Lessons from Hurricane Maria could aid Baxter's coronavirus operations

Dive Brief:

Baxter projects sales during its now-almost-completed first quarter will be 4% to 5% higher than last year's, the company said in belatedly announcing its 2019 worldwide sales totaled roughly $11.4 billion.
The delay in reporting financial results stemmed from a recently completed internal accounting investigation, first announced last October. The company officially resolved the issue, related to misuse of a foreign exchange rate convention not compatible with GAAP, filing both quarterly and annual reports on Tuesday with the Securities and Exchange Commission. The Form 10-K includes audited, restated financial statements for 2017 and 2018.
With regard to COVID-19, Baxter said manufacturing is currently operating "at planned levels." Certain supply chain backups put in following 2017 Hurricane Maria’s disruptions to the IV bags business are among measures helping it mitigate major issues during the coronavirus outbreak, execs told investors.

Dive Insight:

With 9% sales growth to about $3 billion, Baxter touted the fourth quarter as its strongest operationally since the 2015 spinoff of biopharma business Baxalta.

The kidney care division brought in $960 million, boosted by its peritoneal dialysis business, which saw a 7% year-over-year rise in patient volume during the quarter. Baxter reiterated the Trump administration's kidney initiative encouraging a shift to at-home dialysis should be a tailwind; a final rule is pending.

"We are actively planning for the investments required to increase our U.S. production capacity to meet new patient needs," Almeida said. Following announcement of the new policy last summer, Baxter said it would likely allocate $500 million to new and existing manufacturing facilities.

The medication delivery unit, which houses infusion systems and IV solutions, had revenues totaling $775 million during the quarter. Baxter reported roughly $10 million in distributor purchases in anticipation of the U.S. flu season.

Sales in the advanced surgery business grew 8% to $231 million during the quarter. The acute therapies business, which houses continuous renal replacement therapies, grew 6% to $144 million.

The fourth quarter also saw a revenue contribution of $5 million from a recently integrated hemodynamic monitoring system Baxter gained in its $230 million buyout of Cheetah Medical last September.

Like many companies navigating the COVID-19 pandemic, Baxter is waiting to offer full 2020 guidance. "The buying patterns are really strange," Almeida said, in light of the evolving coronavirus situation. He said orders for Baxter's continuous renal replacement therapy systems are "in excess of anything we've ever seen."

During the first quarter, Almeida said Baxter started seeing an uptick in orders midway-through in response to the crisis in China. That trend has expanded as some states and countries have attempted to stockpile supplies. Assuming the COVID-19 situation in China, where Baxter sources some of its electronic materials, doesn't worsen, Baxter expects its inventory stocks will continue to sufficiently meet demand.

"Our own efforts over the last few years to strengthen and expand our manufacturing supply network further support our position," CEO Joe Almeida said Tuesday, later adding, "we're prepared to supply the market and actually activate our backup plans that we have put in place since Maria."

Certain acute IV and antibiotic products may see bumps during the crisis, and in general, Almeida contended the company is well-positioned better during the pandemic given its diversity across home, acute, and long-term care, and place in both non-elective and elective procedures.

With medtech stock prices coming down amid major coronavirus-driven market declines, and Baxter aiming to boost its own liquidity, the coming months could be an opportunity "to continue to look at M&A landscape, Almeida said. The company reports having about $3 billion in cash as of the end of last month.

Tuesday also marked an end to Baxter's months-long effort to reach SEC compliance after identifying a multi-year accounting error that required revising financial statements. After revealing the issue on its third-quarter earnings call in October, Baxter in February estimated it overstated its income by approximately $278 million over a 42-month period that began in 2016.

Baxter's next earnings update is scheduled for April 30.