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Baxter International Inc. (NYSE:BAX)

Q2 2013 Earnings Call

July 18, 2013 8:30 am ET

Executives

Mary Kay Ladone - Vice President of Investor Relations

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

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

Ludwig N. Hantson - Corporate Vice President and President of Bioscience

Analysts

Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

David R. Lewis - Morgan Stanley, Research Division

Matthew S. Miksic - Piper Jaffray Companies, Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

Bruce M. Nudell - Crédit Suisse AG, Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

Operator

Good morning, ladies and gentlemen, and welcome to Baxter International's second quarter earnings conference call. [Operator Instructions] As a reminder, this call is being recorded by Baxter and is copyrighted material. It cannot be recorded or rebroadcast without Baxter's permission. If you have any objections, please disconnect at this time. I would now like to turn the call over to Ms. Mary Kay Ladone, Corporate Vice President, Investor Relations at Baxter International. Ms. Ladone, you may begin.

Mary Kay Ladone

Thanks, Sean, and good morning, everyone, and welcome to our Q2 2013 earnings conference call. Joining me today are Bob Parkinson, CEO and Chairman of Baxter International; Bob Hombach, Chief Financial Officer; and Ludwig Hantson, President, BioScience.

Before we get started, let me remind you that this presentation, including comments regarding our financial outlook, new product developments 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 details concerning factors that could cause actual results to differ materially.

In addition, in 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 I'd like to turn the call over to Bob Parkinson.

Robert L. Parkinson

Thanks, Mary Kay. Good morning, everyone. Thank you for calling in. As you all saw on the press release that was issued earlier this morning, Baxter reported solid second quarter financial results with earnings that topped our guidance, and we've also confirmed our outlook for the full year 2013.

In the second quarter, adjusted earnings per diluted share increased 4% to $1.16, and worldwide sales, excluding currency, also increased 4%. Our financial outlook for the full year now includes sales growth of 8% to 9% on a constant currency basis and adjusted earnings of $4.62 to $4.70 per diluted share. As a reminder, our guidance does reflect the impact of the Gambro acquisition, which is expected to close in the third quarter.

While we continue to meet our financial objectives, Baxter is also advancing care across key franchises in both developed and emerging markets, while focusing on innovation and R&D programs that will fuel future growth and enhance value for shareholders. This is evidenced by a number of recent commercial, operational and R&D achievements, including commencement of shipments to Hemobras in Brazil to enhance access to Baxter's recombinant Factor VIII therapy for the treatment of hemophilia. Through this innovative partnership, Baxter will be the exclusive provider of Baxter's recombinant -- or Brazil's recombinant Factor VIII treatment over the next 10 years while we work together on the technology transfer to support development of local manufacturing capabilities. As you may recall, we expect peak annual sales related to this partnership to exceed $200 million. We submitted the regulatory supplement related to the planned modification at Baxter's older Los Angeles plasma fractionation facility, and with the acceptance of this submission by the FDA, we expect to begin releasing product in the coming days.

We received marketing authorization from the European Commission for the use of HyQvia as a replacement therapy for adult patients with primary and secondary immunodeficiencies. HyQvia offers patients the ability to administer their treatment in a single, subcutaneous site every 3 to 4 weeks. This represents an important advance for patients who are managing a chronic disease, as HyQvia combines key benefits of intravenous and subcutaneous administration into one product. We expect to introduce HyQvia in select countries beginning in the third quarter, and we'll expand the launch to additional countries in 2014. And in the U.S., I'm pleased to report that our ongoing dialogue with the FDA regarding HyQvia has been both productive and encouraging. As a result, we're on track to submit additional data to the FDA before the end of this year to address questions raised in the complete response letter, and we're on a regulatory path to file an amendment to our BLA. As always, we'll update you as necessary on our continued progress.

Also in the quarter, we received FDA approval of RIXUBIS for routine prophylactic treatment, control of bleeding episodes and perioperative management in adults with hemophilia B. RIXUBIS is the first, new recombinant Factor IX approved for hemophilia B in more than 15 years, and is the only recombinant factor IX indicated for both prophylaxis and control of bleeding episodes. The approval is based on a Phase I/III study demonstrating that twice-weekly prophylactic treatment with RIXUBIS, 6 months, achieved a median annualized bleed rate of 2.0 bleeds, with 43% of patients experiencing no bleeds.

We also continue to advance the development of Baxter's Home Hemodialysis device, VIVIA. As you know, in 2012, we completed the first clinical trial in the U.S., evaluating the performance and safety of the device, and recently concluded the in-center nocturnal hemodialysis trial in Canada. Data from both trials will be used to support CE Marking in Europe later this year.

We also completed the enrollment in the pivotal Phase III study of rigosertib for patients with high-risk myelodysplastic syndrome, or MDS, as part of our ongoing collaboration with Onconova Therapeutics. The primary endpoint for this study is overall survival, and top line results are expected during the first quarter of 2014. As you may recall, Baxter has obtained exclusive licensing rights for all potential indications of rigosertib in Europe.

And finally, earlier this week, additional data was presented from the Phase III Gammaglobulin Alzheimer's Partnership study, including certain post-op and exploratory analyses of biomarker and imaging data during the Alzheimer's Association International Conference in Boston. As previously disclosed, the Phase III clinical trial did not meet its co-primary endpoints of reducing cognitive decline and preserving functional abilities in patients with mild to moderate Alzheimer's disease. While the study was not powered to show statistical significance among the subgroups, findings in moderate disease patients and ApoE4 carriers are intriguing and may contribute to a better understanding of the disease. We'll continue to analyze the data we've collected, and we'll evaluate our approach and next steps for the Alzheimer's program by collaborating with scientific experts in the field of Alzheimer's research.

In closing, the global environment in which we operate continues to be challenging. Yet, we remain confident in our business model, our ability to innovate and the prospects for growth and the future of our company. We'll continue to focus on achieving solid financial performance, enhancing our commercial and operational effectiveness and advancing Baxter's contribution to expanding access to quality care through innovation and collaboration. Baxter's portfolio remains strong as we benefit from our focus on life-saving therapies and the 4 growth factors that we previously discussed that support our strategic objectives and enable us to fulfill our mission.

