百特醫療 (BAX) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Baxter International third-quarter earnings conference 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 of Investor Relations at Baxter International. Ms. Ladone, you may begin.

Thanks, Ann, and good morning, everyone, and welcome to our Q3 2014 earnings conference call. Joining me today are Bob Parkinson, CEO and Chairman of Baxter International; Ludwig Hantson, President 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 contains forward-looking statements that involve risks and uncertainties. And of course, our actual results could differ materially from our current expectations. Please refer to today's press release and our SEC filings for more details concerning factors that could cause actual results to differ materially.

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

Thanks, Mary Kay. Good morning, and thank you all for calling in. As you saw in this morning's press release, Baxter reported strong financial results for the third quarter which exceeded expectations.

Relative to our guidance, which included vaccines, adjusted earnings increased 9% to a $1.35 per diluted share, and worldwide sales advanced 13%. Excluding foreign currency and Gambro from both periods, global sales increased 6%.

I am very pleased with overall organic sales performance from ongoing operations, as the third quarter represents the highest quarterly growth of this year. This affords us the opportunity to increase investments in research and development, and further enhance manufacturing quality and operational excellence, as we position our Company for sustained success.

In recent months, we continue to make progress in strengthening the portfolio with new collaborations, advancing the new product pipeline through the achievement of meaningful milestones, and the organization remains engaged in working to separate Baxter into two leading global healthcare companies aimed at enhancing shareholder value over the long-term. For example, within BioScience, we are building on the strategic decision to expand our presence in the area of oncology, leveraging the Company's heritage of success in developing new therapies that treat unmet medical needs for patients with rare diseases. Not only has Ludwig been building an experienced team of oncology leaders including senior clinical development, business development and proven commercial executives, but we also continue to seek partnership opportunities to expand the pipeline.

You may recall that last month, we signed an exclusive license and collaboration agreement with Merrimack Pharmaceuticals for the development and commercialization of MM-398, an investigational drug candidate for the treatment of patients with metastatic pancreatic cancer, previously treated with a gemcitabine-based therapy. As you know, pancreatic cancer is a rare and deadly disease that is difficult to diagnose, and has limited treatment options.

Through this agreement, BioScience gains exclusive commercialization rights for all potential indications of MM-398 outside the United States and Taiwan. MM-398 has demonstrated robust survival results in a global Phase 3 trial that will be the basis for regulatory submissions outside the US beginning in 2015.

BioScience now has four oncology assets, MM-398, [regosertib], pacritinib and BAX-069, with the potential for numerous indications for patients with hematologic and solid malignancies. We look forward to discussing the progress of the oncology portfolio and advancement of the pipeline in the future.

The BioScience organization also continues to enhance its focus on specific disease areas, centered on core areas of expertise in hematology, immunology, and through technology platforms like gene therapy and biosimilars. It is for this reason that we elected to divest the commercial vaccines business, including the NeisVac-C and FSME vaccines, and during the third-quarter announced a definitive agreement with Pfizer. We are working to close this transaction in the fourth quarter, and continue to explore strategic options including the potential for partnering or divesting the R&D development programs focused on influenza and Lyme disease.

In addition, we have also achieved an array of significant pipeline milestones, including the FDA approval of HYQVIA, a transformational subcutaneous treatment for adult patients with primary immunodeficiency. HYQVIA is the first subcutaneous immune globulin treatment approved with a dosing regimen requiring only one infusion per month, and one injection site per infusion to deliver a full therapeutic dose, while maintaining the same efficacy, safety and tolerability profile as currently marketed products.

Today many patients receive IV infusions in a doctor's office or infusion center, and current subcutaneous treatments require weekly or biweekly treatment with multiple infusion sites per treatment. We expect to launch HYQVIA in the United States next week, and are evaluating regulatory requirements and initiation of additional clinical trials for new indications. As a reminder, the global market for primary immunodeficiency is approximately $2 billion, and only approximately 35% of patients are treated subcutaneously, providing a unique opportunity for HYQVIA as a differentiated therapy.

In addition in August, Baxter released positive top line results from the Phase 3 pivotal clinical trial of BAX-855, an extended half-life recombinant factor VIII treatment for hemophilia A, based on ADVATE. BAX-855 met its primary endpoint in the control and prevention of bleeding, routine prophylaxis and perioperative management for patients who were 12 years or older, with patients in a twice-weekly prophylaxis arm experienced a 95% reduction in median annualized breeding rates, as compared to those in the on-demand arm. In addition, BAX-855 was also effective in treating bleeding episodes, 96% of which were controlled with one or two infusions, and approximately 40% of patients were bleed-free.

No patients developed inhibitors to BAX-855, and no treatment related serious adverse events including hypersensitivity were reported. Our continuation and pediatric studies are progressing, and we are planning to submit a biologic license application to the FDA before the end of 2014.

Also during the quarter, Baxter received FDA approval of RIXUBIS for routine prophylactic treatment, control and prevention of bleeding episodes, and perioperative management in children with hemophilia B. We launched RIXUBIS in the US late last year for the adult population, and are very pleased with its -- the market acceptance. Our application for adults in pediatric patients is currently under review in the European Union, and we expect a regulatory decision later this year.

Within the medical products business, recent highlights include an exclusive agreement with Rockwell Medical to commercialize their leading hemodialysis concentrate product line in the United States, and in select overseas markets. Hemodialysis concentrates help to clean the patient's blood and remove waste and extra fluid from the body. This agreement enhances Baxter's comprehensive range of therapeutic options across home, in center and hospital settings for patients with end-stage renal disease.

And finally, we recently announced expansion plans at our state-of-the-art manufacturing facility in Opelika, Alabama to help address the growing global demand for dialyzers. Baxter will invest nearly $300 million in the Opelika site, and we expect to begin commercial production in 2016, augmenting several other recent capacity expansions for dialyzers across our footprint.

In addition to delivering solid financial results and accelerating innovation, the organization is fully engaged in the process of separating Baxter into two leading global healthcare companies, one focused on developing and marketing innovative biopharmaceuticals, and the other on lifesaving medical products. During the quarter, as you know we formally unveiled the Baxalta Incorporated as the name of the new publicly traded biopharmaceutical company. The name Baxalta celebrates and sustains our heritage as an innovator and legacy of leadership, by incorporating the Baxter name, and coupling it with alta, which derives from opus which is Latin for high or profound.

