百特醫療 (BAX) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Baxter International's first-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, John. Good morning, everyone, and welcome to our Q1 2013 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 detail concerning factors that could cause actual results to differ materially.

In addition, in today's call, non-GAAP financial measures will be used to help investors understand Baxter's ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in our earnings release issued this morning and available on our website.

Now, I would like to turn the call over to Bob Parkinson.

Thanks, Mary Kay. Good morning, everybody; thank you for calling in. As you saw in the press release that was issued earlier this morning, Baxter's first-quarter financial results were in line with our expectations, and we've also confirmed guidance for the full year for 2013. In the first quarter, adjusted earnings per diluted share increased 4% to $1.05 per diluted share, and worldwide sales increased 2%. And our financial outlook for the full year includes sales growth of approximately 10%, which reflects the impact of the Gambro acquisition, and adjusted earnings per diluted share of $4.60 to $4.70.

Even in the face of a very challenging macroenvironment, Baxter continued to make investments to support geographic expansion initiatives and new product introductions, while advancing a number of programs that improve the quality of care, and address key high-potential areas of unmet medical need. A few recent achievements include the advancement of our home hemodialysis device, VIVIA. As you know, last year we completed the first clinical trial in the US, evaluating the performance and safety of this new device, and we've initiated a second in-center nocturnal hemodialysis trial in Canada. We remain on track to complete this trial in the second quarter, which will be used to support CE Marking in Europe later this year.

Within our leading hemophilia franchise, we've achieved a number of milestones, including the initiation of a global Phase III clinical trial of BAX817, a recombinant factor VIIa therapy for hemophilia A patients with inhibitors. And we also announced results from a pivotal Phase III study evaluating routine prophylaxis of FEIBA compared to on-demand treatment in patients with hemophilia A or B, and inhibitors. The presence of an inhibitor, as you know, makes response to treatment more challenging, and patients with inhibitors have an increased risk of developing complications such as joint damage. Topline results from the study showed a 72.5% reduction in the median annual bleed rate with prophylaxis treatment. This Phase III study supported the filing of a biologics license application with the FDA during the first quarter, and earlier this week Baxter was granted orphan drug designation for the prophylaxis indication.

Also within the hemophilia franchise, Baxter began dosing the first patients in the Phase III trial of BAX855, a longer-acting PEGylated factor VIII therapy based on the full-length ADVATE molecule with an increased half-life. With efficacy and safety as the primary goals for selecting a therapy, BAX855 retains the underlying attributes of ADVATE, potentially offering alternative treatment regimen resulting in fewer infusions.

In the biotherapeutics franchise, Baxter and our partner, Halozyme Therapeutics, announced a positive opinion in Europe for the use of HyQvia as a replacement therapy for adult patients with primary and secondary immunodeficiencies. HyQvia is a combination of human normal immunoglobulin and recombinant human hyaluronidase, which facilitates the dispersion and absorption of the therapy. Upon receiving Marking authorization from the European Commission, Baxter plans to launch HyQvia in select European markets later this year.

We also continued to advance development of GAMMAGARD LIQUID as a possible treatment for Alzheimer's disease. As you know, we completed the first Phase III study for Alzheimer's in December, recently locked the database, and expect to release topline results during the second quarter. A second Phase III trial was initiated in the first quarter of 2012, and we have now randomized more than 200 of the estimated 400 patients, and we expect to complete this study in 2015.

On the business development front, we acquired the investigational hemophilia compound OBI-1 from Inspiration Biopharmaceuticals, and related assets, including manufacturing operations from Ipsen Pharma. OBI-1 is a recombinant porcine factor VIII currently in Phase III clinical studies for the treatment of bleeding in people with acquired hemophilia, a rare, potentially life-threatening bleeding disorder, which, unlike congenital hemophilia, typically affects older adults, and occurs equally in both males and females. OBI-1 received orphan drug designation in the United States and Europe, and was recently granted fast-track designation by the FDA for this indication. OBI-1 has the potential to address existing unmet needs for hemophilia patients, and over time, represents a $200-million opportunity for the Company.

And finally, we received US regulatory clearance for our proposed acquisition of Gambro AB, a global innovator in hemodialysis and acute renal technologies. This acquisition enhances Baxter's competitive position by creating a global renal therapies business with a comprehensive product offering for both chronic and acute dialysis patients. And positions the Company to capitalize on the significant opportunity presented by the large and growing global dialysis products market. Pending additional regulatory approvals, we continue to expect the transaction to close at the end of the second quarter.

