A Baxter split into two independent, separate global healthcare firms is the best way ahead for the two businesses of Baxter International Inc., the company announced. One company will focus on medical products while the other on the development and marketing of biopharmaceuticals.
A biopharmaceutical is a medication produced using biotechnology, and may include proteins (including antibodies), nucleic acids used for treating patients (or in vivo diagnoses), and are produced without using direct extraction or non-engineered (native) biological source.
Medical products are medical devices, such as laboratory or medical equipment.
According to Baxter, both its medical products and biopharmaceutical businesses have been positioned to be “successful, profitable and sustainable” independent entities. The decision to completely separate them forms part of the company’s drive to excel more effectively in each field.
Some experts wondered whether Baxter’s move is an effort to raise its share price, which has floundered amid uncertainty regarding competitive threats to its drug franchise. The Baxter split also reflects market shifts in the health care industry generally – the way drugs and medical devices are sold today has diverged.
The Wall Street Journal quoted Glenn Novarro, a medical-devices analyst at RBC Capital Markets, who said “I have to believe that the stock’s performance was contributing to their decision.”
Following Baxter’s announcement, Fitch ratings has placed Baxter International Inc.’s short- and long-term ratings on Rating Watch Negative.
Baxter split in shareholders’ best interests
Robert L. Parkinson, Jr., chairman and chief executive officer, Baxter International Inc., said:
“Baxter has an established history of executing successful spinoffs, and we have continued to evaluate the separation of these two businesses in response to diverging business dynamics and the rapidly changing macro-environment.”
“This decision underscores Baxter’s commitment to ensuring its long-term strategic priorities remain aligned with shareholders’ best interests, while improving our competitive position and performance, enhancing operational, commercial and scientific effectiveness and creating value for patients, healthcare providers, and other key stakeholders.”
Medical products and biopharmaceutical are distinct markets, and Baxter’s two businesses possess completely different growth prospects, risk profiles and investment requirements.
The way drugs and medical devices are marketed and sold has changed, Baxter says.
Two well-capitalized, independent companies
By separating them into two independent companies, Baxter will produce two well-capitalized, independent firms with solid balance sheets, investment grade profiles, and “disciplined approaches to capital allocation.”
Baxter says the separation will also result in the following material benefits:
- More acute and targeted management focus on the different businesses of medical products and biopharmaceuticals.
- Better scope for commercializing new and existing product offerings more effectively.
- Better innovation across franchises and improved ability to allocate the required resources to the most promising areas.
- Freedom and flexibility to pursue distinct investment and growth strategies, which will lead to faster revenue growth, better profitability and improved returns.
Biopharmaceuticals business
Baxter’s biopharmaceuticals division had revenues of about $6 billion in 2013, consisting of a diverse portfolio of:
- plasma-based therapies for the treatment of immune deficiencies
- recombinant and plasma-based proteins to treat bleeding disorders including hemophilia
- other plasma based therapies for the treatment of burns and shock, alpha-1 antitrypsin deficiency, and a range of chronic and acute blood-related conditions.
The biopharmaceuticals’ strategy aims to improve diagnosis, treatment and standards of care across a wide range of chronic diseases, bleeding disorders, improving capacity to meet increasing demand for biotherapeutics.
Ludwig N. Hantson, Ph.D., president, BioScience, said:
“Today’s news represents a significant milestone that will result in material benefits for key stakeholders. We are confident that this decision not only strengthens our outlook, it positions us well to execute on our future growth prospects, new product pipeline and other opportunities as we enter a new era in the journey to achieve our aspiration as a premier biopharmaceuticals company.”
Medical products business
Baxter’s medical products business registered annual sales of over $9 billion in 2013. It includes a broad range of products, such as:
- drug delivery systems
- administration sets
- premixed and other injectable drugs
- intravenous solutions and nutritional therapies
- inhalation anesthetics and hospital-based biosurgery products
Regarding medical products, Baxter wrote:
“This business is also integrating the Gambro AB acquisition, which complements Baxter’s existing renal therapies franchise and provides customers a comprehensive portfolio of products and services to treat end-stage renal disease across the full continuum of care.”
“The medical products company will focus on strengthening its market leadership through geographic expansion and increased penetration, leveraging its extensive hospital presence and global footprint, developing comprehensive solutions to improve patient outcomes and safety, and enhancing profitability through a more streamlined and flexible cost structure.
Baxter split companies’ head offices in Illinois
The two companies will be headquartered in northern Illinois, US. The medical products company will be headed by Robert L. Parkinson Jr. It will keep the Baxter International name.
The current president of BioScience, Ludwig N. Hantson, Ph.D., will become the CEO of the new biopharmaceuticals company, which has not yet been named. Before joining Baxter in 2010, Hantson worked at Novartis in several different roles, the last of which was as CEO, Pharma North America. He had previously worked at Johnson & Johnson for 13 years.
Wayne T. Hockmeyer, Ph.D., the founder of MedImmune Inc., will serve as non-executive chairman of the board of the new biopharmaceuticals company.
Regarding the transaction details, Baxter wrote in a press release:
“The transaction is intended to take the form of a tax-free distribution to Baxter shareholders of a new publicly traded stock in the new biopharmaceuticals company. The transaction is expected to be completed by mid-year 2015, subject to market, regulatory and certain other conditions, including final approval by the Baxter Board of Directors, receipt of a favorable opinion and/or rulings with respect to the tax-free nature of the transaction, and the effectiveness of a Form 10 registration statement that will be filed with the Securities and Exchange Commission.”
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