Q1 2021 Baxter International Inc Earnings Call
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David Brown from IRA.
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212, and 90 603 697.
Thank you so much lines here will be on music hold until the conference begins.
Good morning, and welcome to our first quarter 2021 earnings Conference call. Joining me today are Joe Almeida, Baxter's, Chairman and Chief Executive Officer, and Joseph Carl Baxter, Chief Financial Officer.
On the call. This morning, we will be discussing baxter's first quarter of 2021 financial results and full year of 2021 financial outlook. Please.
Please note starting this quarter, the financial schedule, which breaks out sales by key product categories will now include the sales of our Biopharma solutions contract manufacturing unit.
Historical schedules, reflecting this new structure, along with the supplemental presentation to complement this morning's discussion can be accessed on our website and the investors section under events and news. This presentation includes related and non-GAAP reconciliations.
With that let me start of prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the second quarter and full year 2021, new product development business development and regulatory matters contain forward looking statements that involve risks and uncertainties and of course, our actual results could differ material.
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's ongoing business performance a reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included on our earnings release issued this morning and available on our website.
As mentioned in our press release. This morning during the first quarter Baxter strengthened its European and global Pharmaceuticals portfolio with the acquisition of the rights for certain territories outside the U S to the widely prescribed chemotherapy and medication calyx also known as the axle and several geographies, including the U S. This.
Strategic acquisition, which closed on February 17th of this year supplements Baxter as previously existing U S rights of docile, which the company acquired in 2019 as a result of this acquisition on the call. This morning, we will be discussing operational sales growth, which adjusts for the impact of foreign exchange as well as the international sales.
Of Calix and Doc So now I'd like to turn the call over to Joe Joe.
Thank you <unk> good morning, everyone and thank you for joining today's call I hope that you and your loved ones are healthy and safe.
I'll begin with an overview of Baxter as first quarter performance, Joe we'll take a closer look of the financials, including our outlook for Q2 and the ears of whole then we'll close with Q&A.
Baxter delivered first quarter sales growth of 5% on a reported basis and the 1% on both the constant currency and the operational basis.
Represents solid performance in the face of an unprecedented the pandemic as well as a challenging year over year comparison, given the heightened sales we experienced a year ago as our customers prepared for the impact of COVID-19.
On the bottom line the first quarter adjusted earnings per share of 76 cents declined 7%. This decrease reflects the negative year over year impact of COVID-19 on our results and the quarter on.
On the segment basis Asia Pacific delivered growth of 8% the constant rates. This growth reflects the strength across the region, while much of the reach and is progressing and its recovery. We continue to monitor the situation in India, which is experiencing the high.
And I as the COVID-19 infection rates around the world sales results in EMEA were flat year over year and decline of 1% and the Americas also at constant currency rates sales and bulk of the segments continued to be impacted by lower rates of hospital admissions and surgical volumes due to the pandemic looking at performance by.
Business.
Acute therapies led growth across all of our product categories with sales increasing 28% on the constant currency basis results were driven by ongoing heightened demand globally for baxter's continuous renal replacement therapy or CRT technology of amid COVID-19, and so.
And we discussed last year, we expect the acute therapies the man the receipt from its pandemic peak and return to more typical levels over the course of the year, our Biopharma solutions business advanced 11% year over year on a constant currency basis, driven bar of partnerships to assist and many of.
Factory, the COVID-19 vaccines.
Renal care of clinical nutrition and pharmaceutical across of all grew at low single digits at constant currency growth of the renal care continues to be driven by demand for our peritoneal dialysis or of PD products globally.
I would point out the demand for both our East Center HD and PD businesses has been dampened by the perhaps the patients four items driven by higher mortality rates for EES surgery patients in the wake of the pandemic, we expect the ESR the patient's why and Mr stabilize and return to normal over the next 18 to 24 months, but the pace of the recovery.
The varied by market.
The growth is expected to continue outpacing <unk> growth market wide for the foreseeable future beyond the general lifestyle benefits of home based PD. This therapy continues to be recognized as the viral treatment option and it's been day.
And the conditions. In addition, the new CMS end stage renal disease treatment choices on EPC payment and borrow went into effect and the U S. At the start of the year, which supports the extended access to home therapies HD, we remain the critical treatment option and numerous markets as the pioneer in the dialysis broadly back.
<unk> is committed to innovation across both modalities, enabling conditions and patients to make the right treatment choices based on the day or distinct needs last quarter and highlight of the FDA five 10-K clearance of our home of choice Clara APG Sigler is one more way we are supporting <unk> growth in the U S.
More recently, we received five 10-K clearance of heart, leading edge 18, 98 hemodialysis system. The proven platform that is currently used and more than 90 countries worldwide and the all launching in the U S.
Growth and our clinical nutrition business reflected demand for Baxter is multi chamber nutritional product offerings, and the U S and APAC markets as well as nutrition compound growth in the EMEA.
Pharmaceuticals growth was driven by continued strength in the Rd International pharmacy compounded business as well as the benefit from the recent acquisition of Calix, Dark seal rights and select territories outside the U S. This acquisition further shrimp and sell our pharmaceutical support for the globally and in particular represents the platform.