As always, I'd be happy to address any questions on these or other topics during the Q&A this morning. But first, with that, I'd like to ask Bob to review the financial results in more detail for the second quarter and also guidance for the remainder of 2013. Bob?

Robert J. Hombach

Thanks, Bob, and good morning, everyone. As Bob mentioned, earnings per diluted share in the second quarter, excluding special items, increased 4% to $1.16 per diluted share, which exceeded our guidance range of $1.12 to $1.14 per diluted share. As we mentioned in the press release, GAAP results include after-tax special items of $49 million or $0.09 per diluted share, primarily for costs associated with the acquisition of Gambro AB. Now let me briefly walk you through the P&L by line item for the quarter before turning to our financial outlook for the full year 2013.

Starting with sales, worldwide sales of approximately $3.7 billion grew 3% on a reported basis. On a constant currency basis, sales increased 4%, in line with our guidance. Growth improved sequentially by 200 basis points and was driven by acceleration in Renal and across several key franchises within BioScience, as well as emerging markets, particularly the BRIC countries, where growth exceeded 20% in the quarter.

In terms of individual business performance, global BioScience sales exceeded $1.6 billion and advanced 5% in the second quarter. And on a constant currency basis, sales accelerated 6%. Within the product categories, hemophilia sales of $849 million increased 2%. Excluding foreign currency, sales increased 4%, driven by solid global demand for ADVATE and FEIBA, which was augmented by a benefit from certain tenders and an initial recombinant Factor VIII shipment to Brazil as part of our ongoing partnership with Hemobras.

In BioTherapeutics, sales of $513 million increased 6% on both a reported and constant currency basis. Growth improved sequentially, driven by accelerated sales of albumin, particularly in China, while growth of our immunoglobulin therapies remained in low single digits.

Sales in BioSurgery of $178 million increased 2% on both a reported and constant currency basis. This performance was driven by Synovis and solid growth in international markets, including sales for surgical sealants like TISSEEL and FLOSEAL. Finally, vaccine revenues totaled $98 million the quarter and increased 24%. Excluding foreign currency, sales increased 30%, driven primarily by milestone payments related to our ongoing collaborations on the development of influenza vaccines and strong performance of our core vaccines NeisVac and FSME.

In Medical Products, global sales in the second quarter exceeded $2 billion and increased 1%. Excluding foreign currency, sales increased 2%. Within the product categories, Renal sales totaled $654 million and increased 3%. On a constant currency basis, sales advanced 5%, driven by strong PD patient gains in the U.S. and emerging markets.

Sales in the Fluid Systems category of $755 million increased 2% on both a reported and constant currency basis. Performance continues to be driven by solid demand for IV solutions and price improvements for the injectable oncology drug, cyclophosphamide, which collectively more than offset lower sales of infusion pumps.

Specialty Pharmaceuticals, which includes our inhaled anesthetics and nutritional therapies, posted sales of $366 million, reflecting an increase of 1% on a reported and constant currency basis. Strong anesthesia growth offset lower sales of nutritional therapies resulting from supplier shortages of distributed products.

Finally, sales in BioPharma Solutions, which is our pharma partnering business, totaled $254 million and declined 4% on a reported basis or 3% on a constant currency basis. This was a result of constraints we discussed last quarter, which affected the timing of shipments to customers. We expect this business to return to growth in the second half of the year as we ramp production to match demand.

Turning to the rest of the P&L. Gross sales in the -- excuse me, gross margin in the quarter of 52.3% was better than our expectation and reflects an improvement sequentially of 130 basis points. Gross margin also expanded by 50 basis points versus the prior year margin of 51.8%. The year-over-year improvement was a result of mixed improvements and the benefit from foreign currency hedging, which offset a number of headwinds, including incremental pension expense, the medical device tax and government austerity measures.

SG&A totaled $815 million, an increase of 3%, driven by the impact of incremental pension expense and investments we are making in promotional and marketing activities, new product launches and within international markets to enhance our global presence. In total, these items more than offset a benefit from foreign currency and tight management of discretionary spending and operational efficiencies derived from our process reengineering efforts.

R&D spending in the quarter of $255 million increased sequentially by 4% but declined 8% versus the prior year period, as expected. You may recall that last year, we incurred approximately $20 million of accelerated and discrete items, including various milestone payments and expedited supplies of product for use in a number of ongoing clinical trials, creating a difficult comparison year-over-year. Given the number of items Bob discussed earlier, it is clear that we continue to make investments to advance a number of programs in our pipeline, including those in our leading hemophilia franchise, our Home HD therapy, as well as earlier-stage programs and key collaborations.

The operating margin in the quarter of 23.1% improved 120 basis points versus the prior year. Interest expense was $17 million compared to $22 million last year, as incremental interest linked to recent debt issuances was more than offset by an unplanned onetime gain of $11 million associated with hedges related to the recent bond issuance to finance the Gambro transaction. This gain was offset by unplanned costs of $13 million, which booked to other income and expense associated with a bridge loan facility put in place to finance Gambro. Collectively, these 2 items did not have a material impact on our quarterly results. The tax rate was 22% for the quarter, in line with our expectations, and as previously mentioned, adjusted earnings per diluted share of $1.16 increased 4%.

Turning to cash flow. On a year-to-date basis, cash flow from operations exceeded $1.1 billion, and capital expenditures totaled $639 million, in line with our expectations. Compared to prior year, cash flow from operations is down by $265 million, largely due to the timing of U.S. tax payments, which was an incremental $150 million in the second quarter, and a significant collection of aged receivables in Spain last year, which totaled approximately $200 million. Excluding these 2 items, cash flow from operations grew approximately 6%.

DSO ended the quarter at 53.5 days, similar to last year, and was higher than the prior year period by 1.4 days due to the year-over-year comparison in Spain and higher DSOs in other international markets.

Inventory turns of 2.2 turns are similar to last quarter and modestly lower than the prior year period. As you know, we continue to increase inventory levels to support growing demand, particularly in plasma proteins, as we remain on track to benefit from enhanced capacity in the second half of the year.

