Baxter to separate medical products, biopharmaceuticals businesses

The split will create two independent businesses, with an expected completion date of 2015

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DEERFIELD, Ill.—Baxter International Inc. has announced its plans to divide into two separate, independent global healthcare companies, one of which will focus on the development and marketing of innovative biopharmaceuticals while the other will focus on life-saving medical products.
The transaction will take the form of a tax-free distribution to Baxter stockholders of a new publicly traded stock in the new biopharmaceuticals company, and is expected to be complete by mid-2015, subject to market, regulatory and other conditions, including final approval by Baxter’s board of directors.
“Today’s news represents a significant milestone that will result in material benefits for key stakeholders,” said Ludwig N. Hantson, Ph.D., president of BioScience, commented in a statement. “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.”
The biopharmaceuticals business, which saw annual revenues of approximately $6 billion in 2013, will have a broad portfolio of products for a variety of indications, including recombinant and plasma-based proteins to treat hemophilia and other bleeding disorders, and plasma-based therapies for the treatment of immune deficiencies, alpha-1 antitrypsin deficiency, burns and shock and other chronic and acute blood-related conditions. This spin-off will focus on improving the diagnosis, treatment and standards of care for a variety of bleeding disorders and chronic diseases.
The medical products business, which saw annual sales of more than $9 billion in 2013, will have a portfolio that includes intravenous solutions and nutritional therapies, drug delivery systems and administration sets, premixed and other injectable drugs and inhalation anesthetics and hospital-based biosurgery products. This business will also integrate Gambro AB, which Baxter acquired in 2012.
“Baxter has an established history of executing successful spin-offs, and we have continued to evaluate the separation of these two businesses in response to diverging business dynamics and the rapidly changing macro-environment,” Robert L. Parkinson, Jr., chairman and CEO of Baxter, said in a press release. “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.”
Corporate headquarters for both companies will be based in northern Illinois. Parkinson will service as chairman and CEO of the medical products business, which will retain the Baxter International name, while Hantson will serve as CEO of the biopharmaceuticals business, which is to be named at a later date.
While most investors are optimistic about the move, some analysts are a bit more cautious. Moody’s Investors Service has downgraded its look on Baxter from ‘stable’ to ‘negative,’ with Zacks noting in a recent piece that Moody’s “believes the split-up will significantly hurt [Baxter’s] profitability,” since “Apart from losing economies of scale and business diversity, Moody’s believes separating the key biopharmaceuticals division would significantly impact the company’s margin as it generates over half of the company’s profitability due to the presence of key pipeline products, despite a lower contribution to overall revenues compared to the other medical product division.”

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