On the two accelerated growth in Europe.
Adjusting for the Calix and docs of acquisitions and foreign exchange Pharmaceuticals declined low single digits year over year.
Performance in the quarter reflects the challenging comparisons to the prior year quarter, which occurred before a mark to the client and hospitalizations of surgical volume is due to the pandemic in tandem with items sales of hospitals stocked up on supplies. That's it's been damaged and merged medication delivery and advanced surgery, both the declining mid single.
Low digits S constant currency rates as the businesses were also impacted by lower rates of hospitalizations of surgical procedures and as well as the challenge and comparison to the prior year quarter that said, we're seeing gradual steady recovery and this trends and I expect this to continue over the course of the year, particularly.
And as the rate of COVID-19 vaccination simple globally.
Medication delivery. We're also excited by the potential of our Novum IQ infusion platform, including on our dose IQ safety software and enterprise digital connect piece of the suites North of my queue was resubmitted for FDA.
Earlier this month, we look forward to advancing this application and anticipate introducing these exciting tech knowledge of the U S and the second half of the shift.
We also remain committed to broadening our presence globally for the noble my acute and currently expect to introduce of this platform in Europe in 2022, as we work to enhance our product offering to address the specific needs of this region.
As I wrap up I would like to reinforce the Baxter is both well prepared and well positioned for the future the.
Central nature, and durability of our portfolio of the breadth and diversity of our product lines, our expansive geographic footprint and the impact of our transformation of all taken together the few of our resilience adaptability and agility.
We remain focused on advancing innovation, the key to sustained growth and.
The industry, we have a lock and look forward to across our businesses, including the therapeutics and the increasingly new value added digital solutions you may hear about many of these at our upcoming Investor Conference and some even sooner and.
To supplement our organic pipeline, we will continue to pursue attractive BD opportunities and our core portfolio and key adjacencies as well.
The west complements our business and.
And our of 50000 employers remain absolutely dedicated to advancing our mission of for patients and we are committed as ever to returning cash to our shareholders now I'll pass it to Jay for a deeper dive into our financials and outlook.
Thanks, Joe and good morning, everyone as Joe mentioned, we're pleased with our first quarter performance, particularly in light of the ongoing pandemic conditions and the tough comparison to first quarter 2020, where we experienced heightened demand for select products as COVID-19 began to spread to the U S.
And other geographies and the.
And the strength and resilience of our portfolio continues to be on display and we are executing on the priorities we have set out.
And as Joe mentioned this quarter, we resubmitted the the FDA 500, 10-K filing for Novum IQ our suite of next generation infusion pumps as a promising multiyear growth driver for Baxter and Additionally in line with our strategic objective, we bolstered our pharmaceuticals portfolio with the acquisition of <unk>.
And to select territories outside the U S that will allow for future growth, particularly in our EMEA region, and we continue to execute on our recent new product launches across our businesses and geographies.
Turning to our first quarter 2021 results global sales of $2 9 billion advanced 5% on a reported basis, 1% on a constant currency basis, and 1% on and operational basis for.
For the quarter, we estimate the COVID-19 negatively impacted year over year sales growth by approximately 400 basis points.
Sales growth and the first quarter did exceed our expectations driven by operational strength and the benefit from COVID-19 vaccine manufacturing related revenues.
The recent acquisition of Calix docile contributed approximately 45 basis points to growth and the quarter.
On the bottom line adjusted earnings declined 7% to 76 per share and as the negative impact from COVID-19 on our business and operations as well as increased interest expense and a higher tax rate more than offset operational growth and the quarter.
Now I'll walk through performance by our regional segments and key product categories, starting with our three regional segments share.
And the Americas declined 1% on both the constant currency and the operational basis sales in Europe Middle East and Africa were flat on a constant currency basis and declined 1% on and operational basis and.
And sales and our APAC region advanced 8% on both the constant currency and the operational basis.
Moving on to the performance by key product category note for this quarter constant currency growth is equal to operational sales growth for all global businesses with the exception of our pharmaceuticals business for which we will provide both constant currency and operational growth adjusting for the acquisition of rights and select territories.
<unk> outside the U S for Calix docile global sales for renal care were $922 million advancing 2% on a constant currency basis performance and the quarter was driven by the global growth and our PD business. We continue to monitor the impact of excess mortality among ESR D patients and delays of.
And new patient diagnoses, resulting from the pandemic. This is particularly notable and select Latin American markets, which saw patient volumes declined mid teens during the quarter. Our current expectation is for PD patient volumes to ramp over the course of the year, although as Joe mentioned the pace of recovery will.
Vary by market and be further impacted by the rate of COVID-19 vaccinations.
Longer term, we remain excited about the trajectory for our renal care business in particular with our leading portfolio of home therapies sales.
Sales and medication delivery of $652 million declined 6% on a constant currency basis, the sales decline and reflects a difficult comparison to the first quarter 2020, where we experienced heightened demand for certain medication delivery products and hadn't yet felt the full impact from the lower rate of hospital admissions and search.
<unk> procedures.
During the quarter, we estimate the U S Hospital admissions were down high single digits as compared to pre COVID-19 levels.
Pharmaceutical sales of $552 million advanced 1% on a constant currency basis and declined 2% on and operational basis.
