百特醫療 (BAX) 2014 Q1 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Baxter International 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. Miss Ladone, you may begin.

Good morning, everyone, and welcome to our Q1 2014 earnings conference call. Joining me today are Bob Parkinson, CEO and Chairman of Baxter International; Ludwig Hantson, President of BioScience; 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'd like to turn the call over to Bob Parkinson.

Thanks Mary Kay. Good morning. Thank you all for calling in. As you read in the press release issued earlier this morning, Baxter reported strong financial results for the first quarter which exceeded expectations and we've also confirmed our full-year 2014 guidance.

Adjusted earnings increased 9% to $1.19 per diluted share and worldwide sales, excluding currency, increased 16%. Excluding Gambro and foreign currency, Baxter sales advanced 5%. Positive momentum is building and Baxter is off to a strong start in 2014. I'm pleased that we delivered strong financial results, continued to enhance our flexibility to invest for future growth and position the Company for sustained performance and success.

Our new product pipeline is focused on a number of programs that improve the quality of care and address key high-potential areas of unmet medical needs. Some recent highlights in the quarter include FDA approval of a label change allowing for a shorter total infusion time for GLASSIA, a chronic augmentation and maintenance therapy for hereditary emphysema, an under diagnosed characterized by a low level of Alpha 1 protein in the blood. This change enhances convenience and allows for less overall time for the entire infusion process, from preparation to administration.

Also success in meeting the primary efficacy end point in the Phase III study of BAX 111, the first standalone recombinant treatment in clinical development for von Willebrand disease for on-demand bleeding events. We expect to file for regulatory approval in the United States before the end of 2014. We also intend to pursue a study for a prophylaxis indication.

Baxter also presented interim data at the European Association for Hemophilia and Allied Disorders from our first year of observation from the ADVATE Hemophilia A database study, a four-year outcomes registry of hemophilia A patients. A total of 562 patients have been enrolled to date and the data supports the clinical experience of prophylaxis treatment with ADVATE, showing 51% experienced no bleeds during one year of treatment.

Also in the quarter we executed a new exclusive agreement with Xenetic BioSciences for the development of BAX 826, a recombinant Factor VIII therapy for hemophilia A, utilizing Xenetic's proprietary polysialic acid technology. BAX 826 is in currently in preclinical development as a treatment that may be administered less frequently, potentially at once weekly intervals without compromising efficacy.

And lastly during the quarter the Company acquired Chatham Therapeutics, including their developmental gene therapy preclinical hemophilia A and ongoing hemophilia B programs and the potential application for additional hemophilia treatments. As you may recall Baxter and Chatham are currently in a Phase I/II trial, evaluating Chatham's Biological Nano Particle platform as a potential treatment for hemophilia B. The vector-based technology, which provides a mechanism for the patient's own liver to begin producing Factor IX following a single dose of the genetically engineered treatment, has the potential to redefine the concept of longer-acting therapy.

And finally, in the First Quarter as you all know we reached a significant milestone in our Company's history with the announcement of our plans to create two separate independent global healthcare Companies, one focused on developing and marketing innovative biopharmaceuticals and the other on life-saving medical products. This decision supports Baxter's evolution and underscores our commitment to ensuring our long-term strategic priorities remain aligned with shareholders' best interest, while creating value for patients, healthcare providers, and other key stakeholders.

The two businesses operate in distinct markets with corresponding underlying fundamentals, and each possesses unique and compelling growth prospects, investment requirements, and risk profiles. The spinoff will create two well-capitalized independent Companies with strong balance sheets, investment grade profiles, and disciplined approaches to capital allocation.

And other benefits of this include: one, greater management focus on the distinct businesses of biopharmaceuticals and Medical Products; the ability to more effectively commercialize new and existing product offerings; the ability to drive innovation across the franchises and allocate necessary resources to the areas presenting the highest growth potential; and the flexibility to pursue respective growth and investment strategies resulting in revenue acceleration, improved profitability, and enhanced returns. We look forward to closing this transaction by mid 2015, and preparations are already being made to effect an efficient and orderly transition to position both Companies to capitalize on the exciting opportunities that the future holds.

So with that, I'd like to ask Bob at this point to review financial results for the first quarter, and also discuss our guidance for the remainder of 2014. Bob?

Thanks, Bob. Good morning, everyone. As Bob mentioned, adjusted earnings per diluted share in the first quarter advanced 9% to $1.19, which exceeded our previously issued guidance range of $1.06 to $1.09 per share. These financial results include an after-tax gain of $35 million or $0.06 per share associated with the sale of certain equity investments, which will largely be reinvested in the business over the balance of the year.