Lastly, on a year-to-date basis, we repurchased approximately 10 million shares for $717 million, or on a net basis, 4 million shares for $396 million, in line with our full year objective.

Finally, let me conclude my comments this morning by providing our financial outlook for the full year 2013. As you saw in the press release, we confirmed guidance and expect earnings of $4.62 to $4.70 per diluted share. This includes the impact of the Gambro acquisition, which is projected to close during the third quarter.

By line item of the P&L and starting with sales, we now expect sales growth, excluding the impact of foreign currency, of approximately 8% to 9%. And this includes a contribution from Gambro revenues of $575 million to $650 million. At current foreign exchange rates, we expect reported sales growth of the 7% to 8%. Excluding Gambro, we continue to expect sales growth on a constant currency basis of approximately 4%. For the full year, we expect gross margin for the company to be approximately 51.0%. This includes margin expansion in the base Baxter business, which will be offset by Gambro. In terms of expenses, we now expect SG&A to increase in high single digits and R&D to grow in mid-single digits. Both line items reflect leverage in the Baxter expense base along with the addition of Gambro.

We now expect interest expense to total approximately $140 million, which includes the gain in the second quarter we discussed earlier and other income to total approximately $10 million for the full year. We continue to expect a tax rate of approximately 22%, and we expect a full year average share count of approximately 550 million shares, which assumes approximately 400 million in net share repurchases. From a cash flow perspective, our plan remains to generate cash flow from operations of approximately $3.3 billion, which excludes any cash cost associated with the Gambro transaction.

We continue to expect capital expenditures totaling approximately $1.7 billion, which includes Gambro and the investments we are making to enhance our plasma manufacturing footprint in Covington, Georgia.

Let me move to sales and expand on our assumptions for the 2 businesses and the major product categories. Beginning with Medical Products, on a constant currency basis, including the contribution of Gambro, we expect sales growth of 10% to 12%. Excluding Gambro, we expect sales for Medical Products to grow 3% to 4%. Specifically, we expect Baxter's Renal sales to grow in low single digits, which will be augmented by the contribution from Gambro revenues totaling $575 million to $650 million. We continue to expect Fluid Systems sales, which includes IV solutions, infusion pumps and access sets, to grow in mid-single digits. We expect Specialty Pharmaceutical sales, which includes our nutritional therapies and inhaled anesthetics, to grow in low single digits. And we expect our BioPharma Solutions business to have comparable sales to 2012 of approximately $1 billion.

For BioScience, we continue to project sales growth, excluding foreign currency, in the 4% to 5% range. Our outlook includes mid-single digit growth in our hemophilia franchise, which includes recombinant and plasma-derived Factor VIII and Factor IX therapies and FEIBA, an inhibitor treatment. Growth will continue to be fueled by underlying demand for ADVATE, where we continue to realize benefits associated with the new expanded label, including competitive gains and conversion to prophylaxis treatment.

We expect mid-single-digit sales growth in BioTherapeutics, which includes IG therapies, albumin and Alpha-1 treatments. This is the result of our enhanced capacity, which will allow us to exit the year with volume growth in the U.S. for our immunoglobulin therapies in the 6% to 8% range and includes annual sales of subcu therapies of approximately $100 million.

In BioSurgery, we expect mid to high single-digit growth. And finally, we now expect our vaccine franchise to grow more than 10%.

As mentioned in our press release, for the third quarter, we expect earnings per diluted share of $1.18 to $1.21. Including revenues associated with the Gambro acquisition, we expect sales growth excluding the impact of foreign currency of 10% to 13%, or approximately 9% to 12% including the impact of foreign currency. Excluding Gambro, we expect the base Baxter sales at constant currency rates to grow approximately 6%.

Thanks, and now let me open up the call for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] I would like to remind participants that this call is being recorded, and a digital replay will be available on the Baxter International website for 30 days at www.baxter.com. Our first question comes from Larry Keusch of Raymond James.

Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division

Just a couple of questions. First off, I know that you guys had some issues in the Renal business in China that you mentioned last quarter, so if you could just sort of give us an update there, that would be great.

Robert J. Hombach

Yes, I think what we mentioned last quarter, Larry, was that there was a price reduction mandated in China and that we had factored that into our outlook and update. So really no new change there.

Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division

Okay. And then just 2 other quick ones for you guys. First off on the -- Bob, on the revised guidance that you're providing for 2013, does that contemplate a divestiture to be made upon the acquisition of Gambro?

Robert J. Hombach

Yes. As was, I think, disclosed recently here, the one remedy that we need to execute here in order to close the transaction is to divest our existing CRRT business, which we acquired from Edwards back, I believe, in 2008. It's a relatively small business, about $50 million in annual revenues with, frankly, below corporate average margins. And so that is something that we will look to divest, but the net-net of that will not have an impact on our outlook, and it's factored into our guidance here.

Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division

Okay. And then lastly, Bob, just now that it appears that we are probably in an environment where interest rates are going to certainly be stable, if not rising. Can you remind us again what the headwind was associated with the discount rate and the pension expense this year and perhaps a sensitivity, as interest rates move, to what that could mean next year?

Robert J. Hombach

Sure. We talked about approximately $0.09 per share negative headwind in 2013 given how much the discount rate moved late last year. And obviously, rates have gone up quite a bit, but the 10-year was at 2.7% not too long ago, and this morning, it's heading towards 2.45%. So I think if you tried to peg it at the middle of the year for the last 2 years, you would have gotten burned pretty badly by the time we get to December when the discount rate is set on December 31. But just to give you a sense, I think we've talked about previously that every 25-basis-point move is approximately $20 million in pension expense.

Operator

Mike Weinstein of JPMorgan is on the line with a question.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

I'm trying to do the math here on Gambro. So if we think about the Gambro sales run rate today, is it in about the -- call it the $1.65 billion if I annualize it? Is that about right?

Robert J. Hombach

Yes, I think that's -- yes, yes, it's roughly 140 -- 135, 140 a month, yes.