Sales of <unk> contributed approximately $13 million for the quarter pharmaceutical performance and the quarter was also negatively impacted by the Q1 2020 pre pandemic by and for select products as well as lower rates of hospital admissions and surgical volumes with sales of both inhaled anesthetics and.
And specialty Injectables declining high single digits, excluding the benefit of the calix the OXXO acquisition.
Strengthen our international pharmacy compounding services, partially offset this impact.
Moving to nutrition total sales were $234 million, increasing 3% on a constant currency basis performance and the quarter was driven by increased demand for multi chamber bags and nutrition compounding products in EMEA.
Sales and advanced surgery were $217 million declined 6% on a constant currency basis sales within the quarter were impacted by lower surgical procedure volumes as well as the difficult year over year comparison as the first quarter of 2020 included a benefit of approximately 600 basis points, resulting from.
The competitor product shortages.
Although surgical procedures experienced a slow start to the year, we expect quarterly sequential improvement and anticipate ending the year with procedure volumes of approximately flat to pre COVID-19 levels sales and our acute therapies business were $207 million representing growth of 28% and on a constant currency basis driven.
And by ongoing COVID-19 related demand as Joe mentioned, we anticipate this demand will slow as vaccination rates increase and.
COVID-19 related admissions decline.
As mentioned beginning this quarter, we are disclosing sales associated with our Biopharma solutions contract manufacturing unit, which was previously presented in our other category first quarter sales and Biopharma solutions were $135 million representing growth of 11% on a constant currency basis.
Performance in the quarter was driven by revenues generated from manufacturing COVID-19 vaccines on the contract basis, we are honored to play a role and helping meet global demand for COVID-19 vaccines.
Moving through the rest of the P&L, our adjusted gross margin of 42% declined by 230 basis points over the prior year driven by lower sales of high margin products and increased operations and supply chain expenses, resulting from COVID-19.
Adjusted SG&A of $609 million increased 3% on a year over year basis and was flat on a constant currency basis.
Adjusted R&D spending and the quarter of $128 million increased 4% on a reported basis and was also flat on a constant currency basis.
Both adjusted SG&A and R&D reflect the continued benefit from lower discretionary spending amid the pandemic.
The adjusted operating margin and the quarter was 17% the decrease of 180 basis points versus the prior year net interest expense was $34 million and the quarter and increase of $13 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 non operating expense totaled $5 million and the quarter.
The adjusted tax rate and the quarter was 16% and was favorable to our expectations driven primarily by a discrete tax benefit recognized in the quarter. We would expect this benefit to occur later in the year.
Let me conclude my comments by discussing our outlook for the second quarter and full year 2021 for full year 2021, we expect global sales growth of 8% to 9% on a reported basis, 5% to 6% on a constant currency basis, and 4% to 5% on and operational basis. This assumes the benefit of approximately of 100.
<unk> basis points to both reported and constant currency revenue growth for the acquisition of Taylor docile as well as approximately 300 basis points of positive topline impact from foreign exchange on reported growth of our expectation remains that on a full year basis hospital admission rates and surgical procedures will stay below pre.
COVID-19 levels with rates improving throughout the year and exiting the fourth quarter with admissions down low single digits and procedures roughly flat moving down the P&L. We now anticipate adjusted operating margin to expand between 40 to 60 basis points, reflecting the strong first quarter performance.
<unk> and the inclusion of the Calix docile O U S rights.
We expect this benefit to be partially offset by increased supply chain and manufacturing and related costs, given the increase in commodity pricing and freight transport as well as the negative impact from foreign exchange.
For the year, we expect and average adjusted tax rate of approximately 18% and our full year diluted average share count between the range of 510 million to 515 million shares based on these factors. We expect 2021 adjusted earnings excluding special items of $3 47 to $3 55.
Per diluted share.
Specific to the second quarter of 2021, we expect global sales growth of 14% to 15% on a reported basis, 8% to 9% on a constant currency basis, and 7% to 8% on and operational basis, and we expect adjusted earnings excluding special items of <unk> 72 to 75.
Per diluted share.
With that we can now open up the call for Q&A.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your touch Tom phone if you will.
And just to remove yourself from the queue press the pound key.
Our youth and 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 to 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.
We'll pause for a moment, while the list is being compiled.
I would like to remind participants that the call is being recorded and the digital replay will be available on the Baxter International website for 60 days at Www Dot Baxter of Dot com.
Our first question comes from Robbie Marcus of Jpmorgan. Your question. Please.
Congrats on a good quarter and thanks for taking the question.
And thanks Robyn.
Yes.
Maybe to start it off Jay I'd love to get a little more color on the cadence that's assumed in your guidance here second quarters coming in and a touch below the street, but you did raise EPS guidance, a little more than the first quarter beat So I was hoping to get a sense of some of the items impacting second quarter is there still lag.
And from high cost inventory flowing through Cogs et cetera, and how to think about the margin expansion and the back half of the year.
Sure Robbie consistent with how we outlined performance at the beginning of the when we gave guidance originally and we really do see this as a tale of two different halves.