Upon completion of the separation, Baxalta Inc. will trade on the New York Stock Exchange under the symbol, BXLT, and Baxter International will continue to trade on the New York Exchange under the symbol BAX. While the corporate headquarters of both companies will be located in northern Illinois, we recently announced that Baxalta is forming a new global innovation and research and development center in Cambridge, Massachusetts. This will position the new company to optimize R&D productivity, accelerate innovation by building on its robust pipeline in core areas of expertise, strengthen and increase R&D collaborations with partners in new and emerging biotech areas, and enhance patient care globally.

As many of you know, we have now named our senior leadership teams for both companies, and have established the international and commercial structures for both organizations. We have elevated several senior leaders into new roles, and have complemented our strong commercial and operational teams with some new talent, including experienced professionals from leading biotech, pharmaceutical and medical device companies.

Many of you have also asked about appointments within Investor Relations. And today, I am pleased to announce that Mary Kay Ladone, after a 26 year career at Baxter will become Corporate Vice President of Investor Relations for Baxalta upon completion of the spin. In the interim, Mary Kay will continue in her current role, and will be responsible for the ongoing investor relations efforts at Baxter.

In conjunction with Mary Kay's appointment, I am pleased to announce that Scott [Bohaboy], a senior level fiance executive with eight years of experience at our Company will become Baxter's Vice President of Investor Relations and Treasurer. During his tenure, Scott has held several senior finance roles with Baxter, including in corporate planning, the US hospital business, our Asia-Pacific region, and he currently serves as Vice President Finance for our international operations. Scott also has previous experience in investor relations at two other companies earlier in his career.

In addition, Claire Troutman, who many of you already know, will be named Vice President of Investor Relations for Baxter, and will report directly to Scott. Both Scott and Claire will continue in their current roles for the near future, and will work closely with Mary Kay and her IR team, as we transition into two separate companies in mid 2015.

In closing, Baxter has an established history of executing successful spin-offs, and we believe this separation provides two unique and compelling investment opportunities for shareholders. Our decision underscores our commitment to ensuring our long-term strategic priorities remain aligned with shareholder's best interest, while we seek to improve our competitive position and performance, enhance operational, commercial and scientific effectiveness, and create long-term value for patients, healthcare providers, and other key stakeholders.

As always, I would be happy to address any questions you may have with regards to the spin-off, or other topics during the Q&A. And so with that, I will now turn the call over to Bob Hombach. Bob, please?

Thanks, Bob, and good morning, everyone. As Bob mentioned, adjusted earnings per diluted share in the third quarter advanced 9% to $1.35, which exceeded our previously issued guidance range of $1.28 to $1.32 per share. This performance reflect strong sales growth, as well as continued investments in research and development, unplanned gain from equity investments totaling $0.03 per diluted share which will be reinvested in the business, and adjusted income from discontinued operations of $26 million or $0.04 per diluted share. As we mentioned in the press release, GAAP earnings of $0.86 per diluted share includes income from discontinued operations of $21 million or $0.04 per diluted share, and after-tax special items totaling $273 million or $0.49 per diluted share, primarily for intangible amortization and costs associated with upfront product development and milestone payments, integrations of the Company's acquisition of Gambro AB, and Baxter's planned separation.

Now let me briefly walk you through the P&L by line item, before turning to the financial outlook for 2014. Please note that with a few exceptions for purposes of today's discussion, I will focus my comments on the adjusted P&L line items as seen on page 10 of the press release, which shows the reconciliation of adjusted and GAAP earnings, and reflects the vaccine franchise as a discontinued operation. For reference, we disclosed historical financial information for the vaccines franchise last week, and have also posted the schedules to the Investor Relations page of Baxter's website.

Starting with sales, worldwide sales of approximately $4.2 billion advanced 13%, on both a reported and constant currency basis. Excluding Gambro from both periods, Baxter's sales rose 5% on a reported basis or 6% on a constant currency basis, reflecting an acceleration of organic growth versus the first half of the year.

You may recall that our sales guidance for the quarter included vaccine revenues, which were expected to decline, given the receipt of lower milestone payments versus last year. When including vaccine revenues, Baxter's global sales grew 5% on a constant currency basis, which is at the high end of our previously issued guidance range.

Sales in the US increased 7%, and international sales excluding Gambro and foreign currency also increased 7%. Sales from emerging markets which now represent almost 25% of total Baxter sales advanced nearly 20%, given very strong performance in the BRIC markets driven by the timing of tenders.

In terms of individual business performance, global BioScience sales totaled approximately $1.7 billion, and advanced 8% on both a reported and constant currency basis. And despite a difficult comparison in the US biotherapeutics franchise, BioScience recorded the highest quarterly growth in almost two years.

Within the product categories, hemophilia sales of $942 million increased 11% on both a reported and constant currency basis. This is the fourth consecutive quarter of double-digit ADVATE growth, which continues to be driven by strong global demand, as well as benefits from recent tender wins in the UK and Australia, and conversion to recombinant therapy in Brazil, where to date we have converted approximately 40% of the estimated 10,000 hemophilia A patients, and continue to expect to generate sales of more than $100 million in 2014.

In the US, ADVATE growth was high single-digits, supported by continued conversions to prophylactic treatment, and very minimal loss of share to a new competitive entrant. We are also benefiting from the launch of new products and indications. RIXUBIS, our treatment for hemophilia B patients was launched in the US like last year, and we continue to be pleased with its uptake.

Our hemophilia performance also reflects robust demand and double-digit growth in FEIBA for the treatment of hemophilia patients with inhibitors. As you may recall, only 15% to 20% of inhibitor patients globally are treated prophylactically. And with approvals of this new indication across multiple, large geographies like the US, Canada, Australia, Japan we expect this to represent a significant growth opportunity for our hemophilia franchise over the long-term.

In biotherapeutics, sales of $546 million improved sequentially due to enhanced product availability, and we continue to see robust demand and stable market growth for our immunoglobulin and albumin therapies globally. Sales growth for this product category was 3% in the quarter on a reported basis, and grew 4% on a constant currency basis.

As mentioned on our last earnings call, we expected an acceleration in international growth this quarter, as we are building on our position in many foothold markets. And we also expect the growth in the US to moderate, due to tough comparisons created by supply availability, and the easing of constraints beginning in the third quarter last year.

In addition, we are being prudent in managing our global supply and inventory levels, as we prepare for the upcoming HYQVIA launch which is expected next week. And given the renewal of albumin licenses in China, we are once again optimizing our geographic mix with albumin shipments into that large and growing market.