As we mentioned in the press release, GAAP earnings of $1.01 per diluted share included after-tax special items totaling $96 million or $0.18 per share for intangible asset amortization and costs associated with the integration of Gambro, business development, and business optimization initiatives. The business optimization initiatives include additional costs related to the decision to explore strategic options for the vaccines and Cell Therapy's R&D programs.

Now let me briefly walk you through the P&L by line item before turning to the financial outlook for 2014. Starting with sales, worldwide sales of approximately $4 billion advanced 15%. On a constant currency basis sales rose 16% and exceeded our guidance range, primarily due to strong demand for hemophilia products as well as the accelerated timing of vaccine milestone payments and a renal PD tender. Excluding Gambro revenues of $400 million, which were in line with expectations, Baxter sales rose 5% on a constant currency basis.

In terms of individual business performance, global BioScience sales of more than $1.6 billion advanced 5% in the first quarter. On a constant currency basis, sales increased 6%.

Within the product categories, hemophilia sales of $827 million increased 8%, or 9% on a constant currency basis. This is the result of capitalizing on our global leadership position and brand differentiation, broadening our portfolio with new product launches like Rixubis for the treatment of hemophilia B, and expanding access to care, particularly in emerging markets.

Specifically, global demand for ADVATE remains strong as we continued to benefit from our label expansion, improve prophylaxis penetration, and shipments to Brazil as part of our ongoing collaboration with Hemobras to enhance access to recombinant Factor VIII therapy. We've now converted more than 30% of the total patients in Brazil and we expect to generate sales of more than $100 million in 2014. In addition, global demand for FEIBA also remains robust, resulting in double-digit sales growth in the quarter.

In BioTherapeutics, sales of $502 million declined 1% on both a reported and constant currency basis. Growth in the US of 7% was a result of improved product availability and growth of immunoglobulin therapies, albumin, and Alpha 1 treatments. This strength was more than offset by lower sales in international markets as a result of lower albumin sales in China and decisions to exit certain markets due to previous supply constraints.

Sales in BioSurgery of $176 million increased 2%. On a constant currency basis, sales rose 3%, driven by demand for surgical sealants like Tisseel and Floseal. As you know, both of these products is tied directly to growth in surgical procedures.

Finally, vaccines revenues totaled $103 million and increased 23%. Sales advanced 25% on a constant currency basis, driven primarily by accelerated milestone payments of approximately $40 million related to ongoing government collaborations for the development of influenza vaccines.

In Medical Products, global sales exceeded $2.3 billion and increased 22%. On a constant currency basis sales advanced 24%. Excluding Gambro and foreign currency, Medical Products sales grew 4%.

Within the product categories, renal sales totaled $991 million, including Gambro sales of $400 million. Excluding Gambro and foreign currency, renal sales increased 4%. This was a result of strong PD growth of 9%, supported by strong patient gains in the US and emerging markets, as well as the benefit from the timing of certain tender sales of more than $15 million. This momentum was partially offset by the divestiture of the CRRT business.

Sales in the fluid system category of $757 million increased 2%, or 3% on a constant currency basis. Performance continues to be driven by price improvements for the injectable oncology drug cyclophosphamide, which more than offset lower sales of drug delivery systems.

Specialty Pharmaceuticals, which includes our inhaled anesthetics and nutritional therapies, posted sales of $367 million, reflecting an increase of 1%. Sales rose 2% on a constant currency basis as strong global anesthesia growth offset lower sales of certain nutritional therapies resulting from ongoing supplier shortages.

Finally, sales in BioPharma Solutions, which is our pharma partnering business, totaled $228 million, with growth of 1% on a reported basis or 4% on a constant currency basis. This performance can be attributed primarily to the easing of supply constraints which impacted orders and shipments in the first quarter last year.

Turning to the rest of the P&L, gross margin in the quarter was 51.0% compared to 51.7% last year. Margin expansion in the base Baxter business was more than offset by the impact of lower margin Gambro business and foreign currency.

SG&A totaled $903 million and increased 16%, with the Gambro acquisition accounting for the vast majority of the growth. Excluding Gambro, SG&A increased 2% as leverage was derived from benefits associated with our business optimization initiatives. This was partially offset by select investments in promotional and marketing initiatives for new product launches and within international markets to enhance our global presence.

R&D spending in the quarter of $282 million increased 15% versus the prior year. Excluding Gambro, R&D rose 2% and continues to be driven by investments we are making to advance a number of programs in our pipeline, including those in our leading hemophilia franchise, programs to leverage our expertise in the therapeutic areas of hematology, oncology, and immunology, and investments in renal therapies aimed at improving patient outcomes across the continuum of care.

