is non cash amortization related to deal premium that you have to run through, in our case, will go through cost of goods sold and that's about $35 million from an incremental headwind that's going to run through margin here. Again, about $0.05 incremental, but we did take $0.01, roughly, in Q4.

Okay. If I look at the plasma protein business, the issues about timing of imports in China. I think you'd talked about that last quarter as well, and you brought up the delay on a large tender for PD factory in Brazil. Are those issues that we should think about as being ongoing for the next several quarters, or will those normalize at some point whereby that business gets back to stable underlying growth on a reported basis?

Yes. Certainly Brazil, for sure, is a timing issue. We're hoping to continue to accelerate into China with albumin because it is a great growth opportunity. Yes, you should see normalized growth rates here in 2012 for that category.

Although, I would mention, David, that tenders tend to be volatile and we can see shifts from quarter to quarter. Just to highlight that.

David, the one thing I would add too, to the China situation. There's been local action by the Chinese government to further scale back some of their local plasma collection operations in the country. This importation of albumin in China, would appear to be something that is going to be sustainable for the near future. Certainly over the next few years, I think, given some of the local issues they manage through.

Okay. Lastly, on the new products, Bob, in your prepared remarks, you talked about SubQ both capturing share from your competitors as well is converting some of your own business. When we think about things like HyQ and some of the other products that you'll launch through the end of '12 and into '13, should we think about those as more share capture, market growing, cannibalistic? How would you rate that?

It will be some of each. Over time, it should translate into both share gains, but I would say, also, at a price premium. As Bob pointed out, hopefully when we get approval between then and the end of the year, we're going to have a very controlled launch. Understand what the receptivity of the product is, which then will titrate the marketing objectives between share gain pricing and so on, recognizing in the near-term managing through supply of IG. But the value in HyQ should be manifested in both share gains and pricing.

Okay. Thank you very much.

Rick Wise, Leerink Swann.

Could I start with gross margin? Bob, you talked about gross margin being essentially flat for the year, but could you talk about it, how should we think about the quarterly flow? Particularly, as it relates to old LA shutdown -- temporary shutdown? Should we assume second half gross margins are lower? If you could help us think through that?

No, I don't think that old LA, in and of itself, given that it's back half, that we'll take it down and how that rolls through our P&L. As you know, there's a bit of a delay given the long lead time of that. Most of that impact will actually impact 2013. Again, it's a slight impact, it's not that significant. I wouldn't expect anything unusual quarter-by-quarter margin, with the exception of FX.

As you know, we talked about FX as a tailwind in our Q2 margin in 2011. Then, it snapped back to a headwind given the dramatic move in emerging market currencies. Because there is a dichotomy in terms of how margin affects -- FX affects our margin between the developed markets, where we have natural hedges and financial hedges. That tends to mute the margin impact, but as reported sales come down, that can actually result in a higher reported margin percentage. But on the emerging market side because it's more highly leveraged and we don't have the financial hedges or the natural hedges in place, that tends to be more of a straight drop through. So, it really does matter which currencies are moving which way, here between developed markets and emerging markets.

The one caveat to my comment, really, is that the tailwind in Q2 and the headwind in Q3 versus where we're at here with 2012 and our initial guidance, that would be the only tweak. I don't think it's anything dramatic there.

Rick, I'd add that, I think Bob mentioned earlier, our Q1 gross margin is expected really to be flat to 2011 Q1. Q2, generally, we do see a higher margin really due to the mix of our sales, which is benefited by the FSME vaccine, which is very high margin. Typically, Q2 is our highest gross margin quarter of the year, and then in Q3 and Q4, it moderates a little bit.

Okay. That's helpful. If I could turn to the plasma market, you've talked about some of the market dynamics, but it seems like as we look at 2012, the outlook is a lot different than a year ago. Grifols Talecris now combined, two questions -- can you talk about the dynamics of the consolidation -- the Octapharma $100 million you've taken out? Are you seeing them on track to actually do that or is that a conservative assumption? Maybe a little bit about, collections and supply-demand, I would appreciate it. Thank you.