In biosurgery, sales totaled $185 million and increased 7%. On a constant currency basis, sales rose 6% driven by increased penetration for surgical sealants like TISSEEL and FLOSEAL.

In medical products, global sales of more than $2.5 billion increased 17% on a reported basis, and were up 18% on a constant currency basis. Excluding Gambro, medical product sales grew 4% on both a reported and constant currency basis.

Within the product categories, renal sales were approximately $1.1 billion, which includes a contribution from Gambro of $391 million. Recall that we closed the Gambro acquisition in September last year, and recorded sales of $100 million.

Excluding Gambro from both periods, renal sales of $664 million increased 3%, or 4% on a constant currency basis. Strong global PD growth of 7%, somewhat offset by the impact of the CRRT divestiture.

As mentioned last quarter, PD patient gains remain strong, particularly in the US where PD sales increased 12% for the quarter and 13% year-to-date. Given this very strong demand, we are experiencing backorders, and are expediting shipments as we remain committed to ensuring patients have uninterrupted access to their therapy.

We continue to produce PD solutions at maximum capacity, are working to expand capacity to meet the growing demand, and are beginning to source product from our facility in Castlebar, Ireland through the much appreciated support of the FDA, which granted a temporary import license. Going forward, we will continue to work with customers to carefully manage inventory, and maintain continuity of care for our patients.

We are very appreciative of the close collaboration and great support we have received from the agency in this regard. Going forward, we will continue to work with customers to carefully manage inventory and maintain continuity of care.

Within the fluid systems category, sales of $827 million increased 4% on a reported basis, and 5% on a constant currency basis. Performance was driven by favorable demand and pricing for IV therapies.

As you may know, to date we have not experienced any new competition for cyclophosphamide, and we are updating our guidance for this new assumption. For your reference, sales of US cyclophosphamide in the third quarter were approximately $120 million, and were lower than the prior year, and sales on a year-to-date basis now total $345 million.

Specialty pharmaceuticals which includes our inhaled anesthetics and nutritional therapies posted sales of $386 million, reflecting an increase of 4%. Sales rose 3% on a constant currency basis, driven primarily by mid single-digit growth of our anesthesia portfolio, where we are increasing international penetration, and low single-digit growth for nutritional therapies.

Finally, sales in biopharma solutions, which is our pharma partnering business totaled $256 million, and increased 5% on a reported basis, or 3% on a constant currency basis. Performance can be attributed primarily to strong pharmacy compounding revenues.

Turning to the rest of the P&L, gross margin in the quarter was 50.5%, compared to 52 -- 52.7% percent last year. Positive mix from franchises within BioScience was primarily offset by the impact of foreign exchange and Gambro, which collectively reduced the rate by approximately 130 basis points. In addition, the gross margin was impacted by product mix within medical products, expedited freight for PD solutions, and lower than expected production volumes as we continue to make investments to enhance our quality systems, processes, and operational excellence to meet the evolving regulatory requirements.

SG&A totaled $921 million and increased13%, 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 in BioScience, and incremental customer freight and logistical expenses to support the strong demand for IV solutions.

R&D spending in the quarter of $292 million increased16% versus the prior year. Excluding Gambro, R&D rose 8% driven by the addition of new R&D programs in BioScience through acquisitions, the acceleration of other programs in the 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 21.6% was lower than last year's operating margin of 23.8%. Excluding Gambro, the operating margin was 23.4%, reflecting the impact of foreign exchange and incremental investments referenced earlier.

Interest expense was $31 million in the third quarter, compared to $45 million last year. As expected, we benefited from debt maturities, and a favorable change related to the mix of floating versus fixed interest rates.

Other income totaled $39 million, and was driven primarily by the favorable foreign exchange impact on balance sheet positions, and approximately $20 million or $0.03 per diluted share in unplanned equity gains related to investments in the Baxter Ventures fund. The tax rate was 21.8% for the quarter, in line with our expectations, and as previously mentioned adjusted earnings per diluted share advanced 9% to $1.35.

Turning to cash flow, on a year-to-date basis cash flow from operations totaled approximately $2.1 billion. DSO ended the quarter at 55.9 days. And excluding Gambro, Baxter's DSO was 53 days, lower than the prior year by more than two days.

Inventory turns of 2.2 are modestly higher than the previous [period]. And lastly, to date we have repurchased approximately 7 million shares for $500 million, or on a net basis, 1.5 million shares for $200 million.

Finally, let me conclude my comments this morning by providing our updated financial outlook. For the full year, we expect adjusted earnings from continuing operations of $4.86 to $4.89 per diluted share. After adding the expected earnings contribution from the vaccine franchise of approximately $0.27 per diluted share, this guidance is in line with our previously issued and disclosed range of $5.10 to $5.20 per diluted share.

In addition, we have updated our assumptions for cyclophosphamide, and do not expect any new competition before the end of the year. While this has resulted in a transitory benefit, it is offsetting incremental headwinds associated with foreign currency in the fourth quarter of approximately $0.04 per diluted share, and other investments to enhance quality and operational effectiveness in the medical products business, and additional investments in SG&A and R&D in BioScience.

Specifically by line item of the P&L, and starting with sales, we now expect sales growth excluding the impact of foreign currency of approximately 11% to 12%, which includes annual sales of more than $1.6 billion for Gambro. At current foreign exchange rates, we expect reported sales growth of approximately 10% to 11%.

Excluding Gambro, we expect Baxter's organic sales to grow approximately 4% on a constant currency basis. For the full year, we continue to expect gross margins for the Company of approximately 50.5%. This compares to the prior year gross margin of 51.7%.

In terms of expenses, we now expect R&D and SG&A to grow in low to mid teens for the full year. We expect interest expense to total approximately $150 million, and other income to total approximately $90 million for the full year. We expect a tax rate of approximately 22%, slightly higher than our original expectations as the vaccine franchise carry a very low tax rate, and we expect a full year average share count of approximately 547 million shares, which assumes approximately 300 million in net share repurchases.

From a cash flow perspective, we continue to expect to generate cash flow from operation of approximately $3.5 billion, which excludes the cash cost associated with the spin-off of the biopharmaceuticals business. We now expect capital expenditures of $1.8 billion to $1.9 billion, which excludes pre-spin capital expenditures primarily in the area of information technologies.

Let me move to sales, and expand on our assumptions for the two businesses and the major product categories. Beginning with medical products on a constant currency basis, including the contribution of Gambro, we now expect sales growth approximately 15%, and excluding Gambro, we expect sales for medical products to grow approximately 3%. Specifically, we continue to expect renal sales to grow approximately 40%.

