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Baxter International (NYSE:BAX)

Q3 2020 Earnings Call

October 21, 2010 8:30 a.m.

Executives

Mary Kay Ladone – Vice President of Investor Relations

Robert Parkinson – Chairman, Chief Executive Officer and President

Robert Hombach – Chief Financial Officer, Corporate Vice President and Tresasurer

Analysts

Robert Hopkins – Banc of America

Christine Stuart – Deutsche Bank

Bruce Nudell – UBS

David Lewis – Morgan Stanley

David Roman – Goldman Sachs

Mike Weinstein – JP Morgan

Fredrick Wise – Leerink Swann, LLC

Lawrence Keusch – Morgan Keegan & Company Inc.

Mike Miksic – Piper Jaffray Companies

Operator

Good morning, Ladies and Gentlemen, and welcome to Baxter International’s Third Quarter Earnings Conference Call. (Operator Instructions)

As a reminder, this call is being recorded by Baxter and is copywrited material. It cannot be recorded or rebroadcasted 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 of Investor Relations at Baxter International. Ms. Ladone, you may begin.

Mary Kay Ladone

Thanks, Sean. Good morning everyone, and welcome to our Q3 2010 Earnings Conference Call. Joining me today are Bob Parkinson, CEO and Chairman of Baxter International; and Bob Hombach, Chief Financial Officer.

Before we get started, let me remind you that this presentation, including comments regarding or financial outlook, new product development and regulatory matters contains forward-looking statements that involve risks and uncertainties and of course, our actual results could different materially from our current expectations.

Please refer to today’s press release and our FEC Filing 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 issue this morning and available on our website.

Now, I’d like to turn the call over to Bob Parkinson.

Robert Parkison

Thank you, Mary Kay. Good morning. Thanks for calling in this morning.

I’m pleased to announce that our Third Quarter Results recorded earlier this morning exceeded the guidance that we provided last quarter with adjusted earnings per share of $1.01 per diluted share.

On a reported basis, worldwide sales increased 3% and on an organic basis, sales increased 4% which compares favorably to our guidance range of 1 to 3%.

While Bob will provide more details on the Third Quarter Financial Results and Outlook for the remainder of the year, as you saw we are reconfirming our earnings guidance at the high end of the range that we provided to all of you last quarter, which now includes adjust ESP of $3.96 to $3.98 per share.

During the quarter we continued to make progress on numerous fronts despite a continuing challenging environment. First as we discussed, Baxter and the market more broadly had been operating through a transition period in the Plasma Protein market.

In the beginning of the second quarter, as you know, we implemented some specific actions to stabilize our share position. I’m encouraged with the progress that we’re making with our demand creation activities and commercial strategies, as evidenced by improved global demand for GAMMAGARD LIQUID. And while we’ll continue to face some difficult comparisons related to healthcare reform and determination of the Winrow agreement, our volume growth has accelerated. Distributor inventory levels of GAMMAGARD remain balanced with underlying demand, and we finalized agreements with the majority of our U.S. customers with terms will now extend through the end of 2011.

As I’ve mentioned in the past, we remain confident that the Plasma Business will be an attractive growth vehicle in the coming years due to an increase in end-user demand; resulting from deployment of additional sales recourses for those indications that remain underdiagnosed and undertreated, Baxter’s introduction of new proprietary administration technologies, expansion of new indications such as MMN, and of course, the significant opportunity of a potential Alzheimer’s indication.

Over the last several months we continued to enhance our market leadership with a number of commercial achieves, a few of which I’d like to highlight.

First, the new five-year contract with Novation, a leading healthcare supply contracting company of VHA, Inc. the University Healthsystem Consortium or UHC, and Provista. This agreement provides access to Baxter’s broad portfolio of products, including IV solutions, drug delivery and parenteral nutritional products, large-volume infusion pumps and IV administration sets and components.

We also announced in the quarter a manufacturing supply and distribution agreement with Kamada for GLASSIA, the first and only liquid alpha1-proteinase inhibitor. Under this agreement, Baxter acquired commercial rights to GLASSIA in the U.S., Australia, New Zealand and in Canada. Under a separate license agreement, we’ve been granted the right to process GLASSIA and will seek necessary regulatory approvals to do so.

GLASSIA was approved by the FDA July, 2010 and was recently launched in the U.S.

Also in the quarter, we announced a collaboration between Baxter and Takeda for the development, product and supply cell-culture based influenza vaccines for the Japanese market.

During the quarter, Takeda was selected as a recipient of a subsidy from the Japanese Government to support an investment associated with the development and production of pandemic influenza vaccines.

Takeda plans to apply for additional government funding under a second supplementary budget and further expand its collaboration with our company.

And finally, we launched a number of new products during the quarter, including Advate in Brazil, the U.S. launch of TachoSil, an absorbable fibrin sealant patch for use in cardiovascular surgery, and the launch in Europe and Canada of the first and only 30-gram dose vial for GAMMAGARD LIQUID and KIOVIG.

This new dosage form is the most frequently prescribed dose for primary immune deficiency patients and will enhance user convenience.

Finally, I’d like to highlight that we continue to fund all of our key late-stage R&D programs as evidenced by a number of milestones which occurred during the quarter. For example, we continued to tend our leadership position in hemophilia and recombinant proteins with the initiation of the global Phase 1-2 clinical trial studying the safety and tolerability of BAX817, a recombinant Factor 78 therapy for the treatment of Hemophilia A or B patients with inhibitors.

And we’ve also dosed the first patient in our Phase 1-3 clinical trial for BAX326, a recombinant Factor 9, treatment for patients with Hemophilia B.

Also during the quarter, we completed our Phase 1 Recombinant von Willebrand Clinical Trial and we expect interim safety and tolerability data to be presented at the American Society of Hematology Meeting in December of this year. In addition, we expect to initiate a Phase 3 trial in 2011.

During the quarter, we announced the approval in Austria and the Czech Republic for PREFLUCEL, our seasonal influenza vaccine manufactured using Baxter’s proprietary Vero cell technology. Starting in the fourth quarter, we expect to submit for approval in additional European companies through a mutual recognition procedure.

In the third quarter, we completed an enrollment in a Phase 3 clinical trial of GAMMAGARD LIQUID KIOVIG for the treatment of multifocal motor neuropathy, or MMN. The trial includes approximately 40 participants and is being conducted at clinical sites across the U.S., Canada and Europe. Given the required 15-month follow-up period, we expect to complete this trial in 2011.

Interim data from a Phase 3 clinical trial HyQ was recently presented at the European Society for Immunodeficiencies Meeting in Istanbul, Turkey. HyQ is a immunoglobulin therapy facilitated subcutaneously by recombinant human hyaluronidase. Interim analyses show that 28 out of 29 HyQ study participants with primary deficiency were able to infuse an immunoglobulin under the skin using a single injection site, at infusion volumes, intervals and rates equivalent to the previous IV administration of immunoglobulin. As you know, we expect to complete this trial by the end of the year and file for approval in 2011.

