Q4 2020 Baxter International Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome into the Baxter Internationals fourth quarter 2020 earnings Conference call. Your lines will remain on listen only mode until the question and answer segment of todays call at that time. If you have a question you will need to press star one key on your Touchtone phone if any.
She would require assistance during the conference. Please press Star then zero on your Touchtone phone as a reminder of this call is being recorded by Baxter and is copyrighted material it cannot be recorded or rebroadcast without baxter's permission. If you have any objections. Please disconnect at this time I would now like to turn the call over to MS. Clare Trackman Vice President Investor.
Patients at Baxter International the Trackman you may begin.
Good morning, and welcome to our fourth quarter of 2020 earnings Conference call. Joining me today are Joe Almeida, Baxter's, Chairman and Chief Executive Officer, and Chase the car on Baxter's Chief Financial Officer on the call. This morning, we will be discussing baxter's fourth quarter and full year 2020 financial risk.
Along with our financial outlook for 2021 of.
A supplemental presentation to complement this morning's discussion can be accessed on our website in the investors section under events of news.
This presentation includes related non-GAAP reconciliations.
With that let me start on prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the first quarter and full year 2021, new product development business development of regulatory matters contain forward looking statements that involve risks and uncertainties and of course, our actual results could differ.
<unk> from our current expectations. Please.
Please refer to today's press release, and our SEC filings for more detail concerning factors that could cause actual results to differ materially.
In addition on today's call non-GAAP financial measures will be used to help investors understand Baxter ongoing business performance a reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in our earnings release issued this morning and available on our website.
On the call. This morning, we will be discussing operational sales growth, which for 2020 adjusts for the impact of foreign exchange and the acquisition of Safra film, which closed on February 14th 2020, now I'd like to turn the call over to Joe Joe.
Thank you Claire and thank you for everyone. Joining today's call I hope the you and your loved ones are staying healthy and safe I'll begin. This morning with a review of Baxter's fourth quarter performance of some perspective on 2020 as a whole.
Jay will provide additional details on the financials, including our outlook for the first quarter and full year 2021 day.
Then we'll close with Q&A.
Obviously, it is impossible to frame this year's performance without reference to the COVID-19 pandemic. This has been a year like no Walter and I. Once again want to acknowledge the health care providers first responders caregivers researches and of course patients who are on the front lines of this.
Daily struggle.
And I am deeply grateful to Mike Baxter colleagues, who continue to make a difference not only battling COVID-19, but across all of the acute and chronic conditions of addressed by our broad portfolio.
In the spirit of our ambition with partnered with three companies to manufacturers selected COVID-19 vaccines through our Baxter Biopharma solutions business.
Privilege to work alongside this company and proud to bring on leading edge contract manufacturing capabilities to the fight against the spend demick of our results in 2020 of demonstrates our commitment to drive performance and reflect the diversity and durability.
Of our portfolio amid these challenging market conditions Baxter delivered fourth quarter reported sales growth of 5%.
<unk>, 3% of constant currency rates and 2% operation on the bottom line adjusted earnings per share were <unk> 80, Sam.
The 18% year over year, reflecting the challenging comparisons of the prior year quarter, our strongest quarter since the back office.
As well as the ongoing impact of the pandemic on our business.
Geographically growth was led by our Asia Pacific segment, which was up 8% of constant currency rates. The this reflects the region's overall momentum and leadership and pandemic containment and recovery.
Quarter year over year sales growth was 5% for EBITDA.
The eight and flat in the M. Mary Piss also at constant rates four of our six Gpus grew for the quarter at constant rates unless otherwise noted all sales growth speakers discuss are compared to the prior year period.
Since currency rates growth was led by acute therapies of 50%. This reflects the sustained higher demand for continuous renal replacement therapy or.
The RT products used in the treatment of COVID-19 on renal care business delivered mid single digit growth for the quarter driven by ongoing strength, the peritoneal dialysis therapies, particularly in the U S. During the quarter, we announced FDA.
The <unk> of our home choice flurry of APG cyclic which feature of share source. The only two way of remote patient management platform for the patients in the U S. This new striker option the alongside on year supports our ability to expand access the homebase therapy as the new.
C N mass end stage renal disease treatment choices of Mtc payment model takes effect this year.
While the impact of Covid has been more muted on Baxter renal care business overall, es R&D patient volumes from 2020 has been depressed by Covid. As this patient population is experiencing a higher mortality rate and the incidence of new patient diagnosis is slower.
As the leader in the home therapies, we have launched a global campaign safer at home designed to educate the clinicians and patients around the world about the benefits of peritoneal dialysis therapies and increase awareness of alternatives to each center of the hemodialysis treatments as a result, we.
Debt home therapies growth to continue to outpace the debt of overall Es R&D growth.
Clinical nutrition also grew mid single digits, reflecting the benefit of the new product launches enhanced commercial execution competitive dynamics in the U S. In the <unk>.
Band for nutrition products as part of COVID-19 patient treatments.
Advanced surgery growth of 10% benefiting from the impact of our early 2020 separate film acquisition adjusted for the acquisition of Foreign exchange advanced surgery declined low single digits operationally year over year, reflecting the ongoing lower rates of surges.
The <unk> globally.
The COVID-19 pandemic.