We now expect fluid systems sales to grow approximately 4%, as we assumed no material impact from cyclophosphamide competition this year. We continue to expect specialty pharmaceutical sales, which includes our nutritional therapies and inhaled anesthetics to grow in the 3% to 5% range, and we expect our Biopharma solution sales to be flat for the full year.

For BioScience, we are once again raising our guidance, and now project sales growth excluding foreign currency of approximately 6%. Our outlook includes strong growth in our global hemophilia franchise of approximately 8%, fueled by underlying global demand for ADVATE, conversion to recombinant therapy in Brazil, new tender wins, and continued benefits from new product launches including RIXUBIS and FEIBA prophylaxis. For the biotherapeutics franchise, we continue to expect growth of approximately 4%, driven by increased demand, and the contribution from the HYQVIA launch.

And finally, for our biosurgery business, we continue to expect growth in the low to mid single-digits. As mentioned in our press release, for the fourth quarter we expect earnings per diluted share from continuing operations excluding special items of $1.30 to $1.33. We expect sales growth excluding the impact of foreign currency of approximately 3%, and we expect reported sales to be flat to the prior year.

Before I open up the call for Q&A, let me take a moment to update you on some of the financial aspects of the spin. First, we expect to file our initial Form10 for Baxalta before the end of this year, which will include historical financial results on a GAAP basis for the year's 2010 through 2013, and year-to-date results for 2014. These financial statements will be prepared as if on a standalone basis and derived from Baxter's consolidated financials, and will include allocations of various costs previously held at Baxter corporate level.

I would highlight that these financial statements are inherently limited, as costs associated with corporate overhead, income taxes, support services and interest expense may not be indicative of future costs associated with running Baxalta as an independent standalone corporation. We expect to file amendments to the Form 10 in 2015, which will include 2014 and year-to-date 2015 financial results for Baxalta, in addition to pro forma adjustments to reflect the impact of expected debt and interest expense, and other associated agreements and transactions.

As we have previously disclosed, we are in the process of designing the two new organizations, and at this point, our rough estimate of initial disynergies including stranded costs is approximately 2% of total Baxter sales, or more than $300 million. About half of these costs would be incurred beginning in the second half of 2015, and both companies will have the opportunity to reduce a meaningful portion of these costs over the next several years post-spin. In addition, spin-related costs incurred in the first half of 2015, will be considered special items, and will be excluded from our adjusted earnings.

Also as we continue to work through the details of our IP ownership and manufacturing footprint, we have not uncovered any substantial issues from a tax perspective. While we will be finalizing the capital allocation strategies of each of the businesses in the coming months, we expect that both will have strong balance sheets, generate significant cash flow, and have the flexibility to follow a disciplined capital allocation approach, which balances reinvestment in the business and CapEx, R&D and M&A, with returning value to shareholders in the form of dividends and share repurchases. We look forward to sharing more information with you, as we get closer to completing the spin.

While we continue to work through the complexities, this process is unfolding in line with our expectations, and we continue on track toward a mid 2015 completion. This assumes the Form 10 registration statement is declared effective by the SEC, and final approvals have been obtained, including from our Board of Directors. As we proceed towards the separation date, we plan to host an Investor conference in the second quarter of 2015 to introduce you to the new senior management teams, and provide investors with more information regarding the strategies, growth prospects, and financial outlooks for each company.

We recognize that investors and analysts would like more information to help them model both companies separately. And the intent of the conference is to help you establish a baseline, as each company will have a different financial profile after the separation. We will also engage in a comprehensive investor relations effort, including investor roadshows for both companies with their respective senior management teams, several weeks before the spin-off is completed.

Thanks. And now, I would like to open up the call for Q&A.

(Operator Instructions)

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

David Roman, Goldman Sachs.

I want to start with the hemophilia franchise, and it -- just taking a step back for a second. At the last time you provided your long-range plan, I think you had talked about hemophilia as a 3% to 4% grower. And you had caveated in there that the potential for new competition which we are now starting to see. Can you maybe just help us put into context the year-to-date growth that you have seen, and the 8% guidance that you have provided, how much of that is a reflection of some benefits you are seeing this year, versus the potential to see a sustainably higher growth rate in that franchise than what you had initially targeted?

Well, I will make a couple of comments, and then maybe I will turn over to Ludwig to give you some more perspective on the dynamics we see in the hemophilia market. The guidance we gave several years ago, what was over a five-year period and 3% to 4% growth, clearly pre-competition we expected to grow faster than that. And then, with the impact of competition it would moderate over the time frame.

Clearly, we have had a very strong 2014 to date. And given how things have played out as we have discussed previously, the overall competitive landscape has played out largely as we expected, if not slightly better in terms of what others have been able to achieve with on label indication for an enhanced -- extended half-life product. And so, I think going forward, we have the opportunity to certainly achieve that, if not potentially exceed that long-term guidance.

But maybe I will turn it over to Ludwig to add some color here on the market dynamics.

Yes. Thanks for that question, David. So at this moment, we are not changing our five year sales CAGR of 3% to 4%. As Bob was saying, there is a probability for us to go beyond these numbers. The numbers that I gave you, or that we gave you a couple of years ago clearly were probablized for R&D milestones. As we are hitting our R&D milestones, it means that the likelihood that we are going to overachieve those numbers is greater. And we do expect that, in addition to ADVATE, and continued FEIBA growth, and continued growth in emerging growth countries, that our new product launches such as RIXUBIS, [obisure], the 855, the recombinant from Willebrand, will have an impact here on the five-year plan.

Okay. And maybe just a follow-up on the emerging markets more broadly, the 20% FX neutral number that you gave. I know you said there was strength in BRIC and timing of tenders, so maybe you could just help us frame up those markets a little bit more broadly. We have seen some disruption across the healthcare landscape there the past several quarters. How confident are you in being able to sustain, call it a mid teens type growth rate in those franchises on a go forward basis?

Well the big one for us is clearly Brazil. I think we have a strong plan in place, the strategy is there. As Bob was saying, we have converted 4,000 out of the 10,000 hemophilia A patients so far.

Just to remind you this was a plasma market. In addition to that, it was an on-demand market. So we are moving from plasma to recombinants.

In addition to that, we are moving a lot of those patients from on-demand to prophy. So we feel pretty good with the strategy that we have in Brazil. So this is our biggest one.