Rick, this is Bob Parkinson. Let me take the first part and maybe you can address, Bob, collections. I really don't want to comment in terms of competitive response, and I know there's been a lot of changes in the market, frankly, as a result of what we've seen. Clearly, Octapharma has gotten a lot of business back already that we gained from them last year. Whether our assumption is conservative or not is yet to be seen. But I think it is fair to say that most of the volume that we gained will get lost back over time to them. Okay?

Rick, the way I would think about that is that given how the market breakdown for us in the US -- where about half of our sales in the hospital, acute, episodic use versus the chronic space. Our focus, particularly with SubQ and then with HyQ, is really going to be grow out the chronic space. So, with that differentiation, we think we have great opportunities there. Where they play today given their 5% concentration, which is a sub-optimal product relative to what most other competitors have with a 10% concentration, likely they're going to play in the more price-sensitive hospital space in any case.

For us, it's more about directing product to those parts of the channel that we think we have the best opportunity to win and if that means some of the price-sensitive accounts we lose, then so be it. It's more of how we're focusing on where we want to drive growth in the future than trying to fight it out with them hospital to hospital.

What was your question, Rick, on inventories, again?

It was supply-demand, given the weakening economy, are collections growing? Just wondering how you see the background there for plasma protein?

Actually, the economic environment in the area of plasma proteins in general -- certainly in IG, frankly, we haven't seen -- little to no effect, really, in terms of underlying demand. I think in terms of the projection of market growth, both in '12 and going forward beyond that, very consistent with what we've communicated before. I would say strong single-digit, mid single-digits. That's for the total market. Obviously, with the early encouraging feedback on our SubQ product, the hopeful launch of HyQ and then indication expansions with MMN and so on over time. It's clearly our aspiration to grow this business at a faster rate than the overall market. But overall, Rick, pretty stable.

Thanks, so much.

Bob Hopkins, Bank of America Merrill Lynch.

Two quick questions -- one on the Analyst Day, upcoming. Then, another on your recent press release on Alzheimer's and the futility analysis that was done. On the futility analysis, I was wondering if you could just comment a little bit more specifically about what we should and should not read into that analysis and the 20% threshold. It's my understanding that relates specifically to safety, and says nothing about efficacy related to that 20%. Is that the right way to look at it? I just want to clarify the point because it has impacted the stock.

As Mary Kay mentioned at the outset, Dr. Norbert Riedel's with us this morning. I'm going to ask Norbert to respond to your question on this. Go ahead, Norbert.

Okay. Maybe just for a little bit of context, the Phase III trial that is ongoing has about 390 patients enrolled. Patients are on therapy for 18 months. The futility analysis was done on a 120 patient, part of that trial that has already completed 18 months on therapy. The Alzheimer's consortium, who we worked with to conduct this trial, had a statistical group determine the parameters of the futility analysis. For it to be truly within the spirit of the futility analysis and not become de facto interim analysis -- and that's where they set the cut off for the assessment. The assessment was done -- and says that there is a better than 20% probability of reaching the endpoints, the primary endpoints defined for the trial.

There's also no indication, from a safety point of view, as to why the trial should not proceed. Therefore, the recommendation that the trial should indeed proceed as planned. Our communication that we will be initiating a second conservatory trial with the exact same trial design.

Specifically, answering your question, I did not expect a safety signal or a safety concern, primarily because immunoglobulin, GAMMAGARD is used and has been used for very many years in primary immunodeficiency and has a very well-defined and also, I would say, a very favorable safety profile. Safety was not really the issue -- why it was looked at anyway by the DSMB. But it was about a probability assessment that we will indeed be able to achieve the primary endpoint. So, I'm encouraged by that.

