On Sep 2, we have updated our research report on Baxter International Inc. (BAX). Although expensive, the Gambro acquisition has long term prospects for Baxter. Further, a solid product pipeline and strategic collaborations, represents key value drivers for the company.
Baxter operates in the life-sustaining and critical care products category that should remain relatively insulated from economic downturns. Its products are not commodity-like in nature and provide a recurring revenue stream.
The Gambro acquisition strengthens the company’s role in the hemodialysis market. It will be able to serve both acute and chronic dialysis patients. With the takeover, Baxter gains an established set of products, which strengthen its existing line of dialysis products.
Apart from Gambro, Baxter made two acquisitions in the recent past, which are expected to boost its Medical Products segment results. They include Chapel Hill, NC-based gene therapy-mediated cures developer Chatham Therapeutics, LLC and privately-owned orphan drug (pharmaceutical drug used for treating rare disease) producer in the U.S. AesRx, LLC that will help it address a highly unmet clinical need of patients suffering from blood-related disorders.
However, Baxter depends on the EU for about a third of its sales. This is a cause for concern given recent fiscal tightening, a glum outlook for hospital spending and tightening of reimbursement.
Further, Baxter faces pricing pressure due to the advent of group purchasing organizations (GPOs) in the U.S. GPOs act as agents that negotiate vendor contracts on behalf of their members.
Currently, Baxter carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical products industry include ICU Medical, Inc. (ICUI), Neogen Corp. (NEOG), and NuVasive, Inc. (NUVA). ICU Medical sports a Zacks Rank #1 (Strong Buy), while both Neogen and NuVasive carry a Zacks Rank #2 (Buy).
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