But in addition to that, we have opportunities in China where we launched. In addition to that, we got approval for ADVATE in Russia, as well as in Turkey where we are launching. And outside of these emergent growth markets, clearly the UK tender, as well as the Australian tender will continue to help us moving forward.

Yes, and David across the entire business, between medical products and bioscience. As we have said, medical products, about 25% of sales already in emerging markets, very strong presence.

And with the renal franchise and the broader portfolio, great opportunity to continue to grow there, and bioscience has only penetrated about 15% of sales in emerging markets. And that is really the opportunity here, to continue to accelerate growth as Ludwig has laid out. So we feel very good about our position in emerging markets, and the ability there to sustain double-digit growth going forward.

Got it. Thank you.

David Lewis, Morgan Stanley.

Good morning. There has been a lot of new job promotions and opportunities for people in the room, so congratulations to all involved. But just two quick questions.

The first one, Bob Hombach, for next year -- and I appreciate you gave us some good detail as it relates to the step-up costs and -- but I wonder if you could help us understand a couple of things. Is there any sense of what the impact of FX could be for 2015, given that cyclo competition has not happened yet this year.

How you are thinking about cycle for next year? Or any other important dynamics we should be thinking about for 2015 numbers?

And then, what are we actually going to hear from an investor perspective in January, Bob? And then, a quick follow-up.

Sure. So starting with FX, clearly a very volatile time frame here, just within the last couple of weeks. As we indicated, we expect an incremental headwind of about $0.04 here in the fourth quarter. And given where rates have been throughout the course of the year, where there were a time frame where things looked like they might be getting slightly better, I think the fourth quarter I think would be verily indicative of what we are likely to see, if rates stay where they are at today on a run rate basis.

So we are probably in the $0.15 to $0.20 range of a headwind, if rates stay where they are at today for 2015. But again, a lot of volatility here and we will see where things are at, as we get to January and give guidance.

For cyclophosphamide, we continue with a very robust competitive intelligence effort to understand where things are at. Again, we know there are seven or eight players who are awaiting approval. We continue to hear that it is likely to be in the not-too-distant future.

But again, the specificity around that just isn't great. So I think as you get to January, we will have a better sense. But again, we framed it as a $0.50 contributor to profit for Baxter. And over time we expect numerous entrants, and the vast majority of that to go away with a likely pretty significant impact in 2015, but at this point no further clarity that we have got to give.

And as it relates to what you are going to hear in January? We continue to work through a number of things here, but I think key assumptions like sales guidance, I think we will be in very good position as we always do to give sales guidance for the franchises and the two businesses.

And in the process of doing that, I think we will make very clear what our assumptions are on key value drivers like the hemophilia franchise, like cyclophosphamide which will clearly have a very meaningful impact. We will also be able to give you a sense of FX and pension and so on.

So while it may be a challenge to give a full P&L at the level of detail we normally do for the full year, given the mid year split, I think we will be able to give you a lot of information, and a good sense of where the profitability trends are heading for each of the two businesses. But very clearly, be able to give you sales guidance.

Okay. Very helpful. And maybe a quick one for Bob Parkinson. Bob, one of the catalyst that is coming out of -- as we think about the Baxter business, the medical products business and the next year after, is this dynamic of cost opportunity, and some of the things you may be able to get after.

It is not clear to us whether there is a true cost opportunity like an SG&A opportunity in medical product? Or the opportunity you see is more from portfolio reshaping, which could be very positive for gross margins over time?

So I think this is kind of shaping up as kind of a key investment debate? So maybe help us understand, how you see the cost opportunity broadly defined at medical products?

Sure, David. So obviously, as we get closer to the spin, we will be in a position to be actually quite specific in terms of what are the elements that we believe are going to drive earnings for new vacs, if you will at a -- I believe meaningfully, a faster rate than top line revenue growth. Cost structure is very much part of that.

But let me just take a minute, maybe to comment on the other aspects or the other dimensions that we believe can drive margin improvement over time. First and foremost, we have been very specific in terms of the future synergies associated with Gambro, both the margin drop-through on commercial synergies, as well as cost structure synergies which I will tell you we are tracking very well through 2014.

And that is a material improvement over time, which will make a large contribution to the earnings growth of new Baxter if you will going forward. Focus on mix shift of products, so the relaunch of [Sigma] if you will, with the recent approval provides a great opportunity to recapture margin.

I think I commented on this specifically in the last quarterly call, but that is a big opportunity to regain market share in the infusion pump business. Intensifying focus in areas that continue to be undeveloped markets on a global basis, like bio surgery, like parenteral nutrition, and then of course, the anesthesia franchise.

So there is a mix shift effect toward higher growth, higher-margin products which will also contribute to accelerated bottom-line growth. Portfolio, you mentioned that in your question, David, is also a big part of it.

And I will tell you we will be very aggressive in evaluating the existing portfolio. Not only from a business in a product line point of view, but from a geographic point of view, there may be businesses that we want to stay in, in certain markets but exit in other markets. And obviously, to do that will provide fuel for adding to that portfolio through bolt-on acquisitions and so on.

And then, cost structure clearly is an element. I think once we are able to split up the two new companies, and we through that process obviously integrate all the corporate support functions in the two businesses and get a better line of sight, I will tell you I think there's significant opportunity to fundamentally take out cost structure.

And then lastly, new product introductions like VIVIA, like [Prismaflex], our next-generation CRRT system, second-generation infusion pump platform. So that kind of frames the various dimensions that will contribute to the margin enhancement and growth, again at a faster rate and revenue. And as we get closer to the spin, we will be in a position to be more specific, including the aspect of cost structure on all those elements, okay?

Thank you very much.

Matt Miksic, Piper Jaffray.

Hey, everybody. Thanks for taking our questions. A couple of follow-ups.

Just to drill down a little bit into hemophilia US versus OUS. I mean, you obviously have very strong worldwide number, and driven by (inaudible).

But in the US, just to understand how you are looking at the rest of the year, I guess what are you assuming in terms of the ADVATE launch? Haven't seen much competition yet, but are you still dialing in pressure in the back half? And that would be helpful color, and one more follow-up.

Yes. We -- well, thanks for the question, Matt. The -- first of all, we continue to expect solid growth across the hemophilia franchise, both on the US side as well as the international side. As far as the ADVATE US market share, as concerns, we gave you guidance that we expect a decline of high single-digit in between the [Eloctate] launch and the 855 launch.