The operating margin in the quarter of 21% is lower than last year's operating margin of 22%; however, excluding Gambro, leverage in the base Baxter business resulted in an operating margin improvement of 80 basis points to 22.8% versus the prior year. Interest expense was $43 million which reflects recent debt issuances to fund both the Covington plasma manufacturing site and the Gambro acquisition.

Other income totaled $41 million compared to income of $30 million last year. This includes $44 million of pretax gains associated with the sale of certain equity investments; as referenced earlier on an after-tax basis, this equates to a benefit of $35 million or $0.06 per share, which will largely be reinvested in the business over the balance of the year. The tax rate was 21.4% for the quarter, in line with our expectations, and as previously mentioned, adjusted earnings per diluted share advanced 9% to $1.19.

For the first quarter, cash flow from operations was very strong and totaled $559 million. This reflects an improvement versus last year of approximately $175 million. DSO ended the quarter at 53.6 days, and excluding Gambro, Baxter's DSO was 49.9 days, lower than the prior year by 3.7 days. Inventory turns of 2.0 are lower than 2.2 turns in the prior-year period, due to increased plasma inventories to support strong demand and future growth.

Lastly, in the first three months of this year, we repurchased approximately 3.7 million shares for $250 million, or on a net basis, 1.2 million shares for $123 million, in line with our full-year objective.

Finally, let me conclude my comments this morning by providing our financial outlook for the second quarter and full year 2014. For the full year, we continue to expect adjusted earnings of $5.05 to $5.25 per diluted share. As we noted last quarter, we're providing a wider range than our historical practice as the number of factors and assumptions impact the outlook, particularly headwinds created by cyclophosphamide competition and emerging market FX volatility.

Specifically by line item of the P&L and starting with sales, we continue to expect sales growth, excluding the impact of foreign currency of approximately 9% to 10%, which includes annual sales of more than $1.6 billion for Gambro. At current foreign exchange rates we expect reported sales growth of approximately 8% to 9%. Excluding Gambro, we expect the base Baxter sales to grow approximately 2% on a constant currency basis.

For the full year, we continue to expect gross margin for the Company to decline by approximately 150 basis points from the 2013 margin of 52%. Given the strong first quarter, we expect the first-half margin to be approximately 40 to 50 basis points higher than the gross margin in the second half which includes the impact of new competitive entrants.

In terms of expenses, as mentioned earlier, our first-quarter performance enhances our flexibility to invest in the business to drive future growth. Therefore, we now expect R&D to grow in mid-single digits and SG&A to grow in mid- to high-single digits. We expect interest expense to total approximately $160 million and we now expect other income of approximately $40 million for the year. We expect a tax rate of approximately 21.5% and we expect a full-year average share count of approximately 547 million shares, which is assumes approximately 300 million in net share repurchases.

From a cash flow perspective we continue to expect to generate cash flow from operations of approximately $3.5 billion. We expect capital expenditures of approximately $1.8 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 on our assumptions for the two businesses and the major product categories, which are very consistent with our original guidance. Beginning with Medical Products. On a constant currency basis, including the contribution of Gambro, we expect sales growth of approximately 13% to 14%.

Excluding Gambro we expect sales for Medical Products to grow 0% to 1%. Specifically, we expect renal sales to grow approximately 40%, including the benefit of continued PD penetration, the incremental revenue contribution from Gambro, as well as commercial synergies.

We expect fluid systems sales to decline 3% to 5%, reflecting the impact of lower cyclophosphamide sales. As we mentioned, if we have two competitors by midyear, the sales and pretax impact would equate to $150 million to $200 million. We expect specialty pharmaceutical sales, which includes our nutritional therapies and inhaled anesthetics, to grow in the 3% to 5% range, and we now expect our BioPharma Solutions sales to be flat for the full year.

For BioScience, we project sales growth, excluding foreign currency, at 3% to 4%. Our outlook includes growth of 4% to 5% in our hemophilia franchise. While we continue to expect increased competition for recombinant Factor VIII therapies in the second half of this year, performance will be fueled by underlying global demand for ADVATE, conversion to recombinant therapy in Brazil, new tender awards, as well as a benefit from new product launches, including Rixubis, OBI1, and FEIBA prophylaxis.

For the BioTherapeutics franchise, we continue to expect growth of approximately 4%, with sales of albumin in China and immunoglobulin therapies ramping up, particularly in the second half of the year. In BioSurgery, we expect growth in the 5% to 7% range. And finally, given the first-quarter performance, we now expect our vaccine sales to decline in low-single digits.