I think it supports, also, the Phase II trial data that we have seen, it supports our hypothesis that a multi-factorial disease like Alzheimer's disease will likely benefit from a multi-factorial treatment approach like the complexity of the immunoglobulins that we offer these patients. It just overall continues to make me cautiously optimistic that this might indeed be a way of going after treating the disease.

Can you just remind me the primary endpoint of the study?

The primary endpoint is two well-defined endpoints that are generally used in the space of Alzheimer's disease. One is an assessment scale that is a cognitive function assessment scale that is used. The other is an overall function of the patient that has to do with activities of daily life and so on. Parameters that we have selected together with the FDA and that are consistent with endpoints in Alzheimer's trials typically looked for.

Great, thank you very much.

What's your question on Investors Day, then, Bob?

Yes. On the Investors Day, just some thoughts on specific timing and things that you're going to be covering on that day that you think we should be aware of in front of the meeting, and things that we should be preparing for?

In terms of the specific time and date, Mary Kay will be out to all of you shortly. We're nailing that down. It'll be this fall, okay? Mary Kay, within what time frame?

Within a week or two.

Within a week or two, we'll get you all the specifics in terms of the logistical part of it. But what's our objective, as we traditionally have done, is to give you a longer-term view of where we see our Company going. One of the reasons, as I've commented before, that we have not had an Investors Day for while, I think, is really largely a result of the external environment and recognizing the volatility that existed. Candidly, we wanted to get a better line of sight both in terms of our operating plan for 2012 as a baseline, but to get our arms around some of the moving parts.

I think you can interpret the fact that we're scheduling that as positive in terms of our sense that we think we more definitively have our arms around where we're going and so on. It's a bit of a sense of confidence, as you gathered, from my prepared comments. We continue to be very confident in the long-term outlook of the Company. We understand all of you have been waiting for a while to get a sense of something beyond the immediate year that we're operating in.

That's really the primary objective in terms of what's going to drive the growth of the Company going forward. Really, at what rate do we see revenue growing out over the coming years, as well as projected earnings growth and so on. We look forward to getting together with everybody.

Thanks very much.

Larry Keusch of Morgan Keegan.

I'm just wondering, Bob, if you might just -- I know we spent some time on Octapharma, but maybe just from a global perspective, help us understand what you're seeing on price globally? Again, I understand you don't want to compete in most price sensitive countries or hospitals in the US, but just what they're doing?

I'll just comment to some degree, maybe not satisfying you specifically. But from our perspective -- obviously, we're seeing fairly stable prices in terms of what we charged our customers around the world. I'll leave it at that.

Okay. Then, obviously, emerging markets are already a big proportion of your business. There's a lot of reasons to believe that, and Bob Hombach mentioned they're clearly the right place to invest in this is where you want to go long term. I think you've thrown out 30% as a percent of sales of where you think these markets can go. Can you just remind us of how you're thinking about when you might reach that bogie? How we should be thinking about the margin profile, as the mix of emerging markets gets bigger?

Let me make a couple of comments and then Mary Kay and Bob can add to this. First of all, this will be an area of focus at our Investor Conference this fall. We'll hone in, provide a little more structure and definition on the opportunity that we see long-term associated with emerging developing markets. I think the number that you cited, clearly, is a reasonable aspiration that we ought to be able to get to within a five-year period of time, to give you little bit of a framework.

In terms of profitability, actually, interestingly, if you look at pretax operating margin as a percent of sales in these markets, it actually aligns fairly closely with what we see in developed markets. Obviously, the cost of doing business in not all, but many, of these markets is much less. Also, we're supporting this growth through overhead structure, whether it's here in our corporate offices or in our regional offices that can be further leveraged. I don't see, over time a dilution to the profile of our P&L as we grow emerging and developing market revenues at a faster rate than the rest of the Company. Mary Kay or Bob if you want to add to that?