Mary Kay Ladone

Yes. Mike, remember, we had about $830 million in our original guidance, which assumes midyear close. So if you double that, you get right in the ballpark of your number.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Right, okay. And maybe just go back on a couple of the updates that you gave. One, it sounds like on the HyQvia conversation, it's basically -- basically, you're saying the same thing that you were kind of originally thinking, which is that we'll do this additional preclinical work, we'll do the full follow-up rather than just the interim look, and once we have that full data set, we'll submit that in the amended filing to the FDA, which will be late this year and hopefully if all goes well, we'll get an approval later in 2014. Is that accurate, basically with what you originally thought?

Robert L. Parkinson

Yes, that's a -- I think that's a good summary, Mike.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Okay. And can you just spend a minute on Home Hemo and VIVIA, so assuming you get the CE Mark later this year, what it means to have that approval as we go to 2014 and how much time you're going to spend in dollars on trying to develop the market in Europe?

Robert L. Parkinson

Yes. Mike, Bob Parkinson here. We're not going to quantify what the impact is 2014, but I think it's fair to say that we're going to launch this product in a very disciplined way. We are very bullish on the long-term prospects associated with Home Hemo, particularly home nocturnal hemo. We are, though, launching a product and really a system that is reasonably complex. And so establishing the reliability of the product, its performance and so on is something that's critical. And as you mentioned, concurrently, we are going to make fairly significant commitments in terms of market development given -- investment given the long-term potential that exists here. So I think as it relates to near-term impact for Home Hemo, I think realistically the impact will be relatively modest in 2014, but that doesn't detract from our long-term view on how significant this new therapy could be.

Operator

David Lewis of Morgan Stanley is on the line with a question.

David R. Lewis - Morgan Stanley, Research Division

Bob, I thought maybe we'd just go back to the LRP for a second. If we go back several months ago, I think you laid out 7% to 9% earnings growth, but obviously, the lower end of that range for the first couple of years. And just a couple of questions on that. Is it fair to assume the lower end of that range incorporates potential early ADVATE competition and potential generic pressure? And then I wonder if you could just give us an update in terms of Gambro, the financing terms on Gambro, either on timing, tax that would impact accretion in 2014 versus what you've given us previously.

Robert L. Parkinson

Yes. David, Bob Parkinson here. Let me take the first part of that. Maybe Bob Hombach can take -- actually, add to my comments on the first part, and if you'll handle the second part. Our outlook going forward, not just for '14 but beyond, is very much aligned with what we communicated at our investor conference last fall. As Bob took the group through, however, we do feel the earlier years of the LRP will be at the lower end of the range due to a number of factors, and will accelerate throughout the 5-year LRP period. Now specifically to the couple of points you made, a couple of the headwinds, I guess, going forward for -- into 2014, one would be new competitive recombinant Factor VIII launches was, in fact, contemplated in the outlook that we provided. Now obviously, your ability to quantify that and contemplate it exactly as plus or minus one way or the other is subject to the assumptions. But we did reflect impact of new competitive Factor VIII launches. Likewise we reflected, in the earlier years, certainly, of the LRP, impact of prospective generic launches predominantly associated with 2 areas, one being SUPRANE, our leading anesthetic agent, and the second being cyclophosphamide, an oncology agent. Again, forecasting or speculating what the timing of competitive launches might be, what the impact might be is difficult. But we did our best to quantify something in the early stages. So that was, to some degree, reflected in the lower numbers in the earlier years of the LRP. Since we met with the group last fall, I think it's reasonable to say global austerity measures continue to -- not only continue to exist but probably intensify. Again, we tried to reflect that in our long-range plan. Whether we did that adequately or not is to be determined. Now on the other hand, of course, in terms of potential tailwinds, as you know, we hadn't finalized the Gambro deal when we were together last fall. And so that's a positive relative to the numbers that we disclosed. The question previously was asked by Larry on the pension, so we'll see where that shakes out. We did reflect, in the LRP, impact of new product momentum from recombinant Factor IX to HyQvia to Home HD, FEIBA prophy and so on. But again, I think that only becomes material in a significant way as we move into 2015. So there's some non-recurring things that were impacted in 2013 such as the device tax and so on. So that kind of summarizes some of the major headwinds and tailwinds, but I think it's fair to say that our outlook for the long-range plan does not differ meaningfully from what we disclosed last year. The earlier years will be somewhat at the lower end of the range. And of course, you got some variables here that are difficult to quantify that could be big, such as generic incursion on things like SUPRANE and cyclophosphamide and so on. So I'll stop there. Bob, I don't know if you want to add anything to add. Maybe give David a chance to respond to that and we can...

Robert J. Hombach

Yes, yes. Just a couple of quick things to frame this. Between SUPRANE and cyclophosphamide, they're about $600 million in sales, plus or minus, at above-average corporate margins. So that's kind of the base of business as we think about generic competition coming in at '14. And as Bob mentioned, timing and approach obviously has a big impact there. We've tried to gauge that as best as we can. I would just mention on pension, we did -- I have talked about in the past the main driver of increasing pension expense the last several years has been amortization of actuarial losses that were accumulated, primarily in 2008. And even if interest rates don't improve over the LRP, we were going to see some benefit as we amortize off those 2008 losses. And some of that is already baked into our 2014 expectation in the long-range plan. As it relates to Gambro, I would say at this point, clearly what we've said in the past around approximately $0.10 to $0.15 of dilution for 2014 was a function of a number of things, including most importantly the timing of the close of the transaction because the non-cash intangible amortization was the #1 driver of the dilution and that's linear. We still don't know exactly what that number is going to be, so it still is an estimate. But some of the other things that would drive this, such as the financing, we do now know where we're at, and that did come in favorable. So given the fact that we shifted the timing out here a bit and the financing has come in favorable, I would characterize our current assumption around dilution in 2013 related to Gambro in the $0.06 to $0.08 range at this point, and so clearly better than what we have previously assumed. I would say that the major offset to that in the back half of 2013 here for us is really emerging market FX. Clearly, rates -- excuse me, FX rates in emerging markets, whether you're talking about Turkey, Colombia, Brazil, even places like Australia, have moved double-digit plus against us here since really early second quarter. And so we've reflected, call it, $0.04 to $0.05 of downside in the back half of the year in our latest expectation here, which I think largely offsets some of the benefits here we're seeing on the Gambro side. And then finally, on the tax piece related to Gambro, I've talked about the fact that we think there may be opportunities there to do better than what we have in our model. But until we close the transaction and really get a better sense of the attributes we'll have at our disposal here around loss carryforwards and other deductions we might be able to utilize, it's premature to speculate on what that might mean to '14 and beyond.