We continue to advance our Phase 3 GAMMAGARD LIQUID Trail for Alzheimer’s. To date, we randomized over 220 patients and are on target to complete enrollment in mid-2011. With an 18-month follow-up period, we currently expect to complete the trial by the end of 2012.

And finally, we recently finalized our IDE Application for our Home-Hemodialysis Clinical Trial and submitted it to the FDA. Upon acceptance of the IDE, we plan to start clinical trials in the U.S. later this year or early 2011.

These achievements, which I’ve just summarized are just a handful of the programs in our pipeline that will present great opportunities for Baxter in the years to come.

So with that, I’d like to ask Bob to review our Third Quarter Financial Results and Guidance for the year in more detail, and then I’ll come back and provide some closing perspectives. Bob, if you would.

Robert Hombach

Thanks, Bob. And good morning everyone. As Bob mentioned earlier, we are pleased with our financial performance in the third quarter with earnings per share of $1.01 per diluted share, which exceeded our guidance range of $0.96 to $0.99 per share. This was largely the result of continued momentum in the medication delivery business, improvement in antibody therapy and plasma protein dynamics, and our continued focus on expense management.

Let me briefly walk you through the P&L by line items before turning to our financial outlook for the remainder of 2010.

Starting with sales, Worldwide Sales totaled 3.2 billion in the third quarter and increased 3%; excluding foreign currency, sales increased 4%.

Sales growth in the U.S. was 4%, led by double-digit revenue growth in medical delivery.

On a reported basis, International Sales increased 1%; excluding foreign currency, International Sales advanced 4% as strong double-digit sales growth in antibody therapy, plasma proteins and bio-surgery products was partially offset by soft sales in Europe across several product categories, most notably vaccine revenues.

In terms of individual business performance and beginning with Bioscience, global sales in the third quarter totalled approximately 1.4 billion, which was comparable to the prior year period; excluding foreign currency, Bioscience sales increased 3%.

Within the product categories, recombinant sales of 526 million were flat to the prior year on a reported basis; excluding foreign currency, sales increased 2% driven by robust sales of Advate, particularly in the U.S. where revenues advanced in double digits. However, this performance was largely offset by lower sales in Europe given the result the UK tender and our decision to lower Recombinate inventory levels in the U.S. channel as we remain focused on driving versions to Advate. Excluding these factors, Recombinate growth was approximately 8% on a constant-currency basis.

Moving on to Plasma Proteins, sales in the quarter were 346 million and increased 5%; excluding the impact of foreign currency, sales increased 8%. As you know, approximately 50% of the Plasma Profolio is comprised from a broader array of proprietary products, including FEIBA, an inhibitor therapy, ARALAST, a treatment for hereditary emphysema and FLEXBUMIN, Albumin provided in a flexible plastic container.

Contributing to the performance in this category was growth in ARALAST, double-digit growth in FEIBA and strong demand for Albumin outside the U.S. This was partially offset but lower sales of plasma-derived factor rate and U.S. Albumin sales. While we continue to see strong volume growth for Albumin in emerging markets such as China, market demand in the U.S. continues to be below last year due to lower hospital admissions and surgical procedures.

In Antibody Therapy, sales of 336 million were flat to the prior year and excluding foreign currency, sales increased 2%. U.S. sales were 230 million, reflecting a decline of 4% versus the prior year.

Strong volume in the quarter will more than offset the impact of our commercial strategies to stabilize share and a 7-percentage point impact to growth related to Healthcare Reform and year-over-year comparison to Winrow.

Outside the U.S., antibody therapy sales of 106 million increased 9% as we continue see strong growth in volume across the regions, which was somewhat offset by lower prices, particularly in Europe.

Sales in Regenerative Medicine, which includes our bio-surgery products, totaled 130 million and increased 19%. Sales excluding foreign currency grew 22 percent and continued to reflect healthy growth across the portfolio and approximately 15 million in incremental sales related to the AccuTech acquisition completed earlier this year.

Finally, revenues in the other category within Bioscience were down 40% to 449 million, due primarily to a difficult comparison related to advanced purchase agreement revenues recorded last year and lower sales of the Neis-Vac C Vaccine.

In Medication Delivery, sales totaled 1.2 billion, an increase of 5% on a reported basis and excluding foreign currency, medication delivery sales grew 7%. In the U.S., sales were strong and advanced 12%, while international sales, excluding the impact of foreign currency increased 2%.

Turning to the product categories, IV Therapy sales totaled 417 million in the quarter and grew 5%; excluding foreign currency, sales increased 7%. Strong U.S. sales, which increased 18%, resulted from increased demand particularly for nutritional products due to competitor’s supply issues as well as improved pricing.

Global Injectables sales advanced 8% to 469 million; excluding foreign currency, sales grew 9%. Contributing to this performance was strong growth of select pre-mixed drugs and multi-sourced generics as well as significant growth in certain enhancement packaging offerings such as our Mini-Bag and Mini-Bag Plus Product.

Infusion System sales totaled 213 million and increased 2%; excluding foreign currency, sales increased 2%. Strong sales of the SIGMA Spectrum Pumps more than offset lower COLLEAGUE and ACCESS set revenues.

And finally, Anesthesia sales totaled 127 million and increased 3%; excluding foreign currency, sales increased 5% driven by growth of both SUPRANE and Sevoflurane globally despite decline in surgical procedures.

Moving on to Renal, third quarter sales totaled 594 million and increased 3% on both the reported basis and when adjusting for foreign currency. U.S. sales increased 2% as improved PD growth offset lower HD revenues.

International sales increased 3% and excluding foreign currency, international sales increased 4%.

Global PD sales totaled 487 million and increased 3% on both the reported basis and after adjusting for foreign currency. This performance can be attributed to building momentum in PD patient gains in the U.S. resulting in 5% growth in U.S. PD revenues.

In markets outside the U.S., patient gains in Latin America and Asia partially offset slower growth across Europe.

And lastly, Hemodialysis sales of 170 million increased 4%; excluding foreign currency, HD sales increased 5% as CRRT sales, the hemofiltration business that we acquired last year, offset lower sales of dialyzers in the U.S.

Turning to the rest of the P&L, gross margin for the company was 51.5% in the third quarter, which improved sequentially by 20 basis points. However, the third quarter gross margin is 130 basis points lower than last year’s margin of 52.8, which is largely the result of the Healthcare Reform Act and cost and efficiencies driven by lower volume throughput in the Plasma and Vaccine businesses.

We successfully leveraged SG&A, which totaled 670 million in the quarter and was comparable to the prior period. Excluding foreign currency, SG&A increased 1%. In addition, SG&A’s percent of sales was 20.8 percent in the quarter, the lowest level in several years, reflecting sequential improvement of 90 basis points, an improvement year over year of 60 basis point.

While we continue to aggressively manage general, administrative and discretionary spending across the company, we’re selectively investing in several key promotional activities and demand creations, new product launches and driving future growth or our higher-margin products.

R&D spending of 270 million declined 9%, which can be attributed to the impact of foreign currency, completed clinical work on several programs and lower milestone payments to partners.

It’s important to note that we continue to invest in all key R&D programs across the product pipeline. In fact, excluding the factors previously mentioned R&D spending on key programs increased in mid-single digits.

