Baxter International's CEO Hosts 2013 Annual Meeting of Shareholders (Transcript)

| About: Baxter International (BAX)

Baxter International Inc (NYSE:BAX)

May 07, 2013 10:00 am ET


Robert L. Parkinson - Chairman, Chief Executive Officer and President

David P. Scharf - General Counsel and Corporate Vice President

Robert J. Hombach - Chief Financial Officer and Corporate Vice President

Robert L. Parkinson


Okay. Good morning. Yes, so we'll now come to order for the 2013 Annual Meeting of the Shareholders of Baxter International. My name is Bob Parkinson, I'm Chief Executive Officer and Chairman of the Board of Baxter. I'm pleased to be here today and I want to welcome all of you in a beautiful spring day to our 2013 Annual Meeting.

Before I move on to today's business, I'd like to inform you that today's meeting is also being webcast and is accessible from a link on our website at When you arrived today, each of you should have received an agenda for the meeting, which indicates the matters to be considered today. At the conclusion of the meeting, which we always do, we'll open up the floor for general questions.

Before we start, I'd like to first introduce Bob Hombach, Baxter's Chief Financial Officer who's up here; and also David Scharf, General Counsel for the company who will join me up here this morning.

At this point, I'd also like to introduce our Board of Directors who are seated here in the front row and, as we always do, I'm going to ask each director to briefly stand as I call his or her name and I would ask the attendees if you would please hold your applause until all the directors have been introduced.

So firstly, Peter Hellman. Peter has been a director of Baxter since 2005 and also serves as the company's lead director. He served as President, Chief Financial and Administrative Officer of Nordson Corporation until his retirement in 2008.

Thomas Chen. Mr. Chen has been a director of Baxter since November 2012. He served as Senior Vice President and President of the International Nutrition of Abbott Laboratories before retiring in 2010, where he oversaw expansion into a number of emerging markets during his 22-year career at Abbott.

Dr. Uma Chowdhry. Dr. Chowdhry has been a director at Baxter since November of 2012. She retired in 2010 from DuPont after 33-year career, last serving as Senior Vice President and Chief Science and Technology Officer.

Mr. Blake Devitt. Blake has been a director of Baxter since 2005. He retired in 2004 from the public accounting firm of Ernst & Young, following a 33-year career.

John Forsyth. Mr. Forsyth has been a director of Baxter since 2003. He's Chairman and Chief Executive Officer of Wellmark, Blue Cross Blue Shield. Mr. Forsyth also spent more than 25 years at the University of Michigan Health system.

Gail Fosler. Ms. Fosler has been a director of Baxter since 2001. She's President of the GailFosler Group, a strategic advisory service for global business leaders and public policy makers. Ms. Fosler also spent more than 20 years with the Conference Board where she held various positions, including Chief Economist.

Dr. James Gavin. Dr. Gavin has been a director of Baxter since 2003. He's the Chief Executive Officer and Chief Medical Officer of Healing Our Village, and also serves as Clinical Professor of Medicine and Senior Advisor of Health Affairs at Emory University.

Dr. Wayne Hockmeyer. Dr. Hockmeyer has been a director of Baxter since 2011. He was founder of MedImmune, a healthcare company focused on infectious diseases, cancer and inflammatory diseases, and served as Chairman and Chief Executive Officer of MedImmune for 20 years.

Carole Shapazian. Ms. Shapazian has been a director of Baxter since 2003. She previously served as Executive Vice President of Maytag Corporation and as President of Maytag's Home Solutions Group.

Thomas Stallkamp. Mr. Stallkamp has been a director of Baxter since 2000. He's founder and principal of Collaborative Management LLC, a private supply chain consulting firm. Previously, he served as an Industrial Partner in Ripplewood Holdings, Chairman of MSX International, and in various positions with DaimlerChrysler Corporation and its predecessor, Chrysler Corporation.

K. Storm. Mr. Storm has been a director of Baxter since 2003. He was Chief Executive Officer of AEGON N.V. until his retirement in 2002. Mr. Storm is a registered accountant, the Dutch equivalent of a Certified Public Accountant.

Albert Stroucken. Mr. Stroucken has been a director of Baxter since 2004. He's Chairman and Chief Executive Officer of Owens-Illinois. Previously, he served as Chairman and Chief Executive Officer of H.B. Fuller.

Also joining us this morning is General Walter Boomer, who retired from the board last year after 16 years of service, including a term of lead director. Walt, where are you at? In the back, in the back, there. Very low profile, General. Yes. So we are very glad to have you with us here today.

I will tell you, all of Baxter's directors both current and former have been very generous not only in sharing time, but their talent and their experience. So please join me now in giving them a round of applause. Thank you.

Thank you. Also, all of Baxter's corporate officers are with us today. And also, I'd like to ask each to briefly stand as I call his or her name, and again, I'll ask all of you to hold your applause until each of them had been introduced. And we'll get through this group fairly quick.

First of all, Phil Batchelor, Corporate Vice President, Quality and Regulatory Affairs; Sebastian Bufalino, Controller; Jean-Luc Butel, President of International; Robert Davis, President of Medical Products; Ludwig Hantson, President of BioScience; Bob Hombach, Chief Financial Officer, who's already been introduced; Mary Kay Ladone, Corporate Vice President, Investor Relations; Paul Martin, Chief Information Officer; Jeanne Mason, Corporate Vice President of Human Resources; Jay Saccaro, Treasurer; David Scharf, already introduced as General Counsel; Stephanie Shinn, Corporate Secretary.

Please join me in thanking the leadership team for their efforts, as well. Thank you.

Thank you. Before we move on to the business for this morning, I'm going to ask David Scharf to provide our Safe Harbor Statement. David, if you would, please.

David P. Scharf

Thank you, Bob. Our comments today will include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from the forward-looking statements. Please refer to our annual report on Form 10-K and our other filings with the Securities and Exchange Commission. All of which are available on our website.

In addition, today's presentation contains certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP financial measures is posted on the Investor Relations section of our website.

Robert L. Parkinson

Good. Thank you, David. David has also informed me that copies of the notice of annual meeting of shareholders, proxy statement and proxy card were mailed to shareholders of record on or about March 22 of this year. The record date for the voting of shares of this meeting was March 11 of 2013.

So David, this time would you please give us your report of the number of shares of common stock that are entitled to vote and also present at this meeting.

