Q2 2021 Baxter International Inc Earnings Call
On to the Baxter International second quarter to get the house and.
21 and conference call.
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I would now like to turn the call over to MS. Clare Trackman.
Sties President of Investor Relations at Baxter International Nice Trackman you may begin.
Good morning, and welcome to our second quarter 2021 earnings Conference call. Joining me today are Joe Almeida, Baxter's, Chairman and Chief Executive Officer, and Jason Carl Baxter, Chief Financial Officer.
On the call. This morning, we will be discussing Baxter second quarter 2021 financial results and full year 2021 financial outlook with that let me start on prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the third 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 materially from our current expectations. Please refer to today's press release, and our SEC filings for more detail concerning factors that could cause actual results to differ.
And really.
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 in our earnings release issued this morning and available on our website now.
And material turn the call over to Joe Joe.
Thank you Blair good morning, everyone and thank you for joining us I'll begin with the review of Baxter second quarter results and also share a few words about our upcoming Investor Conference. Jay will then provide a deeper dive on the orphan.
And I'd like the performance and outlook and we.
We will wrap up with Q&A.
Baxter delivered second quarter sales growth of 14% the as reported 9% on a constant currency basis, and 8% operationally growth was driven primarily by the ongoing global recovery from the.
And Nash of it and 19 pandemic, resulting in favorable performance comparisons for a number of our businesses versus the prior year as the pandemic effect of patient treatment dynamics and demand mix and the prior year on the bottom line second quarter. Adjusted the earnings per share were <unk> 80 cents up 25% year over year.
Covid exceeding our original guide us all 3 of our geographic segments contributed to the positive quarterly performance, the Americas and EMEA achieved high single digit growth and APAC achieved low double digit growth all at constant currency rates, while we are clearly.
And the risk and recovery from the pandemic across all 3 of our of geographies the situation on the ground and varies considerably by market.
As always we salute the health care workers, who continued to face enormous challenges every day on the front lines of care I also want to express my personal gratitude.
Jude to all of the Baxter employees, whose tireless support of these clinicians and caregivers, while helping to ensure we address the needs of patients across our fast life sustaining portfolio turning to our performance by business at 5 of our 7 product categories achieved the growth.
On the constant currency basis performance was led by Biopharma solutions, and advanced surgery, which delivered 49% and 48% constant currency growth respectively.
Growth in bps was fuelled by contracts to assist and the manufacture of COVID-19.
Scenes advanced surgery growth reflects the favorable comparison to the prior year spurred by improving surgical volumes as pandemic recovery advanced this globally.
As you saw in this mornings press release, we are building on the our momentum and advanced surgery with.
The acquisition of per clock polysaccharides hemostatic system.
And for Claude marks our entry into the global Hemostatic powder segment, which will allow us to serve surgery and their patients with an even broader range of options to control intra operative bleeding across active and.
And best of solutions are and medication delivery business grew 12% at constant currency rates also benefiting from a favorable comparison driven by improving rates of of the missions of hospitals as compared to the prior ear looking ahead medication delivery is continuing.
To position for the U S launch of our Novum IQ infusion platform, including dose acute safety software and our IQ enterprise digital connectivity suite.
Following up on our recent FDA Resubmission and we're now in the process of responding to.
New English no information requests from the agency, we continue to expect to launch and Novum IQ in the U S. Before the end of the year on.
And our clinical nutrition category of advanced single digits.
And the currency rates, reflecting ongoing strength in the U S farmers.
<unk> also grew at single digits constant currency adjusted for the recent calix and Ducks through acquisition and Pharmaceuticals was flat year over ear, although we expect competitive pressures to continue in this marketplace. We remain focused on launching molecules with differentiated prison.
The intuitions and or complex formulations.
We have several projected launches of new generic injectables in the coming years that will help to fuel growth and this business and mitigate some of the competitive pressures. We are experiencing performance in renal care was comparable to the prior year at constant.
And with growth in the U S offset by a decline across international markets on the global basis. The market continues to be dampened by the impact of the pandemic of which has contributed to a higher mortality rate for patients with kidney disease combined with a slowing of new patient diagnosis.
As we said last quarter, we expect the recovery of this market to continue returning to its pre COVID-19 dynamics over the next 1 to 2 years and this quarter. We saw return to positive year over a year of PD patient growth globally, including mid single digit PD patient growth in the U S. The.
Endemic has highlighted.
Highlighting the vital importance of the home dialysis therapy option and as the leader and recognized innovator in the space. He has never been more urgent to support education awareness and access.
Our global safer at home campaign, which has been underway from more than the year is dedicated to helping clinicians.
The initiatives patients and other stakeholders to learn more about the benefits of home care, particularly amid the pandemic conditions.
Lastly performance in the Q therapists declined mid single digits at constant currency rates year over year. This decline was expected given the extremely.