Sales in a lot of medication delivery and pharmaceuticals business as both declined mid single digits, reflecting lower rates of hospital admissions versus pre COVID-19 levels. The declines in the admissions were partially offset by increased utilization and stocking of our range of products used in <unk>.
The COVID-19 patients, including certain presentations of our large volume of rent rolls.
Banks and select generic injectable pharmaceuticals shifting perspectives to full year 'twenty 'twenty batch.
Baxter achieved sales growth of 3% them, both the reported and constant currency basis, Inc.
The 2% operation on the bottom line adjusted earnings per share were $3 nine declining 7% versus 2019 the.
The essential nature of our portfolio has long been fundamental to our business model and mission to say the sustained lives. This certainly proved the central to our overall 2020 the results while utilization of certain products and therapies declined in light of pandemic conditions. It's Sarah.
Serge and others, none more so than our acute therapies portfolio as well as a range of all of their products across our Gpus. These products emerged at the core of pandemic care and as demand rose to record levels, we invested as of.
Necessary to help increase the flow of these products to the patients and completion chore of rely on this globally.
Amid the unpredictability of 2020, we remained focus on the strategic objectives, which include the Bassi health care innovation delivering all.
All of the stakeholders you can see net highlights of today's press release.
And this is not changing as we seize the opportunities in 2021 and beyond the global launch of our leading edge Novum IQ infusion platform achieved key milestones at the end of 2020, which the market in Europe and health Canada.
And we are on track to resubmit, the five 10-K application to FDA by the close of the first quarter plus our new product pipeline includes additional generic injectables and the next generation of our market leading price match technology. Among other highlights in addition will come.
Two new pursuing attractive business development and licensing opportunities in line with our core portfolio in the Adjacencies to the extent, we don't find opportunities that meet our disciplines, the strategic and financial criteria, we will return value to the shareholders through dividends and share repurchases.
You bet.
<unk> momentum is also evidenced in the other ways like our growing net promoter scores globally, demonstrating the strength of our customer relationships and laying the ground. The wharf, we're expanding opportunities and it can be seen in our wide range of U S. G recognition of which we flagged.
Always standing as a good corporate citizen and an employer of choice for top talent.
That's why I remain optimistic about our future Baxter transformation now entering six here has been far more than the strengthen our financial performance. He has the strengthen our agility adaptability resilience and tenacity. These attributes alongside of the Orange juice.
<unk> mission and the social portfolio have been key to navigating today's uncertainty.
They will remain at the heart of driving value for patients clinicians and shareholders as the global health care landscape continues evolving rapidly.
Now I will pass it on to G will take a closer look at our financial performance and outlook for 'twenty 'twenty one.
Thanks, Joe and good morning, everyone as Joe mentioned, our fourth quarter results demonstrate the durability of our portfolio and adaptability of our employees and operations to deliver on our mission.
Although 2020 presented some unique challenges we remain focused on accelerating topline growth through continued execution on new product launches market development initiatives and partnerships and strategic business development.
And we are committed to driving improvement in operating margins with particular emphasis on gross margin expansion.
To that extent, we've established a similar program to what was put in place to transform and optimize our operating expenses. We expect to begin recognizing benefits from this program in 2021 and beyond.
Our current plan is to provide our new long term financial outlook in the fall of this year, we're targeting September 20th to host an in person Investor conference, but we'll pivot to virtual if necessary.
Turning to our fourth quarter 2020 results global sales of $3 2 billion advanced 5% on a reported basis, 3% on a constant currency basis, and 2% on an operational basis.
Despite the surge in cases of Covid around the globe and in the face of our most challenging comparison to the prior year period, we estimate COVID-19 negatively impacted net revenues by over $100 million in the quarter.
On the bottom line adjusted earnings declined 18% to <unk> 80 per share as the negative impact from Covid on our businesses as well as higher interest expense and tax rate more than offset operational growth in the quarter.
Now I'll walk through performance by our regional segments and global business units, starting with our three regional segments sales in Americas were flat on a constant currency basis and declined 1% on an operational basis.
Sales in Europe, Middle East and Africa advanced 5% on both a constant currency on operational basis and sales in our Asia Pacific region advanced 8% on a constant currency basis and 6% operationally.
Moving on to performance by global business units note that for this quarter constant currency growth is equal to operational sales growth for all global businesses with the exception of our advanced surgery business for which we will provide both constant currency and operational growth adjusting for the acquisition of separate film glow.
The sales for renal care were $1 billion advancing 4% on a constant currency basis.
Performance in the quarter was driven by global growth in both our PD and HD businesses.
<unk> benefited from mid single digit patient growth in the U S and APAC regions.
As Joe referenced the pandemic has clearly reinforce the advantages of Homebase PD treatment and the implementation of the new C. S. E. T. C payment model. This year will further accelerate the shift of care to the home for ESR D patients in the U S.
Sales in medication delivery of $753 million declined 3% on a constant currency basis, as Joe mentioned hospitalization rates remain depressed compared to pre COVID-19 levels impacting our medication delivery business.
This pressure was partially offset by increased demand for IV solutions in the U S related to Covid care protocols and the government stockpile order internationally, we continue to see growth within our infusion systems business led by increased placements of our Evo IQ pump platform and we look forward to building further momentum in two.
2021.