The Operating Margin in the third quarter was 24.3% and despite our challenges in a difficult macro environment, this is the new historic level for our company. The operating margin increased sequentially by 160 basis points and improved 20 basis points versus the prior year as a result of our disciplined focus on cost management.

Interest Expense was 24 million compared to 23 million last year, while other expense was 5 million as miscellaneous expenses more than offset foreign currency gains.

The tax rate was 21.1 percent in the quarter; 240 basis points above last year, primarily due to a change in earnings mix between higher tax and lower tax jurisdictions.

And finally as previously mentioned, Adjusted Earnings Per Share was $1.01 per diluted share, an increase of 3%.

Turning to Cash Flow, cash flow from operations was strong in the quarter and exceeded $1 billion. On the year-to-date basis, cash flow from operations totalled approximately 2.1 billion and included the first quarter pension contribution of 300 million.

Excluding pension contributions from both years, on a year-to-date basis, cash flow from operations improved by more than 300 million versus the same period last year. This represents a 17% increase in cash flow.

DSO ended the quarter at 56.2 days, which is lower than last year by two days. This is largely due to improvements in international DSO as our DSO in the U.S. is less than 30 days.

Inventory turns of 2.4 reflect and improvement versus last year, primarily driven by better turns in both medication delivery and Bioscience.

And lastly, during the third quarter, we repurchased 3.6 million shares of common stock for 161 million. On a net basis, this amounts to repurchases of 2.7 million shares for 128 million.

Year-to-date, we’ve repurchased 26.3 million shares of common stock for almost $1.3 billion, or on a net basis, 20 millon shares for over $1 billion in LIBOR with our objective for the full year of 2010.

Finally, let me conclude my comments this morning by providing our financial outlook for the fourth quarter and update you on our Full-Year 2010 Guidance before turning the call back to Bob.

First, for the full year 2010, as you saw in the press release, we expect adjusted earnings per diluted share of $3.96 to $3.98.

By line item of the P&L and starting with sales, we expect full-year sales growth, excluding the impact of foreign currency of 2% to 3%. Based on current foreign exchange rates, we now expect reported sales growth for 2010 to be in the 3% to 4% range. For the full year, we continue to expect gross margins to decline approximately 100 basis points from the 2009 gross margin rates of 52.4 percent.

Given current foreign exchange rates, we now expect SG&A to increase modestly year over year and R&D to decline in low-single digits versus 2009. As we mentioned previously, we will continue to intensify our focus on managing costs throughout the organization.

We continue to expect interest expense of approximally 100 million and other expenses to total approximately 25 million.

Given our mix of earnings, we now expect our tax rate to approximate 20%. And finally, we continue to expect the full-year average share count of approximately 595 million shares.

From a cash flow perspective, we know expect to generate cash flow moderations of approximately 2.8 billion.

Now, to expand on the full-year sales assumptions for each of the business. First, on a constant currency basis, we continue to expect mid-single digit sales growth for medication delivery.

For Renal, we expect sales growth to be in low single digits on a constant currency basis. This is somewhat lower than our original guidance primarily due to lower-than-expected HD sales.

As for Bioscience, we know expect sales, excluding foreign currency to be approximately flat, which is an improvement from our guidance provided last quarter.

For the Recombinant Business, we know expect growth for the full year to be in low single digits, which includes the impact of Healthcare Reform, results of the UK tender and anticipated reductions in Recombinate inventories.

Second, we know except Plasma Protein sales to be flat and Antibody Therapy sales to decline in mid-single digits, reflecting stabilization in our share position, improving demand, as we as Healthcare Reform and the difficult comparison related to the termination of the Winrow Agreement.

Third, we expect Regenerative Medicine sales growth to exceed 20%, reflecting the AccuTech acquisition and double-digit growth in the base business.

And finally, we expect the other category within Bioscience to decline approximately 20 percent, reflecting lower revenues associated with advanced purchase agreements and other vaccines.

For the fourth quarter, as we mentioned in our press release, we expect earnings per diluted share of $1.09 to $1.11 and sales growth, excluding the impact of foreign currency of 1% to 2%. Based on current foreign rates, we expect reported sales to be approximately flat to the prior year.

I would point out that we expect sales growth to slow in the fourth quarter due to a number of factors, including the difficult comparison related to h1n1 revenues, the anniversary of the SIGMA distribution agreement and CRRT acquisition, as well as lower Recombinate revenues resulting from the UK tender and reduction of Recombinate inventories.

As always, I’d be happy to take any question on our financial performance and guidance during the Q&A, but now let me turn the call back over to Bob for his closing comments.

Robert Parkinson

Thanks, Bob. Before we open up this morning’s call to Q&A, I’d like to briefly comment on some of the organization changes that were announced last week, both in terms of some of the structural things as well as changes in the leadership.

First, as you know, we announced that our Renal Business will be combined with Medication Delivery to form a new business sector, Medical Product. While the go-to-market channels and the clinical differentiations will certainly remain separate and distinct between these businesses, the backend of the two businesses are actually remarkably similar. As a result, this structure, I believe, will enhance both our effectiveness and efficiency over time.

Parenteral Dialysis solutions and IV Solutions are comprised of similar product development and manufacturing technologies, as are disposable set and electronic instruments utilized in their administration. There’s a significant number of similarities and synergies, not only in product development manufacturing, but in supply chain and regulatory and quality system as well.

Rob Davis, whom you all know and whom has been running the Renal business has been named President of Medical Products. Pete Argline, who served as President of Medication Delivery over the past five-plus years is leaving Baxter to assume the position of President and COO of Intregra Life Sciences. I'm convinced that this new integrated structure for the renal and medication delivery business will pay significant dividends for our customers and the patients that they serve, and also for our shareholders.

Linda Hamson was named as the new President of the Bioscience Business Segment. Linda replaced Joy Amason (ph) who served as President of Bioscience over the last six years, a period which was significant growth and where bioscience as the major contributor to Baxter’s overall success during that period of time. We’re very fortunate to have an executive [inaudible] pharmaceutical experience. He spent the last 22 years of his career at Novartis and J&J before joining Baxter earlier this year. Baxter Specialty Pharmaceutical new product pipeline is the strongest that it’s even been. And as we prepare for multiple new product launches in the coming years, with its capabilities and expertise will make a tremendous difference.

I’d certainly be happy to expand on that if you’d like during the Q&A this morning.

So with that, why don’t we open up the call for the Q&A?

Question-and-Answer Session

Operator

Thank you. We will now begin the question and answer session. (Operator Instructions)

We have Bob Hopkins on the line, with Banc of America.

Robert Hopkins – Banc of America

Thanks. Can you hear me okay?

Robert Parkinson

We can hear you loud and clear. Great. Good morning. I just wanted to start out with some question about Biosciences. First of all, kind of the slight change in thoughts in the Recombinate line.

First of all, from a macro perspective, did we read into what you’re saying that that line item should decelerate from the 2% growth that you put here in the third quarter? And then more specifically, could you, if you would, quantify the impact of the UK tender and of the Recombinate’s inventory reduction and how long that might be addressed? Thanks.