David P. Scharf

Yes. More than 85% of the approximately 543 million shares are entitled to vote at this meeting are represented here today. There are no other securities entitled to vote at this meeting. Therefore, a quorum is present.

Robert L. Parkinson

Thank you, David. Since the quorum is present, we'll proceed with today's business. Before we do that, I'd also like to point out that Susan Edwards is with us on behalf of Broadridge Financial Solutions, and she will act as inspector of elections. Her oath of office has been filed with our Corporate Secretary.

I'd also like to introduce Jim Mauer and Pete Regis of PriceWaterhouse Coopers LLP, right over here. PWC is an independent registered public accounting firm, as you know, that audits Baxter's financial statements. Mr. Mauer and Mr. Regis have advised me that they have no formal statement to make, however, will be available during the Q&A session later this morning to respond to appropriate questions from the shareholders.

Before we begin with the formal business of the meeting, I'd like to take just a minute to review the procedures that we'd like to follow at the meeting this morning. As you know, we have 5 items of business on the agenda that need to be voted on this morning. After the presentation of each agenda item, I'll open the floor for questions related to that particular item.

In order to ensure that the business of the meeting proceeds in an orderly fashion, I would ask that questions will be limited to the agenda item that's being considered at that time. There'll be time at the end for Q&A, as we said. When you are recognized to address the meeting this morning, please state your name and affiliation if any, state whether you're a Baxter shareholder or proxy for a shareholder, and if you would please address your questions to me. And if appropriate, I'll refer your questions to others for a response if necessary.

Following the voting on matters to be acted upon at the meeting, then I will share highlights of Baxter's 2012 performance and also our direction for the future. After that presentation, then we'll open the floor for any general questions that you may have about our company.

So with that, now let me proceed with the formal business of the meeting this morning. As you know, there are 5 proposals on today's agenda: first is the election of 5 directors; second, the ratification of the appointment of the independent registered public accounting firm, PWC; third, approval of named executive compensation; fourth, an amendment to Baxter's certificate of incorporation to eliminate the classified structure of the board of directors; and fifth, an amendment to Baxter's certificate of incorporation to grant holders of at least 25% of outstanding common stock the right to call a special meeting.

Most of our shareholders have already voted on all of these proposals. If you previously voted, you don't need to submit a ballot unless you wish to change your vote. Submission of a ballot will revoke any prior proxy that you may have submitted.

And if any shareholder present here this morning has not yet voted, you may do so by completing the ballot during the proceedings this morning. So if you need a ballot, I'd ask at this time, for you to raise your hand and one of our hosts will bring a ballot to you. Anyone need a ballot, raise your hand, we'll get you the ballot to either vote or change, okay?

At the conclusion of the voting on all proposals, I would ask you to please hold the completed ballots up so that our host may collect them.

Okay, we're all set with the ballots? Okay. Does everyone who needs a ballot have one? Okay. So now, I'm going to proceed with the proposals in the order in which they were discussed in the proxy statement and presented on the proxy card.

The first proposal to be considered this morning is the election of 5 directors. So at this time, may I have the nominations for directors? Yes, please?

Unknown Shareholder

Mr. Chairman, my name is Adam Brace [ph], and I'm a Baxter shareholder. I nominate Thomas Chen, Blake Devitt, John Forsyth, Gail Fosler and Carole Shapazian.

Robert L. Parkinson

Okay, thank you. Is there a second please?

Unknown Shareholder

I second.

Robert L. Parkinson

Okay, thank you. Baxter's bylaws require that our Corporate Secretary be notified in writing of any nominations for directors on a timely basis in advance of the Shareholders Meeting. The Corporate Secretary has informed me that she has not received notice of any other nominations for directors. So accordingly, the nominations for directors are closed. As you know, the Board of Directors has recommended a vote in favor of these directors. So at this time, I would ask if anyone wishes to comment on this particular proposal?

Okay, thank you. The second proposal to be considered is the ratification of the appointment of PriceWaterhouse Coopers LLP, as the independent registered public accounting firm for Baxter in 2003. Is there a motion please?

Yes? Over here, we have a microphone.

Unknown Shareholder

Mr. Chairman, my name is Todd Crushank [ph], and I'm a Baxter shareholder. I so move.

Robert L. Parkinson

Okay, Todd, thank you. Is there a second please? Over here.

Unknown Shareholder

My name is Kate Hurst [ph], and I'm also a Baxter shareholder. I second.

Robert L. Parkinson

Okay. Kate, thank you very much. As you know, the Board of Directors has recommended a vote in favor of this proposal. And again, I would ask if anyone wishes to comment on the second proposal this morning?

Okay, thank you. The third proposal to be considered by shareholders is an advisory vote on the compensation of named executive officers. Is there a motion please?

Do I see a hand? Some place there. Yes, please.

Unknown Shareholder

Mr. Chairman, my name is Hannah Davis [ph], and I'm a Baxter shareholder. I so move.

Robert L. Parkinson

And thank you. Is there a second? Everyone sitting close to the aisle, it's very convenient.

Unknown Shareholder

My name is Dan Seabeck [ph], and I'm also a Baxter shareholder. I second.

Robert L. Parkinson

Okay, Dan, thank you. The Board of Directors has recommended a vote in favor of this proposal. Does anyone wish to comment on this proposal?

Okay, thank you. The fourth proposal to be considered is the management proposal calling for an amendment to Baxter's amended and restated certificate of incorporation to eliminate the classified board structure of the board of directors. If this proposal is approved, all directors will be elected for 1 year terms. Is there a motion please?

Yes, over here.

Unknown Shareholder

Mr. Chairman, I'm John Hatch [ph]. I'm a Baxter shareholder and I so move.

Robert L. Parkinson

Okay, thank you, John. Is there a second? Do I see a hand up? And over here, please.

Unknown Shareholder

My name is Don Peters. I'm also Baxter shareholder and I second.

Robert L. Parkinson

Okay, Don, thank you. As you know, the Board of Directors has recommended a vote in favor of this proposal. Does anyone wish to comment on this proposal at this time?

Okay, thank you. The fifth proposal to be considered is the management proposal calling for an amendment to Baxter's amended and restated certificate of incorporation to grant holders of record of at least 25% of Baxter's outstanding shares of common stock the right to call a special meeting of shareholders. Is there a motion from the floor please?