David R. Lewis - Morgan Stanley, Research Division

I feel like I got more than I could have hoped for. But if I could sneak in just 2 more quick ones. First question, just BioTherapeutics guidance, it looks like it came down very, very slightly for the back half of the year. Maybe could you help us -- if I heard that right, could you help us with the drivers of that? And then maybe, Bob Hombach, if you're going to make a decision on cash earnings for Baxter, is that a decision that gets made in October when you officially close Gambro or more likely a decision that gets made in January with '14 guidance?

Robert L. Parkinson

Bob, why don't you handle both of those.

Robert J. Hombach

Yes, and I'll start with the second one first. Yes, I think that's a decision that we're still thinking through whether we're going to do it, and then certainly timing of implementation, the later we get in this year, I think the greater the likelihood it's a 2014 implementation just given the complexities around what that might look like. But that's still TBD here as we work through this. The one thing that I would highlight and one of the reasons why we're considering it as we are, between what we're already incurring, about $100 million a year in non-cash intangible amortization and our estimate of about $140 million we'd be adding with the Gambro transaction, you're talking about almost 150-basis-point impact on our gross margin. And given that it's non-cash, I think that creates an ever-increasing gap between our cash flow and EBITDA margin profile versus what we're reporting on our P&L. So that's one of the key things we're taking into consideration. As it relates to BioT, we did adjust down slightly our expectations in the back half. I think that's a function of a number of things. I'll make some comments. And certainly, we have Ludwig Hantson here today as well, the President of the BioScience business. He can jump in as well. I think we're pleased with where we're at with old LA and the ramp-up in production that we're seeing and the ability to be in a much stronger position from a supply standpoint as we move through the back half of this year. And as I mentioned in my commentary, we will be exiting the year being able to support at least 6% to 8% growth from a volume perspective here going forward, which we're very pleased with. But given where we're at on a couple of key things, namely HyQvia, I think we're going to be very thoughtful about how we approach the market here in the coming months and make sure we're positioning ourselves for the long term. So Ludwig, I don't know if you want to make a comment or 2 here.

Ludwig N. Hantson

Sure. Thanks, Bob. As I mentioned before, 2013 is a transition year for us, especially from a manufacturing perspective. If you look at our sales growth, you'll see that we are accelerating our sales growth. And we expect that for the second half of this year, we will continue to see acceleration, which is driven by, as I've said, the manufacturing output. But it is a transition year since old LA is coming onboard the second half of this year, and we have 2 dimensions that we need to put into the equation here. First of all, we need to prepare for the HyQ launch, so that means that we have to build a Baxter inventory to get ready for the launch, as well as, as you know, we've had back orders over the last couple of years on the IG side. So we have to make sure that we do -- have better supply management with our customers. So that's what's bringing the guidance down a little bit. So overall, I would say it's maybe a positive news on HyQ here.

Operator

Matt Miksic of Piper Jaffray is on the line with a question.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

One on hemophilia. Bob, you mentioned, I think it was Bob Hombach, mentioned some of the progress around PK dosing -- or rather around prophylaxis and share gains so far with the IV8 [ph] label. I'm wondering if you could give us an update on where the uptake or interest has been on the convenience dosing side of that new label and what that tells you, if anything, about the demand for this convenience dosing product over the long term and the coming competitive products expected, say, this time next year.

Robert L. Parkinson

Okay. Ludwig, why don't you handle that?

Ludwig N. Hantson

Yes. So let me start with the big picture here, what we're trying to achieve with all our hemophilia products, and that is we're trying to strive for bleed-free world. That's what we're doing with IV8 [ph]. That's also what we are doing with FEIBA prophy, as well as our RIXUBIS approval. It's the first product with a prophy indication. So we're trying to move to a bleed-free world. So that's the most important thing here. With respect to your question on PK dosing, so we've rolled this out in the U.S. last year. As I mentioned, we had a phased approach where we start at the beginning of the year with the high level of moving to prophy dosing, and then midst of the year, we launched the PK aspect of it. So we're in the midst of this launch. We saw 200 conversions in the U.S. last year. Year to date, we've seen 100 conversions to prophy and PK dosing, so this is work in progress. But clearly, we see a nice uptick. In addition to the United States, we are working now with the European regulatory body to also get PK dosing in the label. We're very close, and we're looking at a potential launch of PK dosing very soon as well.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

And then you mentioned shipment in the quarter related to the partnership that you have internationally in hemo. Can you quantify that or give us some sense of what the impact there was?

Robert L. Parkinson

Sure. Go ahead, Bob.

Robert J. Hombach

Yes. As I mentioned, the initial shipment, it was a modest shipment, a little less than $10 million. So we're just getting started. But again, very excited about the opportunities to ramp that up as we move throughout the course of this year and certainly through the LRP.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

And then on the other side, Medical Products side of the business, with the overseas approval now for Gambro and that transaction going forward, the Renal business did just a touch better in the second quarter. I'd love to hear any initial response that you've had from, whether it's customers or whether it's health care systems internationally on the pulling together these 2 businesses and just maybe what the early read is from the market on what you're doing there.

