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Baxter International, Inc. (NYSE:BAX)

Piper Jaffray Healthcare Conference 2013

December 3, 2013 01:00 p.m. ET

Executives

Robert J. Hombach – Corporate VP and CFO

Mary Kay Ladone – VP of Investor Relations

Unidentified Participant

Yes, ready to go. Okay, so I would like to get to the next session. My name is (indiscernible) analyst here at Piper Jaffray as I have been saying and most of you probably know, we have several, so but I’m very glad to be your host. The session with Baxter, we have Bob Hombach Corporate VP and CFO, Mary Kay Ladone, Corporate VP of Investor Relations. Thanks so much for coming. No need, I don’t think to go into great detailed introduction in terms of Baxter, you’re all pretty familiar with who they are, but kind of preparing for this session and it struck me that we will certainly get around to talking about hemophilia and I’m sure we will talk about IVIG but looking at the topics of discussion quite a lot more than IVIG which would probably the first and when we go to question maybe two or three years ago. So which is great, so starting now maybe on some of the recently approved products so products were launching soon in years of emerging pipeline of opportunities here.

I’d love to maybe touch on few of them thinking of Rixubis or – thank you and the pending approval, unless if you filed or you’re expecting approval of appropriate level for fiber and then also the filing for IQV or IQ having launched IQ earlier in the year.

So, maybe just start with all of these have, some of these have a common theme of moving away from more transactional product or labeling to something that’s bit more differentiated particularly having label where your competitors do that. Something that’s worked well for you in ad base if you could maybe just touch on these products on where you are and maybe what you see with the opportunity.

Robert J. Hombach

Sure, happy to do that. And we’re very pleased with the progress that we’ve made in our pipeline here in 2013, as you mentioned a number of approvals and important filings for it and of the ones you discussed certainly (indiscernible) is one that we’re very excited about, we got approval and have launched in Europe and in a number of countries and our process of driving update there. And we’ve just very recently filed in the U.S. an amendment to RBLA which we expect a six month review and so we will have clarity on potential for approval for (Icovia) in the U.S. by the middle of 2014.

And as you mentioned, we started about that, we think that is very clear differentiation from the current products on the market as you know, we’re the market leader with our current liquid products, but (Icovia) really brings all the benefits of IV administration with the convenience of sub Q administration at home and brings them together the way that we think is much better than current products on the market so we are looking forward to getting approval in the U.S. and launching and I think over the long range plan, Icovia has the opportunity to be a very significant product for the company.

As you know the primary deficiency label that we are looking to get for that, we have already seen a pretty significant uptake of sub Q administration of that product specifically in the U.S. and we see with IQ opportunity to significantly expand penetration of sub Q administration which gives us a very strong market position here as we go forward. Some of the other ones you mentioned, we are very pleased with Rixubis which is our factor approval we got in the U.S. for adults, and we are also filing for pediatrics here as well as in Europe and so that launch is very early stage but for us that is a long term opportunity not just in the U.S. but around the world as we build our overall leadership position in proteins for hemophilia as you know we are worldwide market leader in hemophilia A, there is only one of the product today in the market for hemophilia B and while there will be other competitors entering the market here, going forward, we think given our global footprint, this provides a great opportunity for us overtime.

In terms of fiber proceeds, fiber is one of our highest margin plasma drive product. It has the unique market position for inhibitors treatment for hemophilia actually develops inhibitors to normal hemophilia A treatment. Today, we compete with Nobel, which is our version of 7A. Our fiber product today is about a $600 million product again in high margins on a global basis. And this prophylaxis label which we hope to get approval for here shortly in the U.S. either by the end of this year or very early next year, will give us the opportunity to better led the drive demand in the U.S. for prophylaxis access because we think the outcome for patients are significantly better in preventing bleeds and improving the quality of life as we have seen another indication as you mentioned like hemophilia A.

Question-and-Answer Session

Unidentified Participant

And just sort of backup it doesn’t seem all that important maybe have a label, particularly the product that we would say has been around for a while, the product like you would see those -- where there are other products but could you walk us through what that means in terms of your ability to market both to clinicians and to patients and in relative to the competition because obviously nobody can market proceeds if they don’t have a label. You have a label for example which exceeds us, you would imagine that you would get a better results maybe talk a little bit about that?