We've tended to enter these markets over time in the IV or renal space, but the opportunity to -- as these economies move up the scale and start devoting more of their GDP towards healthcare, some of our higher-end products, particularly biologics, become more attractive. The opportunity to increase margin, through further penetration of the biologics portfolio and the higher end projects within our Med Products space -- like some of our nutrition and anesthesia products, we actually see nice margin opportunities for improvement going forward there.

Terrific. Just one last housekeeping item for Bob Hombach. I don't know if I missed this on the call, but CapEx spending for 2012? How much is contemplated in there for the improvements being made to the old LA frac? Also, what are you assuming in your guidance for the R&D tax credit?

Yes, the R&D tax credit for us is a fairly small item, not material. As a relates to CapEx, once again, we're looking at about $1 billion. That may go up a little bit pending the timing of when we launch the greenfield site that we've talked about for the plasma business. But thinking about it at approximately $1 billion at this point is a good way to think about it.

Okay. Terrific. Thank you.

We have time for two more questions.

Kristen Stewart, Deutsche Bank.

Just wanted to confirm -- sorry if I missed is the beginning -- but your guidance does include both the Baxa acquisition, and does it include Synovis? I know that hasn't closed yet, but --

Yes.

In total, what was the total dilution from both of those deals that's included within the adjusted number?

Within the adjusted number, we talked about $0.05 incremental in '12. We took about $0.01 in Q4 here, withholding Baxa little bit early. That's a number. As I mentioned, there are some one-time costs related to Synovis as a public Company that we'll think about specialing out -- but think about $0.05. Again, almost exclusively non-cash amortization that's required by purchase accounting that runs through margin.

Earlier I thought you had said that was running through cost of goods sold, is that correct?

Yes.

Bob, just a big picture question. I know biosimilars is something that, in the past, you had shied away from. Obviously, you just announced the recent deal and seems to be a little bit more clarity. Can you just maybe expand about your thoughts on biosimilars? Just where you see Baxter participating over the longer haul? Any specifics on products that you could share?

Yes, Kristin, with the deal Momenta, we think this could be a meaningful opportunity for our Company. Historically, it wasn't so much that we shied away from it. I think we always felt, fundamentally, we were probably as well-positioned as anyone to participate in the market.

Clearly, there was -- and continues to be, to a great degree, some ambiguity in the regulatory pathway. But if you look at Baxter's expertise in biologic manufacturing, all these are drugs that are administered -- are injectable, which plays to a Baxter strength in terms of packaging, formulation technology and so on. Obviously, given our global channel presence, again, I think we've always been as well-positioned as anyone. The reason we've been historically noncommittal was, one, lacking definition on the regulatory pathway. But with the collaboration with Momenta, candidly, we think we have a potential fundamental differentiator here at least on the six compounds that are part of the deal that we did with Momenta.

Not to get into a lot of detail on their technology. But at least with one biologic, they have a proven track record of applying their technology, bringing it through regulatory approval and getting it launched to the market. We're excited about the prospects of potentially being able to minimize the clinical development spend given their ability to characterize these biosimilars more effectively, and accelerate the time-to-market, as well as lower cost of market as well.

With the Momenta deal, I think that was really the key thing that pushed us over the edge to say -- okay, we ought to be able to leverage the other Baxter strengths and take advantage of this is as a significant opportunity. We're quite excited about it.

Congratulations on stealing Jean-Luc Butel from Medtronic. Anything different that we can expect from him with the international business?

I don't think so. Since Ludwig Hantson moved from the international role to run BioScience -- which I would say he's doing an outstanding job with our pipeline and clinical development throughout BioScience -- in the meantime, the regional presidents in Europe, Latin America, and Asia-Pacific have reported directly to me. I think that's worked fine, but I think that, as we've discussed on the call this morning -- given the opportunity in emerging developing markets, there's probably very few people in the industry have Jean-Luc's expertise and depth of experience in operating in these markets around the world. I think he will bring real value add to, and direction to, our international regions. As well as depth of experience in our senior leadership team overall. We couldn't be more pleased to have Jean-Luc come on board in a few weeks.