As a reminder, this quarter represented a challenging comparison as growth in medication delivery advanced 19% on a constant currency basis in the fourth quarter of 2019.
Pharmaceutical sales of $571 million declined 4% on a constant currency basis, reflecting the ongoing pressure from lower hospitalization rates.
Additionally, we continued to experience lower demand for our inhaled anesthesia products globally.
These declines were partially offset by increased demand for our international pharmacy compounding business.
Moving to the nutrition.
Total sales were $246 million, increasing 4% on a constant currency basis.
<unk> performance in the quarter was driven by the benefit of recent new product launches competitor shortages and amino acids and demand for certain products used in the treatment of COVID-19 patients as well as enhanced commercial execution, notably in our EMEA region.
Sales in advanced surgery were $260 million advancing 10% on a constant currency basis and declined 2% on an operational basis. The acquisition of separate film in February contributed approximately $30 million of sales in the quarter, while globally surgical procedures remains below pre COVID-19 levels, we did.
The improvement in the U S and estimate the for the fourth quarter surgical plea of procedures were flat to pre COVID-19 levels above our prior expectation of mid single digit declines.
Also as a reminder, the fourth quarter of 2019 benefited from select competitive shortages that did not repeat in 2020.
Sales in our acute therapies business were $221 million representing growth of 50% on a constant currency basis, driven by ongoing COVID-19 related demand as the acuity of cases remained high during the fourth quarter.
Finally.
Sales in our other category, which primarily includes our contract manufacturing services were $117 million in the quarter declining 4% on a constant currency basis.
Moving through the rest of the P&L, our adjusted gross margin of 41, 4% declined by 430 basis points over the prior year driven by lower sales of higher margin products increased operations expenses related to COVID-19 and unfavorable manufacturing variances due to lower production volumes.
Adjusted SG&A of $622 million declined 1% on a year over year basis, driven by a reduction of discretionary spending related to COVID-19 restrictions lower bonus accruals under our annual employee incentive compensation plans.
Adjusted R&D spending in the quarter of $132 million declined 14% on a reported basis, reflecting our continued efforts to enhance our processes and optimize our R&D organization, along with reductions in discretionary spend due to COVID-19.
Adjusted operating margin in the quarter was 17, 7% of decrease of 230 basis points versus the prior year, reflecting the factors I just discussed.
Net interest expense was $38 million in the quarter, an increase of $18 million compared to the prior year driven by increased interest expense from higher outstanding debt balances as well as decreased interest income due to lower interest rates.
Other adjusted non operating expense totaled $5 million in the quarter compared to $16 million of income in the prior year period. This includes increased expenses related to foreign exchange and reduced pension benefits as compared to the prior year period.
The adjusted tax rate in the quarter was 22% above our expectations driven primarily by the mix of earnings in the quarter.
Turning to the full year 2020 sales of $11 $7 billion increased by 3% on both the reported and constant currency basis, and 2% on an operational basis on the bottom line adjusted earnings decreased 7% to $3 nine per diluted share on a full year basis, we generated free cash flow of approximately one point.
$2 billion. This represents a decrease of $250 million versus the prior year period in part related to carrying higher inventory levels for pandemic preparedness as well as the impact from settlement of of all outstanding interest rate derivative contracts.
As of the end of the year, we had approximately $3 7 billion of cash and cash equivalents on our balance sheet, along with $6 2 billion of long term indebtedness.
During the fourth quarter, we repurchased $500 million or $6 3 million shares of common stock and over the course of the year deployed approximately $500 million to.
Annick business development opportunities will continue to balance our investments across organic and inorganic initiatives to fuel our growth and drive margin expansion.
Let me conclude my comments by discussing our outlook for the first quarter and full year 2021 for the full year 2021, we expect global growth of 7% to 8% on a reported basis and 4% to 5% on a constant currency basis, I would like to point out the key assumptions reflected in our full year sales outlook, which include approximately.
Ultimately 300 basis points of foreign exchange impact our current expectation is that on a full year basis hospital admission rates and surgical procedures are going to remain below pre COVID-19 levels roughly down mid single digits for the year.
Our expectation is that rates will improve sequentially throughout the year to exit Q4, with the admissions down slightly and procedures roughly flat.
Moving down the P&L, we anticipate adjusted operating margin to expand between 20 to 50 basis points, reflecting the continued impact from Covid on our business. This impact will be most notable the during the first half of the year and then ease as the year progresses.
For the year, we expect an average adjusted tax rate of approximately 18% to 18, 5% and a full year diluted average share count between the range of 510 to 515 million shares.
The share count reflects the fourth quarter repurchases and assume that any additional repurchases are only undertaken to offset dilution.
Based on these factors, we expect 2021 adjusted earnings excluding special items of $3 35 to $3 43 per diluted share specific to the first quarter of 2021, we expect growth of approximately 3% on a reported basis and sales to the declined low single digits on a constant.
The basis, we expect adjusted earnings excluding special items of <unk> 63 to 65.
Per diluted share.
With that we can now open the call for Q&A.
Thank you we will now begin the question and answer session. If you have a question. Please press the star one key on your Touchtone phone, if you wish to remove yourself from the queue press the pound key if you're using a speaker phone. Please lift the handset to ask your question. So that we may be respectful of everyone's time. Please limit your comments of one question.