With the shape of the second half being very different than the shape of the first half and part that relates to admissions and surgical procedures and in part it relates to certain manufacturing costs, which we expect this upside to the back part of the year.
And so first as it relates to admissions are second quarter assumption and admissions.
The first quarter, we saw about 8% down relative to pre COVID-19 levels and the second quarter, we're expecting to see roughly 7% down and that's kind of the working assumption that we have in place, but in the back half of the year, we will expect to see roughly 3% down and so we do see a market improvement from first.
Half the second half of that benefit on the top line and then from the margin standpoint, we will see incremental improvements and the second half of the year and particular with respect to gross margin that start to drive our performance up and so in fact, the second half average margin will be in the 20 <unk>.
Cent range or a little bit north of that is implied by the guidance that we've shared now specific to the second quarter. There are a few moving pieces.
What I would say is we do have sequential improvement in sales that contributes approximately 10 cents.
Of earnings impact roughly all in and included and that is maybe a couple of cents related to the docs of acquisition.
Now, but as we think about the second quarter, one of the things Thats really important for us and setting the stage for a successful acceleration and the second half of them and setting the stage for a successful 2022, we are making meaningful opex investments and the second quarter two of two support that acceleration and so we're seeing.
Roughly about 10, or so of Opex investments that take place and the second quarter and then from a financial statement standpoint, there is a tax rate we see the tax rate from the first quarter to the second quarter kickoff roughly <unk>, we saw a discrete item in the first quarter of the year and we don't expect that to repeat and the second quarter. Therefore.
And theres a bit of a tick up so I think broadly speaking as you say, we're really pleased with the first quarter performance. It is a nice start to the year. It sets the stage for a successful performance throughout the rest of the year, but I view Q2, as a little bit more of a stage that are on the way too.
Really a really solid second half of the year.
And that's great Jay.
I'm going to try and phrase us and a way that maybe.
You'll be able to answer and I know, we're going to get the full of long term guide the September analyst day, but.
You're exiting the year with over 20% operating margin.
And your streets sitting at about 19, 8% for next year is there anything that would prevent us from taking the exit rate and the second half and bringing that through and the next year. So maybe you could just talk about maybe some puts and takes and and what's in that second half margin is that of good go forward. Thanks.
So two things.
One is stay tuned.
We're really excited for our upcoming Investor day, we're hopeful that we'll be able to conduct that in person with folks and attendance.
And I believe it's going to be and the Deerfield area. So very excited to share and at that point, Tom will share some thoughts on 2022 and beyond in terms of where we can take the long term platform of the business.
And safe to say, we as the team are incredibly focused on margin enhancements as we've been for the last five years. So there will definitely be some discussion of that the one thing I would caution you is remember we always have the seasonality factor and play and Q1 Q2 are typically lower than Q3.
Q4 for a whole host of reasons, but there is some seasonality of that needs to be considered when you look at exit rates of Q4 margins, which typically are our highest and the year.
Great. Thanks, a lot.
Thank you.
Bob Hopkins of B of a security is online with the question. Please state your question.
Yeah great.
And thanks for taking the question and I just wanted to follow up on on Robbie's question on operating margins because I think it's a really important topic. So you're starting 2021 and 17% and you you mentioned, but will happen over the course of the rest of the year, including the back half how much of the trajectory over the course of the year is dependent on the improvement of <unk>.
Revenue growth versus things that are kind of directly and your control on the manufacturing and cost side.
Bob.
Thanks for the question and it's a difficult question to answer because to some extent.
They do go hand in hand, now we have specific programs that we've earmarked on both the gross margin and the cost side, if youll recall on our last earnings call, we talked a little bit about the digital transformation. That's underway led by Andy Frye and tell of as our CIO, We've got an enormous amount of work.
Ongoing in terms of cost improvements and efficiency enhancements related to that transformation and also Jim <unk>, our head of manufacturing and operations has a lot in terms of accelerating operating performance and the second half of the year. So all of those things will feature prominently as we look at <unk>.
Q3, Q4 and beyond.
But we do need as is always the case.
If you're falling short of revenue expectations. It creates a real absorption challenge and the manufacturing facilities. It creates a real absorption challenge as you look at things like fixed SG&A and R&D costs.
And so there is some of it's important that we do see the acceleration on the revenue line in order for us to deliver what our expectations are now having said that I do believe that we have the right revenue projection and place and I think our ability to forecast revenues in light of this highly volatile environment has really improved.
And quite substantially over the last over the last 18 months. So I think the assumptions that I outlined that support the second half.
And hopefully prove reasonable, but we'll have to wait and see.
Okay. Thank you for that and then.
And a follow up actually on operating margins thinking a little long term if you're starting if if this year you end up successful and and we ended up at around 18, 5% as you're guiding the.
The Street models, roughly 100 basis point improvement in 'twenty, and 'twenty, two and 2020 three and you know on you'll give us all of the specifics in September and and I'm sure. We're all looking forward to that but just directionally.
Is there.
Are there things that we should be considering that would suggest that those numbers are way off.
Yeah.
Again, it's.
It's hard for us to comment and in the context of and we've taken the guidance off the table and we did it because of a lot of different reasons. The guidance with scale of was from 2018, we've had a global pandemic since we provided that guidance and a lot of different things have happened. So.
