Baxter Settles On Divestiture Vaccines Business To Pfizer, Spin-off In 2015 To Improve Outlook

BAX, Baxter International, Healthcare, Medical Instruments & Supplies
BAX, Baxter International, Healthcare, Medical Instruments & Supplies

Pfizer signed agreement to acquire Baxter International’s (BAX, Neutral) vaccine business for $635 million (which is roughly 2 times likely 2013 sales of $300 million). The deal includes a portion of Baxter’s manufacturing facility in Orth, Austria, which is expected to complete by the end of 2014. In our view, acquisition price is quite fair for the business that comprises meningitis and encephalitis vaccines, which are likely to see sales growth in the mid-single digits for next coming years.

We strongly believe that Pfizer is capable and has economic scale to increase profits for bought products, which were basically sold in Europe and still remain outside of the core hemophilia and plasma protein portfolio which will generate the core of Baxter’s biopharmaceutical follow-up. Baxter’s biopharmaceutical and medical products business lines will spin-off in 2015, but we believe diversified firm’s competitive advantages remain solid. We also notice that Baxter eyes tiny sale of its vaccine know-how, which is at present targeted on influenza and Lyme disease projects. Baxter stands undervalued as the new spin-off will let new Baxter and the biopharmaceutical spin-off to get better focus or invest more for expansion.

Recently on July 17, company announced its solid second quarter results with revenue of $4.26 billion which grew by 16% year over year and earnings of $1.26 per share; both were above consensus expectations. In total revenue, BioScience generated $1,751 million revenue while Medical products had $2,513 million. Hemophilia registered $904 million sales (up 6.5%), BioTherapeutics contributed $548 million (up 6.8%), BioSurgery added $189 million (up 6.2%) while Vaccines had $110 million business (up 12.2%).

In Medical products revenues, fluid Systems accounted $816 million (up 8.1%), renal of $1,044 million (up 59.6%), specialty pharma added $404 million (up 10.4%) and BioPharma solutions contributed $249 million (down 2.7%). Company also raised its guidance for full year 2014, sales growth should range in 10-11% and earnings to be in between $5.10-$5.20 per share.

Company is also waiting for FDA’s Blood Products Advisory Committee meet on July 31to talk about Baxter’s BLA for HyQvia (Immune Globulin 10%) for the treatment for adult patients with primary and secondary immunodeficiencies. European Commission has already cleared the product in May 2013. Company also disclosed the sales of nearly 8,300 shares by Director in open market. We reiterate ‘Neutral’ rating with $76 price target on stock.


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