Over here.

Unknown Shareholder

Mr. Chairman, my name is Brian Gurt [ph], and I'm a Baxter shareholder. I so move.

Robert L. Parkinson

Okay, Brian, thank you. Is there a second? Right here, in the front, on the side.

Unknown Shareholder

My name is Danielle Boyles [ph], and I'm also a Baxter shareholder. I second.

Robert L. Parkinson

Hi, Danielle. Okay, thank you very much. The Board of Directors has recommended the vote in favor of this proposal. Is there anyone who wish to comment on this proposal at this time?

Okay, so now we will proceed to vote on the various agenda items. The time is now 9:15. So I declare the polls open. Once again, if you have not already voted as I said earlier and you wish to change your vote on any of the proposals, please raise your hand to receive a ballot if you would, and we'll pause for a moment while the ballots are being completed. We'll take a minute or 2 to do that.

Again, please raise your hand if you have a ballot to be collected. It doesn't look like there's any. Are there any this morning? It doesn't look like it.

All right. Okay, any more ballots to be collected? Okay, now the time is now 9:46 and a half, and I declare the poll is closed -- 9:15 and a half, excuse me. I was still interested in being precise, I lost a few minutes. I'm glad you're paying attention this morning.

The inspection -- inspector of election will tabulate the votes and the final results will be presented at the end of the meeting.

Okay, so now let's transition a little bit to an update in our company now that the voting is completed and the ballots have been collected. I'd like to spend a few minutes providing a brief summary of our financial and business highlights for 2012 and also an overview of the company's, what I call our 4 strategic growth vectors.

At Baxter, we are very proud to be recognized as a worldwide leader in healthcare. We serve patients and practitioners with a diverse portfolio of medically-necessary products and therapies. We have long established enviable positions in the tour geographies, and we're also rapidly expanding our presence in emerging markets. We're also focused on increasing access to quality care around the world by building out our core portfolio, advancing new therapies and products that address unmet needs and improving the safety and cost effectiveness of treatments.

And part of our aspiration of being a great company is captured in our commitment to sustainability. We succeed as a business by operating responsibly in the interest of all of our key stakeholders, which includes the communities around the world where we work, advanced public health and contribute to economic growth. Our mission simply stated is to save and sustain lives. Our products touch millions of patients each and every day and often at times of the most critical need. This gives our employees worldwide a shared sense of purpose. And in line with building a great company, we're charting a course that will deliver results today while strengthening our company for the future.

Even in the face of a challenging macroenvironment, Baxter delivered solid financial and operational results in 2012, while providing an attractive return for shareholders. Last year, worldwide sales rose to $14.2 billion as we continue to benefit from our diversified healthcare model, where one [ph] existing market-leading positions, expand geographically and launch new products.

Adjusted earnings per share increased to $4.53. And over the last several years, earnings have advanced at twice the rate of sales growth. Importantly, we continue to generate significant cash flow, which exceeded $3.1 billion in 2012, which is a record level, while maintaining a disciplined capital allocation strategy of returning value to shareholders through both increased dividends and share repurchases.

Our financial flexibility has allowed us to accelerate the level of R&D investment over the years, which has transformed the new product pipeline into a robust portfolio of products and therapies that improve the quality of care and address key high potential areas of unmet medical need.

In the same year, we are also continuing to reinvest across our global businesses to support future growth. With investments directed at our existing manufacturing footprint, as well as new capacity additions, programs to enhance our cost structure and select investments to support global expansion initiatives, particularly in emerging markets.

By successful repositioning Baxter for the long-term, we can generate increased value for our shareholders. As many of you know, we've consistently raised the annual dividend rate over the last several years. Last year, we announced an increase of 34%. And just yesterday, the Board of Directors approved an increase for 2013 of 9%, resulting in an annual dividend rate of $1.96 per share. And with the support of solid operational performance, strong consistent cash flow generation and a disciplined capital allocation strategy, we've returned more than $11 billion in cumulative value to shareholders just over the last 5 years.

As a result, our total annual shareholder return in 2012, including dividends significantly outpaced all relative comparator indices such as the Dow Jones Industrial Average, the S&P 500 Index and the S&P Healthcare Index. More importantly, Baxter has delivered significant returns over the long-term that have also exceeded all benchmark indices and our entire management team remains committed to improving Baxter's operational performance and delivering enhanced value in the years ahead.

So now let me take just a few moments to highlight an array of Baxter's successes in 2012 from across the businesses and also outline the key vectors of growth that will drive innovation and advance the business for the long term.

As I mentioned earlier, Baxter's continued success reflects an ongoing momentum in pursuit of our mission to save and sustain lives. To fulfill this mission, the company's strategy includes 4 key strategic growth vectors and these are the building blocks that ensure Baxter's ability to make a difference for patients. And in doing so, achieve sustained success.

The first strategic growth vectors include: first, enhancing growth by optimizing our core business portfolio; next, advancing Baxter's new product pipeline; also, pursuing business development initiatives that deliver attractive returns, in both the near and the long term; and finally, capitalizing on the opportunity to develop new business models, which include public and private partnerships.

So let me start with our core portfolio. We believe that the most fundamental way to grow is by taking full advantage of the global potential which exists in our core business. And Baxter is well-positioned into the breadth, depth and diversity of our global product portfolio focused primarily on nondiscretionary healthcare needs, which provides a very solid foundation for our future.

The key franchise is in BioScience provide a wide array of offerings. The hemophilia and BioTherapeutics franchises treating bleeding disorders and a wide range of immune and neurological disorders, both of which are significantly underdiagnosed and undertreated globally, which speaks to our long-term opportunities.

Our portfolio also includes a variety of products and cutting-edge technology used in the BioSurgery and vaccines businesses.

The franchises within Medical Products include innovative products for the treatment of end-stage renal disease and other therapies and technologies supporting the work of hospital pharmacies and serving the needs of patients in acute care settings.

Baxter already is a global leader, with more than 70% of sales emanating from products in market-leading positions. And we continue to expand our presence, in both mature and emerging markets.

So, for example, in BioScience, we're particularly pleased with the success of ADVATE, our leading recombinant factor VIII therapy for hemophilia A, a genetic bleeding disorder. With annual sales approaching $2 billion, ADVATE continues to be the gold standard treatment in the marketplace, given its strong safety, efficacy and convenience profile. We remain focused on improving treatment standards and driving increased access through penetration and global expansion.