Robert Parkinson

Let me start and then Bob and Mary Kay and maybe add some additional information to try to be helpful.

You know, if you adjust for, as we said on the comment, both the UK tender and reduction in Recombinate inventories in the U.S., overall Recombinate sales globally grew and I’d say the 7 to 8% range in Q3, which is pretty consistent to what it’s been running. Our sales outside the U.S. have been adjusted for the UK tender. In all other OUS markets, that actually grew fairly strong double digits. So as the momentum in the business continues, the loss of the volume in the UK tender clearly is meaningful. I think we had annualized sales in the UK, Mary Kay correct me, I think we had approximately $100 million, a little bit over that, a little bit.

But frankly, Bob, how much of that is what we ultimately lose is still being sorted out, you know, that tender occurred in two different ways and not all locations have converted. Obviously, we’re watching that very closely over time in terms of things like inhibitor formation and the like.

Relative to the dynamic in the U.S. and this is really a continued effect of conversion from Recombinate, actually ADVATE in the U.S. in third quarter, Recombinate grew double digits. And so it’s evident that a couple of our wholesalers are overstocked on Recombinate and they’ve reduced their inventories. Where I would tell you for the fourth quarter, we would expect that to continue in answer to your question.

So as we move into the fourth quarter, that inventory reduction I described will continue. We’re going to continue to incur the impact of the U.K. tender. But the rest of the dynamics globally of the Recombinate Business and the Hemophilia Business, I think continued to be pretty strong.

Mary Kay Ladone

Yeah, this is Mary Kay. I’d add that we had a couple comps last year in the U.S. where I think we saw double digits, 11% growth in the fourth quarter. So you should expect Q4 sales in the Recombinate category to actually be lower than the prior year. And that’s the result of the destocking opportunity that Bob is talking about as well as the UK tender.

Robert Hopkins – Banc of Amercia

Okay. And then just one follow up also on Biosciences, I'm wondering if you could quantify the impact of the [inaudible] Pharma situation on this quarter. You know, was there any benefits that you saw from that, and just some thoughts on that and how that might impact the business going forward?

Robert Parkinson

Yeah. There was really little to no impact our third quarter results, Bob, as a result of that. We reflected modest impact in our fourth quarter guidance that Bob took you through. I think it’s still too early to project what the longer-term impact of that will be as various regulators are taking various position on that and so on. So you’re probably as close to that as we are. But in terms of our own results, little to no impact on the third quarter, and modest projections in Q4.

Robert Hopkins – Banc of Amercia

Like in that 5 to 10 million area?

Robert Parkinson

Less than that.

Robert Hopkins – Banc of Amercia

Okay. Thanks very much, guys.

Unidentified Company Representative

I think it’s slightly higher than that globally.

Operator

We have Christine Stuart on the line with a question, with Deutsche Bank. Please state your question.

Christine Stuart – Deutsche Bank

Hi. Thanks for taking my question. I was just wondering if you could explain – give us a little bit more color on some of your commentary on the end markets within IVIG. You had expressed a little bit of confidence in what you’re seeing.

And then also, can you just give us an update on how much in terms of like the percentage of outstanding contracts you have secured up for 2011 as we look down the road and just kind of think about how 2011 may shake out for IVIG? Specifically just the U.S.

Robert Parkinson

This is Bob Parkinson. Let me try to tip it off and do kind of a team response here because there multiple aspects to your question. Let me start with the second piece. I would say the majority of our hospital contract business is, as I think I touched on in my prepared comments, is actually secured in through yearend 2011.

And in terms of market dynamics, you know, I think we would characterize the underlying market growth to the best of our abilities to quantify this in the U.S., probably mid-single digits, IVIG. Right now, clearly it’s more robust OUS, probably approaching high – high-single digits. Bob, Mary Kay, you want to add any fact to that?

Mary Kay Ladone

No. I think that’s pretty accurate. You know, we have seen some good growth coming out of the PPTA data that you all see as well as, and we’ve talked about this in the past, we track our own redistribution data which is showing an acceleration in volume as well, which is sales of our product going from the distributors into the – to the end users and into the hospitals channel.

Christine Stuart – Deutsche Bank

Perfect. And then could we just get an update on SIGMA? I know this quarter you guys had said you had pretty good sales there. Where do you stand from a manufacturing standpoint of just ramping up production of the pump?

Robert Parkinson

Well, we’re not going to quantify, you know, existing product capacity, Christine. I mean, we have been in our continuing ramp up production to convert as many of the install base of the colleagues as we possibly can over the next two years. You know, it’s still too early to tell like think in terms of what the share shifts may or may not be overtime but we’re doing everything we can, putting all the resources and ramping it up as significantly as we can. I’ll just leave it a that.

Christine Stuart – Deutsche Bank

And you also just commented on some of these impacts of Healthcare Reform and Winrow, can you just remind us what that was for the IGIV business again?

Mary Kay Ladone

Yeah. It had a 7-point impact overall on the Antibody Therapy Line. And that’s the combination of Winrow and Healthcare Reform.

Christine Stuart – Deutsche Bank

Thank you very much.

Operator

Bruce Nudell of UBS on the line with a question. Please state your question.

Bruce Nudell - UBS

Good morning. Thank you so much. Yes. Hi. Could you remind us in aggregate how much in dollars that Healthcare Reform accruals you’ve made so far this. And I know you were very conservative on how you constructed that assuming almost the entire conversions of hospital and institutions that were eligible for 340B, and how much of that’s actually occurred and is there a potential for reversal?

Robert Hombach

Yeah, Bruce, this is Bob Hombach. We continue to accrue towards the number that we’ve been projecting at this point. We’re still at a stage where the visibility to how many hospitals are actually going to avail themselves to the opportunity to sign up for 340B is still not crystal clear. You know, we projected about 40% of those who could have applied, have applied, but there still is time for them to do that as we approach the end of the year. So unfortunately, this one is not going to become clear to us towards the end of the year, and maybe not even by the end of the year. So at this point we continue to accrue towards what we originally projected.

Bruce Nudell - UBS

I see. So the reversal, if it occurs, has to occur next year?

Robert Hombach

Well no, I mean we’ll take a few. I mean, there is the aspect about the retroactive nature of this potentially back to January 2010, but I believe that hospitals don’t sign up by the end of this year, that may not be available to them, and that’s certainly something that we’ve originally factored in to our accrual. So that, we would certainly adjust for as we end this year.

Bruce Nudell - UBS

But I guess on the 80 million or so, Healthcare Reform, how much is kind of a kind of the 340B related and therefore uncertain?

Robert Hombach

A significant portion is 340B related.

Mary Kay Ladone

Yeah, they get an impact. As you know, Bruce, there was a domesticated rebates impact.

Bruce Nudell - UBS

Yes.

Mary Kay Ladone

And then there’s the increase in the discount to those, and 340B entities that were already a 340B entity. And then there’s these new eligible entities that Bob is talking about where we believe about 40% have already off. And that was the biggest piece of our Healthcare Reform impact.