So 855 continues to be on track. We have seen the phase 3 data. We continue to move towards a BLA submission before the end of this year.

Then, as you saw a Q3 sales date in the US for ADVATE remains strong. We grew over 8%. And year-to-date, we have a net patient gain versus previous year. And this is on top of our continued prophy conversions.

So we believe that since the Eloctate's approval about four months ago, we have seen a very minimal share loss. We also are aware that several patients which backed ADVATE over the last weeks. And we realize that this data is still early, but so far it has aligned with our expectations.

And then one more, same subject, and we have talked about this before. There -- in our checks, I guess, and conversations indicate increasing interest in certifying tuning the dosing for patients, in line with your PK analysis, and data that you put out a couple of years ago. The myPKFit reaching the US, can you walk-through maybe the timeline, and how much of a factor is that going to be, as you look at the competitive landscape over the next year?

Yes. So one of our strategies is to continue to strengthen the ADVATE label. So as you know, we just launched the [Vectset] 3 device.

MyPKFit is another opportunity for us to strengthen the label. We got approval in Europe. We are launching in selective countries as we speak.

For US, this is a under regulatory review, it is a 510(k) submission. The impact of that will be very limited this year. This will be more in 2015 event.

Thanks so much.

Bob Hopkins, Bank of America Merrill Lynch.

Great, thanks. Can you hear me okay?

Yes, we can, Bob. Go ahead.

Oh great, thanks. Just to follow up again on that ADVATE comment about anecdotally hearing that some patients are switching back. Can you just kind of develop that little more, what are the circumstances behind that? What has happened, that they switched back?

And then, I was just wondering if you could comment if your guidance that you gave last call that you don't expect ADVATE share loss in the US of more than single digits, if that still holds given what you are seeing?

Yes. As I mentioned -- so thanks for the question Bob. As I mentioned, we expect that the ADVATE US market share will decline high single digits between the Eloctate launch and the 855 launch.

So to be more specific on the 855 launch, so submission before the end of this year. So 855 hitting the market by the end of next year. So that the time frame.

Yes, we have anecdotes -- we know of several patients who switched back for different reasons. I am not going to talk more about why those patients switched back, but we are really pleased with the fact that ADVATE is the gold standard, and remains the gold standard in hemophilia A.

So no change to that guidance then?

No change in the guidance.

Okay. And then last change question for me just, very quickly on the -- back on the US plasma side, and I know you walked through the US results this quarter pretty thoroughly, but I am just wondering was that number from the US business about as you expected, or was that a little bit weaker?

Well, the -- I think the most important thing here, is that our US demand for IG remain strong, and is growing with the markets which is double-digit. So that is the critical piece here. And then, was Bob was talking about we had a major event last year, as well as we are gearing up for the HYQVIA launch, we want to make sure that there is space in the inventory for HYQVIA which we will be shipping next week.

Okay.

And Bob, the major event that he was referring to, is the fact that we were able to enhance our capacity situation, and in Q3 began shipments at an increased level. So we had a difficult comp here in the third-quarter.

Very helpful. Thank you.

Michael Weinstein, JPMorgan.

Thank you. Just take a couple of follow-ups to some of the earlier questions. So, one, will we see the full data set on 855 at ASH? Do you know if that is going to make it?

Well, we have submitted at ASH -- to ASH the design. And now we are submitting as the late breaking news, so we don't have a full yes yet, so we will keep you posted.

Having said that, I think we have disclosed the most critical information on the 855 study with all of you. And again, to repeat for the key messages for -- first of all, we had great control of bleeding, 95% of the bleeds were reduced. 40% of the patients were bleed-free, no inhibitors, no cases of hypersensitivity, and with the PK profile, extension of 40% to 50% versus ADVATE.

So these were the key messages. We will keep you posted if it will be an ASH event.

Okay. And let me -- while I have got you here, on 826, can you just give us an update on when you think you would be into humans with that?

Our objective is by the end of next year that we will be in [in-human] studies.

Okay. I want to qualify, just the commentary by Bob Hombach on 2015 and expectations or set expectations around guidance. So in January, you will guide for revenues, and you will give us some other items, but you won't actually give EPS guidance for 2015, is that correct?

Well, we certainly will for the first half -- excuse me -- for the first half of the year. But for the full year, it becomes very tricky with a mid year separation. At the investor conference in early Q2, would be the time frame I think where we would lay out the full-year picture in more detail for both companies.

And that first-half guidance, you are saying you will exclude the synergies that you will start to incur the first half, you will actually back those out?

But we do expect that to be fairly minor, because we will time the -- adding the resources that create the duplicative new corporate overhead as and when we need to, in order to be prepared and appropriately prepared on July 1. So there will be some cost there, but we don't expect that that aspect of it will be overly significant. But we will call that out separately, yes.

Okay. Last question for you, then I will drop. You reiterated your cash flow guidance for the year. But I was looking at the cash flow statements, looks like you are down 2% for the year.

Your guidance is $3.5 billion, which is close to up 10%. So is that -- your are confident in the big fourth-quarter in your cash flows?

Yes, as we look at things, working capital was a bit below -- a bigger drain on cash flow here in the third quarter than last year, receivables and payables in particular. Some of that just has to do with timing of a strong sales quarter and when that occurred and when we are likely to collect that. So, yes, there is a big fourth-quarter here, driven primarily by the timing on some of these working capital items.

Great. Thank you.

Lawrence Keusch, Raymond James.

Circle back on HYQVIA, and I just wanted to get on further thoughts on the ability to line up the patients, the caregivers, and the payers as you launch that product, as well as see if you are willing to talk at all about price?

And then for Bob Parkinson, I am wondering if you can talk a little bit about the environment that you are seeing both in the US and overseas in the med products business? J&J obviously indicated that there was some slight improvements in utilization. Just want to see what you are seeing?

So with respect to HYQVIA, we are really pleased with the approval and we are gearing up as was mentioned. We are planning to ship product next week, and that is some progress.

When -- our goal for HYQVIA is to be the preferred and leading SubQ treatment for PID, and that should be supported by differentiation. And we plan to extend HYQVIA into a neurological indications in the coming year, so beyond PID.

At this moment, there is a broad market awareness,. There is high interest from physicians, patients on HYQVIA, and we are expecting accelerated sales in Q4.

With respect to pricing, we are introducing HYQVIA to the PDMs and the payers as we speak. Our pricing strategy is consistent with HYQVIA's differentiated and unique value, which is to provide a SubQ IG treatment that can be administered once a month, at doses equivalent to that of IV IG. So with respect to the price, consistent with Europe, we will be launching at the price premium.