Robert J. Hombach

Well, we think across the number of the hemophilia treatments, preventative treatment or prophylaxis treatment it increases much better outcome and long term benefit for patients and so we have been developing clinical data through getting (indiscernible) label expansion at the U.S. year and a half ago, hemophilia A and as you mentioned here for fiber prophylaxis, penetration for prophylaxis or preventative treatment is relatively low in some of these other indications particularly in sector nine and fiber, so the opportunity is significantly increase penetration with prophylaxis and have a meaningful impact on demand and growth going forward. And so the opportunity now to actively market those benefits to patients and clinicians gives us the great opportunity to drive and enhance growth in this franchise, which is one of the reasons why we are confident that over the long range outlook we will be able to grow our overall hemophilia franchise in 3% to 4% range despite some of the competitive threats that we see coming in hemophilia A.

Unidentified Participant

So that’s $600 million business could be something quite a bit higher. Obviously, if folks are taking two or three injections a week?

Robert J. Hombach

Yes. Preventative treatment tends to two to three time the amount of annual evaluation of an on demand patient across the number of these indications.

Unidentified Participant

So you talked about one product in the pipeline. I guess, Rixubis is also label in the pipeline. But IQ for the U.S. have been recently filed, could you talk a little bit about some of the other products that look may be out, brand maybe looking at 15 or maybe talk about some of the recent agreements as you struck with -- sort of map out and it will be helpful if you would just add the plus and minus because there are some risks to the portfolio. How those backup in terms of magnitude?

Robert J. Hombach

Sure. Sure. We will start more near the term, we expect by the end of this year to file for approval in the U.S. for OBI 1 which is our clinical program for acquired hemophilia. This is the product that we acquired from Epson earlier this year. It has drug designation in the U.S. and Europe we think that could be $100 million plus product for us as we look to launch it here and so that one is the much near the term. You mentioned (indiscernible) that could be up to $300 million opportunity for the company. We will complete the trail in 2014 and file and look to launch in 2015. It will take some time to advert the market which is plasma drive two, but again over time we think that can be up to $300 million opportunity for Baxter.

We also have a of course, long directing factor 8 BAX855 in phase three trial which we just announced that we completed enrolment for and given the follow up timeframe, we expect to file in 2014 for that which we are very pleased with and of course we think there is a very clear part of the market that would benefit from a long directing as an enhancement to an overall broad portfolio which is the market leader today we have by far the broadest offering for patients in hemophilia A and so the longer acting factor for A product 855 is very important one as well.

Further out, the final one in our hemophilia franchise we are confident factor 7A inhibitor treatment is in phase three as well but that’s more of a 2016 timeframe from a launch perspective. In terms of some of the collaborations that we have entered into over the last few years that further built our bio science business that really come in two areas, one is in bio similar and the other is in hemophilia oncology products to leverage our very strong position in blood related products.

And so on the bio similar products we have a couple of collaborations. One with Momenta, we have chosen three of the six targets that we agreed to deal with them and we expect to file our first INB in 2014 for one of those targets. We are targeting the immunology and oncology space with those three. We also recently announced the collaboration with Coherus for a bio similar for Enbrel with rights in Europe and few other countries outside the U.S. Positive phase one data and moving into our phase three as we speak and that’s a product that could drive some benefit for us in 2016 and beyond timeframe.

So I think some very good progress we are making on the bio similar plant. And on the hematology oncology space we announced two collaborations one about a year ago with (indiscernible) a company that recently went public for (indiscernible). So the first indication is on the phase three and that’s for high risk MBF in an IV formulation. We expect to get phase three data later this year or early next year and I think that would give us some indication of how that product is likely to perform going forward. We are very excited about that opportunity. We think in the European what we have European rights that can be $300 million to $500 million opportunity for Baxter. And to augment that we recently announced another licensing agreement with south therapies to again license another blood related cancer product for myelofibrosis will also have opportunity for other indications including AML. And that would be a very nice compliment to the product as well. And these are products that we will be contributors in 2015, 2016, 2017 timeframe.