As mentioned in our press release, for the second quarter, we expect earnings per diluted share excluding special items of $1.18 to $1.22, which reflects the timing benefits that were accelerated and recorded in the first quarter. We expect sales growth, excluding the impact of foreign currency, of 12% to 13%. Excluding Gambro, we expect the base Baxter sales at constant currency rates to grow approximately 2%.

Thanks, and now we'll open up the call for Q&A.

(Operator Instructions)

Our first question comes from David Lewis of Morgan Stanley. Your question please?

Good morning.

Good morning.

Bob, just starting off on financial guidance for the second quarter. Obviously a very nice start to the first quarter here on earnings. Some of that was the gain, but just the underlying business was stronger and margins were good. Can you talk to us about what factors change here in the second quarter, because that earnings number is a little lower than we would have expected considering the strength in the first quarter.

Certainly David, yes there are definitely an unusual number of timing impacts here that have benefited the first quarter to the detriment of the second quarter, and I would gauge that in the $0.05 to $0.06 range, so let me walk you through those.

It's really two main things. We have a collaboration on the vaccine side to do a tech transfer related to our Vero cell technology, we expected milestones to occur later in the year and including in the second quarter. The good news is those were completed a bit early and fully recognized in the first quarter, but that does create about $0.03 of upside in the first quarter at the expense of the second quarter.

And then secondly, again along the lines of revenue recognition in terms of timing of when tender sales occur, we had a large tender in the PD franchise that we expected in the second that occurred in the first, so the combination of those two and a couple other things really is what drove the strong performance in the first quarter.

I would also mention though as you know the gains in the first quarter that we highlighted there of $0.06 related to the two minority investments that were sold. We also incurred incremental FX in the first quarter that dampened the impact of some of these timing benefits, primarily related to Argentina and other emerging markets impacts, including related to the Gambro business.

So a lot going on between the first and second quarter. I think if you look at the two of them combined, it will give you a better sense of where we're at, and that's largely why if we look at the full year, we've maintained our full-year guidance, again a lot of volatility potentially yet ahead of us with Cyclo and FX, but operationally a very, very solid start.

David, I would also add that in plasma we have some plasma tender timing as well that impacts the second quarter versus the prior year. Those tenders are going to occur more in the third and fourth quarter this year versus some of the major tenders that occurred in the second quarter last year.

Thanks, Mary Kay, very helpful. And then maybe just a follow-up. The key strength here we've seen the last couple quarters has been the hemophilia, and I imagine it's a surprise for certain investors. So if we think about that strength in hemophilia the last two quarters, obviously it's coming out of the OUS markets, and there's really two factors going on this quarter feels like. One is Brazil, and the other may be some of the earlier product launches like Rixubis.

But you talked about Brazil being about $100 million in '14; frankly based on the trend line out of '13 and the first-quarter results, $100 million just seems low. So is there anything going on in terms of the timing of Brazil or maybe you can give us the mix of the factors contributing to OUS hemophilia strength here in the first quarter, because it seems that $100 million number could go a lot higher here in '14.

Yes, it could go somewhat higher David. I would tell you in the first quarter though the contribution from Brazil was not out-sized in the sense of what the trend would need to be in order for us to deliver something just north of $100 million. So we're very pleased with the progress we're making, and so that certainly is a contributor. But frankly as they continue to do well in many other international markets including markets like Japan where we've had very strong growth over the last couple of years. Okay, thank you very much.

Mike Weinstein of JPMorgan is on the line with a question.

Clarifications on the guidance. So looks like you took another price increase about 30% on cyclophosphamide in January. Can you just maybe clarify what you're assuming in the second quarter relative to competition. I haven't seen anybody announce anything, just want to clarify what you're assuming.

And then second, with the guidance for the year I assume you weren't assuming the $0.06 gain in the original guidance, so why shouldn't we move up numbers by $0.06 given the gain you have this quarter? Thanks.

A couple things. On Cyclo, I'd like to first point out we in our Q1 guidance did not assume any competition nor did we see competition, and results in the first quarter were basically as expected. So Cyclo was not a contributor to outperformance in the first quarter relative to our guidance.

At this point we're not expecting a competitor to enter until very late in the second quarter, so not much impact in the second quarter either, but certainly in the back half; then depending on when the second and/or third enters in, that will determine how that plays out for the remainder of the year. But for the second quarter, again not expecting a significant competitive impact on Cyclo.

As to the price increase, we did take a price increase, obviously there are different channels and different customer relationships, so I wouldn't say it was across-the-board at the same level, but we did take a price increase in the first quarter.

And then the gain, Bob?

