COMPANY DESCRIPTION

Baxter International (Baxter or 'the company') is a medical products and services company with expertise in medical devices, pharmaceuticals and biotechnology. The company's strong focus on its R&D capabilities helps it in building a robust portfolio of innovative products. However, healthcare reform in the US may affect the company's profitability. 

 

ECONOMIC MOAT

In our opinion, Baxter has earned an economic moat, stemming from economies of scale in plasma processing, injectable therapies, and dialysis products. Baxter has strong brands, patent protection, and pipeline productivity. More than 70% of Baxter's sales come from products with market-leading positions, and the safety and quality of its biologic therapies allow it to charge a price premium to competitors.

 

OUTLOOK

The company is likely to experience some headwinds in early 2015 from the impact of foreign exchange, increased generic competition, and higher manufacturing costs. Baxter is dividing itself into two independent companies, one (Baxalta ) will focus on biopharmaceuticals and the other (Baxter Int'l) will concentrate on medical devices. Management expects to complete the transaction in mid-2015, subject to regulatory approval and other conditions. Given the complexities of the upcoming spinoff, our stance on these shares could be subject to change in the coming months.

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STRENGTHS

  • Strong R&D keeping product pipeline robust

  • Recombinant sales boosting top-line growth in bioscience segment

  • Strategic acquisitions enabling Baxter to diversify into complementary businesses

  • Presence in diverse geographic markets insulating business from concentration risk 

WEAKNESSES

  • Product recalls may dent Baxter’s image Hylenex manufacturing failures affecting partnership with Halozyme 

THREATS

  • Healthcare reform in the US may affect Baxter's business

  • Intense competition may erode the company’s market share

  • Volatile foreign exchange rates 

OPPORTUNITIES

  • Acquisition of AesRx would help Baxter develop Orphan Drugs

  • Agreement with Merrimack Pharmaceuticals would augment the company’s product portfolio

  • Therapeutic extension of Rixubis for pediatric patients 

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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