With one follow up question if necessary, we appreciate everyone's patience and would like to provide as many of you as possible the opportunity to ask a question. It will pause for a moment while of the list of being on pause.
I would like to remind participants that this call is being recorded and additional replay will be available on the Baxter International website for 60 days at Www Dot Baxter Dotcom first question comes from Vijay Kumar. Please state your question.
Thanks for taking my question James.
I guess I'll start off with.
One of the not the revenue guidance here.
If you look at back half of fiscal 'twenty. This was really impressive rate up low singles Q1 down low singles anything going on for Q1.
And when I think about you back out all of the Covid nice it looks like the <unk>.
This is you guys were looking at.
Five on a half of six ish on the base is that correct.
Sure. So so vijay in terms of in terms of growth in Q1.
Obviously, the key factor. That's in play is we had an incredibly strong Q1 of last year and so we exceeded our expectations and frankly it was really some there was certainly some pre buying related to COVID-19, but also strength across the portfolio. So as we think about the sequencing or most.
Challenging comp is in the first quarter on we expect.
The lowest level of performance and it really is in those areas that are primarily impacted by Covid, obviously Q2, and Q3 have much easier comps. So we will start to see some nice growth. There and then we do expect to close the year on with some growth against what is a fairly challenging comp given the strong performance in <unk>.
Q1 on the guidance of 4% to 5% on a year over year basis includes $50 million to $100 million.
Of improvement related to Covid. So we are still expecting relative to normalized levels very substantial COVID-19 impact so that that will abate over time and certainly in the second half of it will be better than the first but we will see we're expecting to see about $50 million to $100 million of improvement. So really that's the story.
Are you on the overall guidance from a sales perspective.
Yeah. That's helpful and then the maybe one on EPS.
Total reported revenues are growing seven eight the <unk>.
P. S guide would suggest up high single to doubles non a whole lot of leverage.
I guess so.
Last year, you guys had $150 million of incremental expenses.
So my question is why wouldn't we see.
Even better margin pull through for fiscal 'twenty, one and has anything changed on the underlying the Baxter piece itself.
Being a premium margin story when you think about the outlook. Thank you.
Sure overall margin improvement is a crucial part of our long term focus and the long term story of the company. So we are where we are.
We're very focused on this you heard in my prepared remarks, some comments in terms of implementing now gross margin improvements in similar ways using a similar methodology to what we applied to operating expenses over the last several years with the new leader for our manufacturing area of coming in Jim boards the work.
We're incredibly excited about our opportunity to drive gross margin, but there are some peculiarities that you have to think about with respect of 2021, well from a management manufacturing standpoint, we're expecting maybe of 150 basis points of improvement as some of these COVID-19 costs abate. We also have an op.
Opex normalization that we have to contend with and what I mean by that is things like travel the bonus pool on discretionary spending we all of those were sources of savings in 2020 and those pools are rebuilt in 2021 as we start to look at accelerating growth for the la.
Long term so that's roughly 100 basis points of headwind as we look at 2021, and then I would add to that while the FX environment from a sales standpoint as favorable that's roughly 30 basis points of headwind as we approach next year on the operating margin line. So you put those items together along with our continued.
Normal focus on operating improvement and you land, where we are with respect to with respect to the guidance that we share what I will tell you is it really is a very different story first half to second half of them in the first half. We have some continued COVID-19 costs. We had some continued rollout of manufacturing impact on <unk>.
And we have a lower revenue base what happens in the second half is we have of larger revenue base in place.
We're able to most of the Covid costs are gone by the second half and then finally, we will start to see and expect to see some of the improvements that Jim and his team are addressing the accrue more to the second half of them and so I think I think as we as we get to Q3 Q4, you will see margins that you're more normally used to seeing.
In the first half of the year, it will be a bit lower than what we've typically seen in the past so but again the core part of the story. We are very focused on this particular area and it's the long term valuation driver for us.
And the messages from nothing fundamental has changed on the margin side. Thank.
Thank you.
Thanks P J.
Our next question on the line comes from Robbie Marcus with Jpmorgan. Please state your question.
Great.
And congrats on a good quarter.
Jay I was hoping.
You could spend a few minutes on the cadence and some of the onetime items. This year Theres a lot of moving pieces, particularly in 2020 of lot of moving pieces that play out.
And especially without segment level guidance I thought it would just be really helpful. If you could walk us through maybe the cadence through the year and some of the notable items pluses or minuses to be aware of as we go up and down the model for the rest of the 21.
Sure.
Sure.
So just just thinking about the cadence of sales. We've given you. The Q1 to work with obviously that is as I said to Vijay our most challenging quarter of the year.
And it's really challenging across the board, although I will say that we do expect to see continued performance in acute in the first quarter before that becomes a very challenging comp in the future.
As we move on to Q2 and Q3 the growth rate is much higher on Q2, which was the I believe one of the only quarters. If the only we decline this year and so from a comp standpoint, while we still expect to have an impact on both the admissions in procedures in the second quarter.
We do see we will see a strong growth quarter in the second quarter and third quarter on the back of easy comps related to Covid impacts and then in the fourth quarter. Our current thinking is sort of lower lower single digit but growth. Nonetheless in large part driven by the strength of the ports.