As an example, last year, we received approval for ADVATE in China, which represents a tremendous growth opportunity, as less than 20% of hemophilia patients in China are treated today. And we've also established an exclusive long-term partnership in Brazil with Hemobrás to support the availability of recombinant factor VIII therapy while advancing local manufacturing and economic development.

In the BioTherapeutics franchise, we continue to be well-positioned, given our broad and differentiated portfolio of plasma proteins, which includes our immunoglobulin therapy such as GAMMAGARD LIQUID available to patients with immune deficiencies in both an IV or a subcutaneous delivery presentation in both the United States and Europe.

Within the Medical Products business in 2012, we took additional steps to leverage the depth and breadth of this vast portfolio.

For example, we expanded the launch of our proprietary triple-chamber containers NUMETA and OLIMEL across Europe. NUMETA is the first and only triple-chamber nutrition system designed to address important unmet medical needs of neonatal and pediatric patients, and OLIMEL features a broad portfolio of formulations to meet the varying nutritional needs of different patient groups.

In addition, we introduced our inhaled anesthetics Sevoflurane and SUPRANE in Brazil. And finally, we continue to support efforts to expand access to dialysis therapy around the world.

In 2012, our Asia Pacific region surpassed 70,000 Peritoneal Dialysis patients and we now have more patients in China than in any other country in the world.

Moving on to the second growth vector, which is advancing our new product pipeline. When it comes to R&D, Baxter's heritage of innovation has had a far-reaching impact on patient care. And it points the way toward even greater success in the future. This significantly ramped up our R&D investments in recent years. And in 2012, our R&D investment totaled approximately $1.2 billion, representing a record level. This investment has resulted in a meaningful new product pipeline that's as strong as ever. And over the next 5 years, we expect to launch 20 new products and line extensions that will contribute meaningfully to our future growth.

So let me briefly highlight just a few of our recent R&D accomplishments. First, we continue to innovate and advance our leadership in developing products to treat bleeding and clotting disorders.

In 2012, we benefited from ADVATE's new prophylaxis indication for both children and adults with hemophilia A. This improvement provides enhanced convenience with a new dosing schedule offering some patients the choice of pure infusions. And recently, Baxter initiated a Phase III trial for BAX 855, a long-acting PEGylated recombinant factor VIII protein which is based on the ADVATE molecule. Results from this trial will determine whether this new therapy can offer a treatment regimen requiring even fewer infusions than ADVATE.

We also have several other programs underway that will broaden our hemophilia product portfolio. These therapies include recombinant factor IX, a treatment for patients with hemophilia B, the first and only recombinant therapy for people with von Willebrand's disease, and recombinant factor VIIa therapy for hemophilia patients with inhibitors. We've made great progress in advancing all these therapies through clinical development and we look forward to commercialization in the coming months and years.

In the area of immune deficiencies, we've been successful in driving differentiation of GAMMAGARD LIQUID by offering various dosage forms, enhancing delivery options and expanding the number of approved indications. We now have approval in both U.S. and Europe for GAMMAGARD LIQUID as a therapy for multifocal motor neuropathy or MMN, representing the first and only indication for MMN in the U.S. and Baxter's first on-label chronic neurological indication.

We also recently received a positive regulatory opinion in Europe for HyQvia, a combination of GAMMAGARD LIQUID and recombinant human hyaluronidase, which facilitates the dispersion and absorption of the therapy. HyQvia offers a subcutaneous option that's comparable in clinical effectiveness to IV infusion and more convenient for patients with immune deficiencies.

And finally, as I think many of you know, earlier today we did announce top line results from our Phase III study investigating immunoglobulin therapy as a possible treatment for Alzheimer's disease. While we're disappointed that the study did not meet its core primary end point of reducing cognitive decline and preserving functional ability in patients with mild to moderate Alzheimer's disease, the study did demonstrate a numerical difference in one of the treatment arms among moderate patients and carriers of the APOE-4 genetic marker. The full detailed analysis of the data will be presented later this year and we look forward to a greater understanding of the full data set, including specific study populations.

Based on these results, Baxter will begin the process of discontinuing its ongoing studies of immunoglobulin and Alzheimer's disease and we'll reevaluate our clinical approach once we've analyzed the full data set.

In 2003, we continued to leverage expertise in treating patients in the home with the ongoing development of VIVIA, our home hemodialysis device, which has the potential to deliver enhanced clinical outcomes and greater patient convenience to those with end-stage renal disease.

We completed our first trial in the U.S. to assess device performance and safety in patients undergoing in-center hemodialysis and we're currently conducting a nocturnal study in Canada. Data from both studies will support European regulatory later this year and we continue to expect a filing in the United States in 2014.

Finally, we're expanding our portfolio into exciting new fields that have the potential to alter the treatment landscape for a range of critical conditions. Last year, we initiated a Phase III trial to evaluate the effectiveness of an individual's own CD34+ stem cell to increase exercise capacity in patients with chronic myocardial ischemia, one of the most severe forms of coronary artery disease. We began treating patients with malignant solid tumors in a Phase I clinical trial with a fully human recombinant anti-MIF monoclonal antibody. Anti-MIF antibodies target MIF proteins, which induce inflammatory responses in the body and influence the growth and spreading of tumors.

We announced the European licensing agreement with Onconova Therapeutics for the novel targeted anti-cancer compound, rigosertib. This compound is in a Phase III study for the treatment of Myelodysplastic Syndrome, and it's also being studied for other indications including pancreatic cancer.

Lastly, Baxter and Momenta Pharmaceuticals are collaborating on the development and commercialization of up to 6 biosimilar biologic products. Biosimilars are intended to be used in place of existing branded biologic treatments for a range of chronic and often life-threatening diseases holding the potential for lower cost and greater patient access.

In summary, as I mentioned verily of Baxter's new product pipeline is as strong as ever and includes a number of high-value R&D initiatives only some of which we've covered with you here this morning. We look forward to providing you with continued updates on our progress with these technologies, programs and opportunities in the future.

In addition to internal R&D, we're accelerating our efforts in pursuing acquisitions, collaborations and partnerships that bring complementary skills and resources that augment our own expertise, and this was the third growth vector. Last year alone, we completed and integrated several acquisitions including Baxa, SIGMA and Synovis. All of which further strengthened our presence in key markets.

