Headquartered in Deerfield, Illinois, Baxter International (NDAQ: BAX) is a global diversified medical products and services company with expertise in medical devices, pharmaceuticals, and biotechnology, used to treat complex medical conditions, including hemophilia, immune disorders, cancer, infectious diseases, kidney disease, and trauma. With 48,000 employees, manufacturing centers in 27 countries, and operations in over 100 countries, the firm operates in three business segments: BioScience (pharmaceuticals derived from blood plasma), Medication Delivery (products for intravenous therapy), and Renal (dialysis equipment and solutions for patients with kidney failure).[1]

Led by hemophilia drug ADVATE and immune deficiency drug IVIG, BioScience has been Baxter's fastest-growing segment in recent years. The Renal segment specializes in dialysis machines for people with terminal kidney disease or failure and has achieved high growth in emerging markets where many people are under-treated.

A variety of factors can impact Baxter's earnings, ranging from research & development, aging populations, and medical insurance, to patent expirations and foreign exchange rates. Of its competitors, Baxter is the most geographically diverse yet maintains one of the smallest R&D budgets. Evidence of its international presence can be seen through it earning 60% of its revenues outside the United States.[1] In 2009, BAX earned $12.56 billion in total revenues.

Corporate Overview

Headquartered in Deerfield, Illinois, Baxter International was founded in 1931 as the first manufacturer of commercially prepared intravenous (IV) solutions. Today, the company is a global health care company with 48,000 employees and total sales of $12.56 billion. The firm operates in three business segments: BioScience (pharmaceuticals derived from blood plasma), Medication Delivery (products for intravenous therapy), and Renal (dialysis equipment and solutions for patients with kidney failure). Baxter manufactures medical products in 28 countries and sells them in over 100 countries. More than 60% of its sales occur internationally.

Business Segments

BioScience (44.5% of 2009 Revenues)

BioScience has been a strong source of growth for BAX in recent years. This division primarily manufactures pharmaceuticals derived from blood plasma. The BioScience product line includes drugs that treat hemophilia, hemostasis, tissue regeneration, and vaccines. The leading drug in BioScience's portfolio is currently the ADVATE rAHF-PFM (recombinant Antihemophilic Factor, Plasma/Albumin-Free Method), the company’s advanced recombinant therapy for the treatment of hemophilia A. In 2009, this segment posted total sales of $5.6 billion, an increase from its 2008 sales of $5.3 billion.[2]

Medication Delivery (37.5% of 2009 Revenues)

Despite poor division growth in recent years, Baxter has its roots in the delivery of medication and continues to be a trusted in name in the business. Today, Medication Delivery manufactures IV solutions, drug reconstitution systems, pre-filled vials and syringes, inhalation anesthetics, and other packaging technologies. The introduction of generic drugs hurts this segment's earnings. In 2009, this segment posted total sales of $4.65 billion, compared to the previous year's earnings of $4.56 billion.[2]

Renal (18.0% of 2009 Revenues)

As Baxter's smallest segment, Renal has generated modest growth in recent years. The Renal business manufactures products for people with end-stage renal disease (i.e. irreversible kidney failure). In particular, Baxter makes products for peritoneal dialysis (PD), the process of removing waste such as urea and potassium from the blood, as well as excess fluid, when the kidneys are incapable.Baxter aims to boost returns in renal care by making its peritoneal dialysis tools more accessible around the globe and by even expanding into home-based hemodialysis. In 2009, this segment posted revenues of $2.3 billion, essentially the same as the previous year.[2]

Trends & Forces

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Aging populations increase demand

One macro trend that is sure to benefit the pharmaceutical industry on a mid- to long-term horizon is the world's aging population. In developed nations, increased life expectancy coupled with decreased fertility have produced a population that is, as a whole, older. In the United States, Western Europe, and Japan, the median age has been on the rise for decades now, and this trend is likely to accelerate with the upcoming wave of aging baby boomers. In the coming years, Baxter will benefit from its focus on diseases such as cancer and kidney disease, particularly in developed nations. According to the United Nations, the population of people aged over 60 in the world is expected to rise dramatically from 606 million in 2000 to nearly 2 billion in the year 2050. In developed nations, the United Nations predicts that people aged over 60 will compose almost 35% of the population by 2050 opposed to under 20% in the year 2000. Baxter will also benefit from trends in emerging markets such as China. A rapidly expanding older population represents a key growth opportunity for Baxter because this demographic forms the core of the company's revenue.