The challenging comparison following last year's historic surge in demand for continuous renal replacement therapy and in light of the pandemic. We remain excited by the prospects for the advanced treatment options in the CRT market. In fact Q2 marked the launch of price mix to the latest version.
Of our Nexgen platform of <unk> T. R. R T and Oregon support with embedded true view digital health technology from an ESG perspective earlier. This month, we announced our 2030 corporate responsibility commitment, which will help the drive baxter's environmental social and governance.
Governance efforts over the next decade and beyond these work is integral to how we advanced our mission to save and sustain lives and serve all of our stakeholders from patients and clinicians to our communities and investors are 2030 commitment is built around the 3 overarching objectives and.
Power are of patients protect our planet and champion our people and communities full details can be found in our 2020 corporate responsibility report now posted on Baxter dotcom.
Briefly looking ahead, we continue operating in an environment of some uncertainty we.
We anticipate the broader trend of pandemic recovery, the sustained but geographic disparity and the emerging variants could slow on undermined the pace of store just like our healthcare peers and countless other companies Baxter is subject to the impact of inflation and the rising cost of free to few and all the raw materials and commodity.
We fully and we will continue to look for opportunities to offset the impact from these incremental expenses.
As I wrap up I want to highlight that our 2020.1 Investor Conference will be held on Monday September 'twenty, and Deerfield, Illinois at the conference and we plan to focus on our key strategic objectives to enhance growth.
And drive innovation. In addition, as a critical part of our ongoing business transformation, Jim <unk> Senior Vice President and Chief supply chain Officer will outline the next phase of our manufacturing supply chain journey, which is expect to enhance our operational effectiveness and drive margin improvement now.
<unk> set the J, who will share a closer look at our results and our outlook for the balance of the ear.
Thanks, Joe and good morning, everyone as Joe mentioned, we're pleased with our strong second quarter performance.
Second quarter 2021, global sales of $3.1 billion of advanced 14% on a.
Our best basis, 9% on a constant currency basis, and 8% on and operational basis sales growth. This quarter reflects the ongoing recovery and hospital and surgical volumes along with the benefit from Covid vaccines. We estimate. These factors contributed just over 450 basis points of sales growth and the quarter.
The record low U S sales of <unk> totaled approximately $30 million and the quarter.
On the bottom line adjusted earnings increased 25% to <unk> 80 per share exceeding our guidance range driven by disciplined operational execution and the lower than expected tax rate.
Now I'll walk through performance.
<unk> of regional segments, and key product categories, starting with our 3 regional segments sales in the Americas increased 8% on both the constant currency and operational basis.
Sales in Europe, Middle East and Africa grew 8% on a constant currency basis, and 5% on and operational basis and sales and our Asia Pac region.
<unk> by our advanced 10% on a constant currency basis and 9% operationally.
Moving on to the performance by key product category note that for this quarter constant currency growth is equal to operational sales growth for all global businesses.
For our pharmaceuticals business for which we will provide both constant currency and.
<unk> mission of growth adjusted for the acquisition of rights and select territories outside the U S. The calix and docile.
Global sales for renal care were $964 million or flat on a constant currency basis performance and the quarter was driven by our PD business, where we observed both the sequential and year over year improvement.
Operating global patient volume.
This was partially offset by declining international sales of in center HD Dialyzer is reflecting the impact from the pandemic as well as competitive dynamics.
We continue to monitor the impact of excess mortality among ESR D patients and delays in new patient diagnoses, resulting from the pandemic are expecting.
<unk> and remains that PD patient volumes will continue to ramp over the course of the year, although the pace may vary by market. In particular, we are monitoring COVID-19 resurgence is in Asia Pac and parts of Europe.
Sales and medication delivery of $697 million increased 12% on a constant currency basis.
Expectation on global growth and this business reflects the recovery and the pace of hospital admissions and many markets. Following the height of the pandemic last year.
We estimate that and the second quarter of the rate of U S Hospital admissions was down approximately 7% as compared to pre COVID-19 levels of market improvement from the second quarter of 2020, which saw U S.
Admissions down approximately 20%.
Pharmaceutical sales of $546 million advanced 5% on a constant currency basis and were flat to prior year on and operational basis.
Performance in the quarter benefited from the recovery and surgical procedures and hospital admissions and demand for our international pharmacy compound.
And this and the contribution from O U S sales of Calix to OXXO.
This growth was partially offset by declines and our U S generic injectables portfolio, which face the headwind from prior year sales of select injectable drugs used to treat critical COVID-19 patients as well as increased competitive activity.
And the bid for certain molecules.
Moving to clinical nutrition total sales were $237 million, increasing 3% on a constant currency basis performance and the quarter was driven primarily by growth and the U S. Partially offset by lower international sales of vitamins, resulting from supply constraints.
Sales.
<unk> and surgery with $256 million, increasing 48% on a constant currency basis within the quarter, we estimate surgical procedures were at or slightly above pre COVID-19 levels contributing to strength and the quarter.
Sales and our acute therapies business were $188 million declining 4% on a constant.