Oh, as it relates to the gain, yes. And as I mentioned there are some offsets here as well in the first quarter, FX being one. But as we look at the balance of the year and some of the areas that we want to ensure we position ourselves to generate the best success, we are looking at R&D and SG&A reinvestment here that over the balance of the year we are not going to be taking that gain to the bottom line.

And we did change our guidance, Mike for--

I have a question for Bob Parkinson. And I really want to focus on strategy for the Medical Products side of the business [close to ben]. Can you just talk a little bit about what drives that business? And I'm really thinking not only about the top line, but about margins, obviously there's going to be a big reset the next let's say two months with Cyclophosphamide going away. But once that's done what drives not only the top line, but what drives margins there, and what creates kind of a story beyond the underlying growth we're seeing right now? Thanks.

Yes okay, Mike. So let me not be too lengthy in my response because there's not a simple response there.

Let me start with the Gambro acquisition, which as we discussed before, you know allows us to participate in a leadership role in a large global market that we believe will grow in the 5% to 6% range long term. And so the acquisition of Gambro, the expansion of our presence, augmenting our PD business to address treatment of end stage renal disease is a significant long-term growth platform for the newly defined Medical Products business, but I think you all understand that.

Within the traditional medication delivery business, if you will, again our plans are to intensify focus in those product categories that are higher growth than higher margin, so anesthesia would be one, parenteral nutrition would be another. Also there continue to be opportunities to improve margins in our core global ID business in terms of manufacturing efficiencies, productivity, supply chain productivity and the like, so again there's not a simple answer to that.

I think there's a lot of levers, Mike that can be pulled to enhance margin over the long term in the newly defined Baxter if you will going forward. And I would also say that as we've accelerated business development activity over the last couple years, certainly it is our plan to continue that as we go forward with the new Company.

So I think with increased focus, which is one of the primary rationales behind the decision to spinoff the BioPharmaceuticals business with that increased focus globally frankly, I think we'll allow us to address a number of margin improvement opportunities over time.

Great, thank you, Bob.

Thank you.

Our next question comes from Larry Kirsch of Raymond James.

Hi, good morning. Just two perhaps for Bob Hombach. Bob, you obviously mentioned in your prepared comments that the underlying Baxter gross margin has been improving, I believe you said up 80 basis points up year over year. I just wanted to dig into that and fully understand what is driving those improvements there, because that's pretty impressive. And then secondly if we could just get an update on where you guys stand with the large volume infusion pumps.

Sure. So yes, the comment was around operating margin and there's obviously a number of factors there in the base Baxter business. Holding FX to the side, which has tended to be more of a headwind the last couple of quarters, mix certainly plays into that, strong hemophilia sales here for the quarter. The business optimization efforts that we've put into, not only this year but last year as well, are certainly playing into that.

The vaccine milestones come with very high margins as well, so those being recognized here in the first quarter were beneficial as well. And we are starting to see the benefits of the Gambro synergies starting to come into the P&L. I know we're talking about the base Baxter business, but overall that is something that's going to drive our margins throughout the rest of the year.

Okay, great. And then on the pump side, where do we stand there?

So updates on the pumps is we had filed the necessary documents and are waiting for the review to be complete, and we expect to hear something by the middle of this year, so I don't think there's really any other update at this point.

Okay, great. Thanks very much.

Thank you. Our next question comes from Matt Miksic of Piper Jaffrey.

Hi thanks, good morning. Wanted to ask just Bob if I could, Bob Hombach, on the gain and the FX loss, you mentioned the incremental FX kind of offsetting the gain. I guess we were looking for about $0.10 of FX impact this year. Does this push you closer to $0.15 or can you give us anymore color to how that offsets that number? And then I have a couple quick follow-ups.

Matt, actually we characterize it more like a $0.15 -- at the time we gave guidance for the full year we had FX at about a $0.15 headwind. And in fact, it's going to be a little bit higher than that given the Argentina situation as well as how things are playing out.

A thing I would note about FX is historically a stronger euro would be beneficial to Baxter given the size of our business there and our overall global manufacturing footprint. As we bring Gambro into the fold though, the vast majority of their manufacturing a lot of their cost base is in euro, and so actually we benefit less from a stronger euro in the near term. But it did increase our exposure to all other currencies outside the US given the footprint they have, and so as emerging market currencies have continued to struggle a bit, our current setup here with Gambro given the stronger euro and the weaker emerging market currencies actually creates incremental FX downside to that original $0.15 assumption.

