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'Rapidly changing macro-environment' prompts Baxter split

By: Gayle S. Putrich

April 1, 2014

Macroeconomics and market forces were the drivers behind the impending break-up of medical products manufacturer Baxter International Inc., company officials and analysts say, particularly in the medical device business.

The medical devices business tends to be somewhat defensive and slow growing in nature, while the biopharmaceuticals division carries more risk in growth and while both are medical, the two sides of the business have become so distinct that splitting them up made sense, company officials explained.

“Separating these businesses will enhance value for all our constituents including shareholders, patients, healthcare professionals and providers and employees. These businesses operate in distinct markets with evolving underlying fundamentals,” said Baxter spokeswoman Deborah Spak.

Longtime Baxter CEO Robert Parkinson, Jr. will lead the medical products side, which will retain the Baxer name, while Ludwig Hantson, president of the company's BioScience unit, will become the CEO of the biopharmaceuticals company. Both companies will continue to be based in northern Illinois after the split is complete, sometime in mid-2015.

“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,” Parkinson said in a statement. “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.”

Baxter’s spinoff history includes the 2000 breakout of its cardiovascular business, which became Edwards Lifesciences, known for its artificial heart valves.

The global medical device industry has experienced significant growth over the last five years and analysts continue to have bullish expectations, projecting device sales to grow to more than $300 billion in the United States by 2017.

Baxter’s medical products business saw 2013 sales of more than $9 billion, with a product portfolio that includes drug delivery systems and administration sets, premixed and other injectable drugs, as well as inhalation anesthetics and hospital-based biosurgery products.  The division got a boost with the 2012 acquisition of Gambro AB, a Swedish dialysis market leader, which Spak said is still being integrated into Baxter.

“As a standalone company with greater management focus, Medical Products will be better positioned to realize the benefits from the long-term opportunities and significant commercial and cost synergies Gambro provides,” Sprak said.

Baxter said its biotech business, best known for its products to treat hemophilia and other bleeding disorders, had 2013 revenue of $6 billion.

The day after the announcement, three major ratings agencies downgraded the company following the announcement, though its stock soared by nearly 10 percent for a 52-week high.

Standard & Poor’s Ratings Services downgraded corporate credit and unsecured debt ratings on Deerfield-based Baxter to “A-" from “A” and placed the ratings on watch “with negative implications.” Moody’s Investors Services changed its outlook to negative from stable, and Fitch Ratings placed five long- and short-term ratings on "negative watch" while saying "the split makes strategic sense as the two business segments generally service different end markets.”

The Baxter split is similar to a move made last year by Abbot Laboratories, which spun off its drug business into a new company, AbbVie Inc. Abbott's remaining business focuses on implantables, diagnostic devices and generic drugs.