And the basis, reflecting the challenging year over year comparison due to surging product demand. This time last year related to the Covid pandemic as Joe mentioned, we anticipate that COVID-19 related demand for CRT will moderate this year, but will improve over time through the launch of new products and increased awareness of the therapy.
Biopharma.
Currency and sales in the quarter were $183 million representing growth of 49% on a constant currency basis, reflecting incremental sales related to the manufacturing of COVID-19 vaccines.
Moving through the rest of the P&L, our adjusted gross margin of 42, 6% increased by 100 basis points over the prior year, reflecting.
And operational improvements and manufacturing and a favorable product mix as the impact from Covid receipts.
Adjusted SG&A of $649 million increased 12% on a reported basis, reflecting the impact from foreign exchange the improvement in sales and resulting increase and commissions and increased promotional spend in support of new product.
Solution launches.
Adjusted R&D spending and the quarter of $139 million increased 18% on a reported basis driven by the impact of foreign exchange and investments and our new product pipeline.
Both adjusted SG&A and R&D spending reflects the somewhat more normalized level of spend as certain expense.
Product categories were depressed last year as a result of the pandemic, particularly those related to employee bonus accruals.
Adjusted operating margin and the quarter was 17, 2% and increase of 120 basis points versus the prior year net interest expense totaled $34 million and the quarter and other non operating income contributed 2 million.
<unk> and the quarter.
The adjusted the adjusted tax rate and the quarter was 17, 8% and increase over the prior year driven by lower stock based compensation awards deductions as compared to the prior year period the.
Tax rate was favorable to our expectations driven by a favorable change in earnings mix and as previously mentioned adjusted.
Net earnings of <unk> 80 per diluted share exceeded our guidance of 72 to <unk> 75 per share.
Within the second quarter, we repurchased approximately $300 million or $3.7 million shares of common stock year to date, we have repurchased $600 million or 7.3 million shares of common stock which has.
Been partially offset by option related dilution.
On a net basis, our outstanding share count has declined by approximately 5 million shares through the second quarter. In addition, during the second quarter, we announced of 14% increase and the company's quarterly cash dividend rate the strength of our financial position has fueled our ability to increase our quarterly.
The dividend rate on an annual basis for the sixth consecutive year. We continue to follow a strategic approach to capital allocation that is balance between inorganic and organic initiatives with the objective of accelerating growth and expanding margins and driving innovation and returning value to our shareholders.
With respect.
The cash flow and the first half of 2021, we've generated $854 million of operating cash flow and $525 million and free cash flow.
Let me conclude my comments by discussing our outlook for the third quarter and full year 2021 for full year 2021, we expect global sales growth of approximately.
Quarterly, 8% 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 100 basis points to both reported and constant currency revenue growth for the acquisition of Calix docile as well as approximately 250 basis points of positive topline impact.
Impact from foreign exchange on reported growth.
Our expectation remains that on a full year basis hospital admission rates will stay below pre COVID-19 levels with rates improving throughout the year and exiting down low single digits based on surgical procedure data and the U S to date, we now expect surgical procedures will continue to be of 100% of pre COVID-19 levels for the remaining.
Remainder of the year.
Moving down the P&L, we continue to expect adjusted operating margin to expand between 40 to 60 basis points.
For the year, we expect and adjusted tax rate of approximately 17, 5% and our full year diluted average share count of approximately 510 million shares.
Based on these factors, we now expect.
And in 'twenty, 1 adjusted earnings excluding special items of $3.49.
To $3.55 per diluted share.
Specific to the third quarter of 2021, we expect global sales growth of approximately 9% on a reported basis approximately 7% on a constant currency basis.
<unk>, 6% on and operational basis.
And we expect adjusted earnings excluding special items of <unk> 93 to 95 per diluted share.
With that we can now open the call up for Q&A.
Thank you we will now begin the question and answer session.
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We'll pause for a moment, while the list is being compiled I would like to remind participants that this call is being recorded and a digital replay will be available on the Baxter International website.
Site for 60 days at Www Dot Baxter dotcom.
Yeah.
Yeah.
And our first question comes from the line of Bob Hopkins with Bank of America Securities.
Hello, Thank you and good morning can you hear me Okay, Yes, we can.
And Bob Good morning.
Great Good morning.
So yeah I just have 2 questions and I'll just state them upfront and the interest of time. So I guess first for maybe for Jay I was just wondering if you could flush out the renal performance and the quarter of little bit more on what happened internationally and and how quickly you think Reno and could get back to a better growth rates and so that's a question.
The number 1 and.
And no follow up or question number 2 is more strategic for Joe and.
Yeah, Joe I realize you you won't talk about market speculation.
But I do think it would be helpful for investors to hear maybe a little bit of of an update on your thoughts on M&A generally and maybe talk about what the circumstances would have.
And for you to pursue a larger deal.