Robert L. Parkinson

Yes, Matt. Bob Parkinson here. It is early, and as a result, really only anecdotal. But we have gotten feedback from customers actually around the world, I think, that are generally pleased with the fact that there will be a new entity, if you will, that can offer the broad spectrum of products in the Renal area. I think many customers have felt they've been limited in terms of choice in that regard, and as a result, I think there's a pretty high degree of anticipation once we get this deal closed that we'll be able to collaborate with them more broadly than what we did previously. As I've commented earlier, too, I think once we have the full line of products, it will fit very nicely into what I've described as vector 4 of our long-term growth, which is public-private partnerships and our ability to collaborate in a different way with governments or payors, to assist them in dealing with the escalating costs associated with treating what is a growing population, wherever you go in the world, with people that have end-stage renal disease. So for lack of a better way to describe it, I guess once we have all the clubs in our bags, so to speak, I think we'll be in a great position to collaborate with the payors. But again, as I pointed out, let's get the deal closed first and let those things then actually materialize.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

And then finally just on IVIG in the quarter. I mean, we all understand, I think, that supply -- bringing that supply back online is sort of the big variable in your business at the moment and for the next 6 to 12 months. But coming out of the plasma meeting, I was a little bit surprised in June to hear some of the growth rates for the U.S. kind of maybe in the low double digits, and the response I got from investors was the same. It's just very, very strong, up a little bit from last year. Your thoughts on that strength and maybe what could be driving that or the sustainability of that strength in the U.S. would be very, very helpful.

Ludwig N. Hantson

So what we see is increased diagnosis rate and treatment rates. So that's one dimension that's driving the 10% growth in the U.S. Plus when you segment by formulation, you'll see that the majority of the growth is coming from the subcu segment, subcu segment growing more than 30% in the United States. So -- and that goes -- is aligned with what we see in the U.S. and internationally where some of our business is moving towards home care. So you see home care increasing. So that means that you see subcu increasing. And I would say overall, this is a great dynamic that we have in order to make sure that the HyQ launch is going to be successful. We believe that HyQ has a great opportunity here within the subcu segment, $500 million overall. So overall, yes, market is healthy. Diagnosis rate is increasing, and it is especially the subcu that is growing.

Operator

David Roman of Goldman Sachs is on the line with a question.

David H. Roman - Goldman Sachs Group Inc., Research Division

I was hoping you could talk a little bit about your relaunch strategy or your sort of go-to-market plans as you start to have greater capacity. And clearly, Baxter has been growing somewhat below the market given those capacity constraints and per Matt's comments, and market obviously remains pretty strong. But maybe you could just sort of help us think about what the phase-in is going to look like for you guys. Is this going to be -- are there customers waiting in the wings for Baxter products? Is there a pricing dynamic? Is there a contract? Maybe just help us understand how you come back to market.

Robert L. Parkinson

Let me just make a comment, and then Ludwig and Bob can pick up on this. As everybody knows, we've been constrained. And as Ludwig commented earlier, our #1 priority is getting our inventories back up and our customer service levels up so that we can assure continuity of supply to our existing customers. And as we become increasingly encouraged at the prospects of HyQ approval, we also want to be in a position clearly to have inventory to support that launch over time. So those are really kind of the front-burner priorities and will continue to be as we get old LA back into commission, we start to approach some of the additional volume associated with the Sanquin collaboration as we move into 2014. So I don't know, Ludwig, if you want to add to that, but those are really the dynamics there.

Ludwig N. Hantson

Yes, yes. So I would say that the 2 major dynamics is -- are that we're moving our business more from an IV to subcu, hopefully to HyQ, and this is now happening in Europe, as well as we are getting ready for potential launch in U.S. for HyQ for 2014. So that's number one. And then number two is the change in channel mix where the hospital and the acute setting was, I would say, our dominant channel a couple of years ago, and that is moving now towards an SPP channel being our dominant channel moving towards the subcu. So these are the 2 major dynamics that we have. But overall, as an organization, we're now getting ready for a successful launch with HyQ.

Robert L. Parkinson

Does that answer your question, David?

David H. Roman - Goldman Sachs Group Inc., Research Division

That does. And maybe if I can just follow up on specifically what I was also wondering. If you look at the last scenario where one of your competitors ramped up capacity and entered the U.S. market with a new product, they were fairly aggressive on pricing. Has something changed in the market right now, you think, as you ramp up that capacity that's going to keep pricing a lot more favorable than it has been in the past when companies have been expanding capacity?

Robert L. Parkinson

Yes, what we're...

Robert J. Hombach

Yes, what I would say there, Dave, 2 things. One, this is going to be a gradual ramp-up. It's not like we've got a huge bolus that we built up there that we're going to be looking to place in the market. As we mentioned, we're going to be very targeted and thoughtful about how we focus on the chronic channel with building customer loyalty and the ability to differentiate with HyQ over time. And as we've talked about numerous times, we think HyQ is a significant innovation here and that we're going to be looking for a price premium in the marketplace. So that's really our orientation, and we're certainly not looking to rush back in. And price is certainly not a lever we're looking to use.

David H. Roman - Goldman Sachs Group Inc., Research Division

Okay. That's extremely helpful. And then maybe just one more. Bob Hombach, in your prepared remarks, you referenced BRIC countries growing over 20%. Clearly, there's been some sort of noise in the macro around emerging markets. And as we've seen in other parts of health care whether it's the U.S. or Europe as the macro weakened, you tend to see -- health care seems to participate in that to some extent, but it looks like emerging markets remain a very strong driver. If you could maybe provide any further color on those businesses and just remind us how big that is as a percentage of Baxter right now.

Robert J. Hombach

Yes. I mean, we've talked about emerging markets being a little bit more than 20% of our overall sales. And so I mentioned specifically the BRIC countries driving 20% growth. Clearly, there are challenges in the macro environment in many of those countries, but I think it really speaks to the medically necessary nature of the products that we're in, the Renal, the hemophilia and so on, where these are therapies that governments are looking to expand access to, in fact. And so whether it's the very beginnings of the Brazil partnership that we're starting to benefit from, the growth in Renal in China and so on, I think we're well positioned in this environment to partner and drive strong growth because of the medically necessary nature of our products. So we continue to be excited about the opportunities that we see in front of us across the board.

Operator

Bruce Nudell of Credit Suisse is on the line with a question.