That's helpful. And then the other comment I think that Bob or one of you made here in the beginning of the call was around sort of synergies or sort of the broad portfolio of hemophilia products. Of course FEIBA launching in the quarter, prophy FEIBA and OUS strength. I guess can you tell us a little bit about anything that -- any sort of synergy effects of launching these multiple therapies into this general category, whether it's for hemophilia B, hemophilia A, or the treatment of inhibitors as in FEIBA that you're seeing develop in the market, either in the US or internationally? And then I have just one last quick one.

Ludwig, why don't you cover that one.

So a couple of things. I want to come back to the comment that was made on the strong demand ex-US for hemophilia. I must add to that that we also continue to see a strong demand for ADVATE and FEIBA in the US, in that although it's not reflected in the sales number since, there was some inventory adjustments versus first quarter of last year, so we stick to our full guidance and we believe that US is also showing a very strong demand.

As far as the launches is concerned, the launches are staggered geographically. Rixubis is at this moment a US launch only. As you know we submitted the application end of last year both in Europe as well as Japan, and so we expect to launch Rixubis ex-US by beginning of 2015.

As far as the launches are concerned, so ADVATE prophy is on track, we launched it in 2012, we have more than 500 patients converted. FEIBA prophy is on track. We launched it beginning of this year and it is ahead of expectations, and it's also reflected in our numbers. And the Rixubis launch as I said in the US is on track. We've converted quite some patients, so we're really pleased with the launches in our hemophilia franchise.

Great. And then Ludwig, last one actually is for you. Just we are all looking at competition or the threat of competition in the back half in hemophilia, and of course also to some top line indication of the 855 data hopefully around midyear or third quarter. And I'm just wondering, you've said before that if you did receive an inhibitor event in that data that you would announce it as you received it or shortly thereafter.

If you could help us understand with the trial fully enrolled in say November or whatever it was, I guess how far along here do we need to be to feel like -- or can we feel like there's any sort of comfort level that okay we've gotten this far in without an inhibitor, inhibitors usually happen in whatever the early part of that therapy. Any color you could provide us as to whether we should be feeling more comfortable as we get to May or June or July, or what's the timing would be very helpful, thanks.

Yes. So I'm not going to speculate on the outcome of the study, but as far as timing is concerned, yes we did enroll the last patients in the study end of last year. It is a six-month study so it will give you some idea of when the last patient, last assessment will be, and correct, we have not seen any inhibitors. We plan to release the data third quarter of this year with a submission before the end of this year.

Thanks so much.

Thank you. Our next question comes from David Roman of Goldman Sachs.

Thank you, and good morning everyone. First question was on the BioTherapeutics business, just on the ramp in the back half of the year. Can you maybe just enumerate some of the details that are supporting that? I presume on albumin it's obtaining the licenses in China, but can you maybe update us on Sanquin as well in that question?

With respect to BioT, yes you did see a negative growth for international in the first quarter. We believe that this is going to change moving forward. We stick to our guidance that we gave for the full year for BioT, which is plus 4%, so you will see an uptick in growth in the next quarters. There is an impact of albumin, especially on China, IG International World Day come also in the next quarters, so that's overall where we are.

And we do expect to start meaningful shipments to China in albumin in the second quarter here, David. We already have one of the two licenses renewed, and so at this rate we expect to sell almost as much albumin in China this year as we did last year.

And then the ramp in IG, is that coming from contribution from HyQ or ramp up in production somewhere else?

It will primarily come from the IG, IV business, and the subcu business, not from HyQ. As we said the ramp up for this year for HyQ ex-US as well as US will be minimal but there will be some contribution. And with respect to your question on Sanquin, Sanquin will not have an impact on the 2014 numbers.

Okay, great and--

I would just add David, we didn't expect Sanquin to impact 2014 as the capacity won't come on until early next year.

Got it. And then on the renal business I think you said 4% organic growth and that included the tender win, but and I know it's early in the Gambro integration process, but can you give us some sense as to what the magnitude of commercial quote-unquote, revenue synergies, you might be able to realize from that deal going forward? And can that business get to sort of a sustainably ex these kind of one-time tenders of 4% to 6% growth rate over time?

David, Bob Parkinson here. First of all, yes is the answer to the last part of your question; that clearly is our expectation. It's a little bit early in the game to quantify commercial synergies, although I would say the first quarter for Gambro in revenue came in virtually spot on our model. And of course the rest of the renal business, the legacy renal business was even stronger than our forecast.

And we're beginning to see early stages of synergies; one example would be certain tenders where our ability to bid more broadly with product offerings and all of the categories allow us to compete where previously we've been unable to do that. So we anticipate that we're going to be able to experience more things like that as we go forward.

But certainly the long-term projection of the growth of Baxter's renal business broadly defined, both the legacy business and Gambro, is going to be very much in line with what I said.

Okay, thank you very much.