And in December, we announced an agreement to acquire a global dialysis product provider, Gambro AB, which represents the largest acquisition in our company's history. As you may know, more than 2 million patients worldwide are on some form of renal dialysis therapy, and the number continues to increase due in part to rising rates of diabetes and hypertension. So this transaction provides Baxter with a comprehensive dialysis product portfolio that will thus meet the evolving needs of this very large and growing market.

These acquisitions have been supplemented by a range of key strategic partnerships, such as our agreement the Momenta and Onconova that I mentioned earlier along with others including a technology collaboration with Chatham Pharmaceuticals -- Chatham Therapeutics, excuse me, on hemophilia B gene therapy treatment, and also our collaboration with Takeda for the development, production, supply of influenza vaccines to support Japan's public health efforts in the high-priority area of pandemic preparedness.

The last growth vector is our focus on developing public and private partnerships. As we access, what it takes to thrive in today's increasingly challenging healthcare market, we must pursue innovation. But not only in product development, also in the adoption of new business models. Everyday, we continue to hear how governments around the world remain concerned with the rising cost of healthcare, and Baxter's global leadership position reflects the unique expertise and positions us as an attractive partner in collaborating to expand access to quality care while making a significant impact in the key markets that we serve around the world.

In 2012, Baxter actively engaged in pursuing these types of partnerships. For example, as we mentioned earlier, we signed an exclusive 20-year agreement with Hemobrás that will greatly increase access to recombinant factor VIII therapy for Brazil's hemophilia A patients, the third largest hemophilia market in the world. We're partnering with China's National Institute of Hospital Administration under the Ministry of Health to improve access to Peritoneal Dialysis in China's rural communities. We announced a collaboration with Sanquin Blood Supply Foundation in the Netherlands who will provide fractionation capacity for therapies used to treat many critical conditions. This agreement, along with our expansion plans in Covington, Georgia, positions us well to support future growth of our plasma-based treatments.

And in Thailand, Baxter look to encourage the policy change that makes Peritoneal Dialysis the initial therapy of choice for patients with end-stage renal disease. These innovative public-private collaborations depict just a handful of recent achievements that present great opportunities for Baxter in the years to come as we improve access to critical therapies around the world.

Before closing this morning, I'd like to take a moment as I do each year with you to talk about Baxter's sustainability efforts. At Baxter, we use the term sustainability to describe our long-term approach in addressing social, economic and environmental needs to achieve the company's business objectives and also contribute to a more sustainable world. This includes Baxter's contribution support of meaningful job creation, particularly in the United States despite a challenging economic environment. This was a commitment we take very seriously as we focus on the sustainability and growth of our economy and making a positive impact on the local and global communities that we serve.

In 2012, Baxter was recognized for sustainability efforts in our ongoing commitment to environmental responsibility. Sustainability awards include being named for the 11th time as the Medical Products Industry Leader of the Dow Jones Sustainability Index and one of the 100 Best Corporate Citizens by Corporate Responsibility Magazine. For the 4th consecutive year, Baxter was ranked first in the healthcare category and 18th overall in Newsweek magazines's green rankings of the 500 largest publicly traded firms in America. And for the second consecutive year, Baxter was named among the top performers in the Maplecroft Climate Innovation Indexes for climate-related innovation and carbon management. In the area of corporate giving, combined contributions by Baxter and the Baxter International Foundation, the philanthropic arm of the company, totaled nearly $60 million last year. Financial contributions and product donations address critical community needs globally, increasing -- including increasing access to healthcare, improving education and helping developing nations and countries in crisis. Proactive product donations help ensure that critical products are first on the scene following natural disasters and tragedies, including events by Hurricane Sandy and also the recent earthquake in China. Baxter's charitable-giving activities are aligned with and support the company's mission of saving and sustaining lives and Baxter remains committed to addressing global sustainability challenges and making a positive impact on the health and well-being of our local and our global communities.

So let me conclude my comments this morning by saying that we have entered 2013 with continued confidence of our sustained success. We'll continue to be responsive to the considerable macroeconomic challenges by executing on the 4 key growth strategies that I outlined earlier. Baxter's portfolio remains strong as we continue to benefit from focusing on life-saving therapies. The increased level of R&D investment over the years has transformed the new product pipeline into a robust portfolio of products and therapies and improve the quality of care and address key high potential areas of unmet medical need. We've executed on a number of business development opportunities that align with our core strengths and position Baxter for future success and accelerated growth, and we're committed to working with payers by establishing public and private partnerships as we're well-positioned to provide solutions to their increasing challenges. Baxter employees around the world are connected by their enduring commitment to save and sustain lives. Together, we'll continue to work diligently toward expanding patient access to care, achieving the highest standards of quality and safety, and meeting the needs of customers in the most cost-effective manner. I look forward to sharing with you next year results of our continued progress and other highlights as we continue to make a meaningful difference in people's lives around the world. Thank you.

Okay, so moving on to the next order of business, David, do you have the results of the voting please?

David P. Scharf

Yes, thank you, Bob. The number of shares voted for each Director was approximately 99% of the number of votes cast with respect to each. This is more than the required majority, and each has been elected. The proposal to ratify PricewaterhouseCoopers as the company's independent registered public accounting firm in 2013 received votes in favor of approval representing approximately 99% of the shares present and entitled to vote. Therefore, the appointment is ratified. The advisory vote requesting that shareholders approve the compensation of the company's named executive officers as disclosed received votes in favor of approval representing approximately 97% of the shares present and entitled to vote. Therefore, the compensation as disclosed has been approved, and the company thanks you for your support. The proposal relating to the amendment of the company's Certificate of Incorporation to eliminate the classified Board of Directors received votes in favor of approval representing less than the required 2/3 of holders of the company's common stock. Therefore, the proposal did not pass, and directors will continue to be elected for terms of 3 years. The proposal relating to the amendment of the company's Certificate of Incorporation to grant holders of record of at least 25% of the company's outstanding shares of common stock, the right to call a special meeting of shareholders received votes in favor of approval representing approximately 76% of the outstanding shares of Baxter's stock. The proposal has passed.