Bruce M. Nudell - Crédit Suisse AG, Research Division

I guess the thing that seems to me going on with the stock is that people are kind of a little worried about the upcoming BIB [ph] launch, and I guess for -- and there were some very positive things in their data set like 30% of people did quite well with 5-day dosing and you got pretty decent results for even every 7-day dosing. So just stepping back and looking at that threat, how do you guys view the likely encroachment on your current prophylactic base? When do you think standard recombinants in developed markets are likely to go x growth? And then you, of course, have your own program. How would you gauge the technical risk associated with that program? I know you're working off a very well known molecule. PEGylation is the new wrinkle. And just like how would you couch the technical riskiness of that program, which may be very important over the long run?

Robert L. Parkinson

Ludwig, do you want to...

Ludwig N. Hantson

Yes. There are lots of questions here. So let me take a step back and maybe talk about the LRP for hemophilia. So we presented last year that we will continue to grow our hemophilia franchise 3% to 4% in the next years to come, and we believe that we can do this. And this is going to be driven by different aspects. We believe that ADVATE still has some runway as far as growth is concerned, and the reason for that is it's a healthy market, which continues to grow mid-single digits. We continue to see conversion through our ADVATE prophy indication. We see emerging countries becoming more important. As you know, we had our first shipment to Brazil, which is part of our 10-year supply agreement with Brazil. We also started to treat our first ADVATE patient in China. We have key -- key tenders are opening up in the next couple of months. So overall, we believe that there's still a tailwind with ADVATE. So that's the first dimension. You know that overall, we are striving for a bleed-free world, so ADVATE is still the gold standard, 10 years ahead of anybody else coming into this market. So that's dimension number one. The second dimension that will continue to derive the hemophilia franchise is our portfolio. And you mentioned 855 is part of it. So when I think about the other opportunities that we have, we have RIXUBIS that is launching as we speak. In addition to that, we're looking at an OBI-1 submission later this year, which we'll hopefully launch sometime next year. Bob talked about the FEIBA prophy indication, which will come at the end of this year. So our pipeline is pretty healthy and will also help us to continue to grow this franchise. Now specifically to your technical question on 855, we have started to treat the first patients in our Phase III study, and the comments that we get so far are very positive, encouraging comments. The technology itself, PEGylation, is an older technology. We know that there are more than 10 products on the market that have a similar type of technology with PEG doses significantly higher than we have. So overall, we feel comfortable with what we've seen so far. We feel comfortable with our pipeline. We feel comfortable with the growth expectation for ADVATE, and we do feel comfortable with the progress that we're making on 855.

Robert L. Parkinson

Ludwig, comment if you would, though, as well as it relates to the near-term competitive launch of longer acting, our position. Market research, as it relates specifically to efficacy vis-à-vis convenience on the hierarchy of priorities because I think that's a really important aspect, okay, of the question that Bruce asked.

Ludwig N. Hantson

Yes. So it goes back to what I mentioned before that we're striving for a bleed-free world, one patient at a time. And that's the feedback that we get from physicians, as well as patients, that efficacy is the most important thing. And the definition of efficacy is controlling the bleed or preventing the bleeds, 0 bleeds, 0 ABRs. So that is the feedback we're getting from market research. The second piece that is important is the tolerability piece. It's the potential inhibitor formation. And what's third on the list is the ease of use. So in everything we do, in all of our programs, we're not going to sacrifice our aspiration of going for a bleed-free world for convenience and ease of use. So that's the feedback that we're getting from physicians, as well as from our patients.

Operator

Bob Hopkins of Bank of America is on the line with a question.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

So just a couple of quick clarifications on guidance and then something on the pipeline. So I think originally, when you guys provided guidance, the guidance for the underlying business excluding Gambro, you were at $4.70 to $4.85. And it sounds like that's obviously moved around a little bit because of some of the emerging market FX issues. So I was wondering if you could just kind of clarify where are you for the year now in that kind of underlying Baxter-alone guidance for the full year and what are some of the moving parts?

Robert J. Hombach

Yes. Actually, we really didn't specifically call that out. And so I would say generally, x Gambro, given some of the strength we've seen in the first half, the FX issues I mentioned in the back half, we're basically where we were, certainly well within the range that we originally laid out. So there really hasn't been any significant changes on underlying assumptions about the base Baxter business. We still maintain the approximately 4% constant currency sales expectation for the full year, and margin, et cetera, I think, is very much in line with our original expectations.

Mary Kay Ladone

Yes, Bob. As Bob Hombach mentioned earlier, the dilution of reduction we're seeing related to the timing of Gambro is being offset by downside-related FX. But in the base business, operationally, there's no change to Baxter.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

All right. So that FX comment was related to Gambro specifically?

Robert J. Hombach

Well, no, no. well, I mean, we're differentiating between an emerging market FX issue versus the underlying operational performance of the company.

Mary Kay Ladone

Correct.

Robert J. Hombach

So the FX issue in emerging market is related solely to Baxter.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Got it, all right. So the underlying earnings profile, nothing's changed. And then just to clarify, in Q3, you do have one extra selling day?

Robert J. Hombach

Correct.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Okay. And then just on the pipeline real quickly for me. Can you just give us a sense on the recombinant Factor IX? Just kind of set expectations for how that ramp goes. I mean, how long does it take that product to get to $100 million? And on the HyQ side, for 2014, is the -- in your mind is that most likely a second half scenario if things go well. Or is there potential that it could be a first half scenario?

Ludwig N. Hantson

So let me start with RIXUBIS. So we're very happy with the approval. So as far as the market is concerned, I think the market is $1 billion plus. We are training the sales force. We're getting ready for the launch. There's a major meeting that we're getting ready for, which is at the beginning of October. As far as the other geographies is concerned, we plan to submit Europe before year end, as well as Japan. As far as dollar ramp-up is concerned, I don't think we gave the guidance there.

Robert J. Hombach

We have to clarify that. But I would say certainly over the LRP time frame that, that would be the time frame that we'd be looking to get it towards that kind of a profile.

Ludwig N. Hantson

Yes. And when I think about what this could bring to the patient, first of all, this is -- I do believe it's a great treatment option for hemophilia B patients. It's the second product to the market after, I think, 15 years of almost silence in that space. We have 43% of patients without any bleeds. So again, going back to what we said before, striving for a bleed-free world, getting the prophy indication will differentiate us from current competition. And for the long term, I do believe there is space, there is medical need for a short-acting product, for instance, for patients who are active and patients who need their peaks more than the troughs. So we do believe that this segment will continue to be a healthy segment.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

And then on HyQ?