In closing, Baxter's portfolio remains strong, and we continue to benefit from our focus on life-saving therapies. In 2013 and beyond, we will focus on the four growth factors that support our strategic objectives, and enable us to serve the interest of patients, providers, and other key stakeholders. These four factors include -- enhancing growth by optimizing our core business portfolio; advancing the Company's new product pipeline; capitalizing on the opportunity to develop new product models, which include public and private partnerships; and pursuing business development initiatives that deliver enhanced returns in the near and long term. With this in mind, Baxter will fulfill our mission of improving quality and access to care, as we save and sustain lives globally. And as always, I'd be happy to address any questions that you might have on these or other topics during the Q&A.

So, with that, I would like to ask Bob to review our financial results for the quarter and also guidance for 2013. Bob?

Thanks, Bob, and good morning, everyone. As Bob mentioned, earnings per diluted share in the first quarter, excluding special items, increased 4% to $1.05 per diluted share, which was at the higher end of our guidance range of $1.03 to $1.05 per diluted share. As we've mentioned in the press release, GAAP results include after-tax special items of $29 million, or $0.05 per diluted share. The special items in the quarter were primarily associated with deal-related costs for the planned acquisition of Gambro AB.

Now, let me briefly walk you through the P&L by line item for the quarter, before turning to our financial outlook for full-year 2013. Starting with sales -- worldwide sales of more than $3.4 billion in the first quarter increased 2% on both a reported and constant-currency basis. Growth was driven primarily by acceleration in emerging markets, particularly BRIC countries, and solid performance in several key franchises within BioScience, which offset softness in the US Medical Products business.

In terms of individual business performance, global BioScience sales of $1.5 billion advanced 5% on both a reported and constant-currency basis in the first quarter. Within the product categories, hemophilia sales of $765 million increased 3% on both a reported and constant-currency basis. US sales growth was strong, as sales advanced 7%, driven by double-digit growth of ADVATE and FEIBA. This more than offset the impact of European austerity measures and international tenders. We continue to be pleased with the benefits associated with our differentiated label of ADVATE, as we continue to drive conversion from plasma-derived therapies and competitive offerings, and enhanced penetration of prophylactic treatment.

In biotherapeutics, sales of $509 million increased 2% on both a reported and constant-currency basis. As expected, sales growth of GAMMAGARD LIQUID and Albumin was in low-single digits, driven primarily by improved pricing as we remain capacity-constrained, while sales of alpha-1 treatments continued strong growth.

In the first quarter, sales in BioSurgery of $172 million increased 12%. After adjusting for foreign currency, sales rose 11%, driven by growth of TISSEEL and a benefit from the Synovis acquisition of approximately $10 million.

Finally, vaccine revenues totaled $84 million in the quarter, and increased 25%. Excluding foreign currency, sales increased 28%, driven primarily by strong demand for the FSME vaccine, and incremental milestone payments totaling approximately $10 million related to our ongoing collaborations on the development of influenza vaccines.

In Medical Products, global sales in the first quarter exceeded $1.9 billion, and were comparable to the prior year. Excluding foreign currency, sales declined 1%. Within the product categories, renal sales totaled $590 million, and were flat to the prior year, while on a constant-currency basis, sales were up 1%. Sales in this category were impacted by austerity measures implemented in China, the timing of tenders, and lower HD sales, which offset the contribution from patient gains in the US and emerging markets.

Sales in the fluid systems category of $740 million increased 3%, and on a constant-currency basis, sales increased 2%. Performance continues to be driven by solid demand for IV solutions and price improvements for certain injectable drugs like cyclophosphamide, which collectively offset lower sales of infusion pumps and access sets as planned. Specialty pharmaceuticals, which includes our inhaled anesthetics and nutritional therapies, posted sales of $363 million, reflecting a decline of 1% on a reported basis, and a 2% decline on a constant-currency basis. Double-digit growth of anesthetics across international markets was driven by increased penetration in new markets, which was more than offset by lower sales in the US attributed to softness in surgical procedures and fluctuations in the purchasing patterns of US wholesalers.

Finally, sales in biopharma solutions, which is our pharma partnering business, totaled $225 million, representing a 10% decline on a reported basis, and 11% decline on a constant-currency basis. This was due to temporary constraints, which resulted in delayed shipments to customers, which have been resolved, and shipments have resumed.

Turning to the rest of the P&L -- gross margin in the quarter of 51% reflects margin expansion of 20 basis points versus the prior-year margin of 50.8%. This was the result of underlying operational expansion driven primarily by the benefit of positive mix, which offset a number of headwinds, including incremental pension expense, the Medical Device Tax, government austerity measures, and approximately $20 million of accelerated costs.

SG&A totaled $778 million, and increased 5%, driven by the impact of incremental pension expense, investments we are making in promotional and marketing initiatives, and within international markets to enhance our global presence. In total, these items more than offset a benefit from tight management of discretionary spending and operational efficiencies derived from our process reengineering efforts. R&D spending in the quarter increased 4%, and totaled $246 million, reflecting the progress we're making in advancing a number of programs in our pipeline, including those in our leading hemophilia franchise, Alzheimer's, and other key programs.