What I can tell you is and by the way it's of little painful.
We don't share anything because this team is committed to margin improvement.
Focus a lot of our energy and efforts on it and culturally the notion of efficiency enhancing enhancing the efficiency of our operations that is center stage and.
So for all of those reasons I'd love to share some commentary on future margins, but I think in light of the fact that we still want to see what how the pandemic plays out and our assumptions valid for the rest of this year and what happens to 2022 in light of that it's a little difficult and I'll have to hold off on commenting on.
On future Years' margin performance.
And the Chase I just may ask Bob we're not going to comment on on the street expectations through two of that in September but on what I want all of our listeners and investors to know is the company is really focused on margin improvement through fueled the levers. The first one is new product launches this year, we're launching <unk>.
And than 20, New products, Inc.
Clothing, we're hopeful to obtain the five 10-K from the FDA on the new pump platform. Then we also have very good.
Our momentum and the integrated supply chain, let Biogen Boise, we also have.
Excuse me.
And the digital transformation the restructure in every corner of the company was significant.
The redesign of the finance function and the company and other functions and the company and that will completely be redesign and the use of artificial intelligence and news of box. So we have a lot of momentum going on so we are not going to discuss the specific number just telling folks that we're not just.
And here, we have a significant amount of work going on and.
Baxter to continue to improve our margins.
Okay. Thank you.
Thanks, Bob.
Net mixing of credit Suisse is on the line with the question. Please state your question.
Okay.
Yeah.
Yeah.
And Matt music with Credit Suisse. Your line is open and please state your question.
Hi can you hear me okay.
Yes, Hi, Matt How're, you doing thank you and well.
Thanks, Thanks, so much for taking the question.
So Jay at one of the.
And that you're that we've gotten over the last couple of months I think.
The Baxter and so many of the comments that you've made and some of the comments that you've made today regarding projections on things like procedures and hospitalizations.
And.
And I know, it's a challenge to make those kinds of projections given the the variability and the environment and sort of the newness of this hole.
The process that we're all going through but.
Can you help us understand a little bit how you get to some of the the thoughts you have on on first half second half and census levels et cetera, and and your visibility to those and sort of.
Confidence as we kind of get into the year that we are going to wind up where youre, describing and assuming and your guidance and I have one follow on.
Sure and I will tell you that this is an area we have invested a lot and and a lot of this work is done by our Americas team led by Giuseppe of coli and Heather Knight.
And it starts with aggregation of data sources. There are a number of proprietary data sources that we now have in place that really give us good line of sight to Y in terms of actual patients admitted to hospitals, along with surgical procedures. So we have a number of sources and then of <unk>.
Of course, Theres a lot of publicly available sources, but early on and the pandemic. If we rewind over a year, we didn't have the availability of data sources for for the and for information because frankly. This was hospital admissions was never of variable that was very concerning to us. It was always something that would grow a couple of low single digit.
Each year.
And in light of the Q2 last year, where we saw a 20% decline Giuseppe and team started spending a lot of their energy and effort assessing and understanding data sources, but then the second thing that we did was we started to do some work in terms of anticipating and forecasting with some artificial.
Intelligence looking at a variety of data sources that could predict.
Behavior.
And ultimately what we found is and the fourth quarter of last year and the first quarter of this year of the model that we built and I'm talking most specifically to the U S. Because I think that's a big driver for us and it's also of discrete dataset that lends itself to a level of analytics that perhaps other.
Markets, it's a little more challenging and what we found was Q4 Q1, we were largely in line with our expectations within the tolerance range that was acceptable and.
And so we've we've applied that same analytical and looking forward now we could be wrong of course, and we've quantified in the past what that what a mistake would cost us from the admission standpoint, I believe one percentage point in the U S per month is a couple million bucks and so.
That's the that's the sort of the penalty for being wrong, but I think I think throughout once we got through Q2 of last year, our ability to anticipate what the outcome was going to be has been significantly better and past performance is no guarantee of future performance.
The caveat is related to forward looking statements that Clare shared at the outset of this call, but I feel like we have we have done a nice job really really assessing this and understanding of drivers going forward I don't know, Joe if you'd like to add anything.
Jerry I think of covers very well. Thank you. Thank you.
Yeah, that's super helpful. And then just one follow up on on.
On sort of your capacity and your focus on margins and efficiency I know this is becoming a bit of a topic for the call, but it is important obviously so.
Maybe if you could describe.
Where did the resources that you put to work win win Q and you came in.
And let's say and the couple of years, leading up to it.
Of this pandemic a fair.
A fair amount of effort on zero based budgeting and all sorts of operating efficiencies and.
Rethinking of R&D spend et cetera, and I'm just wondering.
And where is the flex in your organization to get after get back after some of those opportunities or how is the how do you anticipate your the organizations of shifting to get after sort of the next leg of margin opportunity coming out of.
At the end of this year.
Mike.
There are three very specific areas of that we are very very focused one of this integrated supply chain from the moment, we buy of raw material.
Because of whatever raw mature it is all the way to deliver the delivery to the customer.
And you have the specifics of the effect Coincidentally are Joe review of the yesterday with the team we have programs in all areas from cost of raw materials.
