Baxter Wins FDA Approval For PHOXILLUM

In early June, I wrote a bullish article on Baxter (NYSE:BAX), with a thesis stating that the company's outlook should improve with aging populations, which will increase the demand for elective and non-elective medical procedures, and, in turn, dictate the need for specialized medical devices. I also stated that the expansion of Baxter's ADVATE program into emerging markets, namely China and Brazil, was another compelling reason to accumulate. However, there are underlying risks to a Baxter investment, as the company has reeled from inadequate growth in many areas over the last year, prompting concern amid the company's plans to spin off its lucrative Biosciences division, Baxalta, in mid 2015. Nevertheless, with the FDA approval for PHOXILLUM, there is more evidence to support my claim that Baxter has excellent long-term growth prospects as it approaches the spin-off.

Some key highlights from Baxter's latest announcement are as follows:

• The FDA has approved PHOXILLUM Renal Replacement Solutions (BK4/2.5 and B22K4/0) as replacement solutions in continuous renal replacement therapy (CRRT) to correct electrolyte and acid-base imbalances, and in case of drug poisoning when CRRT is used to remove dialyzable substances.
• Hypophosphatemia (abnormally low concentration of phosphate in the blood) is a common electrolyte disturbance in patients treated with CRRT. PHOXILLUM is the only FDA approved pre-mixed solution containing phosphate in a 5L bag. It is designed to facilitate electrolyte management during CRRT by allowing use of a single type of solution across a wide clinical spectrum of acute kidney injury (AKI) patients.

• Hemodynamic status and fluid, electrolyte and acid-base balance should be monitored. These abnormalities may be corrected by changing the formulations of replacement solution or by supplementation. The approval includes PHOXILLUM formulations containing different bicarbonate concentrations.

• Baxter anticipates PHOXILLUM phosphate-containing solutions will be available in the United States in the second quarter of 2015.

This is a positive development for Baxter. The approval for PHOXILLUM should support the company's revenue growth next quarter. As a reminder, the spin-off of Baxalta will reduce Baxter's total revenues by approximately $6-8 billion, so I suspect it is critical for the company to continue to seek additional sources of revenue to mitigate the negative impact of the spin-off. Accordingly, PHOXILLUM should help offset this loss. The product is one of the promising assets inherited by Baxter as a result of the Gambro acquisition, and is indicated for sizable markets in CRRT and AKI. Nevertheless, while Baxter potentially remains on a solid course of moderate growth following the spin-off, it will likely need to continue pursuing strategic acquisitions that expand its core medical devices business. At this juncture, therefore, I see no reason to amend my bullish thesis on Baxter.