The operating margin in the quarter was 21.3%. Interest expense was $25 million compared to $18 million last year. This increase is due to incremental expense associated with the debt issuance last year, and lower interest income. Other income totaled $30 million in the quarter, and is primarily attributable to the favorable foreign-exchange impact on balance sheet positions, and a gain of $10 million associated with the sale of intangible assets. The tax rate was 21.3% for the quarter, in line with expectations, and includes a modest benefit from the 2012 R&D tax credit. And as previously mentioned, adjusted earnings per diluted share of $1.05 increased 4%.

Turning to cash flow -- cash flow from operations in the first quarter totaled $386 million, and capital expenditures totaled $292 million, both in line with our expectations. DSO ended the quarter at 53.6 days, reflecting a 4-day improvement versus the same period last year, due to a significant reduction in DSOs in certain international markets. Inventory turns of 2.2 turns are modestly lower than the first-quarter last year. As you know, we continue to increase inventory levels to support growing demand, particularly for plasma proteins, as we remain on track to benefit from enhanced capacity in the second half of the year. Lastly, in the quarter we repurchased approximately 8 million shares for $534 million, or on a net basis, 4 million shares for $351 million, in line with our full-year objective.

Finally, let me conclude my comments this morning by providing our financial outlook for the full-year 2013. As you saw in the press release, we confirmed guidance, and continue to expect earnings of $4.60 to $4.70 per diluted share. This includes the impact of the Gambro acquisition, which is projected to close at the end of the second quarter with estimated dilution of $0.10 to $0.15 per diluted share. This dilution is primarily related to non-cash amortization of intangible assets, which will be finalized upon closing.

By line item of the P&L, and starting with sales, we expect sales growth, excluding the impact of foreign currency, of approximately 10%. And this includes a half-year sales contribution from Gambro of approximately $830 million. Excluding Gambro, we continue to expect sales growth on a constant-currency basis of approximately 4%, and at current foreign exchange rates, we expect a modest negative impact on sales for the year.

For the full year, given current foreign exchange rates, we now expect gross margin for the Company to be approximately 50.5% for the full year. While year over year we expect margin expansion of approximately 100 basis points in the base Baxter business, this will be more than offset by intangible asset amortization related to Gambro, incremental pension expense, government austerity measures, including the Medical Device Tax, and a negative impact from foreign currency.

In terms of expense, we expect SG&A to increase approximately 10%, and R&D to grow in mid-single digits, with both line items reflecting leverage in the Baxter expense base along with the addition of Gambro. We continue to expect interest expense to total approximately $170 million, which reflects the impact of the debt issuance associated with the Gambro acquisition. In addition, we now expect Other income to total approximately $10 million for the full year; we expect a tax rate of approximately 22%; and we expect a full-year average share count of approximately 550 million shares, which assumes approximately [$300 million to $400 million] in net share repurchases. From a cash flow perspective, our plan remains to generate cash flow from operations of approximately $3.3 billion, with capital expenditures totaling approximately $1.7 billion, which includes Gambro and the investments we are making to enhance our plasma manufacturing footprint in Covington, Georgia.

Let me move to sales, and expand our assumptions for the two businesses and the major product categories. Beginning with Medical Products, on a constant-currency basis, including the half-year contribution related to Gambro, we expect sales growth in the low-teens. Excluding Gambro, we expect sales from Medical Products to grow 3% to 4%. Specifically, we expect Baxter renal sales to grow in low-single digits, which will be augmented by a half-year's sales contribution from Gambro, totaling approximately $830 million.

We continue to expect fluid system sales, which includes IV solutions, infusion pumps, and access sets, to grow in mid-single digits. We expect specialty pharmaceutical sales, which includes our nutritional therapies and inhaled anesthetics, to grow in low-single digits. And we expect our biopharm solutions business to have comparable sales to 2012 of approximately $1 billion.

For BioScience, we continue to project sales growth, excluding foreign currency, in the 4% to 5% range. Our outlook includes low- to mid-single-digit growth in our hemophilia franchise, which includes recombinant and plasma-derived factor VIII and factor IX therapies, and FEIBA, an inhibitor treatment. We expect mid- to high-single-digit growth in biotherapeutics, driven primarily by strong demand for immunoglobulin therapies, including GAMMAGARD LIQUID and subq therapies, as well as growth in Albumin and our treatments for alpha-1 deficiency.

In BioSurgery, we expect high-single-digit growth. And finally, we expect our vaccine franchise to grow in mid-single digits.

As mentioned in our press release, for the second quarter, we expect earnings per diluted share of $1.12 to $1.14, and sales growth, excluding the impact of foreign currency, of approximately 4%. At current foreign exchange rates, foreign currency may have a modest negative impact on sales growth in the quarter.

Thanks, and now let me open up the call for Q&A.