Research & Development emphasis

Researching and developing new drugs is the single most important consideration when identifying the prospects of any pharmaceutical company. The process is lengthy and extremely costly. During development phases, researchers and scientists must screen hundreds of thousands of compounds. Out of these hundreds of thousands of compounds, only one may be effective for treatment. This process represents the pharmaceutical equivalent of finding a needle in a haystack. The hunt for the next blockbuster drug may take in excess of 10 years and can cost as much as $800 million dollars. A successful drug pipeline is critical for pharmaceutical companies because former blockbusters losing patent protection must be constantly replaced by new viable drugs.

Politics and Insurance risks

Like other global pharmaceutical companies, Baxter faces constant pressure from governments and activist organizations to increase access to medications by either lowering prices substantially or by granting generic licenses. While sales would likely increase as a result, profits would decrease along with prices.

Global Regulatory, Trade, and Tax Policies

Baxter generates more than half of its sales abroad, and international sales are accounting for a steadily growing percentage of total revenues, outpacing domestic growth. The company's international business focuses primarily on Europe, Latin America, Japan, and Canada, with Europe contributing the most to total sales. The firm is investing heavily in ramping up its international operations due to the rapid demand increases in emerging markets such as China, expanding its four manufacturing facilities in the country. With its growing reliance on international sales, Baxter is very sensitive to regulatory, trade, and tax policies abroad, as well as changing economic, political, and social conditions. Changes in these policies or conditions will have significant financial repercussions.

Patent expiration risk

For a detailed discussion of brand name vs generic medication, see also Brand name vs Generic medications.

Due to Food and Drug Administration (FDA) regulations, pharmaceutical patents last 17 years in the United States, during which a pharmaceutical company has an exclusive right to manufacture a particular drug. After the patent expires, generic versions of the product can be produced and sold by competitors. Generic medication is cheaper than brand medication, undercutting the pricing power of the original drug producer. It is estimated that the loss of patent protection for branded drugs may reduce sales by up to 90%. Because of the stark decrease in pricing and general revenue generation that occurs with the loss of patent protection, Baxter's business model is sensitive to patent protection and the enforcement of intellectual property rights. Currently, several of Baxter's key drugs face patent expiration including Rocephin, a frozen pre-mixed antibiotic that the company manufactured for Roche Pharmaceuticals (RHHBY). Many of the firm's other pharmaceuticals face patent infringement lawsuits, including blockbusters ADVATE, Sevoflurane, GAMMAGARD, its PD systems, and others. Significant legal defeats would negatively impact earnings and investor confidence. Baxter's diverse portfolio and robust pipeline should mitigate the effects of these important patent issues.


Although no single company competes with Baxter in all of its businesses, Baxter faces competition in each of its segments from international and domestic health care and pharmaceutical companies of all sizes. Competition is primarily focused on cost-effectiveness, price, service, product performance, and technological innovation. Of its competitors, Baxter is the most geographically diverse and maintains one of the lowest R&D budgets; its annual revenues, however, fall in the middle of the pack. Its competitors include Pfizer (PFE)/Wyeth (WYE), Abbott Laboratories (ABT), and HOSPIRA (HSP).

Of these companies, the most similar to Baxter in terms of product offerings is Wyeth (WYE). Wyeth, however, is a much larger company and is much more known for its pharmaceuticals than for its other product segments. Abbott Laboratories (ABT) is much the same; its greater emphasis on pharmaceuticals and lack of a division specifically for kidney disease set it apart from Baxter.


  1. 1.0 1.1 BAX 10-K 2009 Item 1 Pg. 1
  2. 2.0 2.1 2.2 BAX 10-K 2009 Item 7 Pg. 18
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