And how important it is debt M&A improves the company's growth rate you know things of that nature, and just thinking of an update there would be much appreciate it. So that was on my 2 questions and thank you very much.
Great I'll I'll address the renal question first from our Q2 performance standpoint, and then turn it over to Joe for the second question.
Question <unk>.
Overall as you mentioned the U S had solid performance and renal growing 4%.
We ended up PD was a little bit and excess of that 5% with the HD business slightly below that and then internationally. You are right. We had a decline in the quarter, which we do not expect to continue.
And there were a couple of drivers of that 1 as we've talked historically about patient census challenges and that being a headwind that we're facing and contending with this year, which is kind of disrupted the normal orderly cadence of patient growth that we see internationally and that was pronounced and the second quarter, our PD business actually slightly.
Slightly declined.
So 1% decline and the quarter, we do expect that to return starting in the third quarter and the fourth quarter and frankly, we've seen and certain markets.
Ladies and procedures of.
Stablish of new PD patients like for example, and Japan, along with this patient census issue all of these things.
The other the impact of growth rate and the quarter like I say and the second half of the year, we do expect to see an acceleration and youll feel solid about that and then and the HD business. We did have some pricing competition on <unk>, we see that from time to time, so the HD business declined mid single digits.
<unk>, we will expect that to normalize and the second half of the year. So.
The renal business has been a fairly consistent performer for us internationally and if you look at that over a series of multiple quarters. I think you can expect our you can gain some confidence and the second half of the year, we'll grow that business internationally roughly 3%.
And I'll turn it over to Joe to address the other quite of a staring to Jay Let me give you.
How I think about M&A to answer a question Bob.
First is.
Size being the secondary conversation first as the strategically fit for the company, we look of the areas of growth.
For the future and look what he is going to make a difference in the health care of 5 to 10 years, where this Baxter is going nowhere the Buck is where the bulk of the buckets going sometimes we've got to us.
<unk> 2 growth rates and things of of where things are we've got a look where things are going and Baxter is doing a lot and connect.
Connected health and we need to make sure that we have the ability to deploy capital in that area.
And as well with Adjacencies.
Going into areas of no correlation to Baxter to create the new leg of the store presents a much more chat.
Challenging.
And for the company in terms of M&A not impossible to do it but it's something that is more difficult second is how do we see returns. The returns are always the same window of getting internal rate of returns to be above our cost of cap. The bus fueled 100 basis points as well as we look at our ROIC seek.
Very similarly on the 5 year base post the deal with.
We look also the ability for the comprehensive generate cash flow and our ability to bring the company integrated into Baxter, which I fuel.
Confident that we through our digital transformation have a much better ability of bringing.
The company has seen that few years ago.
And the third and last 1 is as debt.
Not every deal is created the same and we examine multiple opportunities at all times. So the company has a significant amount of cash and if it doesn't go against the <unk>.
Back to the shareholders and forms of <unk>.
In terms of buybacks as we have done we see ya.
We just did.
Some buybacks this quarter and 4 and 4 of for the year, we are around $600 million.
So this isn't the is how I think about M&A.
And that's great. Thank you very much thanks.
Thanks, Bob.
Robbie Marcus of Jpmorgan is on the line with the question. Please state your question.
Great Thanks and.
And I appreciate it Jay maybe I could start with you I wanted to touch on guidance you guys had a really nice EPS beat and the quarter.
And of course, you have admissions trending towards the towards pre COVID-19 levels over the back part of the year, maybe you could just walk us through the updated guidance and how you ended up where you did especially on EPS.
Sure.
Youre right Robby thus.
Far were seeing a fairly stable admissions of environment relative to our expectations.
Underlying our guidance, we're expecting roughly 98% of admissions and the United States and the fourth quarter of the year, we watched that of course very carefully and I have talked about the risk and the sensitivity around that in the past and.
Quarter, and particularly watching given the delta variant, but feel feel solid on that we've got our hands around this at this point.
And so then as we translate that to the rest of the P&L.
And let me talk first about a full year basis, and then maybe maybe it make some comments on the second half.
On a full year basis, we are seeing some challenge.
<unk> and the pharmaceuticals business related to competition and pricing and so on a full year basis, probably <unk> of the headwind from pharma and offset by <unk> of the benefit from our Biopharma solutions business, which is performing better than our expectations. So those items kind of.
We're the counteract each other and then.
We have roughly 8 or so on a full year basis of global supply chain costs.
And that we're contending with and so essentially we're seeing things like freight.
<unk> freight and premium freight cost that's roughly <unk>, we actually have a fairly substantial.
So on and factoring facility and Columbia, We've had a couple of cents of impact from Colombia unrest and ensuring we're getting product to our patients and product out of of the country and an expeditious manner and.
And then of course, there's some purchase price variations.
There is some inflation and that I'm rounding out the 8.
But offsetting.
And Matt.
We're committed to really using resources efficiently as the company and so we're able to counteract the vast majority of that so roughly <unk> <unk> of benefit from measures that we have in place that are enhanced versus our expectations really looking at all of.