(Operator Instructions)

We would like to remind participants of this call is being recorded and a digital replay will be provided on the Baxter website for 30 days at www.baxter.com. David Lewis, Morgan Stanley.

Good morning.

Morning, David.

Maybe a couple quick questions on the model and then maybe more of a strategic question. I guess a couple quick nits on the model, at [Specpharm] you talked about a slight change in guidance for the year; I wonder does that reflect more just the utilization environment you are seeing here in the first quarter or any change to what you're thinking about the timing of generics in the back half of the year?

And the second financial question was non-op guidance is roughly equivalent to what you guided for a few quarters -- sorry a few months ago, but a very strong non-op quarter this particular quarter, maybe you'd just walk through some of those dynamics. And then one follow-up.

Okay. I think, David, your comments about softer surgical procedures are really what drove it, that there's no change in our expectation about the potential for generic competition later this year in this space, so no change there. And as it relates to the non-op items as I mentioned in my prepared comments, two real drivers there. One, foreign exchange. The other, one sale of an intangible asset, and so the FX item really related to some volatility around the euro in the first quarter. As you know, the euro traded anywhere from up $1.37 to $1.27 during the course of the quarter, and given our balance sheet positions in the quarters and the months in which it was most volatile, we had a pretty significant outcome there. But as I mentioned in my prepared comments, we also took some costs into margin that we hadn't expected for this quarter, we expected later in the year, of approximately $20 million. And so, look at the overall picture, those two kind of offset.

Okay. Maybe two strategic questions for Bob, I guess interesting competitive chatter at some recent conferences, Bob, I wonder if you could comment. The first is surrounding Glendale and the progress, there was some discussion that perhaps Baxter is behind in their process at Glendale and the refurbishment. Maybe help us understand where you think you are as it relates to Glendale as it relates to capacity in the back half of the year.

And then on hemophilia competition, which is obviously coming next year, another strong hemophilia quarter for Baxter this particular quarter. Maybe talk just a little about what you are seeing on the strength of PK dosing and the larger 4,000 unit dose and how you expect that to trend this year? Thank you.

Sure, in terms of old LA we're back in operation, consistent with the timetable that we set up, actually a little bit ahead of schedule. So, we're very pleased with getting that back in production for reasons that we all understand. So no concerns on that issue. Relative to the core hemophilia franchise, we continue to see momentum in the US in response to the PK dosing; prophylaxis use and so on continue to be encouraged by that.

So as it relates to the momentum in that business, particularly in the US and in view of new competitive entrance down the road, fundamentally, David, I would say no change in our position in that regard from what we discussed with you previously, I don't know Mary Kay if you want to add anything to that?

No, I was just going to say, David we have started conformance lots in old LA, and as Bob mentioned, we remain on track for clearance and to start shipping product in the third quarter. So no change in expectations there.

And I'd also point out that the strong recombinant sales driven really by ADVATE in the US. And we are expecting to take out some inventory as we move throughout the year, so we aren't expecting in our guidance to continue to see as strong performance going forward.

Okay, very helpful, thank you very much.

Thank you.

Matt Miksic, Piper Jaffray.

Thanks. Just a follow-up on hemophilia; you mentioned in your prepared remarks, there was sort of a contribution from competitive gains, there was contribution from increased penetration of prophylaxis, and sort of utilization on the ADVATE side. Could you maybe talk about what kind of share you're starting to see here competitively, how much interest there is and in this sort of flexible dosing model that you have?

I don't know, Matt, that we can add a lot more to my comments in response to David Lewis's question. We're not going to get into specific market share changes and quote market shares and so on. Again as I said before, we get a good market response, continue to get a good market response to the PK dosing, and prophylaxis use and so on, which we're very encouraged by. It's consistent with what we've expected from the outset, so beyond that I'm not sure that there's a lot more we can say or we want to say at this stage.

I would just add that the good news here is that we have multiple avenues to drive accelerated growth going forward, converting plasma derived even within our own patient base, converting on-demand to prophylaxis, and then certainly for those patients that are looking for the opportunity to do less infusions on an annual basis moving towards PK dosing. So again we're pursuing all those avenues, and I think the 4,000 IU presentation is going to allow us to continue to drive the PK dosing going forward here. Still somewhat early days because it was the third quarter of last year that we really started launching that, but we're seeing progress on all three fronts.

Okay, that's understandable. And on the Alzheimer's program, you mentioned wrapping up the trial in '15, just maybe walk us through if you could, you have made some decent progress. This is the second trial, and about halfway through enrollments currently, can you walk through why it would take, why expected to take until '15 to complete that?

Mary Kay, why don't you handle that?

Sure. Matt, as we mentioned in the prepared comments, we have already enrolled about 200 of the 400 patients, and we are expecting to complete enrollment by the end of this year. As you recall, the trial design for the second Phase III is exactly similar to the first Phase III, so it's an 18-month follow-up, which would mean that we wouldn't complete the trial until mid-2015.