Robert L. Parkinson

Okay, thank you David. So this completes the formal business to come before the meeting this morning. And at this time, we'll open up the floor for general questions that you may have about the company. Questions, comments, criticisms, input, all welcome. So I will ask you, before asking a question or making a comment, if you would please state your name and affiliation, if any. Again, state whether you're a Baxter shareholder or a proxy for a shareholder and address your questions to me. And as I said earlier, if appropriate, we have a mic here for the management team as well in case I want to send out some questions. Okay, why don't we start here to my left, and then we'll go over there.

Question-and-Answer Session

Robert L. Parkinson

And your name is?

Unknown Shareholder

Bill Global [ph], a shareholder. I live in Downers Grove, Illinois. I want to share with you and the board and your administrative staff an experience I had yesterday. I chose to vote my shares yesterday by telephone, and when I put my control number in one of the proxies that I had, I was told that my shares had been voted.

Robert L. Parkinson

Had already been voted?

Unknown Shareholder

Yes, and in which case, I took the opportunity to vote the other shares that I had a proxy for, and it was accepted and I voted my shares. That was yesterday, about noon time. Having gotten your notice from Baxter regarding Alliance Advisors, I chose to call them. And when I called them, they informed me that a block of my shares, which I had transferred from sole ownership of my wife and myself last year to myself as the owner, would transfer on death to my children, my 4 children. And on the 26th of April, one block of those shares for one of my children was voted. Hence, the gentleman, they did an audit of the phone call for things like that on record. So it's recorded with the Alliance Advisors. And then they informed me that on the 29th of April, the other 3 accounts of Baxter shares were traded also -- or voted, and at 5:30 in the morning. And I said, "Well, I didn't vote any of those. I am the registered shareholder. My address is in Downers Grove. My children that I have don't live with me. They have different addresses and so forth." So I questioned them as to why those shares were voted. And they said, Well, it's probably an error. I'm very disturbed that someone who called my daughter, who's a Baxter shareholder, she must be a Baxter employee, so she has a number of shares that she has in her own name, they interrogated her as to did she have any shares. And she said, "Well, my mom and dad had some shares, and I'm probably on that." And the person who was administrating, the representative of the company, because you hired them for $80,000 I think, put out a vote of my shares. They didn't have my control number. I had my control number. My daughter doesn't have my control number. I'm calling this to your attention because the other shares are in the street name with Fidelity. The shares I'm talking about are held in an account with Computershare. So I think this is something you have to look into.

Robert L. Parkinson

First of all, thank you for raising this to our attention. There's a lot of aspects of this as I listen to you describe it, and I don't have, obviously, the specifics to respond with the insight. So a couple of things I would say. Well, one comment. As you all know, we did -- as you pointed out, we retained an outside proxy solicitor at Alliance Advisors as it relates to this issue of elimination of the classified board, which complicated the process to some degree this year. But what I would suggest is I'm going to put our Corporate Secretary Stephanie Shinn on the spot here. Stephanie is our Corporate Secretary. Raise your hand, Stephanie. Bill, would you see Stephanie afterwards. Two things I'd like to do: one, meet with Stephanie and go through all the details that you just shared with me so that we can reconcile this as it relates to what transpired this year. And the other thing, I would extend an offer next year proactively that we work together because there's a lot of dimensions of your share ownership, your own, your family and so on, and let's make sure that to the degree there were mistakes that were made this year, they're not duplicated next year. So that's why I would recommend...

Unknown Shareholder

That's why I'm calling to your attention...

Robert L. Parkinson

Yes, absolutely. Okay, good. Thank you so much, Bill. Appreciate it. Let's go to -- let's go over here. Mr. Glotzer, you need to identify yourself. I know who you are but...

Martin Glotzer

My name is Martin Glotzer, Chicago. I'm a long-time shareholder in the company. I've been coming to the shareholders meetings many years. Even -- I went to Duke University. I went to Marion, North Carolina. I went to Thousand Oaks, California. I have a few comments. The first one is the comment on press releases. It's usually when the company issues a press release on the day of the shareholders meeting or a day or 2 before the shareholders meeting, usually, the shareholders furnish a copy of the press release as when the shareholders signs in. The reason I bring in press releases today is because today, the company issued a press release, which had a negative effect and temporarily had a negative effect on our company's shares about Alzheimer's program. As far as the Alzheimer's program, things up for question about R&D expenses at the company. Do we have -- do we get to see co-op expenses to our research from private companies that solicit funds, it's either the cancer research or this research, and I wonder if the people that contribute to the private organization if, in fact, some of the money comes into our research and development program here at Baxter.

Robert L. Parkinson

Okay, so let me start with your last question, and maybe let me respond to a couple of your comments. Largely, no. I mean, all of our R&D is self-funded internally. We do work with external organizations, as was the case on the Alzheimer's research, that are not for profit and are oftentimes publicly funded or funded with charitable or philanthropic gifts and so on. But that will only be through collaboration with external partners. Our R&D that we conduct within the company internally is, frankly, exclusively funded based on the operating performance and the financial performance of the company. Let me comment on then the press release. Actually, we had 2 press releases. One was disappointing news with Alzheimer's. The other was positive with our 9% dividend increase. So we're very pleased to continue the progression of increasing our dividends, which have more than doubled over the last 5 years. The news on Alzheimer's, of course, this morning was very disappointing, and more so than disappointing for us as shareholders of the company, but most importantly, disappointing for the patients who could have benefited from a successful trial. I mean, Alzheimer's is a disease and a condition, as I'm sure most of you know, there are not effective treatments today. We've made considerable investments at some degree of risk to try to get to the point -- as the press release indicated this morning, we did not achieve primary endpoints. So in that context, the trials failed. I will tell you, however, by virtue of things that we learned through the trials with particular subgroups that were treated, there were some interesting findings that we are in the process of evaluating, and we hope to continue to focus on development in this area. So did I cover everything, Martin?

Martin Glotzer

I believe so. I have a comment on the shareholder proposal, but let somebody else say a few words, and then I'll come back.

Robert L. Parkinson

Great, good. Okay, Ben Liu.

Ben-Chieh Liu

I'm an individual stockholder, Ben Liu, way back. But it took me a couple of hours to get to here. But anyway, I have good comments, you said. I looked at your total trustee members. They're all aged from 60 to the upper, what is that, 70. So what is...

Robert L. Parkinson

They're very experienced and...

Ben-Chieh Liu

No, no, distributive [ph]. No diversity. That is stability. But you're the youngest one. Okay, I'm on that. And I know your oldest Board of Director. But anyway, so the stability is a good thing during this downturn. And you said good experience. So that's why I congratulate, because you have a diversity in terms of composition of professional.