Unidentified Participant

Any thoughts on size for the TTI products?

Robert J. Hombach

Well, at this point depending on how the data plays out, this is the market today that the broader market is excess of $2 billion we think this way will play particularly well in several niches within that space so it can be a very meaningful product for the company.

Unidentified Participant

Okay that’s very helpful. And the products that you have open drug some designation around can you speak to which one you have because that will sort of in addition to the hurdle getting a label some additional legs to that label.

Robert J. Hombach

Sure I’ll start and then I’ll ask Mary Kay still when if I miss anything so as mentioned will be I1 for acquired hemophilia with component as well, I think those are the main ones, I’m not worry of any other that we have.

Unidentified Participant

-- Doesn’t want to those have.

Mary Kay Ladone

Pipeline does not have open drugs.

Unidentified Participant

But, it’s a very unique process that there is no other plat for the right competitor.

Robert J. Hombach

Okay.

Unidentified Participant

Well I suppose there’s no avoiding talking about hemophilia, so I’m going to answer about that there’s a healthy debate out there so what will happen if and when Biogen’s product does launch in the U.S. But maybe you mentioned that’s very distinct portion of the patient base that could benefit from a convenient dosing offering like 855 or the Biogen product. Can you talk about how big that is and what your experience maybe helping so far in approaching those patients with the twice dosing or once dosing?

Robert J. Hombach

Sure, as I mentioned the leader hemophilia we believe all along that a longer acting product to play an important role for segment of the patient population and that’s largely going to be data driven how much of an extension is to have like and you are able to maintain the same level of efficacy i.e., prevention or beliefs that patients and treaters are going to want to see and ensure that there’s no negative trade off there. Our development program for BAX 855 focused on looking at nearly the hundred different targets to make sure we could come as close as we could to the current go standard on the market which is our product add weight in terms of the bleed rates and very low inhibitors rate that demonstrated at over 10 years of data on the market and so we chosen BAX 855 where we are pleased with how that progressing if I mentioned we completed enrollment there. In terms of the target market for a longer acting product I would say a couple of things, first the actual expansion of half life that we and others have really been able to achieve up to this point is, is modest I would say certainly not as significant as what others have been able to do in hemophilia B as an example.

But for A it’s above 1.5 times and as you know today the standard treatment regimen for prophylaxis patient is every other day dosing. So every two days and we are able to demonstrate some clinical trials and a labor expansion in the U.S. that that patients today can use add weight every three days dosing regimen and still achieve the same level of very low bleed that they have today. And so the expansion that we’ve seen in some of the competitive products again is very modest and a very marginal benefit relative to what add weight can already provide with PK we can also see higher bleed rates in some of those competitive products and I think that given that we are talking about hemophilia here and the objective is really to prevent bleed there really is a trade, I think the patients and treaters don’t want to understand much better as more data comes out and a final label was finally achieved which have not happened yet. So I think there is a lot of speculations around what parts of the market would be most relevant for longer-acting but again I think the data is really going to determine how it's going to perform in the market and we think the benchmark really is going to be very low bleed rate that we are able to provide today with add weight.

Unidentified Participant

So in a high level I think someone from the distance could say all other things being equal it would make the deal better to have two shots that we can take instead of three shots but you know, I guess what you are describing and what we have seen so far is that maybe not all other things are equal in terms of bleeds or bleed rate or in terms of the risk inhibitors which is kind of a cloud that leans over these patients and maybe you could talk a little bit about we think a reward of going from three to two what's the risk of patient who does obviously joint health comes into question when it starts getting more bleeds, which is a concern. What's the risk in the inhibitors? We have been -- much but what does that mean to the patients?

Robert J. Hombach

Well, I think bleeds in fact even treating a bleed means additional injections and disruption to your daily life. And inhibitor is potentially a lifelong disruption to your treatment _ because you first have to try to treat the inhibitor with massive doses of the existing product and may then have to go on to inhibitor treatment like our fiber or other products on the market and that really compromises you for the rest of your life. So it is inhibitor is a very unfortunate outcome for hemophilia patients and one that really is to be avoided as much as possible.