Great. And then finally just on the fluid systems in the quarter, I didn't catch the color on why exactly the weakness there at least relative to our estimates. It sounded like from your perspective, the growth was in line or sort of solid growth in the quarter but, I guess --

Yes, yes it was in line with our expectations, but I think it's important to remember given the pace of activity in 2012 as we finalized the swap out of colleagues and placed a lot of Spectrums in the marketplace. We expected, going into 2013, that pump sales would be lower than 2012, again because of that elevated level of activity, and as we looked at results in the quarter, they were again in line with our expectations, and so no issues there.

Thanks so much.

Larry Keusch, Raymond James.

Can you hear me?

We can hear you now Larry, go ahead.

Thanks, I guess for Bob Hombach, the 2013 guidance when you take the first quarter and the guidance for the 2Q implies that you drive greater EPS in the back half of the year, so could you just remind us again what are the drivers of the increased profitability in the second half of the year?

Sure, sure. Multiple impacts here. So first off, we do expect to have enhanced flexibility on capacity and supply to the market in the plasma business as we move into the third quarter. As we mentioned we are producing now and we expect to be able to start shipping product in the third quarter on the plasma front.

And just the way tenders have worked out this year, if I step back and look at sales calendarization for 2013 for the Company, Q1 given some year-over-year comp issues around timing of tenders as well as this selling day issue, one last day in Q1, we'll have one more in Q3. Q2 and Q4 I would characterize as normal. And then in Q3 in particular, some significant emerging-market related tenders are scheduled this year versus prior year's being in different quarter, so we do expect to accelerate topline growth related to that as well.

The benefits of our business optimization efforts that we announced at the end of the fourth quarter this year, we'll start to see enhanced benefits from that as we move throughout the course of the year. So these are just some of the key drivers.

Okay.

And Larry, I would just add, just so everybody knows, gross margin we do expect to be lower in the second half as we bring the Gambro business into the mix. So just so you have that, it will be lower than the first half.

Okay, thanks for that color, and then just two other quick ones. Can you just help us understand the implications of the warning letter on the Spectrum pump and how that folds into your guidance for this year?

And then separately on the Phase III Alzheimer's there, the first trial where you're expecting the topline results in the 2Q, is that actually tied to a scientific meeting? Or is that sort of a press release, as you finalize that data analysis?

Let me -- I'll address the question on the warning letter, Mary Kay why don't you respond on the Alzheimer's question. So the warning letter that was communicated earlier this week really has to do with the clear status on some modifications that have been made to the SIGMA Spectrum pump over the year since the initial approval, the initial 5, 10-K a number of years ago. So the agency has requested additional information and documentation from us on those changes, that was largely the basis of the warning letter.

The implications going forward is, in response to your question, Larry, yes there will be some impact on that on sales for the rest of the year, largely having to do with our focus, and actually per our discussions and agreement with the FDA, we're going to continue to support service and place devices in our existing accounts. The majority of our sales of SIGMA are into our existing account base. However, until we get these issues resolved, submit the data, get it reviewed, which we would hope to get completed this fall, and typically there would be about a 90-day review period, we are not going to place SIGMA devices in what I will call new accounts or competitive accounts. And so there is some sales and margin loss as a result of that action, obviously it didn't impact our overall sales guidance. So does that answer your question?

Yes, I take it you don't want to quantify how much you think you may lose?

I don't know.

I think I can at least frame for you what our expectation was. So in our original 2013 guidance we assumed approximately $80 million in sales related to Spectrum in the US. And so obviously we have one quarter under our belt and sales were approximately $20 million. And then as Bob mentioned, a little bit more than 50% of our sales were targeted to go towards existing customers as well. So I think as you peel off the pieces here and you think about the last nine months of the year, how much sales we had in our original expectation and the fact that a fair amount of that was targeted towards existing customers, we think this is manageable within the context of the Med Products guidance, as well as the overall Company sales and EPS guidance.

Okay, got it.

Alzheimer's, go ahead.

Larry, that data on Alzheimer's. So as we mentioned, we did lock the database recently, and we're in the process of analyzing the data. So we do expect to issue a press release during the second quarter with the topline results. I think as we mentioned last quarter, we do plan to have the full data set available at an upcoming medical conference, which is in July.

Okay, terrific. Thanks very much, guys.

Mike Weinstein, JPMorgan.

Thank you, good morning. So a couple cleanup questions here. The issue you cited in the biopharma solutions, the partnering business this quarter, that sounds like it's been resolved. Will there be a catch-up in the second quarter since the business that you lost this quarter you get in the second quarter?

It won't all be in the second quarter, but most of it will be caught up, Mike, in the remainder of the year.