The spending categories and challenging ourselves to make sure that we're using resources as efficiently as possible of course, when we do those exercises, we don't touch things like quality or critical R&D programs, but we really do look hard at the cost base to ensure we're being efficient and offsetting where possible.
So that's really the story on a full year basis, but if you think about it and then there's financial assumptions that kind of wash out we had some benefit and the first half from a number of assumptions and then we have some headwinds and the second half, but if you look at it exclusively from our second half standpoint.
Say that FX is actually 3.
<unk> <unk> of impact.
And that is really 1 of the big drivers of the second half performance we've seen.
Dollar strengthening and so that has that has an impact on on our translation back of our overseas business, that's roughly <unk> bps and pharma again kind of wash out and the second half and then we have a couple.
The sense of supply chain expenses, but I think really the most notable impact of the second half.
Great and J I don't know if you want to take this or Joe.
I think it is worthwhile spending a little more time on the the <unk> far and my head when what's driving that what drugs, what makes you feel better.
And you could overcome it and the second half and and just any detail there would be great. Thanks.
And when we think about farm and what's the value of proposition of our farm of business is complex formulations.
And delivery and novel ways, Premixes and ways that have not been yet.
Launched or.
Combination of both so we are in process of delivering and our portfolio and the conditions of the market have deteriorated in terms of pricing headwinds as well as COVID-19 with the with the patients that have not.
Not not gone to a hospital and the budget of the pharmacist right. So when we look at this whole thing where do we stand to day, we still see the headwinds that business has don't confuse the whole category that we have which is has 2 very separate businesses..1 is our and the city.
<unk> business, which are gases and instead of gases and there has declined consistently over and over the last 24 months because the type of delivery systems. The anesthesiologists are used and the across the globe forecasts.
From our pharmaceutical business so.
Though we just the 3 products conditionally approved we're going to be launching.
3 and the next 6 to 9 months, we are excited about the portfolio and follows the same recipe off difficult to formulate and novel ways of delivering so if you think about that it is a still a good business is very very very strong and healthy.
Stability.
So what we need to do is to make sure that our innovation, we'll just stop and we continue to bring products organic and and sometimes inorganically to the portfolio of to be able to augment the growth of this business and keep ahead of the competition Baxter has put together a very good group of R&D.
Scientists and the United States as well as India and together they are working 24 hours, a day and tandem to be able to deliver on debt I'm still.
And.
A fan of that portfolio understanding the headwinds that the portfolio can have every so often as some drugs will go down in the in and contribution based on competition, but and then we're able to launch.
The launch new products remember of the R 22 of new product launches the sheer.
Probably around half of them are pharmaceutical products. So.
We do not.
C.
A long term issue for this business, but more so a every so often issue that you have when you have competition of coming into your your market that has just Joe.
Happen and the last 12 months.
I appreciate it thank you.
Thanks for having.
And your checking and Digest bank is on the line where the question. Please state your question.
Hey, good morning, and you're taking my questions.
On renal the.
First of all 1 is the U S grew sequentially about that a million dollars.
Can you walk us through sequential PD growth versus the non P D and how.
How much the of January excess mortality from Covid impacted debt sequential growth.
So.
And I was starting to pick up from their hour sequential growth. He has improved from Q1 Q2 and the overall.
<unk>.
Market from.
From 3.3% to about 4% and Q2 and growing them.
2 of <unk> about 6% and Q4.4.
For a pretty good performance on the coast of 2020 year, which is which was really hit hard in terms of of of.
New patients and the deaths of patients on on on Covid.
I would say debt.
The the the market is still.
Very much a good market to be and and has grown.
Of the overall renal dialysis business across the globe.
Particularly in the US we still very optimistic on the on the on the the vector of the gross debt.
Fight all of the happens in 2020 were able to to have growth the sheer and expect to return to a high single digit fish and growth 2 double digit station growth probably towards the end of the 22 going into 2023 yeah.
The fact that basically by the end of the year and we would expect the dialysis population and the you asking fell just under our per cent. So it is starting to recover after being down more than 2 per cent and again. This is the treat of dialysis populated and 2020. So it will return to growth this year and then can.
Can you to ground, even faster and 2022 and beyond.
Okay, Great and and then a follow up question on the Oh U S. How much of the impact that you guys saw this quarter was from excess mortality from Covid.
The mention to Bob the side.
As to normalize the back half of the year I just want to understand how much is purely temporary like the procedures and Japan for P D versus from more permanent and nature.
Yes, so so what I would say is it is really a mix of those 2 items and we don't differentiate we don't we don't split that out for a number of different reasons, but.
I understand those drivers internally.
The 1% decline, we're going to expect to see and the second half of the year, 4% growth as we start to see procedures normalized and then we start to laugh the headwind of the very unfortunate patient of mortality situations. So again, if you look at as I commented earlier, if you look at the international business on.