Folio some of the launches starting to impact sales in the fourth quarter. So those are some of the drivers there from a business unit standpoint, renal generally speaking is steady our acute business will face severe challenges beginning in Q2 as you would expect on medication delivery has.
As your comps from Q2 to Q4, so we'll see some nice growth in that category. Our pharmaceuticals business also which has been impacted by COVID-19 on fairly substantially we will have a challenging Q1, but then again growth beyond that nutrition overall, we've seen we've seen the solid performance in nutrition per.
Out of the progress there that will continue although there is an easy comp in the second quarter, and then advanced surgery will behave like a lot of the discretionary procedure businesses that you are familiar with now what I will say is all of this is underlined by our market assumptions on Covid.
So there's a lot of optimism lately in terms of in terms of patient trends and so on and we're certainly excited about that in the end the impact of vaccines as we move forward, but the the way we see it Q1, we expect to be down relative to pre COVID-19 levels from a hospital census standpoint double digits.
From a surgical procedure standpoint mid single.
Q2 starts to improve so youll see sort of mid single in census, or high single digit in hospital census, and then surgical procedures improved from the mid single digits, and then Q3 Q4 much much more normal so really that that's a crucial underlying assumption for us. If that plays out is is on guidance should be solid.
Again, a lot of variables in play here that we have to contend with.
Great.
Really helpful color and.
Joe I was hoping you could touch on on the pipeline and the outlook. There were a lot of products that were set to launch but got put on hold.
Covid mix Redland comes to mind.
We have a slight delay in the pump launch, but that should still be of great opportunity PD growth is really healthy with HK I really just starting to come on I was hoping you could spend of men on some of the key pipeline growth drivers here, where they stand and what to expect from them over the next 12 months to 24 months. Thanks.
Ravi Ravi good morning, and good morning, everyone.
Listen.
The pipeline that we have got disrupted in 2020, but we feel that we have the momentum coming into 2021 and 2022.
If you think about DTC.
Believes that PD.
As a category will be a.
High single digit growth, which is probably three to 400 basis points above the market growth of <unk>.
Yes, R&D batch.
Baxter is well positioned to capitalize on debt.
We do have the investments we've made investments in capacity.
We are prepared to support the growth. It's a matter of fact per hectare anticipates some capacity investments because the growth of the category has surpassed our expectations. So even in the Covid here like the 2020, we saw growth of that category.
So that is one of the drivers the other one on auctions that you mentioned is the pump. We're all excited about it but I don't speak on behalf of agencies across the globe. We are we are filing.
With the FDA hopefully by the end of the first quarter as we prepare the documentation.
We have worked collaboratively I don't speak on behalf of the agency I can't predict what the agency is going to do.
On our side the weed control, we will do the best we can to have just all filed and if we need to make adjustments across the globe and the other filings we will we're very conscious.
Confidence that we can launch the note.
On the <unk> 'twenty 'twenty one is the new platform is an open architecture platform and.
We have great hopes for just products. We also have the new pharmaceutical molecules that are launching to share, but just going back and looking to launch from weak Scrabbling was impacted by COVID-19 in 2020, we think debt where the exit momentum of December November and December we see this molecule gaining momentum.
We have a lot of new accounts signed up so I think we were getting the area and we are in place right now that we don't speak about Bob.
Cyclophosphamide anymore. So we were able to do what we wanted to do which is to change the mix of the.
The pharmaceutical business that is the one.
The we continued to invest organic Inc.
Inorganically as well I think couple of lots of things you start to think about the P&L. The gross margin improvement driven by supply chain is one of them.
Laser focus of the Jacobs spoken of broader digital transformation, which will affect our G&A and how we do business in.
And also I think the cash and the balance in the back.
Sheet is a great advantage to us either on the M&A point of view.
The kids with perhaps large ones, but if nothing comes about the large ones will restart of the money to the shareholders, creating value as well. So I think altogether shows a good path.
Optimism of success for Baxter.
Great. Thank you very much of it.
Thanks Robby.
<unk> with Citi is on the line with the question. Please state your question.
Good morning, everybody I'm on to circle back a bit to your comment on.
Declining hospital admissions and procedures flat yes.
Year over year exiting the year and I want to make sure that it was versus 2020 versus 2019, and I wanted to understand how youre thinking about some level of pent up demand and procedures.
Great and maybe on July.
Yes, certainly Joe and then you can add anything that you'd like in terms of other aspects to the answer.
So joanne thanks for the thanks for the question the.
On the.
As we think about the two categories Hospital census, and surgical volumes, we really make our comparisons to pre COVID-19 levels.
So if we think about the fourth quarter of 2020 of our hospital census, as we see it was roughly down 10% and our surgical volumes was roughly flat as there was some pent up demand that was capitalize on in the fourth quarter of this year.
Now as we move to 2021, our assumptions are roughly hospital census continues to be down in the first quarter double digits relative to those pre COVID-19 levels.
The year at down roughly 3%, that's our current working assumption, but it is an important driver for us Joanne and we'll watch that very carefully during the course of the year and it's a fairly linear improvement over the course of the year. So on a full year basis relative.
Relative to pre Covid levels were down mid single digits on the census standpoint.
From a surgical volume standpoint, our sense is Q4 did benefit from some pent up demand. So in Q1, we are expecting a decline relative to pre COVID-19 levels in the mid single digits range and then it improves from there and by Q4, we're assuming down a couple of percent.