Okay. Thank you. On HyQvia, the preclinical work that you were doing for the FDA, could you update us on where you are? Have you done the interim analysis of that, and can you give us some insights into when that will be presented to the agency?

Yes, Mike. We have the interim data and we do plan on meeting with the FDA in the second quarter as we had articulated at the last conference call.

Okay. And is that anything that we will see, that data?

No.

Okay.

But we will be able to give you an update probably at the second quarter call on where we are with HyQvia after the meeting with the FDA.

Okay, and just one more. And the process here with Gambro, have you been able to gain any additional insights into their business, anything that might change your views on integration or on the opportunity for the acquisition, either short or longer term?

No. No major changes.

Okay and lastly, just on the performance of the renal side of the business this quarter, you cited some austerity measures in China. Can you maybe just call out what those were and anything else that --

They were largely price reductions, Bob, why don't you --

We've characterize austerity overall as impacting top line and margin frankly by approximately $90 million for the full year. China is about one-third of that, not all of it related to the renal business, but a good chunk of it is related to the renal business. This is something that's been discussed for the last several years, and they finally implemented a rebasing of the reimbursement level there. And so we continue to have strong growth from a patient perspective, working very closely with the government in China, see great opportunities to continue to expand our footprint there, but we are encountering a price reduction here in 2013 that's going to impact growth rates.

Okay, perfect. That's all I have. Thanks, guys.

Thank you.

Matt Dodds, Citigroup.

Good morning. A couple quick questions. On Gambro, do you have an update on where the EU regulatory authorities are for Antitry?

No I don't think it's appropriate for us to comment at this point in time. We continue to work closely with them and that's all we can say at this point.

Okay. And then for Albumin, up 2% with IG, is that also entirely due to constraints on the supply or is Albumin, is that more of the growth rate you're seeing?

No, no. We're continuing to sell all the Albumin we can make, and so we do have some seasonality to availability of supply given normal year-end shut downs we do in most of our facilities and so on. We do expect strong Albumin growth throughout the course of the rest of the year. So, I think it's really just a Q1 phenomenon here.

Okay, so most of the tenders you commented on in Q1, that was plasma factor VIII?

Yes, that is correct, Matt.

Great. Thanks, Bob, thanks Mary Kay.

David Roman, Goldman Sachs.

Good morning everyone. I just wanted to follow up a little bit more on the IV IG and Albumin dynamics. Understandably there are some factors influencing your growth rate right now, but as we sort of look through the balance of the year, and beyond that, what do you think it's going to take for you to get back to growing at or above market rates? And I think most would say that IV IG is still growing at sort of high-single digit range, and Albumin, probably tracking surgical volumes globally, but what is the path to getting your business back toward kind of that sort of market growth rate in either of those franchises?

More capacity. Go ahead, Bob.

I think this really is -- we continue to see very strong demand for our product. As you know because of the constraints we've had, we've had to be very selective about which markets outside the US we even participate in as an example. And so we do continue to see strong demand for IGs globally, and so we expect as we bring meaningful capacity online here, and get Old LA back into a mode where we can sell the product commercially, that we're going to be able to participate at least at market growth rates going forward.

And as it relates to Albumin, while I would say your characterization around in most countries this tracking with surgical volumes and so on is probably pretty good with the exception of China, which I think continues to be in a situation where because of decisions they've taken locally about shutting down collection and so on, they're going to continue to import a significant amount of Albumin going forward, and that's one I think that offers an opportunity for us to continue to grow as we have more capacity come online.

And that looks to be a long-term opportunity there.

And then in some of the decisions that you've taken in Europe, obviously makes sense given the capacity constraints and the relative pricing environment, but do you think that has any impact on your ability to launch HyQvia there and gain traction? Is there something that has to have a tender perspective for you to get that product to the market, or is there enough of sort of high-end segment of the market that would be able to adopt it at reasonable ASPs pretty quickly?

Yes, I think a couple of factors. Number one, we are very excited about the opportunity both in Europe and the US for HiQ; we think this is a significant improvement for patients from a convenience standpoint while offering all of the safety and efficacy that we see in our base product. And so the long term we think HiQ is a great opportunity, but as we hopefully get approval here and can launch in the back half of 2013 in Europe, it's going to be a controlled launch. We have the issue of capacity to consider here as well. But we are still in a number of important markets in Western Europe as an example. So I think there's plenty of opportunity within the markets we're a major participant in today to initially launch HiQ.

We are going to launch at a premium because we do think the product, given its characteristics and convenience that it offers, is worthy of a meaningful premium. And so again what we're going to do a control launch, ensure patients and treaters are aware of the process for the enhanced therapy, and that it gets off to a very good start, because we do want to make sure this is successful over the long term. In the near term I don't see this being an issue in terms of market participation in Europe because the key markets we would likely launch HiQ in anyway we're already in still with IGs.