On a rolling 12 month basis, and PD and renal internationally it's of.
The solid grow of for US, we expect that story to continue moving forward.
Great. Thanks, so much thank you.
And more as I have a car I S. I is on the line with that question. The state your question.
Hey, guys. Thanks for taking my question maybe out my first 1 of high level of Big picture of question for.
Joe Joe.
When you think about the business of Prepandemic forces postponed on there.
And a very high level of has anything changed fundamentally for the business right by the when you look at the end markets.
Margin structure, and and and by fundamental I mean, there are obviously some temporary of issues here the.
These all seem to be workable solvable temporarily and nature, but fundamentally has anything changed.
When you think about the pre and post tend to make you and the worst.
The J I think that there is.
Changes and how patients are being treated and how hospitals are seen the influx of patients.
When you think about 2019 and you saw and you see how we are looking net for the rest of the year. We see the she has a recovery of year, where you are of emissions towards the end of the year of the exit into 2022 will be probably of 100%.
And I need to 100% of going back to the admission flow rates that we've had before so if you think about the major dynamics of the market.
I would say is the move from from the acute care to the less acute care and.
And and what is the impact for Baxter, If you think about Baxter healthcare supply company with products that are a must have independence of your said and we followed the patient with our products and many places if you go to Alaska acute psych you would need of bumps.
Matter of <unk> fluids.
Medicines Injectables, there's 2 things that are needed to treat the patient to the home side, we have that advantage and have spoken about the PD advantage that is a positive for the company not only by by the room.
And the U S with with the.
Where the kidney.
Dialysis and transplant changes that were.
Done during press and trumps tenure, but also the place to be the fuel have sick patients that don't want of goes to a cute sites or dialysis clinic. So that is a positive when we look at what I see is temporary the inflation that were C and it is.
<unk> and supply chain I think not only Baxter and is working hard to offset debt, but also I don't believe those of fundamental changes the will alter the completely the the the going forward dynamic of our logistic cost as well as raw material of course, we will face.
Headwinds and this area, we have spoken about the the cost of containers are very expressive fewer and everything else, where offsetting debt as you could see this quarter and we have the for the year and we plan to continue to do it. The thing is how the you see that is that a fundamental change in.
And the cost structure, we don't think so we think that debt will eventually subside, but at the moment, we don't have debt in our numbers and our numbers, where we have is us offsetting head.
Headwinds coming in from the cost of point of view market wise as I said.
The are changed a significant amount of telehealth.
Connecting the dots of information coming from Icu's. So the better off we will be better off but continued to develop our our digital health products as we're doing and if you think about our share source with with with the companion with the with the with the mobile companion and that would just just launched.
Or the sheer of true view and.
And our.
<unk> Sos.
Half of the portfolio of where the FDA to day regarding our new pump is not the mechanical electrical pump is actually software that is going with it and there will be installed and the and the in the hospitals networks of gateway to be able to manage traffic and bring information back and forth. So that both has shipped.
And both has has sales there is no way to not be in the connect and market going forward.
That's 6 and helpful. Joe J J, 1 quick 1 for you and you take a lot of price enough free cash flows.
Obviously, the P I N and myself and it's been a lot of moving parts you heard of the day free cash can work from sub 70 per cent.
And I'm curious.
Order of temporal items here and.
And it should be think of it backfired and when should we think of as actually getting back to being a premium of free cash can work from company.
Thanks for the the question VJ as you know.
Joe and I are both really focus on driving free cash flow and driving free cash flow of performance sustainably.
And frankly, we've made a series of decisions over the last couple of years.
2 suboptimized the base case to protect against severe situations that could emerge on.
All of these things were absolutely the right thing to do carrying extra inventory and to the pandemic as we sit here today carrying select inventory of incremental product as as we look at the hurricane season, which could be a challenge.
And and so these things have we've had a little bit of excess inventory relative to our normal expectations.
As we as we move towards the end of the year on and as we've been able to improve the predictability.
Of of sales by product line and of post pandemic World will start to be able to optimize the cash flow of little bit more.
Carefully and and closely and so I think.
As we move to 2022 and 23, we'll start to see more normal years for cash flow. Obviously on 2020 was a huge anomaly 2021 continues to be anomalous because of again, just just really being sensitive to having enough product available.
To support on patients and a very challenging situation, but but as I say I think as we emerge and 2022 and 23, we'll be able to optimize the inventory and a little bit better continue our focus on accounts receivable and then Furthermore on the day is payable really work to optimize that working class.
Mostly with our suppliers now and then finally from of Capex standpoint, there are certain investments that we always make and will continue to make those especially those that support growth and businesses like our PD business and so will continue to look for those value creating opportunities and those those exists. So we will have.
More more capex and that will be of continued area for us of great investment but.
Think 2022 starts to become of more normal year, and then even more so and future beyond that.
That's helpful. James Thank you day.
I think I'll send it back and it was on the line with a question and please state your question.