Relative to pre Covid levels. So this is that we expect surgical volumes to perform a little bit better than general Hospital census on a full year basis. So that's that's our current assumptions we will update that every quarter is something that we're very focused on as it is an important driver of our overall sales volumes.
Thank you and then as a follow up question on product line.
The business Theres, a lot of them getting parts. There there is the competitive landscape piece of it.
Docking piece of debt associated with Covid and then obviously the NAV of my Q1.
How do you how do you think about that ramping through the year and each of those factors. Thank you.
Joanne we think that the launch plans are set we do during the up we do not promote products not approved so we but we have on the idea of what is the replacement rates on the marketplace. We also understand the frustration of some of the.
The customers, who have competitive products on the aging of the platform. So we think we've put our plans based on that I think there were.
The stockpiling in terms of bumps in some parts of the world.
But the cycle to replace old platforms. There are seven eight or nine years depends upon how up hospital sales debt is still there. So I believe that are on a new pump will create the.
The momentum in the impetus perhaps for a hospital to look at that we do have the players were not going to see.
Speak about the plans, but we do have the players, but more importantly, within the automotive products prior to approval.
Thank you very much.
<unk>.
Thanks, Robert gains with Bank of America is online with a question. Please state your question.
Oh, great Thanks, and good morning.
Just two questions and I'll just state them upfront first I just wanted a little more clarity on the pump.
Resubmission and Refiling that you talked about you said hopefully by the end of the first quarter, Joe that I think originally.
You were hoping more of like the the very beginning of the first quarter, maybe I'm misremembering, there, but just wanted to make sure that everything's on track there and what else you need to do before you re file.
And then the the other question I wanted to ask with the little bit longer term and its of Covid related question.
The question is you know when you think about your core markets are there any that you think are now because of COVID-19, a little structurally or structurally weaker.
Due to either pricing or changes in health care will be delivered.
Going forward, just thinking a little bit longer term with that without question and then you know again, just a little more clarity on on where we are with the pump resubmission. Thank you.
Thank you Bob and good morning.
Of the <unk>.
Resubmission wanted to see hopefully is because we are working on the timeline, we have plans and everything is in place to execute this by the end of Q1.
We were more hopeful in the in the Inc.
The second third quarter of last year to submit a faster, but I think as slowing down to speed up was was wise decision by Baxter we had.
The contact with the FDA and debt contact has been very collaborative to the point that we understood. Some of the things that we had to prepare in more detail. So instead of rushing to get something and we work with the agency of continue to work very collaboratively. So we we have why do you need it for.
Debt to evaluate the.
The pump. So every time that I think about of any plans in the future.
The submission is.
Very very optimistic and I have the confirmation from our our executives that gives us kind of happened, but I always say hopefully because I think things happen that we don't anticipate but at this moment I don't see anything that would prevent us from created from the from a from a.
<unk> is at the end of this first quarter I wanted to make sure the debt that's clear on your other question on Covid.
There are structural changes in the market primarily help people seek care, but more importantly is how long is of course it.
Ben damage and preventive managers, when we stick with us.
And how long the herd immunity with Jacobs to get a herd immunity and people feel more comfortable doing things differently.
Huge a depth of the Olivia we're seeing the hospitals health of the separate awards and and we believe that there is some changes in how people.
Consult with the primary care physicians people, who have cancer. Unfortunately need infusion the need infusion the either needed to do an infusion center, where the need to go home.
Ben.
The steady safe people who need.
Surgery.
Need to have the surgery no matter, what otherwise the equal weight into the secret later people who needed to be admitted because they have issues. They need. So so I believe that the return of the pre COVID-19. It will happen with changes in tech knowledge, they will allow for better triage.
The 0.2 of the home because this is the part of people sometimes are forgetting we look a lot of bit of acute side, but the home treatments are the ones that I think will gain prevalence.
And we're gaining preference in Baxter B of home care company in the <unk> space plays well for RFP. The business, we've seen debt even with issues that we saw in 2020 was reduction in patient census, which as you will see momentum.
Of that debt therapy mode, and we will and we are.
Very focused on debt. So that is the momentum there has shifted when it got to Baxter the growth of the view was was fts or day or lower in most places in the world and today I see that reversing and I think of it is the investor Nations of those changes are ahead.
Thank you very much.
Youre welcome.
David Lewis with Morgan Stanley of is on the line with a question. Please state your question.
Great. Good morning, Thanks for taking the question just two from me one kind of industry for Joe and then maybe one for Jay maybe I'll just start day with you on margins just looking at 'twenty, one Jay kind of a two part question just thinking about gross and operating margins, yes, the numbers sort of apply maybe kind of 18% ish four for 'twenty one on gross margins maybe 40.
The 4% is that kind of roughly correct and when do you think you can get gross margins back to kind of 2019 levels.
Sure David as we look at as we look at the the mix.
Hang on one second here as we look at the mix between gross and operating margin you're right roughly on the gross margin. We're looking at in the 44 range.
And then on the way to the to the operating margin that we've identified and really what's going to happen is it is a story of two different halves.
Specifically on the first half of the year, we still have some COVID-19 costs, we still have the rollout of some manufacturing variations from Q4 hitting in the first quarter and some into the second quarter and so and then finally, we also have.