Okay. Maybe just one financial question. As I look at the SG&A number, this quarter as a percentage of revenue, I think that's the highest it's been in quite some time, and you did cite some promotional activities and investments that you are making. But how should we think about the opportunity for leverage on discretionary line items going forward, are you entering more of an investment period to drive topline growth in areas like emerging markets? Or is there something that's more one-off in the first quarter whereby that line item should start to look a little bit more like it has in the past going forward?

Yes. I think a couple dynamics. For the full year for sure as I mentioned in my prepared comments, we expect in the base Baxter expense base we're going to drive leverage relative to sales for the full year. Q1 had some interesting dynamics, obviously given the issues in our pharma partnering business we came in a little bit lower on the top line in the quarter. As it relates to things like pension expense, that accounted for about 1.5% of growth in the quarter, given that impact for the full year.

As I mentioned, our business optimization efforts will provide increasing benefits as we move throughout the course of the year. We have been and will continue to make the right investments to ensure we can enhance our position in emerging and developing markets, so no change there. We do have some additional spending in advance of the key product launches like we've discussed today around HiQ, and also home HD, which we've made good progress on the trials. Bob mentioned in his comments, and look for CE Mark here in Europe. So I think it's a balance of targeted investment for the growth opportunities we have and leveraging our existing base through process reengineering.

Okay. That's helpful, thank you.

Kristen Stewart, Deutsche Bank.

Thanks. I just wanted to clarify. In the other income line that you had said that that did include $10 million of a gain related to sell of an intangibles, any color on that?

No, it's an arrangement we had in a country, so I don't think it's something we want to get into a lot of detail around. It is a one-off, but as I mentioned the other driver there was FX and other income, it's not something we planned or expect to incur again.

Okay, got you. And then just kind of working through the gross margin, sounds like that was more moderated. Is that simply all foreign currency or is that any other thing impacting your expectations on the gross margin line?

It definitely is currency related.

Okay. Any update on the recombinant von Willebrand product in terms of the trial or expected launch for approval for filing?

Yes, Kristen, I think we had mentioned that we have completed enrollment in the end of the fourth quarter and we actually have now completed the dosing of the last patient.

Okay, and when might you be in the position to I guess file with the FDA on that?

Well, there's a 12 month follow-up, so we will complete the trial probably beginning of next year and file next year.

Okay. All right. And then just lastly Mary Kay, I think you had mentioned on ADVATE that you're planning on taking down inventory for the balance of the year; can you maybe just explain why that is?

Yes, Kristen, I think we talked about the course of a few quarters last year, there has been some shakeout in the US amongst the SPPs from a market share standpoint, and as a result, one of our key customers has gotten into a situation where they've lost some share and we were working with them to rightsized their inventory level given that new share situation. And so I think over the next several quarters we're talking in the range of approximately $15 million that we will be working off from a US recombinant standpoint.

Okay, that's helpful. Thank you very much.

Bob Hopkins, Bank of America.

Great. Good morning. Just a couple quick things. First, just given the visibility of the Alzheimer's program, I was wondering if you could give us a little more of a direct sense on timing within the second quarter, should we expect that more first-half disclosure or second-half disclosure? And have you, just give us a little update on exactly what you will be presenting within those headline results in the press release? Thanks.

Go ahead, Mary Kay --

We can't be more specific. As we mentioned we locked the database and we're working diligently with our partner on this, ADCS, and so we're certainly as motivated as everyone to get the results compiled and be able to release those. As we mentioned earlier it will be in the form initially of a press release for the topline results of the two primary endpoints, and some subgroup analysis related to mild versus moderate and ApoE4 versus non-ApoE4. Those of the stratifications that we will be able to provide initially, and as Mary Kay mentioned have the full data set at a conference likely in July.

Alright. Great, thank you. And the other question I have was just I was wondering if you could give us an update on the 855 program just in terms of milestones and timelines that we should expect for the rest of this year and going forward, given that obviously that's a pretty important program from a competitive perspective? Thanks.

Thanks, Bob. BAX855, we started the Phase III trial and we began dosing patients during the first quarter; this trial includes over 100 patients and we expect to complete enrollment by the end of this year. And we are remaining on track to file sometime next year.

Alright, great. And then just last pipeline question for me. I realize this is a bit of a softball question, but can you just give me a sense of the best case scenario on HiQ in the US? Things go as well as you hoped they could possibly go, what would that mean from a timing perspective? Thanks.

I don't think we're going to speculate on that. Obviously we have our meeting with the FDA which we described, we're encouraged by the progress we've made in Europe, hopefully that will be helpful with our discussions here in the US, but I think, Bob, to speculate beyond that we don't want to do that. So --

Bob, just recall, though that we aren't going to complete the preclinical trials until the end of this year. So obviously we'll have more information once we meet with the FDA on the interim results.

Thank you.

Glenn Navarro, RBC Capital Markets.