Good morning, and thanks for taking the question what 1 on bps on Nova My cue and obviously, Joe Bps's really strong this quarter of it I'd love to understand the contribution from the Covid vaccine.
And how sustainable of that is.
How should we think about is that still of $50 million to $100 million annual opportunity and and Joe you signed a contract last year.
With the partner on and non Covid.
Vaccine.
So when can we start to see the contributing and just just try and understand the outlook for bps and I had 1 follow up.
The the outlook has has been improving.
Because the necessity for vaccine so right now we're looking at about the north of of $100 million. This year.
Of the contribution from bps.
And what kind of condition.
I'll be back the specific specific COVID-19 vaccine non bps as of as a business is larger than that but just beeped the aspects of north of of 100 million.
And in terms of the sustainability of that Joe I guess, there's no way to comment on that at this point.
And stuff Larry.
We on 1 side and we hope that we don't ever need to produce another file of vaccine. So this disease goes away and the world is back to normal on the other hand, we're doing what we can to help the world get through this so I would say that you're probably going to have some residual production of 2022 because issue as you can.
And see I was overseas, but the above 2 weeks ago and the.
Scarf city.
Of vaccine is remarkable so there's still a lot of places and the world that don't have vaccines and I think eventually those vaccines will reach there. So we're not making the prediction of 2022, but we think there will be received you of production of 2022 for vaccines and.
We do have some of our tax the extent after of 2022 as well.
Thank you for that on on Nova My cue, Joe obviously, it's a very important product for Ya.
And I'm wondering if you'll talk a little bit about the nature of the questions you received and the timing of the response and and your call.
Confidence in the end of 2021 approval, thanks for taking the questions.
Larry I will give you an update overall, but the nature of the questions.
It's a little too much from not going to get into it but I would say all of the questions are answerable and the other questions are not out of this world in terms of.
Complex of to put them on the piece of paper and.
And get back to the SDA I don't comment on all of you know on the call and outside of the call that I don't comment on on behalf of the agency. The agents with 2 of the agents will do what we can do is make sure that our engineers and scientists and and the and the river per folks.
Our focus on because we have a lot of people focus on getting those answers to the SDA. We hope that there will be happy with it with the answers and we can have the product launch.
The sheer as we have plenty of the moment of also want to just make sure that you all know, we're having a pretty good demand for our.
Spectrum.
Bump our current pump so it's not all or nothing we do have really good demand for our pump and.
Very large contracts coming coming about so I just wanted to make sure and we feel very comfortable with what we are in terms of our our technical responses to the FDA, we think we have it.
We are very happy with the design of bump in the future of that holds because of very different platform.
And will hit the markets when approved.
Oh, and hopefully hopefully bring this industry of different level of.
Of of technology.
But nevertheless, Baxter cash.
3 different groups of bumps <unk> Q spectrum version of 9 as well as the pump that is yet to be approved by the FDA.
Thank you Joe.
Daniel and how fast and <unk> and it gets on the line on that question. Please state of your question.
Hi, good morning, everyone. Thanks, so much for taking the question I kept the follow up at the V. J 's question K. This is for you on what's fundamentally changed you did have pretty strong SG&A control of this quarter and just wondering and is that something that's sustainable going forward and should we be thinking about that as a more meaningful.
Paul leather going forward as we head into the analyst meeting and I have 1 more higher level of power.
Sure I think I think the controls that we had and place we were pleased that we were able to.
Save of substantial amount and the second quarter.
Roughly 6 cents relative to our expectations on the Opex line and.
And as we move to the full year, there's probably a couple of more sense relative to our expectations.
We will always look to optimize spending for sure and what we were pleased that we were able to drive and impact in the face of a challenging worldwide supply chain environment.
And the second quarter, but there is part of the savings that we experienced this year that are related to a slower resumption of activity.
And so as we as we look at the second quarter. We had we had sort of anticipated of very substantial increase and SG&A. You'll note that we did have a nice size increase and SG&A, but it was just not quite at the pace that we anticipated. So we will expect that to resume here's what I would say about SG&A and and other spending categories and.
And costs of goods going forward at the at the Investor Day, we'll talk about things like the work the gym Boise is doing to really optimize manufacturing and supply chain and really taking the cutting edge approach and that Marina and then the other thing that will tell you about is the digital transformation that we're undertaking and that will have a nice impact and turn.
Ms of really spending across the company and I think that's something that will feature prominently in the meantime, and we're pleased to drive of short term result, but I don't think all of the changes that were making are the ones that will be talking about with you and when we get together and September.
Alright, I understand and thanks for that day and then so I guess the question is for you and and again back to you know shifting fundamentals you mentioned sight of care and things like that how are and how are pricing conversations are contracting conversation different between the 2 sides of the care you know attacking more ambulatory or outpatient.
First day hospital, and and patient and is that something that we need to consider is the luck over the long term for Baxter. Thanks, So much day.
I will say that.
A lot of the sites are owned by and large hospital systems, they're not just independent sites.