Our next question comes from Josh Jennings of Cowen and Company.

Hi good morning, thanks for taking the questions. Just to follow-up on David's question. With the Gambro acquisition I think Bob you said $400 million this quarter and then PD growth of 9%. Are you seeing some early cannibalization of your historic hemodialysis business, and is there any quantification there?

Well our historic hemodialysis business is very modest, so I don't think there's any cannibalization that we're seeing there at all. Bob I don't know if you have anything specific?

Two things I would say. We did mention the CRRT divestiture, that was about a $55 million business that we had to divest as part of the closing the deal, so that will be a headwind throughout 2014 from a growth rate perspective.

And while there are some modest impacts -- because largely our HD business previously was through -- was us acting as a distributor for other parties, and now that we've acquired Gambro, that will tail off over time. But in 2014, no significant impacts that we're expecting on those relationships.

Josh I think it's important for you and everyone to understand too -- you raised a question of cannibalization; in terms of our legacy home presence with PD, and of course our aspirations to launch our new home hemodialysis system, we really believe that our broader position resulting from the Gambro acquisition will actually enhance our ability to penetrate the market on both our traditional PD business as well as support the home HD launches as those cascade out over time. So we see that as a positive synergistic effect.

Great, thanks for that. And then just one for Ludwig. Just on the BAX111 approval, can you just help us frame the global von Willebrand Factor market and the [offset] there? Thanks a lot.

Thanks Josh, and maybe I should correct you, we didn't get approval. Your question was 111 right?

Yes.

So we got the Phase III results and we released those earlier this week, so we're really pleased with the results. The product -- a couple of things on the product. It could be the first recombinant from Willebrand, and we received orphan drug status in US and Europe. It's a pure von Willebrand molecule with a ratio of 100 to 1.

The Phase III study was very positive, since 100% of the patients had positive response on the efficacy ratings scale, which we agreed on with the FDA. As far as the market is concerned, currently it's a $300 million to $400 million market, it's 100% plasma. But I do see a significant opportunity to grow this market through increased diagnosis, since diagnosis rates are really low, as well as a prophy use since the prophy use is really low, it's about 5% in total. And when you look at the type 3 severe patients, it's only at 20%. So we look at this market as a potential market where we can continue to make a difference in those patients lives and increase the value.

Our next question comes from Kristen Stewart of Deutsche Bank.

Hi, thanks for taking the question. Just to clarify back on Mike's original question, was the gain on the sale of the investment contemplated in your guidance that you issued back in January?

No. It's not.

And then just--

Can I just add to that as well because I think Mike's question I tried to jump in, but we did increase the guidance in terms of our R&D spend. We did have an acquisition in the quarter, Chatham, which is going to increase some R&D as well as some other things that are planned as we accelerate some programs. So guidance there went up as well as guidance in SG&A.

Okay. And these investments, have you disclosed or is there any filing to show what exactly you sold and why you sold them? Because I know you have had a portfolio of investments.

Actually these were much older investments going back 12 to 15 years. There were minority positions we had, the underlying companies made an independent decision to sell, and so we really had no impact on the timing and they both happened to happen in the first quarter and they were sold to private firms.

One of them was GHX, which is an EDI platform that a number of large healthcare companies got together to form a consortium, again 10, 15 years ago. And so that was recently sold to again a private firm, so that's really the extent of it.

So the gain was nothing in your control in terms of the timing of it, it was just simply these underlying companies were sold?

Yes, we owned less than 10% I think of both, so we had very little say on timing.

Okay, great. And then you'd also mentioned -- I guess Bob you'd mentioned just kind of the parenteral nutrition business and your interest there. How do you just think about I guess expanding that business? Would you consider different acquisitions to kind of bolster up your nutritional franchise? And does I guess the split off I guess in general just make it a little bit more challenging to do M&A over the next year or so?

I mean certainly in terms of the financial strength clearly we have the ability to continue the kinds of acquisitions that we've done in the recent past. I actually think in some ways Kristen after the split, we might even have more latitude and flexibility to pursue some things. Given the nature of the new Baxter without the BioPharmaceutical business, it would be more aligned with expectations of shareholders.

So clearly, business development acquisitions are very much part of our strategy of the new Baxter going forward. And the area of parenteral nutrition specifically, I think is a significantly under-penetrated market globally, and I think the opportunity there is really more internal investment to cultivate the growth of that market whereas you know we're a leader in that market today. Whether specifically there are acquisition candidates within parenteral nutrition, not really going to comment. It isn't really evident to me that there are.

But the key thing is the underdeveloped nature of that market, and I think with the increased focus and associated investment, an opportunity to accelerate the growth of that product category.