Hi, good morning. I'm curious, Bob, if you can give us your interpretation of what's occurring in the US with respect to utilization? We've seen hospitals now preannounce disappointing results, some lab companies as well. Do you think, we're seeing heightened seasonality in the fourth quarter, and that's pulling sales from the first quarter, just any color you can provide?

I think the markets is soft, it's going to continue to remain soft, I think is our view. I think as it relates to our products given the nature -- the medically necessary nature of our products, the impact will be modest, but I think to suggest that you are going to see a turnaround, Glenn, from the softness we've seen over the last quarter or so, would probably be a little too optimistic. I just think the market conditions are going to continue to be very challenging.

Okay. And just a follow up, a lot of investors ask me about 2014 with respect to healthcare reform, should we anticipate a volume bump? What are your thoughts on that?

I wouldn't -- I don't anticipate to see any meaningful incremental impact on our business due to evolving healthcare reform implementation and so on. So whether it's 2014, Glenn, or out over the long-range plan, frankly, our views going forward haven't changed from our investor conference last fall on this.

So look, we all know what the general dynamics are globally, even outside the US, which is a difficult economic environment; healthcare costs continue to rise at a rate that is beyond any government's ability to control, and there are going to continue to be impacts that we characterize as quote-unquote, austerity measures on healthcare spending that I think our going to continue to impact all multi-national companies, whether it's in the US or outside the US. But again, and I would not suggest that we're impervious to those kinds of impacts, but they will be evolutionary in nature, they're not going to be major step function impacts.

And again, as I said earlier I'd emphasize given the medically necessary nature of our products, we think we're going to be able to withstand this certainly reasonably well and where the focus really is, as it always has been in this industry, is innovation. And with our emerging pipeline, not to mention the expanding capacity position over time on plasma proteins and continued robust demand for those products, that's where our focus is and we certainly can, I think withstand the general macro dynamics that we discussed.

Okay, great. Thanks for the color, Bob.

Rick Wise, Stifel Nicolaus.

Good morning, everybody. Hi, Bob. If I could ask a little more color on the home hemo program. It seems to be clearly on track as you've suggested in the past. Maybe just remind us again when the trial wraps up what the filing and approval timing process is. And I keep thinking that just given the current market dynamics that this is a more promising program than ever. Any thoughts again about the potential penetration or the opportunity here?

I will take the first half of the question, Rick, and then Bob can take the market opportunity part of your question. But in terms of the trial, the Canadian trial is going to be wrapping up here in the second quarter, and then we will be wrapping up the submission and we expect to CE Marking by the end of this year. As you recall in the US, we're still in discussions with the FDA as to whether or not they will require one or two trials here in the US, but we're still planning for a nocturnal indication, filing in 2014.

So Rick, Bob Parkinson here, maybe just to wrap up on kind of the higher-level question, we continue to be extremely enthusiastic about the opportunity associated with our home hemodialysis product, which we think has a number of dimensions or characteristics that can differentiate it from the home hemo products that are on the market today, not to mention to leverage our global position as really the leading dialysis provider in the home setting, which has real value here.

I think when you take a step back and look at this, this is the kind of product that is responsive to I think the new realities of the global economic environment on healthcare environment. The opportunity to enhance clinical outcomes we think meaningfully, particularly with home nocturnal hemo, to provide as a result increased convenience for the patient to deliver therapy in their home, and to do it in a way that fundamentally lowers the cost versus conventional in-center hemodialysis is really the kinds of products going forward that we think there's going to be a great response in the marketplace too.

The only caveat I would say is the nature of this requires a motivated patient that doesn't describe 100% of the patient population, so in no way do I want to suggest that traditional home in-center hemo is going to continue to be both a growth vehicle and the primary therapy to address end-stage renal disease, hence our excitement about the Gambro acquisition. But I appreciate your question because I think as we go forward, get this product launched in Europe and expand beyond that, this is a product opportunity that's very significant for the Company going forward.

Just last quick one on China, I want to make sure I understood what Bob Hombach, you were talking about in your Med Product comments, China austerity. I just want to make sure I understood what you were talking about. And I hope I didn't miss it, but did you talk about the timing of ADVATE reimbursement? I don't think you've gotten it yet. When are you expecting that, and when are you expecting that Chinese launch? Thank you.

No, my comments about reimbursement adjustment down relates specifically to the renal business. We have got -- the launch of ADVATE in China is going to be -- take a long time to play out. The treatment rates today in China for hemophiliacs are very low even on plasma derived. So we've got a long way to go to develop that market, but that's one that could be primed for some of our approaches here around public-private partnerships, but we're a long way from anything there.

Yes, Rick, we are awaiting reimbursement approval. You may recall we did get approval for the product last year, but we can't launch until we have the reimbursement approved, which we expect in the second half of this year.

Thank you very much.

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