The cumulative effect of additional bleeds over time because this is lifelong disease and lifelong therapy, can be significant. And so certainly that’s something that even a marginal increase in bleed rates compounded over 20 or 40 or 60 years is a significant number and significant damage to the joint. So there is quality of life aspects around that and in fact today add weight in addition of having a very strong label on bleed rates and inhibitor rate also has a actual quality of life claim on the label that is one of the few products and really any product category that has that because it does such a good job of allowing hemophilia to live a very normal life.

Unidentified Participant

So when I am doing my job if I didn’t sort of try to push it a little bit on the factors that lead to go in 2014 numbers as we start to think about where we will land, you have some potential generic pressure on (indiscernible) maybe having a longer tales like a 150 to 200 million bottom-line impact what do you need to see from these other products and do you have enough and these are the products including the synergies your early surgeries from -- this sort of off that kind of impact do you think in 2014.

Robert J. Hombach

Well, certainly 2014 at a very high level and has a number of variables that frankly at this point are still very much open questions, one of those more significant ones as you just mentioned cyclophosphamide, we’ve mentioned that our projections are if they are up to two new competitors during 2014 at least by the middle of the year it could be up to $150 million to $200 million bottom-line impact. There’s a lot of ifs and puts in that so that we and we don’t have great visibility as to when one or other or the other competitors it’s going to actually enter the marketplace. So as we get guidance from January we will be very clear about what our assumptions are around how many competitors and one day they enter into the market and what that impact is that we are building into our guidance and so that that’s one area of uncertainly there’s several others including when this Biogen actually launched with no longer acting what is their final label look like some other more financially related variables like the final effects rates and discount rates on the pension and so on, so I think for 2014 for Baxter you will probably see a wider range of guidance to account for which unfortunately will be a bit more volatility or potential core volatility in our results, so a number of things that were we are well positioned to effect some of these impacts and certainly some of the new products we’ve discussed here today the organic growth of the business, some of the geographic expansion and public-private partnerships that we have entered into recently including the Brazil deal which is ramping up and will continue to ramp over the factor itself in Brazil and in 2014 and beyond. I think for the first time in a number of years pension will actually be a tailwind instead of the significant headwind that’s been the last three years which on average has been about a 2% to 3% EPS growth headwind for us and should give away decent size force.

Unidentified Participant

And with respect to (Gambry) you talked about getting something like 70% to 80% of those $300 million synergies by the end of ’15?

Robert J. Hombach

’15 right.

Unidentified Participant

So, what obviously if you are able to pull down some of those in ’14 that would help.

Robert J. Hombach

Sure.

Unidentified Participant

Which were the prospects of that happening and maybe with the couple of minutes that we have that clock is little bit behind but and also love to get your thoughts on the recent reimbursement and how that affects you thinking or renal and Gambry?

Robert J. Hombach

Okay. So we do expect about $300 million in cost synergies and 80% of that we will achieve by 2015, and the meaningful 2014, unfortunately given the length of the regulatory approval process, we closed the deal a little bit later in 2013 and we would have liked. So the ramp of synergies that is slightly delayed. We still think that Gambry, the deal will be neutral to a slightly accreted in 2014 excluding intangible amortization though it's more like $0.20 to $0.25 accretive on a cash basis. So this will be a very nice contributor to earnings growth in 2014. So we made good progress in 2014 but certainly even more significant progress in 2015 on synergies. As it relates to reimbursement, I think on the product side given our position and the fact that the Gamble business in the U.S. (indiscernible) was actually very small. The impact is marginal. The fact that there is a 50% increase in reimbursement for home education for home dialysis really supports the case for strong PD growth that continues. We have been averaging double digit patients in the U.S. for the first time in many years in 2013 and we expect strong patient evolution here going forward and between reimbursement change actually is a net positive for us.

Unidentified Participant

Great. With that I think we have to leave it there. But thanks very much for coming.

Robert J. Hombach

Great.

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Source: Baxter International's Management Presents at the Piper Jaffray Healthcare Conference 2013 (Transcript)

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