Robert L. Parkinson

Well, they are very experienced and are very diversified.

Ben-Chieh Liu

I said still, you have more than other corporation that didn't come through. Okay, there are good seats, and besides, my student study the top 100 companies in the greater [indiscernible] area. Baxter has always so stabilized in the top 10. Sometimes it's ranked at #8 or sometimes #9, sometimes -- this rank is based on capitalized market value. That means the company is steadily ready and always stable having been in this tragedy situation in terms of economy. Okay, all right, those are the good things congratulations. You have been a dean [ph], done well, so that's why I mentioned corporation. All right, bad things are coming here around. I have already in the academic world talked about TWO versus OTW. I think last year, I mentioned that. OTW is the organized trading warriors. Those -- I'm pretty sure everybody knows that. That's all. For now. Moving from economic growth to environmental green to enterprise 3D [ph] finally, now, getting into the so-called endogenous crutg [ph]. It's a distribution pattern, the distribution of the wealth, distribution of your concentration ratios. So it's 4G model. Here, I worry about our enterprise 3D [ph], not in Baxter but the competitors. And also I worry about the endogenous crudge [ph]. As google, regenerated those kind of distributional disparities and the effects. So I realized, your Asian company share is about 27%. But I don't see much in your presentation or otherwise talk about Asian except I noticed your Board of Director Thomas Chen probably is from Asia and responsible for that, but he is from Abbott. So now, I just want to go.

Robert L. Parkinson

Is there a question here?

Ben-Chieh Liu

Yes. How do you fight against enterprise 3D [ph] and the endogenous crudge [ph] in terms of distribution of your revenue pattern and your profit and sharing with the stockholders?

Robert L. Parkinson

Okay, you've introduced a number of new concepts to me here. They are at least new concepts described in a different way. I think the gist of what I heard you're saying professor is we're a global company. The future of our company and much of the growth is in emerging developing markets. We know that we have, I would say, I'd estimate, 80% of our sales associated with no more than 10% of the world's population. We saw something about the future prospects for our company going forward, particularly given the nature of our products as medically necessary products. So as economies, emerging and developing markets around the world continue to grow and evolve and dedicate more of their spending to health care, we believe they're going to be spending in the kinds of various health care in which we operate medically necessary products. So much of the future of our company, almost 60% of our sales today are markets outside the U.S. We have close to, what, Bob, what percent of our sales are in emerging developing markets, about 20...

Robert J. Hombach

A little more than 20%.

Robert L. Parkinson

A little more than 20%. So I think as you come to these meetings in future years, 3, 4, 5 years from now, that 20% is going to continue to grow. So I think we have a very strong global focus. We're focused on emerging developing markets. I think you'll see that represented in our management team and their experience. To your point. You see that also represented in the increasing, I'll call it, diversity of experiences and orientation of our board as well. So we think both in terms of our board and our management team, we have the experience, we have, as I said, the accumulated wisdom, and I think the diverse experience is that we're bringing forth back and support that vision of growth for, for the future. So I thank you for your comments.

Ben-Chieh Liu

Can I have a copy of your report?

Robert L. Parkinson

Sure. Well, sustainability report and I will share with you what we can that's publicly available. We have more than enough reading material. Okay, we need to -- thank you, Doc. Good to see you again. We'll go over here and then back here. martin, go ahead. Do you have another question, comments? you're not out of questions yet?

Martin Glotzer

I'm a good listener and I'm listening to you. You gave me some more questions by just listening to you. I was disappointed with the votes on the proposal to eliminate the stagger system. I've been sending shareholder proposals since the 1960s, and I read in the proxy statement that the -- so I'm an experienced person who submits shareholder proposal. I've also been in 7 proxy contests with 7 wins. So I was considered a expert in soliciting votes from shareholders. I'm see in the proxy statement that at the present time, there's a shareholder that owns 9% of the shares. Since we have confidentiality voting here at Baxter, I don't want to know how they voted, for or against the proposal. But I suggest that the company resubmit the proposal for next year's shareholders meeting and writing up the reasons why the shareholders should vote the proposal. The company should pose the large shareholders, if they are in favor of the proposal, and if they are, use that as a selling point. It's good enough for the large shareholders to eliminate the stagger system. It should be good enough for the small shareholders.

Robert L. Parkinson

Okay. So as I think you know, this is not the first time this proposal has been brought forward, and it's not the first time that management and the board has supported the proposal. The problem is -- and you cited the shareholder that owns 9% of the company. While they own 9% of the shares, the criteria were 2/3 threshold is 2/3 of the shareholder, not the shares. So someone in the room who owns 100 shares of Baxter has one vote, and the institution that holds 9% of the shares of the company is one shareholder and has one vote. Hence, the difficulty and the challenge of doing this. This is why we retained an outside advisor, and frankly, got a very low support for the resolution of the proposal despite the fact that the board recommended approval.

Martin Glotzer

The board recommended the approval?

Robert L. Parkinson


Martin Glotzer

But the proposal -- the reasons didn't cite any of the large shareholders that are in favor of this proposal. That's the point I make that you should -- I believe you should include endorsement from large shareholders in addition to the Board of Directors. I'm a very good listener. So I'll take that up.

Robert L. Parkinson

Okay, okay, Martin, thank you for your input. I appreciate it. Let's go back to this side of the room, please.

Unknown Shareholder

I'm Moi Weber [ph], a shareholder in Baxter. My question relates to the Board of Directors. I know there's been a report, as previously mentioned, that the ages go between 62 and 70. The average age of a Board of Director is about 65 plus. My question is, what is the company doing to attract younger Board of Directors. In 5 years, if the composition stays the same, we're going to be pushing toward 70. I know there is wisdom in experience and age that relates to choosing a Board of Director, but that's what I would like to know. What is being done to attract younger directors?