Thank you.

Matt Miksic, Piper Jaffray.

I've got one question on some of your new products in IVIG that you've mentioned, recent and forthcoming launches of SubQ and HyQ and the offsetting impact on the return of Octa. Can you give us a sense of how SubQ has impacted your business so far? Understanding HyQ is significantly more differentiated, SubQ also seems to have been having a positive effect. Do you think it's -- if you can quantify that, is it $10 million, $50 million on an annualized basis? Or 1% or 2% incremental to your business? Then maybe at a higher level, looking at both SubQ and HyQ, do think they reach level in 2012 to offset the $100 million you've talked about giving back to Octa? Any kind of color would be great on that. I've got one follow-up.

Let me just maybe give you a general response and then Mary Kay or Bob can maybe fill in some of the details. Obviously, we're encouraged by the early response to the SubQ. We are seeing a conversion of patients from competitive product, as well as conversion of Baxter products on the IV form as well. So, we're -- with a low injection site reaction in terms of side effects which is in the label, and that's been validated I think in terms of actual clinical experience.

Having said that, I think it's too early maybe to quantify, Matt, how much of the Octapharma loss could be offset with the 10% SubQ, but I think it's fair to say that some of it will be. I'll stop there. Bob or Mary Kay, do you want to add to that?

Yes. I get very excited about how SubQ has gone so far. But again, I would think but 2012 as a little bit of an unusual year, taking the old LA facility down. It's going to constrain our ability to grow faster than what we have described here to some degree. So, it's really about seeding the market for what we think will be a very successful HyQ launch. It will be more over time than an immediate impact in '12 -- in terms of what it might do for our business. But, clearly, it's being well-received. And again, it's the fastest growing segment of the PID market, so we're very happy to be participating in it.

That's great. Lastly on Recombinants, with Q4, we saw a pretty significant step up in the second half of the year. I wanted to get a sense, as you head into 2012, got your growth expectations in your prepared remarks, but Dr. Riedel's been talking about the peer-reviewed paper on inhibitor formation published last summer.

Can you give a sense and maybe Dr. Riedel can answer this, as to how that paper, what kind of impact has that had on the thinking across clinicians and folks in the community? Are you starting to see an impact or do expect to see an impact whether it's in tenders or utilization? Thanks.

Maybe I start with just touching on the paper that you refer to, the meta-analysis. Which, really, for the first time, provides a rather encompassing comparison between B-domain deleted Factor VIII and full-length Factor VIII. I keep pointing out that our ADVATE as the gold standard of therapy in hemophilia A is a full-length Recombinant Factor VIII that is manufactured completely in the absence of any proteins added, at any point in the process of making the finished product.

I have always believed that, a full-length Factor VIII most closely mimics what is naturally occurring when you have a Factor VIII. The data in the meta-analysis suggests that B-domain deleted Factor VIII has a much higher incidence of inhibitor formation, about a sevenfold higher incidence than a full-length Factor VIII. With respect to what we call high titer antibodies, which are the most problematic for a hemophilia patient, an 11 times higher incidence rate.

We have been very clear with ourselves that our goal continues to be, to optimize ADVATE therapy. Our longer acting Factor VIII is fundamentally an ADVATE molecule with a minor tweak that we put on the molecule and continues our approach to working with the full-length Factor VIII. I think when you look at just the market share of B-domain deleted Factor VIII today, it is actually very small. I believe that given a choice, a full-length Factor XIII is a very attractive therapy and as I mentioned, is much closer to the natural way of dealing with bleeds or stopping the bleeds.

Fair to say, I think, that we're starting to see this resonate more with treaters and patients, both the [PROPOFOL] label as well as the meta-analysis. But that's part of our challenge in '12 is to drive that into the market and make it happen. That's what we're focused on.

Great, thank you.

Thanks, Matt.

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