Bruce Nudell - UBS

Okay. About 40% of that has been exercised that you know of?

Mary Kay Ladone

That is correct.

Bruce Nudell - UBS

Okay, great. And my only other question is with regards to Recombinate demand in the United States, if we – do you think PPK data is a decent surrogate at this time for underlying volume demand and high single digits?

Robert Parkinson

Yeah. I think our view on that is then looking more at the rolling flow month data versus the month-to-month or quarter-to-quarter is kind of a better view. But yeah, I think that’s kind of mid-to-high single digits for underlying growth is reasonably accurate.

Mary Kay Ladone

Yeah. I think, Bruce, too if you go back to our investor conference, we talked about Recombinate sales growth and in the, I think, 6 to 8 percent range. But that assumes slower growth here in the U.S. in the mid-single digits, probably 4 to 5% range.

Robert Hombach

We’re actually somewhat stronger than that on PPK data on a rolling basis.

Mary Kay Ladone

Yeah. That would be correct.

Bruce Nudell - UBS

Okay. And is home dialysis 5 10K or PMA?

Mary Kay Ladone

I’m sorry, what was that?

Bruce Nudell - UBS

Is the home dialysis IDE, is it a 5-10K or a PMA?

Mary Kay Ladone

Our assumption currently is a 5-10K.

Bruce Nudell - UBS

Thank you so much.

Operator

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

David Lewis – Morgan Stanley

Good morning.

Robert Parkinson

Good morning, Dave.

David Lewis – Morgan Stanley

Just coming back to IVIG here for a second. Obviously, that number is much stronger than we were expecting. So can we just first of all talk about rebate activity? You talked about being targeted off the second quarter. Did you see an expansion of rebate activity and should we expect further expansion into the fourth quarter?

Robert Parkinson

When you say rebate activity, specifically what are you referring to, Dave?

David Lewis – Morgan Stanley

You talked about targeting pricing, our sense is that you used rebates as a method for engaging in targeted pricing with customers. I think surgical stride pricing, something like that was your commentary on the second quarter. I’m just wondering if – we’ve gone from surgical stride pricing with rebating and targeted price cuts to a broader action in the third or fourth quarter.

Robert Parkinson

Really, I think that the activities are very much in line with that we’re messaging for the starting and yeah, there are contracts that involve rebates savings, but no, I think what we’ve executed really over the last three to six months here has been very much in line with what we described to all of you at the outset.

David Lewis – Morgan Stanley

Great. Two more quick questions, and just starting with one follow up. So in the particular quarter, Bob, you had described the source of upslide for your IVIG business, both worldwide. Do you think it was concerted expectations with share gains? Maybe give us more color on what you think drove the relative rough side.

Robert Parkinson

Well, I think the actions we’ve taken clearly were very effective very quickly. You know, the price premium on GAMMAGUARD clearly we would close that very significantly and the market was very, very responsive to that, not only in terms of retaining volume in the short term, but allowing us to secure contracts as I mentioned in my comments, to the majority of our U.S hospital business through the end of the year 2011.

So think that’s probably the primary aspect of the stronger volume that we reported in the third quarter in the U.S. Clearly volumes outside the United States continues to grow very nicely.

Mary Kay Ladone

Yeah Dave, I would add, you know, there was a lot of assumptions that went into our original guidance reduction and if you remember, we had said at that time that the market growth with low single digits, clearly we’re seeing that market growth has accelerated mid-single digits as well as we have assumed additional share loss, which obviously we’re not seeing that.

David Lewis – Morgan Stanley

Perfect. And just one last question. Just thinking about two dynamics in the quarter that did the opposite that we were expecting. Gross margins were better, but tax rate was much higher. Maybe the question is about the sustainability of those gross margins and back in your LRP late last year you talked about the expansion of tax rates for your company in the next three to four years. Is this the first sign of that in your mind or is that more about mix? So what can we expect as it relates going forward in terms of gross margins and tax-rate trends. Thank you.

Robert Hombach

I’ll start with the tax rate. You know, clearly it’s the mix of earnings this year has been quite a bit different than we originally projected, the underperformance in Europe really crossed all three businesses in a place where we’ve got pretty efficient tax structures has negatively impacted the rates. On the other side of the equation, very strong performance in the U.S. particularly by medication deliveries in a high-tax environment. So it’s primarily a mix shift there.

We did anticipate some of that as we go forward here, but this is happed to a larger degree. So as we look at 2011, we’ll have to evaluate the Europe-U.S. mix of earnings as we think about the tax rate going forward.

You know, in terms of gross margins, clearly it’s the stronger performance in the quarter by Bioscience Business and the – what I would characterize as the faster recovery in the IVIG space in particular certainly helped margins.

You know, as we go forward here though, we are going to be faced with starting to feel the impact of the slowdown in collections and slowdown in through put in the Plasma Business starting to roll out to our P&L given the long inventory hold period because we started taking those actions late last year and early this year. We’re starting to feel the impacts of that as we go in the fourth quarter and into – and that will be a headwind as we go into 2011 on margin.

David Lewis – Morgan Stanley

Great. Thank you very much.

Operator

David Roman is on the line with a question from Goldman Sachs. Please state your question.

David Roman – Goldman Sachs

Good morning everybody. I just wanted to see, Bob, if you can give us your latest thoughts on the pharma tax for next year. I think you provided some numbers earlier this year, and then any thoughts on how that might flow just from an accounting perspective. Then I have one follow up.

Robert Hombach

Yeah. So we’ve estimated this time the pharma tax is going to be 30 to 40 million and at this point don’t know for sure what the geography is going to be on the P&L for that one. I think the a couple years down the road that’s an excise tax that probably ends up in the SG&A, but the pharma tax between revenue and SG&A is still an open question.

David Roman – Goldman Sachs

Okay. And from an operating expense perspective, you call that SG&A as one of the lowest levels seen in several years. R&D also as a percentage of revenue, I know currency has an impact there. And also it was fairly low as a percentage of sales. Maybe go and sort of help us think about this standard level of discretionary spending. And one of the other things you talked about earlier this year was pulling back in some of the sort of wild-card type investments in that R&D line. Did that have any contribution this quarter and then how – is 6 ½ percent a number in R&D to think about or is 7 where you have been running?

Robert Bombach

I think it will stay in that range going forward, David, 6 ½ to 7% range. We commented, every one of our major programs remains fully funded. Our comment is the effect of our specific programs, especially R&D in the quarter actually increased to mid-single digits versus last year. The reduction is largely associated with the combination of a couple of key programs, one of which is the flu programs, so our level of spending on our flu vaccine programs is down significantly. Also some payments to partners and a couple of R&D collaborations and so on were the significant contributors to the lower spending level in Q3. But I don’t think you should interpret Q3 results as at all a change in strategic direction. I think it’s important that we maintain some level of – I’ll call it exploratory funding. I think that’s very important. We’re more committed to continue to do that going forward.

Robert Parkinson

Yeah. I would just add on R&D a couple of things. One, from a foreign exchange standpoint, R&D spent almost 50 percent of it is outside the U.S. primary in Europe so that has a slightly bigger impact on the R&D line than it would have on SG&A and others.