Robert L. Parkinson

Well, first of all, process through our governance committee and then more broadly with the board. We discuss periodically the composition of our board, okay, and the diversity of our board and diversity defined by a number of different parameters, including age. So I think we're sensitive to the point that you raised. I would say, first and foremost, how proud I am of our board. This is really a strong board. It is a diverse board, and they fulfill their responsibilities to the company and to the shareholders very, very effectively. I'm very pleased with the additions, Dr. Chowdhry and Dr. Chen, who joined our board over the last year. But I'm sensitive to the point that you make. I think that it's a fairly common issue in today's world. It's difficult to get good directors, and the experience matters. Life expectancy is expanding. People are working longer. 65 today is not what 65 was 20 or 25 years ago. So only to be argumentative, the points you raised is one that we've talked about. And I think as we go forward, we will clearly take that into consideration. And over time, as the current board retires, which they will in the coming years, that provides an opportunity to address the issue that you raised. But please know that we talk about these things. We're sensitive to the very point that you make. And like a lot of things, it's about trade-offs, and we couldn't be more pleased to the composition of our board today.

Unknown Shareholder

Just a quick follow-up question on that. I listened to the report or somewhere I read that one of the directors stepped down because of age. Is there any age limit?

Robert L. Parkinson

There is an age limit. It's 72. So General Boomer years ago retired, last year, actually, last year retired. Two years ago, Dr. Martin retired. And we've had retirements that will hit that age limit. Not next year or I don't think the following year but coming up. And those will provide opportunities to, again, reevaluate the compositions of the board including the age dynamic.

Unknown Shareholder

Great. Well, I appreciate that. And I know that 65 is not what it was 4 years ago when my dad retired.

Robert L. Parkinson

Yes, I'll be there in 2 years. So you're -- is there any more questions?

Unknown Shareholder

My name is Bob Nimatca [ph]. I'm a stockholder in the company. What I have is Obamacare. I volunteer at an old folks home and I'm hearing stories from these folks about how age 75 seems to be magic, cancer treatment things like it. How do see that affecting the company? Has anybody really looked into the law? Because the same as Nancy Pelosi says, we have to pass it before we can know what's in it. So has anybody looked...

Robert L. Parkinson

Well, we just spent several hours talking about the new health care legislation. but let me just kind of focus on aspects as it's most relevant to our company, which is really the basis of your question. On one hand, expansion on access to health care of individuals that previously didn't have it, one can argue will create demand for our products that previously didn't exist. Although given the nature of our products, which are critically life saving, life sustaining, even someone that didn't previously have health insurance that presented to an emergency room is going to be treated regardless of whether they have health insurance. So that's somewhat debatable whether or not there's incremental demand that's created. The other piece of it, of course, is both through increase -- this year as an example, a device tax is being implemented. It applies to many of the products that we sell. So that is part of the health care legislation, the Affordable Care Act, that we're funding small piece as a result of the increased taxes that have been applied to certain products. At the early stages of the legislation, there was a drug tax that was implemented. Medicare rebates have been increased in certain areas as well. So in a variety of different ways, our company is making an economic contribution to fund, expand an access to care that's coming out of the profitability of the company, that's coming out of our ability to invest in R&D and some of those other things. So I think the fundamental aspiration of the Affordable Care Act, which is to provide health insurance to more Americans, I think we all would agree as a noble aspiration. But what you do and how you do it and how you get there is a different matter, and as we read all the time now, the complexities associated with this legislation are significant. And with complexity comes unintended consequences that I think we're only beginning to learn what those are going to be, generally as citizens, but specifically, as a company. I think we have a good understanding of what the impact on Baxter is going to be. Any other questions? One more. This a question, okay.

Ben-Chieh Liu

How do you visualize the competition in this particular medical area industries? I...

Robert L. Parkinson

How do I visualize competition?

Ben-Chieh Liu

Yes, with regard to not just Obamacare but also the pharmaceutical industries.

Robert L. Parkinson

Well, that's long -- maybe just a couple of brief comments because that's a long question. Any health care products company, whether you're a pharmaceutical company, a device company, a biotechnology company, is clearly being impacted by the macro global economic environment, right? Health care spending is generally the largest spending item, okay, on the budget of any country around the world. So as the economy contracts or grow at the rate that we're used to historically and health care costs continue to rise, unabated in some cases, at a much faster rate of growth in inflation and so on, reconciling those 2 things is increasingly difficult. And oftentimes, that gets translated then to increasing pressures on health care product companies such as Baxter and such as our competitors. So results and things like the reduction of prices, reduction of reimbursement, reduction of coverage and so on, all of which are increasing challenges that we face. And that's a new world. That's a new environment. It's not going to change. It's probably going to intensify, which is why I commented on it this morning in my prepared comments. But on the other hand, I think at the end of the day, innovation always wins out. And our ability to develop products that meaningfully advance clinical outcomes, save and sustain lives, but did in a way that also is cost effective, always has been and always will be the formula for success, which is why despite these macro challenges, only some of which I described, on one hand, on the other hand, we have a high degree of confidence and optimism in the future of our company.

Ben-Chieh Liu

So the way you see it, remaining 3 years as you just said?

Robert L. Parkinson

I didn't say remaining 3 years. I said maybe 65 and over.

Ben-Chieh Liu

Okay, all right. Is there any thoughts about either spreading or merging or absorbing other companies?

Robert L. Parkinson

If there is, I wouldn't announce it today. Any other questions before we close? Great questions. Great. If not, this completes our business. We stand adjourned. We'll see you all next year. Thank you so much.

Unknown Attendee

A question about the contribution of the organization. I'm wondering if anybody recognized -- have heard of a company -- of an organization called the Lupus Foundation of Illinois and where...

Robert L. Parkinson

Yes, I'm familiar with that. I think our foundation people are familiar with it. I mean, lupus is a terrible disease, and there's not a lot of effective treatments for it. So we're very aware of both the disease and the organization, yes.

Unknown Attendee

Well, my comment is that for 7 years, this organization has held a walk, lupus walk. Lupus walk is about 5 miles from this company, and they've never seen anybody from your company there.

Robert L. Parkinson

Okay. Well, one, my guess is that it's 5 miles from our company. There were Baxter employees that were involved, whether it was formerly sponsored by Baxter. That's one comment. The second comment I would make is you should send it to my attention, if they undertake their fund raising initiatives and so on to make sure there's proper visibility. So please have the organization send them to me, and I in turn will send it to our foundation. And as we do with any other great organizations, give our consideration.

Unknown Attendee

Yes, because we would like to see more people at the walk, especially a team from Baxter.

Robert L. Parkinson

Yes, good. Thank you for raising it to our attention. Okay, so with that, now we stand adjourned. We'll see you all next year. Thank you.

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