By Bruce Japsen | Shares in Baxter International Inc. dropped 13 percent today after the
company lowered its 2010 financial outlook, citing the loss of market
share of key plasma-derived therapies and the impact of the government’s
massive health overhaul.
The price of Baxter shares fell $7.70 each to $51.25 in trading on the
New York Stock Exchange. Shares have recovered somewhat from a steep
drop of more than $10 a share when investors first got the news of the
lowered outlook during its first-quarter earnings call this morning.
The Deerfield-based medical product giant, which makes blood therapies and medication delivery devices, reported a 2 percent increase in profit to $525 million, or 86 cents a share, up from $516 million, or 83 cents a share in the first quarter of 2009. When charges were excluded, Baxter’s earnings per share were 93 cents and in line with analysts’ expectations.
Revenue jumped 11 percent to $3.14 billion on thanks in part to strong sales its popular blood clotting drug Advate and its H1N1 swine flu vaccine.
But Baxter warned of trouble ahead in its lucrative plasma-derived protein and antibody therapies businesses, which includes products like its immune system treatment Gammagard.
“The market is growing much slower than we anticipated,” Baxter chairman and chief executive officer Bob Parkinson told analysts on a conference call this morning. “We are losing market share.”
To make up for the loss of sales and market share to rivals, Parkinson said Baxter will look at expanding its sales force and instituting a “touch up” to prices. He would not elaborate on the company’s pricing strategy.
But Wall Street seemed concerned Baxter would lower prices to maintain or increase sales volumes.
“If higher pricing is an issue now, that does not bode well for the future,” Credit Suisse analyst Kristen Stewart said in a note she issued this morning.
Stewart said Baxter was “entering the penalty box” and it could take the company a long time to recover. “We see no reason to step in now as the stock is likely ‘dead money,’” she wrote.
Analysts were more concerned about the impact of plasma products and Gammagard products that are about 20 percent of total company sales than health reform.
Like other large businesses that have a substantial number of retirees who receive company-subsidized drug benefits, Baxter is being hit with costs to implement the health care reform law passed by Congress and signed into law last month by President Barack Obama.
In addition, drug makers like Baxter are required to provide additional rebates to the government’s Medicaid health insurance program for the poor, which is being expanded to cover more people under health reform.
The drug industry has expected an impact of health reform and pharmaceutical companies throughout the week have been reporting charges and adjusting their long-term outlooks. Drug makers were early supporters of Obama’s health care reform initiative and agreed to contribute $80 billion over a 10-year period in rebates, taxes and fees.
Baxter said its first-quarter results included a one-time charge of $39 million, or 7 cents a share “related to a change in the tax treatment of post-retirement prescription drug benefits under recent U.S. healthcare reform legislation.”
In 2010, the company expects earnings per share to fall between $3.92 and $4 per share compared to its earlier forecast of $4.20 to $4.28.
“We estimate the total healthcare reform impact to be about $80 million or 10 cents a share,” Parkinson said. Meanwhile, the impact from weaker sales of plasma-derived products is 18 cents a share, he said.