The configuration of products and some of those types of different of using hospitals. So of price points may differ for products used in and non of cute or or.
Step down significant step alpha activities that are not part of the hospital campus, but that is not theirs.
There is no 2 different conversations going on.
We believe that our products are.
The price of consistency across across the customers and we negotiate negotiate every single contract with the intent.
To to have as much penetration and so we can of within debt debt integrated of supply.
<unk> for the hospital. So if you think about negotiations are all about the collapse of products and and and quality of availability of products and.
If the density prices of big deal, none the best price usually wins.
No I don't I don't see tremendous distinction.
Okay. Thank you.
And.
My <unk> of credit Suisse's on the line or the question. Please state your question.
Alright, thanks, so much and and wanted to ask and.
Follow up the J on on some of the environmental trends that you're seeing and and then I had the 1.
Question for Joe as well if I could show on January marks you mentioned this sort of sustained high level of of surgical volume.
Performance, you're expecting and the U S and it's around the rest of the year and I'm, just wondering where what what gives you that confidence or visibility that that's kind of where it will stay and.
And I mentioned 1 follow up.
Sure Yeah, and my prepared remarks, we commented that we're seeing roughly at historic levels of surgical procedures.
Roughly 100% of prior levels.
We have we have some line of sight and the short term, but our crystal ball gets murky as we look towards the year and that's very clear and so I would say that 1 point of procedure volume and the U S is roughly half a million dollars of impact per month, and so that's something that.
And we watch carefully I think when we put together the sales guidance for the year, we have the ability to withstand a little bit of softness and surgical procedures and admissions as it relates to the delta variant.
But this is this is and uncertainty that we're contending with not only on the surgical procedure side, but also on the admission side now my of talks historically about a lot of of the work that we've done in terms of forecasting and modeling and I think we've done a really good job kind of relating our business to some of these fundamental drivers, but you're right there.
This is a volatile world that we're living in today, and we will have to watch carefully as we move through the rest of the year of if if the virus changes course substantially at this point, we don't have any reason to believe that will be the case and feel good about the numbers I of size the downside risks not enormous.
And so I think I think we're in okay shape.
That's great and and and you just wanted to call up for Joe and.
Think the boss question you had mentioned the chives was not.
And so much of it.
The consideration of our determinant, but uhm.
I'd like to get your chance of just 2 things on the M&A and harm and 1 of those sort of acid pricing or the challenges that you face and making a mid device of supply of acquisition and this environment.
And it's been a part of the conversation from Baxter for a number of years and then also the balance that you see the pluses and minuses of of putting more capital of work and a large deal the risks associated with that and and the and continuing of some of the truck and acquisitions that you've done before.
If you think about sex and acquisitions, the always they're always going to be there because it's a way for us to augment product lines on the Adjacencies, We just announced actually once a day and.
And that is a good a good way, we don't have the kind of product we need the kind of product. The compete so there's a really quick.
The thing we saw in the pharmaceutical business with with the OXXO and calix.
So it is needed.
But then you think about where the future of healthcare's going where the confluences of the forces come and about how do we look at our portfolio going forward and and what would be of good compliments for the portfolio. So the size of doesn't play a role obviously, if there's something and new.
<unk> and and achievable, we don't discuss that but the size by itself will never be of determinant as I said before the strategic.
A strategy of strategic appeal second is the.
Second of the returns on the third.
Third would be our ability to integrate well.
And and if we don't find anything to deploy the cash will deploy the cash back to the show so.
Don't don't think about the size.
Ever been the determinant think about the strategic fit and.
And future of healthcare.
Got it thank you.
Thanks to ask the question comes from the line of Joanna Lynch with city Great. Please state your question.
Hi, Thank you for taking my question just a couple of pieces of clarification, what was the kind of the vaccine benefit and the quarter and the dollar basis.
It was just out of authority now.
I'm, sorry, 30 million 44, the App just over 40.
Excellent and how much of November <unk> dollars and cents is and the current guidance.
We have approximately a little north of of $25 million and the fourth quarter.
And thank you and just to confirm you're expecting hospital volume to be at.
And the covered level of exiting the year no.
And 98% and the fourth quarter and so.
If we were to split it at the very end of the year of the run rate would be basically at the prior year level so into the queue 1 of next year.
Excellent. Thank you so much I appreciate it and have a great.
Just wanted to make sure that you all know of that are we are not predictors of disease here and the the infection rates. So we do the best we can and putting the models and place we based on numbers on that.
We will all expect to hopefully the delta variant will be contained and most.
Places and the world and we move on but at the moment the admissions in the us cost per 98 exiting the wholesome and 2022 of 100%.
Things can change as you can see by the infection rates, but the desk as too much small and then were before so we.
We do the best we can when will give of this numbers is is and what we think is going to happen.
Thank you that will conclude our call.
The ladies and gentlemen, that's of course today's conference call with Baxter International Thank you for participating.
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