And can you say how much that might be?

No, at this point, Larry, until we get things finalized and get some traction in the marketplace, I think it is premature to talk about that.

Okay.

Larry, Bob Parkinson here, in terms of hospital utilization, I did see J&J's comments. I guess, our view would be pretty much in line with that clearly, hospital activity in developed markets around the world is not as dormant as it was a year ago. So I would say there is a slight improvement there, but falling far short of being robust.

I think I would distinguish that however, from the emerging markets. And while the general economy of the emerging markets have been softer than anticipated, in terms of dollars spent on healthcare these markets continue to dedicate more of their national budgets to healthcare.

So you have got so many therapies and procedures that previously there was no access or limited access in undeveloped markets. So we do see more robust growth, underlying demand in emerging markets.

Okay, great. Thank you.

Kristen Stewart, Deutsche Bank.

Hello. Thanks for taking the question. I just wanted to get a little bit better sense of exactly where some of the investments spending is taking place?

And to what extent, just talking through I guess, the underlying net income growth of the company if you were to take out the Gambro accretion for this year? Because it looks like next year, just adding up some of the things that you had referenced with $0.50 for cyclo.

You have got the separation, added to synergy costs, FX. I assume pension may actually be a headwind next year. It just seems that next year is shaping up to be a challenging year, and potentially kind of more of a decline in the overall performance.

Yes, so a couple --

In the underlying business?

Sure, sure. Well, again, I think we are pleased with the strong organic top line growth of the underlying business that we have seen across some of the key franchises here, and good strong momentum there that we expect that to carry forward into next year. As we look at some of these high leverage variables, it is a little difficult sitting here in October to have a clear sense of where some of these are going to go.

As I mentioned, cyclo, the longer this goes the more likely it is that not just one, but multiple players will get approval in fairly short order, which means that the market dynamics could change pretty dramatically and the impact could be accelerated. So again, we are looking at $0.50, don't have a sense of that would impact 2015 at this point. But that would be a very high leverage variable depending on when that occurs.

As I mentioned earlier, FX at current rates would be about a $0.15 to $0.20 headwind incrementally, but again a lot of volatility there. Pension, interest rates have moved dramatically in the last two or three weeks. That has certainly become more of a potential headwind, and as we gauged it previously, every 25 basis point change in the discount rate amounts to about a $20 million impact to the P&L.

So we have seen about a 75 basis point move here, relative to where it was last year. There are other factors that play into that, including asset returns and so on, so that is not necessarily a one-for-one. But thinking about that at the moment, in the $50 million to $60 million potential headwind at this point, at current interest rates would be, where we would be at, at the moment.

So stripping a lot of that out, and if you look at Baxter today ex FX in 2014, we are talking about operating income growth in high single-digits here. So I think the operating performance has been very good.

We are consciously making incremental investments though in SG&A to support multiple new product launches in Bioscience that have already occurred, and could occur going forward. We have ramped up R&D expense as well through some of the development activity that we have done within bio. That will continue into 2015 as well.

We did talk about some of the operational challenges, largely driven by very strong demand in PD and IV solutions as well, that are causing us some incremental headwinds here, and some of that is likely to continue into next year. I would gauge that in the fourth quarter as approximately a $0.03 headwind, or around $20 million to $25 million of incremental impact that we are likely to see operationally within medical products.

So a lot of moving pieces here, and a lot of volatility around a few of these factors. So again, a bit early to look at the picture for 2015, but I think the underlying business is actually performing pretty well.

What is the underlying business ex the contribution from [vacs] -- from Gambro? (Multiple Speakers). From an earnings per --? (Multiple Speakers).

We talked about a 4% top line growth, and with some leverage in the P&L. So I would gauge it in the mid to high single-digits to date.

Okay. And then just in terms of the cost, you had mentioned with business optimization cost, but also spending on quality, how should we just think about the quality spend? And could you just remind me if you have any outstanding FDA warning letters or notable 483s?

Yes, Kristen, Bob Parkinson, maybe let me take that, because most of that activity would be in the new [vacs] domain. One of the challenges that we are managing through right now, is a combination of one hand expanding capacity on both IVs and PD. We are experiencing unprecedented growth on PD in the United States, and pretty robust demand for IVs, while concurrent managing through some existing warning letters, and ensuring that we continue to enhance our production standards.

I mean, we are focusing on areas like particulate container integrity at some of these areas, that as we expand capacity, we have to make sure that we maintain the focus on these other quality issues, particularly in facilities that are older, and facilities and most notably, North Cove, North Carolina where we have an outstanding warning letter. So we want to balance expansion of capacity on one hand, yet be very vigilant to ensure that we have acceptable -- meet acceptable quality standards. And that is really the area that we are investing in.

And so, we have added headcount there, investment in terms of process modifications and so on, while we are also expanding capacity. In fact, we are and bringing on a new line in North Cove to produce more PD solutions, to assist us in managing through some of the short-term product shortages that we have, that hopefully we will be able to manage through that, through I would say the first quarter of 2015. But we are sensitive to the existing warning letters, and make sure we can bring those to a close, at a time when we are expanding capacity. I will tell you that we have very constructive dialogue going with the agency.

We actually had a regulatory meeting with them last week, to talk about how we balance achieving systemic or systematic improvements really in quality, and ensure that the supply issue is addressed.

You may recall, it was a year ago, the US market was in very short supply on IV solutions. And here we are approaching flu season, and we read about Ebola and all these other things.

So the agency is very sensitive as they should be, as are we to supply. That is why we were encouraged, that they stepped in and provided the kind of support they did, to improve product -- PD product to be manufactured in Castlebar, Ireland to ship to the US to help address our issues.

So those are the things that we are balancing, and Bob kind of quantified the financial impact of that. That will continue for a while. But I think at a certain point, we will certainly managed down those costs, and get back to a more normalized level. Okay?

Thank you.

Yes, time for two more questions.

Bruce Nudell, Credit Suisse.

Thanks for taking my question. Ludwig, there is just kind of a general anxiousness about the pace of change in hemophilia A treatment optionality as it were. The [shu-guy] molecule, the bi specific antibody mimics, the cofactor behavior, factor VIII could be SubQ, could be relatively long-lasting, good inhibitor patients and relatively low immunogenicity.