The cost reductions and the manufacturing facilities the ability to predict.
Cost of logistics, which has been a headwind for the company and for many of other companies around the globe.
And with containers and shipping lanes and being clogged up and so those things are the focus of of Baxter and I saw the numbers yesterday and Thats, a progressive increasing net cost reduction of integrated supply chain that pleased me. The second thing is digital transformation.
Because baxter did indeed remove cost from the G&A, but not enough we got to a point and now we need to redesign of our processes. So I just gave on ex simple.
To supplement the Bob's question to Jay is finance organizations and large growth within the company does a great job, but also we can do things and they're much more concise and better way. So we're looking at that.
Digital transformation of our quality the organization's regulatory affairs.
And as well as the the research and development, we shift of research and development when the within the company before estimate what we're going to spend more on research and develop and always we can spend more money and theres always opportunity to put more money, but we are now this year.
The pin out 22 of new products, a brand new platform of bumps that ex this company and never had the capability to develop and we're doing this with the RMB of resources that we have by shifting the location of labor, but also becoming more effective and Duane debt and lastly is the mix of the news.
This new product.
New products that will come into play for the March and accretion. So there is opportunity and G&A and gross margin via <unk>.
Reduction in cost of from integrated supply chain as well pass.
The mix due to new products.
Very helpful color. Thanks, Joe.
He don't Chicory of Deutsche Bank is online with the question. Please state your question.
Good morning, guys. Thanks for taking my question the.
Just wanted to follow up on the cadence question, but focusing on the revenues versus the.
Opex and Youre spending and <unk>.
January and February were Tom for most of the country due to COVID-19 surge and the storms, but can you give us some color on the ex rates in March and maybe April that you're seeing within medication delivery and advanced surgery, and acute therapies and I'm trying to understand the dynamics of the COVID-19 tailwind and headwind as you head ended the Q.
Sure.
So overall I think what we outlined was admissions Q1 down roughly 8% on the way to 7%.
And in Q2 and that very much has a impact on our medication delivery business and the performance there and then from and I didn't mention this but from a surgery standpoint, we saw it down kind of low single digits may be 4% and the first quarter, we're expecting to see a sequential improvement to the second quarter of the year.
Well, maybe down 2% and my comments are specifically related to the United States and so and our April trends, what we've seen thus far is broadly speaking on supportive of the comments that Ive made now having said that for all of the reasons that you know well the second quarter of the year.
<unk>.
Very very easy comp for areas like medication delivery, so, whereas in the U S and globally, we saw a decline and in the first quarter of the year, we expect to see a fairly reasonable growth level and the second quarter of the year in large part because of the easy comp and then some of the easing that we're seeing.
From an admission standpoint.
Okay, and then for renal care can you give us some more color on what youre seeing within the U S. Europe and other markets I believe you mentioned the Latam was down in the mid teens, how should we think about the increase mortality on the is there any payments as it relates to flow through in center products and your PV products within those geographies and 2021 and also have you seen increased PD.
The PD demand as patients with Robert B at home versus the center and as of today.
And it's getting vaccinated.
And keeping on BD.
Up.
This is Joe Almeida so.
I would say that we saw a decline.
And in census, and just as was offline and by the prescribers and by US before there was a significant das the cause of patients of therapies, but when we look at the dynamics of the market we still see.
The U S T D.
PD patient growth, even with that in the US was three 3%.
And the multiple of the ear of 6% the issue there was.
Dampens. The number overall is significant reduction in Latin America, and patient census, primarily Mexico, some of them, Brazil, as well due to fatalities and due to COVID-19 and <unk>.
Also a reduction in the SaaS this until the.
And once COVID-19 hit and Europe, Europe will start to recover and restart the game really good momentum until COVID-19 hit and so we are optimistic even with the.
The sheer disinvent HD.
The six 1%.
Block.
For the year and.
The dynamics correct to your point.
PD is shown to be a home therapy that.
The prices again.
The amex shows.
The increased value of convenience and safety of toward the patients by staying home instead of half of the travel to the clinic and I think.
I believe that.
The.
The yes, sorry.
Nope.
The states in the U S. The changes and.
And guidance for where home therapies youre going to continue to see this therapy of gaining momentum so even though.
We had COVID-19 and the beginning of the year.
Affecting half of either one of them.
Lot of areas and the U S. We still see.
The good growth going forward. Thank you.
Great. Thanks, so much.
Okay.
Lawrence <unk> of Wells Fargo is on the line with the question. Please state your question.
Good morning, Thanks for taking the question one on the Novo My Q1 on bps to Joe on Nova My Q I'm.
Just whats.
What's your confidence in that second half 2021 approval and is it still the the three 510 case the.
You filed last year and.
And what's in the 2020, one guidance and I had one follow up.
Mary Thanks for asking the question so I will start with two of middle.
Lack of law of here.
And <unk> and you are the only ones. The SME question, So I'm happy and back on the call and Ken.
So.
We believe Novum IQ and what we did is we clarify of lot of questions.
Made a much better application.
For the north of my team. So remember Novo curious of platform. So we launched we have three three products that are in this five 10-K, we still have two of three more products that will come down the fact of the towards the end of the year.
