Baxter 1Q profit rises 6 pct on higher prices, margins

Drug and medical device maker Baxter International Inc. reported a 6 percent increase in first-quarter earnings Thursday on the strength of cost cuts and a weaker dollar, and it raised its outlook for full-year profits.

Baxter said better pricing and product mix also contributed to its improved results.

The Deerfield, Ill.-based company announced another delay, however, in efforts to restart U.S. sales of its Colleague intravenous pump, which were recalled in 2005 when the Food and Drug Administration said it failed to follow manufacturing requirements.

CEO Robert Parkinson Jr. said the company remains in talks with the FDA regarding software modifications to the pumps and the certification of its quality systems.

"As a result, we don't believe that we will be in a position to recommercialize Colleague this year," he said on a conference call.

The company took a $45 million charge for additional costs and cut its 2008 sales estimate for the pumps to $30 million because of the delay, which Parkinson acknowledged to analysts was "a challenge and frustrating." Baxter had earlier said it expected pump sales to begin again by midyear.

Baxter shares fell 2 cents to close at $60.41 Thursday.

Solid results from other products more than compensated for that setback, the company's report indicated.

"Our strong and improving financial position reflects the continuing momentum in our business," Parkinson said.

First-quarter earnings were $429 million, or 67 cents per share, up from $403 million, or 61 cents per share, a year earlier. Excluding the pump charge, earnings were 74 cents per share, or 2 cents better than the consensus estimate of analysts surveyed by Thomson Financial.

Revenue rose 8 percent to $2.88 billion.

Baxter's quarter was dominated by the recall of its blood thinner heparin and an FDA investigation of contamination of the product, which the agency linked to 19 deaths and hundreds of allergic reactions. The company says it has identified only four deaths where its recalled heparin may have played a role.

Baxter took only a relatively small charge of $19 million related to the recalls. Parksinon said on the call that a dozen lawsuits have been filed so far but the company doesn't expect to suffer a material impact because none of the litigation appears to contain a credible medical assessment linking a fatality to Baxter heparin.

Baxter said its bioscience unit, which makes blood therapy products, increased sales by 13 percent to $1.2 billion. The company cited strong sales for Advate, its treatment for hemophilia A, and several other products used for the treatment of hemophilia and immune disorders.

Sales from the medication delivery business rose 8 percent to $1.1 billion, led by intravenous and nutritional therapies and significant growth in international sales of anesthesia products and injectable drugs, the company said. Renal sales increased 6 percent to $558 million.

Analysts hailed the company's increased commitment to research and development in the quarter, which it raised by 19 percent to $190 million.

Julie Stralow of Morningstar said Baxter's operating results were good but indicated in a note to investors that the earnings were slightly marred by "familiar bad news" involving the pumps.

The company said it now expects full-year earnings of $3.18 to $3.24 per share, compared with prior estimates of $3.10 to $3.18 per share.

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