The other thing I would say is the exploratory funding which is modest generally is really where we rationalize this initially. Plus we took a charge in the fourth quarter of 2009 to rationalize some of our R&D operations primarily on the device side and so we’re seeing the full benefits of that coming through as well. I think those two factors have driven that down.

On the SG&A side in terms of sustainability, the discretionary spend actions that we’ve taken, you know, as we indicated, we’re really focused on the back office lines to try to constrain spending particularly around headcount growth there. But we continue to fund the promotional activities around demand creation and new product launches that we think are going to be important to drive top line going forward. So we don’t think we compromise that aspect of our spend at all here and still room to continue to drive some cost reductions.

David Roman – Goldman Sachs

Okay, great. Thank you.

Operator

Mike Weinstein of JP Morgan is on the line with a question. Please state your question.

Mike Weinstein – JP Morgan

Thank you for taking my question. First, and maybe just to turn to the Med Delivery Business. I was hoping you could shed a little bit more light on the growth in the U.S. for IV therapies which is up 18% and then infusion systems, which is up 8%. Also with COLLEAGUE, those are very strong numbers, particularly in infusion systems with COLLEAGUE. So maybe you can help us out there.

Robert Parkinson

Yeah. Let me kick this off, Mike. This is Bob Parkinson. There’s a number of different pieces. Obviously first of all, at a high level we’re very pleased with the growth of our Med business particularly in the U.S. We were advantaged in the quarter come degree by some competitive supply issues, particularly area of nutritionals and some of our multi-source generics and so on.

I also commented in my prepared comments and I high the contract that we signed with Novation. And we probably picked up a little bit of business there as well, which certainly is sustainable going forward.

So you know, the nutritional business continues to do very well, not just in the U.S. but on a global basis, which is helpful as you know, in terms of margin profile. And what are the pieces that I’m missing? Those are really the biggest pieces.

We’ve definitely seen some good pricing improvement in the base IV business and as I mentioned in my comments, there’s some competitor issues on the nutritional in the U.S. that might have provided an opportunity there as well.

Mary Kay Ladone

And I would just add, Mike, you know, IV solutions year to date are up double digits in the U.S. That’s driven by some of the market share gains I think Bob’s discussing as well as the pricing environment. And then Bob mentioned the nutritional competitive issue that we’re picking up some share there.

Robert Parkinson

And on the infusion system front, we have some competitive wins with the spectrum pump that continues to do very well on the marketplace. So while customers are currently evaluating their options as we provided them with the COLLEAGUE transition guide only in September here, during the quarter, again we did see some competitive wins and some nice growth with the spectrum pump

Mike Weinstein – JP Morgan

Great, and before we get to January, I want to make sure we’re thinking generally about 2011 correctly. It seems like on the call here, you highlighted a few items that would impact the P&L, there’s obviously impacts from Healthcare Reform next year. You talked about lower throughput for plasma proteins, and that’s starting to show up maybe in the fourth quarter and maybe into next year. And then lower growth on Recombinate which is obviously a high margin business for you, as well as a couple of other items. Should we be thinking about 2011, after the margin in 2011, in which will probably not see operating leverage down the P&L? Or is that still possible?

Robert Hombach

I think it’s too early to call that, Mike, frankly. But yeah, there are – look, there are headwinds, and you know, if you look at some of the dynamics that we continue to manage through and we’ve incurred in 2010, they just don’t all go away come December 31, okay? As much as we might like that.

So we continue to be optimistic about the future in many ways, and for many reasons. There are a number of these headwinds that are going to continue. The other thing that I would tell you that you didn’t mention, is just the underlying surgical procedure, volume, and so on. I mean, one of the things that as your looking at the detail of the quarter that was softer than we anticipated by our bio surgery business. You know, when you adjust off from the AccuTech acquisition last year, the rest of our bio surgery business was about 9, 10% growth for the quarter which was lower than what it’s been. And frankly, I think is an indication of kind of the continued softness and underlying surgical procedures.

So I’m not trying to paint too negative of an outlook here, but I think we have to be realistic as we go forward, to say a lot of positive things go into black. There’s going to be some headwinds, there are going to be sustainable, and I guess maybe close where I start at, I think it’s too early to project looking how effective those are, but I think, you know, just a lot of variables we all need to continue to watch.

Mike Weinstein – JP Morgan

I appreciate it, one last follow-up. With you locking in a lot of your 2011 contracts for IVIG at this point, can you give us a sense of where those are coming out for price in relative to 2010.

Robert Parkinson

Well, without being to specific, for a lot of reasons. Let me just give you some kind of general direction, Mike, which hopefully will be helpful. You know, we had going into all this, let’s say a year ago, probably I would say, high single digits kind of price premium on GAMMAGARD versus the rest of the products in the market; that premium has closed significantly. We still are the premium product, but that premium is closed fairly significantly. And I would tell you the contracts that I reference that we’ve now signed extending through the end of 2011 had really been at the what I call the touch-up price, okay, so we didn’t need to offer additional price discounts to secure that volume. So hopefully, that gives you enough input; you can kind of put your arms around it.

Mike Weinstein – JP Morgan

Okay, thank you Bob.

Operator

Fredrick Wise with Leerink Swann is on the line with a question. Please state your question.

Fredrick Wise – Leerink Swann, LLC

Good morning Bob. A couple of things, one just a high-level follow-up of post to management changes, and combination of the med delivery and renal businesses. I’m just sort of curious what you’ve charged throughout, but doing, in combining those two businesses. Is it – and what you see the opportunities are? Are they – do you think they’re going to be incremental sales opportunities because of bundling, or customers, or – and maybe talk if you could about your thoughts about what kind of margin, operating margin benefits you think, we could see, if any.

Robert Parkinson

Yeah, great question Rick, and again, I’m not going to quantify the potential margin enhancement opportunity at this stage. Having said that, clearly, I wouldn’t have made this change if I didn’t think there weren’t meaningful opportunities here.

And I would start with by saying that I think the biggest opportunity is as much effectiveness, enhancing our effectiveness as it is in terms of taking cost down. Both are opportunities, but let me give you some examples of that.

I mean, first of all, bundling, you mentioned that. I don’t see any bundling opportunities. In terms of go to market, detailing PD solutions to nephrologists will always remain as separate and distinct activity for detailing SUPRANE to an anesthesiologist, okay? Those will remain separate in and distinct. But I think in the backend of the business, starting with manufacturing, okay, you don’t go in very few of our solution plants around the world, manufacture both IV solutions, and PD Solutions, okay? Manufacturing was a separate organization that also reported to me, and now that has reported in to Rob as part of the consolidation of renal and med del. So I think the integration of manufacturing and supply chain, where there are, as I commented, significant overlap and similarities between the renal business and the IV business. And again, not just on the solutions, but on the disposables sets, and the instrumentation, whether that’s an infusion pump, or a home choice cycler, tremendous synergies there.