PCA pump we also have.
Ambulatory pump and.
And then the other accessories and so when we look at this market.
We are we.
We don't first of all of these speak on behalf of the SBA we.
We are.
Very happy with the.
And we.
Put together the five 10-K application for the SBA, but that doesn't mean that we speak on behalf of the SBA. The SBA will do what the FDA has to do when they're ready and the each day of who we have some sales and the second half of the year modest, but we have some I don't know if Joe wants to give a bit more.
Color on that.
Joe.
Yes in terms of in terms of sales guidance. We do have sales included for Novum IQ and the second half.
It's sort of north of $30 million, but it's but it's nothing it's sort of similar to levels that we had expected last year.
That's helpful. Joe.
To give you more love here.
And on bps.
The why break that out now kind of is this is this the strategic business for Baxter, So high level thoughts on it and just more near term.
And the vaccine on COVID-19 vaccine opportunities still $50 million to $100 million on an annual basis, but you also have that other $50 million investment in November 2020 that I think is not related to COVID-19 vaccine. So just talked about.
Why breaking it out now and the kind of near term opportunities you seem to have you know quite of few tailwind of that business. Thanks for taking the questions.
So Larry I always speak but I'll, let open also for Jay to chime in on this.
We did four management purpose, where did this because it's the way we manage the business and it was always in the other and there's a large number and the others. So we prefer to have the separate so Jay any any more color on the reason.
No that's exactly right. It's it's it's a it's an important business unit for US one that we focused on and made some investments in and I think it really does leverage numerous core competencies of Baxter. It was hiding in this other category. So we wanted to take the opportunity to shed the light on it and allow investors to see specific performance for the.
Without being clouded by other items.
And Larry our guidance.
Cash $50 million to $100 million possibility and it for incremental FX and for 2021, so stay with the number.
We made the.
Investments in bps, we have two facilities one in Europe, one and the U S that are benefiting from some of these investments and we believe that's the right place to create the capabilities we have unique capabilities there.
And we do a very good job and we have very happy customers and so we believe that and this of good profit margins for the company is accretive to Baxter overall and it takes very little of SG&A to Brian. So we have a really good technical group is a good business good customer of retro.
Station, so why not invest more and and benefit from such capability, we have in house.
Thank you very much.
Joe One launch of CD is online with the question. Please state your question.
Good morning, and thank you for taking the questions.
And I have to the the first one is it seems like there were a couple of ebbs and flows from COVID-19, and the quarter. If you could just pull those apart a little bit more and.
And then also similarly, there it looks like there are a number of drivers to the increased guidance for the year. If you could just sort of you know.
Highlight what those may or may not be thanks.
Sure sure, maybe and maybe I'll start with these Joe and then you can chime in.
And I'll answer your second question first in relation to puts and takes with respect to the full year guidance.
Overall, if we if we take the full year and disregard the quarters for a moment the <unk>.
Strong operational performance that we've seen from a sales standpoint, plus some incremental vaccines adds roughly 10 cents.
To our overall guidance. In addition to that we have some opex savings thats about <unk>, but one of the things that we highlighted in the script was the supply chain cost that we've seen in the short term.
And really.
The highly volatile environment from a global logistics market standpoint from a raw materials pricing standpoint resin prices. Some of this impacted by the freeze and Texas. Some of this impacted by the global supply chain challenges along with Suez Canal. We are we are.
<unk>, a fairly substantial increase in supply chain costs related to those discrete items and that really eats up the vast majority of those upsides that I characterized a little bit of go and then in addition, we've added the docs the acquisition and that's a little north of 10 cents in terms of full year.
Impact.
FX and other items all of that stuff kind of washes on a full year basis, although we do see some movement amongst quarters. So that really is and the overall on drivers of the full year performance and what I would say is very excited about the strong operational performance I'm very mindful of the current environment that we're <unk>.
With with respect to shipping and container costs resin costs et cetera, we do expect that will alleviate over time, but we've tried to put the right projections and given the acute situation that we've seen over the last several months and we anticipate for at least the next several months and.
And Julien I'll take the second part of the first part of your question, which was on the impact of COVID-19 and the quarter. So if you recall last year and the first quarter. We had about 45 to 50 million of the benefit from COVID-19 related purchases of hospitals on PREPA.
Prepared for the pandemic. So we had about $45 million to $50 million of that now this quarter. It negatively impacted sales and north of by North of 50 million cell and that's why we called out about 400 basis point impact on our growth. This year on this quarter from COVID-19 now again, we saw positive benefits and our acute.
Therapies, we saw on vaccine related revenues and our bps, but then in general across the remainder of the businesses, we saw and negative impact from COVID-19 during the quarter. So hopefully that addresses your question.
Thank you.
Matt Taylor of UBS is online with the question. Please state your question.
Hi, Thank you for taking the question.
So I wanted to just ask one about the acute therapies business. The growth there continued to be really strong and.
And he called out the demand for CRT and.
How long do you expect that the persist and I know, you're saying, it's going to go down over the course of the year do you still think there is a strong quarter or two or do you expect the big falloff here and the second quarter.
And Matt we still see COVID-19.
Unfortunately, the rage and across the globe.