Robert L. Parkinson

On HyQ?

Ludwig N. Hantson

The HyQ time lines. So for Europe, you know that we're launching now. So we're looking at treating our first patient this month. And Germany will be the first country to go. We have other Nordic countries, Scandinavia, Netherlands, U.K., Germany and some other countries that we're launching in the next couple of months. As far as U.S. is concerned, I would say overall, we are a little bit more confident. As you know, we have been in constant dialogue with the FDA over the last couple of months. We know what we're doing is aligned with their requests. We will be submitting the data year end. And as far as timing is concerned for the U.S., keep my fingers crossed, we could be looking at mid-2014, second half 2014 potential approval.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Great. And then just lastly, really quickly on gross margin. Bob, can you give us a sense as to how hedging impacted the gross margin in the quarter? I mean, you mentioned that it's directionally a benefit, but I was wondering if you could just quantify that.

Robert J. Hombach

Yes. And I think the main impact here is really the yen. As you know, we hedge major currencies but not emerging market currencies. And given how much the yen moved, it definitely affected the top line. But we had put hedges in place back in the middle of last year in the low 80s and the yen's at 100 right now. So that really was the main driver there. But again, that just offset some of the issues that we've seen. So it wasn't a huge impact.

Mary Kay Ladone

Sean, we have time for 2 more questions.

Operator

Actually, we have Glenn Novarro.

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Great. So I have a question on the third quarter revenue guidance. The constant currency growth is -- you're calling for 6%. So that's better than what we just saw here in the second quarter at 4%. There is the extra selling day. You're launching GAMMAGARD. But is there more to the acceleration than just the extra day in GAMMAGARD? That's my first question.

Robert J. Hombach

We did talk about timing of some shipments in emerging markets this year. It just happened to fall more in the third quarter than the second and the fourth last year. And so I think even on the call back in April, we indicated that we thought third quarter would be a stronger quarter than the other 3 this year, and that's definitely playing out for the timing of the shipments. But also, I'd say more modestly, the billing day thing, I think, is relevant for our Med Products business, primarily in the U.S. and other developed markets, but a little less relevant for the BioScience business. So it's not a direct impact across the board.

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

And can you remind me those shipments? Are those BioScience? What segments of the business is it?

Robert J. Hombach

Yes, it tends to be more BioScience because the tenders tend to be more lumpy in plasma protein, some of the hemophilia and so on. And in terms of others shipments in emerging markets, again, we'll see a little bit of a ramp here as we go throughout the year on the collaboration in Brazil with Hemobras and recombinant Factor VIII.

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Okay. And then just one quick follow-up. Just on the Renal business, about a month or so, CMS announced cutting reimbursement to centers by about 10%. And that's mainly going to impact HD -- or the HD environment. And I believe for you, HD is still very small. So I'm wondering if you can put that into context for your HD business. And I'm wondering, does this benefit in any way maybe penetration of PD?

Robert L. Parkinson

Yes. Bob Parkinson here, Glenn. Yes, there may be a modest negative impact on the HD business in the U.S., the Gambro products after we close the Gambro deal. But there's no doubt it will serve as a catalyst to home treatment, PD and so on, which is more profitable. And so we believe that will work more meaningfully in our favor with our PD business. So net-net, if it goes through, which is still speculative based on the current proposal, but if it goes through, it certainly isn't a negative for us. Let me just leave it at that. It may be a slight positive.

Mary Kay Ladone

And Glenn, recall that the combined Baxter and Gambro business, the sales in the U.S. is less than 20% of the total, and the majority of the sales are PD.

Robert J. Hombach

And on the Gambro side, they are dialyzers and CRRT and very little on HD machines.

Robert L. Parkinson

That's a good point.

Operator

Our final question comes from Kristen Stewart of Deutsche Bank.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Bob, I was wondering if you could just remind us on the expectations for Gambro in 2014. And then also, I'm assuming that some of the negative impacts from emerging market currencies are basically also going to continue into 2014 given where rates are today. And I just wanted to clarify, too, going back to comments on the LRP, you're still kind of expecting, I would assume, all of these things, including Gambro, to still push to the lower end of that range for earnings growth.

Robert J. Hombach

Yes, yes, well, yes. The answer to the last part is yes, because of the timing of new product launches in '15, meaningful product launches in '15 and beyond, and the competition of recombinant Factor VIII and generic competition coming in, in '14, the same thing applies with or without Gambro. So in terms of 2014 expectations for Gambro, we previously have talked about, including the impact of amortization, neutral to $0.05 accretive; excluding the $0.20 amortization assumption, $0.20 to $0.25 accretive. Now given that the timing had flipped here a little bit, we'll certainly need to revisit that as we close out the transaction here and look at timing of realization synergies and so on. That's more of an issue, frankly, in '13 than it's going to be in '14. So I don't expect a significant change in '14. And clearly, the financing benefit we're getting as a result of the bond issuance we did will flow through as well. So again, I'm not expecting any significant change to our 2014 expectations around Gambro, but I do want to work through some of the timing impacts here. And as it relates to emerging markets, we started seeing this FX move really in mid-second quarter. So you're looking at 7 or 8 months already in the base here for '13 if rates stay exactly where they're at. So we'll have a bit of a headwind on emerging market FX in the first half of next year if things stay where they're at. But it's not a full year impact. And I don't think at this point it would be a huge headwind. But rates are volatile, and we'll have to see how things progress throughout the course of this year.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Okay. So with Gambro in 2014, on an including amortization basis, that would still kind of, thinking about the 7% or 9% range, push you closer to the lower end?

Robert J. Hombach

Yes. Well, I think we updated our guidance for Gambro to be 8% to 10% EPS growth over time. The 7% to 9% was pre-Gambro. So yes, it's still at the lower end of that expectation.

Operator

Ladies and gentlemen, this concludes today's conference call with Baxter International. Thank you for participating.

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