Our next question comes from Bruce Nudell of Credit Suisse.

Good morning. Thanks for bearing with me, phone problems here. Ludwig, it's been very hard to get an extension of the half life of Factor VIII, and the Xenetics thing sounds like it's a departure from that, and could you basically explain why you think it might work and the likelihood of success?

Well first of all, this is early stage. This is still preclinical and the PSA, I think you understand it's a polymer of sialic acid, it's about the same.

Maybe the difference here is that it's biodegradable in our preclinical studies with the monkeys, we showed a prolongation by a factor of more than two compared to ADVATE. But we'll need to see what it means in the clinic and what is the chances that it will go all the way?

I think you know the science of biopharmaceuticals, in the preclinical we believe that it has a lot of value, but the proof is in the pudding. And our clinical studies will show if we can repeat the Factor II.

But I want to come back to maybe what is the most important thing here is -- for us it is a belief it works and it's not about extending the half life. It is about making sure that we have zero bleeds, and you get zero bleeds by factor levels that are high enough constantly, not during the peaks, and it's from that perspective that our approach on gene therapy in hemophilia we believe could be disruptive and that's why we want to be a leader in that technology as well.

Thanks. And my follow-up is just very tactical with regard to Sanquin. I know there are regulatory issues that were out there. How are they looking? Is it likely that this will be coming online in 2015 kind of in a seamless way as planned?

Well we are working with Sanquin on the questions as much as we can. As we also said the Sanquin volumes are not reflected in our 2014 numbers, and we believe that the guidance that we gave on our ability to grow with the market 6% to 8% will not be affected for the next couple of years, irrespective of the outcome of Sanquin. But we believe that we should be able to work with Sanquin through those questions, and by next year most likely have their input.

Thanks so much.

We have time for one more question.

Yes, ma'am. Our final question comes from Derrick Sung of Sanford Bernstein.

Hi good morning. Thanks for fitting me in. So just starting with a quick question here. Wanted to have you remind us of your expectations for Suprane generic competition and what is factored in your guidance for this year for that?

Bob do you want to comment?

Yes, we had a modest competitive impact put into our original guidance, and given the latest information that we have, we don't expect much of an impact here. So it's largely competitive impact is largely held out of our guidance for Suprane, but the delta between our original guidance and where we're at today is around $10 million or so. It's not significant.

Okay, great that's very helpful. And then my follow-up is for Ludwig. On the long acting recombinant Factor VIII market, two things there. One, we've see now Phase III data from a number of the other competitors, Novo as well as Bayer, in addition to Biogen's product, just wanted to get your reaction now that we've seen more of the Phase III data come in on just what you think of the long-acting competition, maybe how that might relate to your product.

And then secondly there, one of the big questions I think that's out there is how pricing in the market might change with the entrant of new competitors, particularly competitors who currently don't have a presence in the market and wanted to get your thoughts on that as well.

We'll start with the pricing question which is going to be a short answer, so I have no comments on that. Markets (inaudible), so no comments here.

With respect to your question on VIII, maybe a couple of observations. The first one is we call them long acting Factor VIII products, and mentioned several times I do believe that these are not long-acting. These are extended half life products. The half life is still shorter than one day, shorter than our Rixubis half life, and I would not call Rixubis a long-acting product, so that's number one.

Number two is what the data shows consistently is that when we are pushing the dosing regimen towards five or seven days, that the data consistently shows that the ABR, annual bleed rate, increases. And then we should ask ourself the question, are we doing the right thing for the patient here. Again this is a bleeding disorder with the objective of zero bleeds, and it's not an infusion disorder, so my answer is that I do believe that we are on track with what we're doing with 855, that it is based on the added molecule that is proven, that is shown to be preventive, that has shown to have consistent Factor-level data irrespective of the acid that's being used. And I believe that we have a very strong platform to work from.

So I really feel comfortable with 855 approach. In addition to that as I mentioned, I believe that gene therapy could be disruptive. We are post proof of concept in hemophilia B, and now with the new acquisition, we are in the lead from a gene therapy perspective across-the-boards broader than B, so I'm really comfortable with our strategy. The data as I said for 855 will get this third quarter this year.

Ludwig, do you expect this class of extended half life products to expand prophylaxis use in hemophilia A, and how much does that expand market growth?

I would say the prophy penetration will increase irrespective of the extended half life products. We've seen a significant uptick since we lunched ADVATE prophy. You should know that our label shows up to every three days, and more than 50% of our patients are on a three days or longer dosing regimen. So irrespective of the entry of the extended half life products, I do believe that the prophy segment will increase over time.

Okay, thank you very much.

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