Thank you have two things going on and one is we do have this therapy and more.
And then being expanded and understood across the globe given more than once before its benefits.
Second you'll.
Half of countries, which you still have the issues you can still see demand coming in and even and that of states who still have a.
A good number of people unfortunately being treated with the this technology because of COVID-19. So, but we expect that to obtain down. This is a high single digit sometimes very low double digit growth as of technologists as of.
Product line and.
And we expect to see a reduction of the current levels to what's more normal which is the high single digits.
Time goes by the sheer into next year.
Yeah, and Matt just just to just to add to that.
Yeah.
We will see declines because of the very substantial.
Comp issues in Q2 and Q3, so we will see we will see a decline starting in Q2 and to Joe's point. This is a solid high single digit growth engine for us that's kind of how we view it but the peculiarities of this year. Despite continued COVID-19 demand and the second quarter, we saw just and and <unk>.
Believable unprecedented level of demand in Q2, and Q3 of last year and so so it does lead to declines.
Gotcha Gotcha.
Can I just ask one on the the in licensing.
Seems like a nice little pick up for you and in the context of you also investing and Biopharma solutions.
And you've got like two sides of the house, right pharma and and Dubai kind of broadly speaking, maybe just talk about strategically how you see those fitting together and are we going to see more on the pharma side or is it just that the last couple.
<unk> and investments have been there.
Net we do have two sides of the house, but theyre.
Very connected.
On the way we go to market the way, we understand the contracts and.
And and our devices also or devices that are becoming more intelligent, but their transport and fluid from pointing into the body. So the combination of our devices and our Injectables and pharmaceuticals come together when we look at business development with the businesses all of across the spectrum of Baxter what is the of.
Objective of business development is to expand into Adjacencies short off of our core and sometimes go away from the Adjacencies insulin the areas and the benefit of the company and the future always always with the thinking where is the puck going right instead of going at the software. It is today. So that's our philosophy on them.
And then youre going to continue to see the tuck ins because those are good for the company leverage out of our sales and marketing organizations as well as our manufacturing.
So there's true tuck ins were very beneficial one primarily of calix version of box and Europe helped us create and structure to add more pharmaceuticals organically and inorganically. There. So all of our our philosophy is always on.
And force.
And make the core of stronger go into Adjacencies and also also low chord of pockets growing health care and make sure that we don't Miss that.
And that trend.
Great. Thanks, that's helpful insight Thanks, Joe.
Yes.
Vijay Kumar of Evercore ISI is on the on.
And with the question. Please state your question.
Hey, guys congrats on the.
Nice start here, maybe I'll start one on the guidance and the policies have not this has been asked.
J D.
The I guess that you beat the quarter rate the ex.
Location was for low single declines constant currency EBIT came in up low singles.
And if I understand the annual guide.
Correct.
And the constant currency guide raise was mostly a function of.
Calix.
I guess that my question is is the underlying business coming in better than expected expectations and Q1, why wouldn't that flow through and the back half.
Sure Vijay we did see a little bit of operational strength and in the first quarter and some of that relates to slightly better admissions than we experienced in the.
And then we had originally modeled and so as a result, we did see a little bit better per.
Performance and the first quarter, but given where we are and the year given some of the challenges that renal the renal patient census is faced with at this point, it's a little difficult to call full year strength at this stage and we will have to continue to watch if the renal patient census, stabilizes, if the admissions and surgical.
Procedures come in line or better than what we've modeled we will certainly update but at this point and time I think and we've got a reasonable guidance for the balance of the year.
Understood and then Joe one for you.
Most of the of on capital deployment.
I wasn't sure if you guys bought back any stock in the quarter, but the larger question of around M&A.
M&A philosophy, maybe.
Could you just recap for us on how the thought process around M&A has changed if it has all of the.
Past few months.
Vijay good to hear from you and how Youre doing.
Thank you.
And so.
The the philosophy and how we are we are disciplined about how and redeploy cash has not changed.
I actually answered a little bit of your question before we will continue to look for tuck ins and our core businesses not very easy to find them because the the size of our businesses and the particularity of our businesses, but we will continue we adjusted a couple of small ones and the pharmaceuticals business will.
Continue to look for those opportunities, we're going to adjacencies and Balkan and things to shore up where we can have a advantage, but more importantly, also where suncor and <unk> the healthcare.
The theater in general and trying to anticipate with what we saw last year and how health care is moving and the direction as Morgan said, where should the extra coal and we've always talked about metallurgy and devices, we always talk about the integration.
And with with the hospital systems with the deployment of our hall on Gateway for the new pumps. So if you think about how do you participate where actually the puck is going the other pockets today. So the company can revitalize itself as well. So these are all areas that were low.
Look.
And we're very eager to continue to explore opportunities, but as I always say, if we do not find the right opportunity, we're not going to sit on cash and have cash on a hole in the pockets we will bring the no.
Either share buyback as well Ross.
The increase in dividends.
Understood Thanks, guys and.
And Vijay we per repurchase of approximately $300 million and shares and the quarter.
That's helpful.
Okay.
There are no further questions at this time, ladies and gentlemen. This concludes today's conference call with Baxter International. Thank you for participating you may now disconnect.
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