The strategic objective of this is really to enhance effectiveness, and I’ll just give you one example and what not, then I’ll stop and not be labor the point. But in terms of R&D productivity. Okay, to focus our R&D efforts, and integrate where historically we’ve had kind of fragmented R&D supporting the renal business versus the net Dell business, given the fact that the core technology are often times very similar, I believe by bringing those together, there are significant opportunities to enhance our new product development, frankly. And so, clearly that has an effect over time on accelerating the revenue line.

Now having said that, I think there also are structural synergies, cost synergies that over time will figure out how to take cost out as well. So this is really dual objectives. How do we enhance our effectiveness, there are many ways. I think we can enhance our top line growth while taking structural cost out of the business and I think Rob, for a lot of reasons is the perfect guy to oversee those.

Fredrick Wise – Leerink Swann, LLC

On PD result, Bob, also looks pretty encouraging. We’ve talked to a bunch of nephrologists that are thinking that home dialysis PD and home HD are going to benefit from the new reimbursement rules, but it’s going to be a more gradual increase. Are we seeing something – some moves ahead of the new reimbursement that maybe, give us some sense, are you more optimistic about driving PD penetration from this, or whatever it is, 7, 8%, 10, 15%?

Robert Parkinson

Yeah, well a couple of – couple of comments. Yeah, we are seeing encouraging signs that there already is movement. If you look at our PD patient growth in the U.S. through the first three quarters of the year, it’s the strongest that it’s been in years. And I think the primary driver for that is the market getting ready for reimbursement change, and I do think you’re right Rick, it will be gradual over time, but it will be sustained. And it will be meaningful. And so yeah, we’re starting to see all ready encouraging metrics that would indicate that that’s coming about. It’s interesting as you just read articles, even on the late press in [inaudible], this theme of dialysis in the home. Frankly, whether that’s PD, which clearly plays to a vaster strength, or home [inaudible] dialysis which is our number 1 on our D program in the renal business, are clearly aligned with that trend that’s under way. I think it should be coming increasingly recognized. There’s a article just a couple of weeks ago, I think in the personal section of the Wall Street Journal, that did a good job of describing some of the dynamics there. Whether it’s patient convenience, whether it’s cost or delivering the therapy or at the end of the day, enhancement of clinical outcomes, there’s a lot more people, both patients and [inaudible] that are thinking about providing these treatments in the home environment. So this macro trend, if you will, clearly is playing into the strategies that we’ve defined in the renal business. But, back to the last part of your question. You know, too early to quantify this, but I think it will over time continue to accelerate the growth of renal, which is, frankly, the best that we’ve been placed in over the last few years. You know, the renal business as you know, has been relatively flat over the last few years, but we felt that there was long-term change that existed here, and we’re at the early stages of it, so we’re encouraged by those developments.

Fredrick Wise – Leerink Swann, LLC

Last quick one. I know most of your cash is OUS, I’m hearing talk about a tax holiday possibility, if that would happen, what your re-deployment prior to these being in the U.S., and maybe just any update on your thoughts about the portfolio and acquisition to leverage some of these changes that you’re talking about, thank you.

Robert Hombach

Yeah, I’ll take tax holiday. I think that’s a fairly recent piece of news that that’s being discussed more actively. I think it’s too early to really know whether there’s a good chance that’s going to happen. You’re right, the majority of our cash is off shore, and certainly any opportunity to bring it back in a tax efficient manner would be attractive to us, but I think it’s way too early to be thinking about that concretely.

Robert Parkinson

Yeah, I mean, look Rick, nothing new on the BD, MNA, from an acquisition front, other than our intent which continues to be what I’ve described before. I spend a lot more of my time on this, clearly we have the financial attitude to do some things, and I’m hopeful going forward that we will. But, they’re not the kind of things you can become aware of until we finalize them and communicate them. But the strategic intact, remains there, and the financial flexibility to support that clearly is there as well.

Fredrick Wise – Leerink Swann, LLC

Thanks, Bob.

Operator

Larry Keusch of Morgan Keegan is on the line with a question, please state your question.

Lawrence Keusch – Morgan Keegan & Company Inc.

Okay, thank you. Perhaps for – well, for either Bob, as you think about gross margin on a go forward basis, can you just review with us, sort of what are the puts and takes that we should be thinking about as we think for the fourth quarter and on a go forward basis?

Bob Hombach

Yeah, I think the underline dynamic of higher margin products growing faster over time, I think very much is still impacted. There are some near-term things in the fourth quarter that we are going to have to deal with. I mentioned the inefficiencies in manufacturing collection of plasma, beginning to impact the margin here. That will play out into 2011 as well. Foreign exchange does have an impact as well. At times when currencies are on the dollar, is stronger against foreign currencies, we do hedge. So that tends to lower sales, but margin stays the same. So the margin gets a benefit. At the euro and other currencies have appreciated against the dollar here that will be a little bit of a drag in the fourth quarter as well. So it’s not a significant move, but it is enough to shift things of one quarter to the next.

So as we go forward, I think the plasma dynamics and affects are two things that can be headwinds here in the near-term, but certainly the underlining dynamic of mixed driving margin benefit I think is still very much intact.

Robert Parkinson

I really can’t add anything to that. The mix component, clearly the margin differences of our core businesses remain fairly significant with the higher margin in bio science business, so clearly, stabilizing the growth, particularly focused on plasma proteins is critical there. So, we’ll see how the business mix and the business unit mix play out going forward. You know, the business units, our medical products business, nutritional, [inaudible] and so on, as you know, continue to be promotional priority, so to a degree, our business units and businesses that are higher margin can grow faster that continues to be the areas of focus.

Lawrence Keusch – Morgan Keegan & Company Inc.

And is it safe to assume that just given the very nice margin expansion, we seen in medication delivery that we probably shouldn’t be thinking about those magnitudes on a go forward basis, either.

Robert Parkinson

Probably not in the same degree, no.

Lawrence Keusch – Morgan Keegan & Company Inc.

Okay, and then just separately, as I sort of think about the overall portfolio of the company, I guess I just want to understand Bob, how strategic do you think the vaccine business really is to Baxter, over a more of a time period?

Robert Parkinson

I think it continues to be of significant strategic interest to us, okay? And we talked about this before, clearly there’s been fix and starts with last year’s H1N1 situation, and so on and so forth. But even in the third quarter, and I commended on this, our collaboration with [inaudible]. I believe that we are going to figure out ways to monetize our [inaudible] technology, but in ways that aren’t necessarily conventional in terms of producing and selling directly to marketer on vaccines. And I think the collaboration with [inaudible] is an example of that, we continue to have dialog with other countries who are, and continue to be focused on preparedness, and with not so much in H1N1, but still the concern about an [inaudible] where our technology is, so particular advantages. Think the registration or the licensure in the third quarter in Europe, the [inaudible] cell, our influenza vaccine is also very encouraging. And we’re going to move forward to get that product registered throughout the world, including the U.S., and participate in that market as well.

Then there are some other vaccines which are – which we commented on in our last investor conference that are in our pipeline, and so on. So I continue to be very interested, Larry, in the vaccines business. And so I know, looking at the sales, the revenue results every quarter, and so on, a mixed bag, based upon what is particularly happening at that point in time, but don’t interrupt that as any less interest in terms of this strategic value to this business.