Could you just comment on molecules such as this, and your long-term positioning of the company? And give some assurance that Baxter has the options covered as it were?

Yes. So well, thanks for the question Bruce. We believe that we have a solid short-term and long-term strategy for our hemophilia franchise. As you know, we are building breadth and depth in our hemophilia portfolio. And I think we are -- it is also fair to say that we are doing better at hitting the R&D milestones.

In -- we continue to monitor the competitive landscape, and we are aware of the technologies that you were mentioning. The [shu-guy] opportunity, well, the company is still in early clinical development, and the clinical data is limited.

As a matter of fact, one of our exploratory programs is in SubQ technology. And a couple of years ago, we moved the SubQ treatment into the clinic, however we had to stop the program because of lack of efficacy.

To go back to our strategy, we believe that we have a strong strategy. First of all, we continue to strengthen the ADVATE label. We talked about myPKFit, as well as Baxter [3]. We have strong Phase 3 data for 855 which we will be submitting by the end of this year.

We plan to bring 826, as well as our gene therapy program for hemophilia A into the clinic into the next 12 or 18 months. And all of these programs that we have -- so 855, 826 and the gene therapy we believe are programs that are both proof of concept.

When you think about the ultimate goal of hemophilia treatments, it is to have sustainable high levels of factor expression, without peaks and troughs because you would induce -- you would see traumatic or spontaneous bleeds. And that protection should be there, irrespective of the patient's activity level. And we believe that gene therapy could be a true game changer.

And with respect to our progress in this technology, we are really pleased with our early clinical data in our hemophilia B program. We see factor level expression in our patients that is sustained over longer period of time. And as I mentioned, we are planning to bring this to the clinic in about a year from now.

And Bob, my follow-up pertains to the US dialyzer opportunity. There was a press release this quarter about enhancing your manufacturing capability. Could you just scale that opportunity for us, because I know Baxter is a little light on the share side? How big is it? Is it something that should be considered as a major initiative for the new Baxter?

Yes, well, let's -- Bruce, Bob Parkinson here. So clearly, expansion of dialyzer capacity is one of multiple drivers to the renal growth long-term as I think you know. Even before the acquisition, that Gambro was constrained on capacity.

On dialyzers, our share on dialyzers today is obviously disproportionate low, so I think there is a significant opportunity there long-term. We are encouraged by the recent performance of the Gambro business. In the third quarter, our sales were up mid single-digits, and we are starting to, I think get focused and aligned after the integration.

So that will represent a step function in growth when that capacity comes in 2016. But in the meantime, we have done some other things with third-party suppliers and so on, which will allow us to increase the supply.

So right now, the demand is exceeding our ability to supply. We have some smaller interim expansions that should help that out in the short term, but it won't be as material until the [Opelika] capacity comes on. So that's a significant opportunity, and a significant driver to long-term renal growth, Bruce.

And how big is the US market for dialyzers [per se]?

In terms of dollars?

Yes.

So just the -- Gambro business as we acquired it, dialyzers represented about $500 million in sales for Gambro on a global basis, but as Bob mentioned, very underrepresented in the US market.

And through this Opelika expansion and the others that Bob we expect that over three to four years to increase capacity about 50%. And so, as we grow into that capacity, this represents an opportunity to grow, and grow share --grow up 50% off the $500 million base that we got in the coming years.

So a fairly meaningful opportunity here. But clearly, given the very low monitor placements that Gambro has had historically in the US and overall capacity constraints, again very, very small player in the (inaudible) market at the moment.

Mary Kay can get back to you, Bruce, with the exact specific answer to your question. I don't know for the US market. The reality is the production at Opelika will source global markets, not just the US. And the largest opportunity is outside the US for a number of reasons, including the -- obviously the concentration with Fresenius, given their centers that they run, and where they utilize their own dialyzers.

And so, that is a major segment of the US market that largely is off the table, even when we get expanded capacity. So this is really more of a global opportunity, but we will get back to you with specifics on that.

Thanks so much.

And our last question please?

Glenn Novarro, RBC Capital Markets.

Hello. Good morning. Two questions, one for Ludwig and one for Bob Parkinson.

Ludwig, outside the US the hemophilia franchise did very well, and you called out Brazil, and you called out some tenders. I am curious about the tenders, and I think that those tenders are UK and Australia.

When you start on a new tender, is there a channel fill, and are the sales you have seen there one-time? Or are these -- is this demand sustainable at current levels into the fourth quarter of next year? Is there anyway you can quantify what the tenders gave you in the third quarter.

And then, for Bob Parkinson, some of the companies that have reported so far have talked about some softness in Europe. I am wondering if you can comment on what you are seeing on the supply side of the business in Europe? Thank you.

Yes, Glenn, it's Bob Hombach. Let me answer the financial aspects of the tenders, and maybe we can make some comments about our somewhat unique position, particularly in Australia. So the UK and Australia represents very good opportunities for us. We have very low share in the UK from the last tender, and we are completely out of the Australian market.

And so, what I would frame these is about $50 million in incremental sales opportunity, combined between the two. We will realize about $20 million of that $50 million here in the back half of 2014, of less than $10 million contribution in third quarter, ramping up a bit in the fourth. And the other $30 million of that $50 million we will get in 2015 as we get up to scale.

But I guess, the one thing I would add about Australia, is our preferred position there in the tender, gives us an opportunity to perhaps get disproportionate share of the overall Australian market, which may allow us to go above the $50 million overall as I mentioned.

Go ahead, repeat your question on the supply side Europe, I wasn't sure what you were getting at there, if you could just maybe revisit that?

Some other companies have reported so far this week have talked about some softness in Europe. So I was wondering what you are seeing, if you can provide any commentary in Europe.

I know, in 3Q you are always going to see some softness due to seasonality. But I wonder there is anything from an economics point of view that -- or whatever you are seeing that would create any softness in Europe at this point?

Yes. Well, I commented earlier on just hospital activity of developed markets versus emerging markets, and distinguishing the two. I would say, Europe, clearly Western Europe clearly is the softest area globally. And I think to a large degree that is directly correlated with the general economic condition, Glenn.

So we see less robust demand in Europe, for example than we would -- than we do in the United States. And I would project that, given the broader macroeconomic environment that is likely to continue. So it's really about market share to drive growth and so on, as opposed to dependent upon robust underlying hospital activity if you will.

Okay. Thank you.

Yes.

Thank you. Ladies and gentlemen is that conclude today's conference call with Baxter International. Thank you for participating and everyone have a wonderful day.