A lower sales level generally speaking on which isn't good for sort of positive manufacturing variations. So all of those things negatively impact the the first half of the year.
So we will see a fairly substantial step up to that to that from from below kind of that average level to something above it in the second half of the year and then the same story holds true on operating margin will start to see some real leverage on SG&A in the second half of the year in part as we get the incremental sales, but also.
Some of the savings initiatives from the digital transformation start to play out into our numbers. So it really is the story of two halves in terms of margin improvement as we look longer term about comparisons to prior years and so on I think that.
As I said, you'll get close from a gross margin standpoint by the end of this year to the pre COVID-19 levels.
And then we'll share some more guidance on long term expectations on when we get together in September but core to our core to our story and core to our focus is this idea that we want to be more efficient and we intend to be more efficient in particular on the gross margin line for the coming years, it's an important part of our valuation.
Okay Super helpful and then Joe just.
The two related questions on renal there are two dynamics I think industry is talking about this year one of the the positive impact of the EPC model, you talked about that a little bit and the second is obviously this terrible thing where COVID-19 mortality of suppressing the dialysis pool, which I'm sort of assuming impacts you last because PD patients are earlier in treatment.
Protocol can you just give us a sense of the positive EPC model can that impact numbers positively here in 'twenty, one or is that more likely 'twenty two and are you likely to see any impact from this increased mortality from COVID-19 and dialysis. Thanks, so much.
David Good morning.
The DTC is the positive.
We are looking at the rebound in 2021 of patient census steps or our prediction or forecast. So we're seeing debt going up.
To higher single digits, so that is.
Positive and as I've said before.
When I first joined Baxter.
Our our senses was at best DFS or the average growth and we're seeing this to be higher than debt.
Now.
The growth.
Like fully expected our 2022, it is where we take off on dose and becomes fully realized 2021, because the first quarter still of Covid environment Youll see a little a little reduction, but then it was kind of pickup and we've seen the pickup also not only in the U S.
But Latin America, China, and other places that were strong in the afternoon.
The dialysis so all in all of 2021 is a rebound the year fully realizing growth in 2020 true.
On your question on mortality Dd's.
It is we saw increasing mortality.
On.
Due to the to the situation of coal fit.
Debt Ameliorates in the 2021, we probably should exceed the resource of debt.
And remember we are upbeat the company in the U S. We are on the <unk> hemodialysis the company outside of the U S as well, but we have.
We have seen debt mortality effect, the business, which we think will be reversed in 2021, that's what 2021 use of rebound year was full of reorganization in 2022.
Great Yeah. Thanks, so much of the detail.
Youre welcome.
The question from Peter Chickering with Deutsche Bank. Please state your question.
Good morning, guys. Thanks for taking my questions a few questions here on renal the wells.
All of the David's question on the on the mortality of Es already patients did you guys see the maximum impact for <unk>.
During the fourth quarter and as you look at early 2021, the vaccine rollout to sort of that population of you're already seeing that begin to moderate at this point also.
On the script you talked about the incidents of end stage renal disease patients seem to be slowing down I'm curious what why do you think that is and how fast that rebounds and following finally looking at the number of new patients with end stage renal disease is the conversion rate to PD versus in center of different today than it was two years ago and how should we think about that for 'twenty 'twenty one.
Peter.
We saw on mortality.
On.
To be less for us and perhaps for other providers of of service Shelving Center when it comes to PD in the U S. Okay.
So that is that is the effect the August thing is.
We saw.
The fourth quarter.
We slowed down.
The ramp and aspect of the pandemic in Q4, there was tremendous.
The feeling about the hospitals and the.
And how do you get Pds and insertion of a Catholic surgery and people have to go to the hospital. Despite the fact, the association said debt to be in the emergency surgery. Some people just didn't have the capacity to do it or did not have the.
Time to go into a hospital queue to get it done. So I think Q4 was depressed by the pandemic. We've got about how do we see the mix shift going into 2021 as youll become as the cases go down the vaccination becomes more prevalent primarily on people who are highly.
At risk like patients in the SRT and Youll see all of the protocols from the CDC to effects of these folks like the first so you will see probably these folks going back the people going back into the PD modality into 2021 of luck I answer to David we see a rebound in 2021 with the full reorganization of.
Debt in 2020 tools and this is one of our power our forecast our.
All of them are viewing this as debt is 300 to 400 basis points up on.
Of the Es.
The average.
So it is we are starting to see growth we saw growth before and we will continue because DTC to see the growth you chose need to understand the 2021 will be a little bit of a transition into the beginning of the year. It picking up towards the end of the year. When you have the more hard to you.
Great.
Follow up on that one we saw the incidence of.
I'd say the real disease declined during the year I'm. Just curious why do you think that is and does it normalize out into 2021, maybe the bolus of patients. Thanks, so much.
The incidence.
Has come down because the access to health care was also impacted in.
In the very beginning and debt carrying through probably got a little better during the summer months late spring summer months, but as we got into default things became more difficult as people became.
More isolated.
All of the protocols for four of Ford Lockdowns, So I believe the delaying visits.
Sure.
The major driver of off net.
But you will see debt that we don't pick up as we started to see less cases no.
Normalized as I've said before look of the first quarter and first half of the sheer as it transitions and moves into an acceleration into the third and fourth quarter because of the herd immunity and vaccination.