Lawrence Keusch – Morgan Keegan & Company Inc.

Okay, terrific, thank you very much.

Operator

We have Matt Miksic on the line with a question from Piper Jaffray Companies, please go ahead with your question.

Mike Miksic – Piper Jaffray Companies

Hi, this is Matt [inaudible], thanks for taking our questions. I wanted to discuss some odds and end’s here, and follow-up on a couple of things that you talked about Bob. One was on the combination med delivery and renal, I don’t know if you’ve talked about what some of the frontend, backend opportunities are, can you quantify any of those? Have you quantified them? It sounded from Bob [inaudible] comments that you’ve maybe already started to see in this quarter some of the benefits of that? Some color on that would be helpful, and I just have a couple of quick follow-ups.

Robert Parkinson

Yeah, look, we haven’t really incurred any benefit from that change. It was just recent and in terms of the med Dell renal integration in the medical products, if that was your question, Matt. But – and we haven’t quantified specifically what the opportunity there is, long-term, but as I commented, I think it was in response to Rick’s question earlier, you know, you don’t make structural changes organizationally lightly, okay? Because it impacts a lot of things, and we would not, have not done it if we didn’t think there was not material opportunity that was represented by this organization change. And as I said before, it’s going to manifest itself in a couple of different ways. I think enhanced R&D productivity, improved commercial focus and prioritization. It will help accelerate the growth of our revenue line over time. But there also are structural cost advantages that will be incurred where we have overlap and redundancies, in a lot of the back end components of getting product to market, in both the renal and the medication delivery business, both in the U.S. and on a global basis. So that benefit will cascade out over time, it will be evolutionary, but again, maybe the close where I started here, we wouldn’t have done it if we didn’t think the opportunity was reasonably material over time. But I think it’s premature to quantify that.

Mike Miksic – Piper Jaffray Companies

Okay, is that something that you think you’ll be able to put some numbers to, or some more detail to maybe when you talk about 2011?

Robert Parkinson

Probably not.

Mike Miksic – Piper Jaffray Companies

Okay, so just something that’s kind of been very in there will be some flexibility that will seek out of the general [inaudible] I guess, is the way to look at that.

Robert Parkinson

Yeah, I think that’s right.

Mike Miksic – Piper Jaffray Companies

Okay, then, one follow-up on you talked about volumes, procedure volume, hospital admissions having an impact. The general thing that’s impacting everyone else having an impact on [inaudible] med, I’m wondering how to reconcile what’s been a gradually improving U.S. IVIG market with that dynamic. I remember when the IV/IG market was slowing, I think we were scratching our heads thinking is it admissions, is it patients going to see the doc last, any way to reconcile that?

Robert Parkinson

I think that’s a tough one. I just think there are so many variables in the IV/IG market that make it much more allusive to track down with unlinking procedures, unlike say medical devices, like our bio surgery products. Whether it’s adjustment of inventory in the channel, or whether it’s change in the channel from hospital versus pharmacy’s, whether it’s reimbursement pressure for vey expensive therapy where there are varies reactions, but then over time suddenly now, an array of competitive dynamics were suppliers at a year or so ago may have been out of the market to get back in. There are a laundry list of variables and I just think it’s really difficult to associated underlining surgical procedure or hospital admission volumes with what’s going on IV/IG. That is really analytically a tough one to connect the dots.

Male

Okay, and then finally on pumps, just – I don’t know if you talked about what takes [inaudible] in the rest of the year – I guess we’re getting to a point soon where you’re going to start replacing [inaudible] with [inaudible] potentially, or going through that process, this was a pretty strong quarter, should we see some moderation in the fourth quarter? I guess, how should we think about the rest of the year in pumps?

Robert Parkinson

Yeah, I mean, we’ve been replacing [inaudible] with [inaudible] now for the better part of the last year since we did the deal. I think with [inaudible], clearly that’s accelerated to some degree as a result of the consent order that was finalized a couple of months ago. It’s very early on, we’ve seen very little, if any, share shift frankly. In other words, hospitals opting to go to a competitor versus waiting for their [inaudible] pumps and so on. But I would emphasize that’s still early, so as we go into the fourth quarter, Mary, can you help me out here, are there some dynamics last year, I don’t want to miss…

Robert Hombach

Yeah – no, sequentially, we expect it to be just as strong as it was in the third quarter Matt, but remember year over year we started selling [inaudible] in the fourth quarter last year. So we do have a difficult comp to the fourth quarter.

Male

Okay, so sequentially tough, a year-over-year tough, but no [inaudible] or we should see all of sudden in terms of this FDA process.

Robert Hombach

That is correct, that’s our …

Robert Parkinson

Yeah, I mean, a customers are just now getting indication of a early indication. The actual activity is going to be in 2011 before we really see any actual swap outs or refunds, and so on. Which will be something we have to factor into our guidance for 2011.

Mike Miksic – Piper Jaffray Companies

And then last on renal, you talked I think, one of the earlier questions on the opportunity there for PD. Do you have a number at where pump – PD penetration is currently in the U.S., Bob or I don’t know if Rob is on, but any kind of update as to where you think it is, and maybe a number as to next couple of years, where do you think it could go?

Robert Parkinson

Well, I don’t want to give you a number. I think actually over time, they’ll be a new metric. It won’t be PD penetration; it will be home therapy penetration. And that’s a orientation that’s alive with our strategic intact with the development of home HD, very much aligned with the change of reimbursement practice. So I think the historic metric of PD penetration will become increasingly passive.

Mike Miksic – Piper Jaffray Companies

Fair enough, thanks again for taking the questions.

Robert Parkinson

We have time for just one more.

Operator

Our final question is from Ben Andrew with William Blair. Please go ahead.

Ben Andrew – William Blair

Two quick questions, Mary Kay or Bob, can you help us understand what’s going on with your pace of collections in plasma, have you dialed that back up, or are you still working down your raw materials in inventory?

Robert Parkinson

Yeah, I would say in the third quarter, collections were still down year-over-year. So at this point, we’ve made no change to collections.

Ben Andrew – William Blair

Okay, and then just finally, on the home [inaudible] side, Bob, you’re talking a fair bit about that in this call, do you think that the first study coming out of the [inaudible] is going to an in center study, or an in home first?

Robert Parkinson

It will be an in center.

Ben Andrew – William Blair

In center. And so how long do you think that will take to run, and when can you start on the in home trial?

Robert Parkinson

That’s what we’re finalizing with the FDA, we just submitted to them the finalized IDE, and once that’s accepted we can provide you with the details on that clinical trial design.

Ben Andrew – William Blair

So it will be at least a class, a 5, 10-K class to be filing, but there’s some uncertainty whether it will turn into a PMA over time, is that right?

Robert Parkinson

I don’t believe that we believe that there’s any uncertainty at this point. We believe it’s a 5, 10-K based on our discussion with the FDA.

Ben Andrew – William Blair

Okay, great, thank you.

Operator

Ladies and gentleman, this concludes today’s conference call with Baxter International, thank you for participating. Everyone have a wonderful day.

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