Great. Thanks, so much.
Hello.
Danielle on pathway with SBB Leerink is on the line with the question. Please state your question.
Good day. Thank you so much everyone for taking the question.
Excuse me Joe.
Just a follow up question on renal and how to think about so two questions actually number one as it relates to the 8-K I mean, it feels like Theres a lot of tailwind here around pushing patients into the home.
On your call you called out in the presentation mid single digit PD patient growth when do we see that start to accelerate I guess, we probably have to get through COVID-19.
But when should we as we look at our model think of that starting to accelerate and then what could be what do you think could be the ultimate penetration here for PD in the U S.
And then everyone kind of line.
Hi, Danielle.
If you just do a.
Rough math on the rule on DTC, you see that you need to be at high single digits or very low double digits to be able to get the.
Ration of results to get to the what the rule Hess has.
Yes.
Set to be achieved for home therapies strive to have the same sort of all the indicators for transplants, the seeing some of it.
If we think about debt.
Indeed.
2020 of the year, where things have slowed down you advantage of catch up in 2021 realized full growth in 2022 and this has been.
Like I said, we think this is going to the high single digits low sometimes low double digit.
The growth for the debt.
The PV business so.
We believe that debt.
The opportunity is there and that will be will be.
Realized this would be realized so.
Think about the.
The PD penetration to answer of question directly.
About 20% over the time period okay.
Okay got it and then just on the point of care of PD.
Our real time, TD production products, I know COVID-19, probably delayed that but any updates on timing for that system and sort of where we are in the regulatory process. Thank you from acts.
Thank you we finish our first phase in.
Proving the technology, we did clinical's on debt, we've put the technology of work.
The protect ours works, we're happy with that we are putting debt.
In the second.
Development.
Lack of meeting where the.
Celebrating debt developing the next celebrating a new cycle because we believe despite the effect we would benefit from our point of care, we've got to get a sector debt. It has more of affordability and more global in nature. So we're putting our resources in what we call our new project project, which.
We're very excited about it as a three to three and a half years in the making and the.
Sure, but that is something that we need more of our drinks they've been point of care.
So.
Debt technology point of care of school of and we can deliver debt more importantly for Baxter right now was to immediately make some capacity investments, which we did and it can be able to attend our customers second is to develop a sector, which is global in nature of more affordable. So that is something that we'll provide to our customers on a global basis to think of.
Bob.
Automatically automatic PD.
The only done in.
In countries, which have higher.
Income per capita.
So, but the the use of density is actually.
Not only in those countries across the globe and I think having a more affordable products. It is the mission of the company and so we took that perhaps the events over.
Rolling out on demand sort of making but we can make it.
We've proven and we'll activate when we take the stress. Thank you.
Thank you.
And when the time for one more question.
And the other question from Larry <unk> with Wells Fargo. Please state your question.
Good morning. This is <unk>, calling in for Larry. Thanks for taking my question I want to go back to any of them I keep per minute can you talk about you talked about filing around the end of Q1, hopefully can you talk about the confidence level in non.
Launching the product in the second half 'twenty, one I believe that was the previous call and related to that what.
What's assumed in your guidance on Novo Matthew and then I have a follow up.
The Novo Michael we're going to see hopefully.
We are engaged and we will get it done I'm hopeful because of.
If something comes up we always address the needs Joe.
So when you're not going to rush in filing for something of spring already but I have to affirm to you guys as far as I'm sitting here today as far as I know everything is ready.
And right to file at the end of the quarter.
That I can tell you what I cannot tell you how long would take the FDA to review it we know that there is a fixed amount of time, but we know the questions would be working closely with them because we wanted to the best job with Canyon estriol of the questions beforehand, but nevertheless, the.
The process is somehow predictable, but it's not the right.
On my right to predict what the FDA is going to do so one of them make sure that you know debt, we're very hopeful for the product we're going to launch this product this year.
Sumit the FDA approves the products in the U S and his firm sitting here today as far as the information of our cash we are ready we will be ready to file with the FDA at the end of the quarter.
Okay.
Willing to say if you assume that income for now if I might you in the guidance for this year.
Yes, Joe maybe I'll, just make the comment on that.
We do we do have some sales embedded in.
In the fourth quarter for Novum, IQ, but as far as specifics, we won't won't won't share of product line details at that level, but we do have an assumption regarding some sales we think it's appropriately risk adjusted.
And we are very optimistic and hopeful that we get this of this pump approved.
Great and then if I can have one more quick line in the other line, where you have the Boston contract can you give any color on kind of way.
Net.
I think you mentioned there.
I think the con.
<unk> signed already.
Yeah.
I'll give some color on that with respect to that like we do have some but we right now we're assuming we arent manufacturing it's more of a second half thing.
<unk> talked about kind of across all of the contacts as being somewhere between 50 to 100 million.
And then so I would say it's likely.
Of that given that it's second half weighted flow right now it could be it could be better but for right now that's what we're assuming.
Thank you very much and then that and that opportunity is.
Partially in 2021, we do believe there will be some opportunity in 2022 related to those vaccines.
Thanks Les.
And there are no further questions at this time.
And ladies and gentlemen, this concludes today's conference call with Baxter International Thank you for participating.
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Okay.
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Okay.
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Joe.
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And the.
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