COVID-19 has given Baxter International a badly needed, if temporary, jolt of growth.
The Deerfield-based medical products company has seen demand soar for products that treat acute kidney injury, a serious coronavirus complication. Baxter is ramping up production and hiring to meet surging hospital orders for blood purifiers and infusion systems used in intensive care units.
"The company is seeing demand up to five times greater than historical levels for multiple acute dialysis products as a result of an extraordinary rise in COVID-19 patients requiring access to continuous renal replacement therapy," Baxter said in an April 20 statement.
But a temporary boost from hospitals battling coronavirus won't advance Baxter's top strategic goal: revving up a top line weighed down by sluggish growth in its biggest business. Overall revenue rose just 2 percent to $11.4 billion last year, as sales of dialysis equipment flatlined. What's more, Baxter's fast-growing advanced surgery business likely will suffer as hospitals table lucrative elective surgeries to focus on critically ill COVID patients.
With a focus on advanced surgeries, acute therapies and generic injectable drugs, Baxter had expected new products to generate roughly a billion dollars in sales this year. The company says it's not giving guidance for full-year 2020 due to uncertainty around COVID-19.
For now, existing products are driving growth. Hospitals are turning to Prismax, a blood purification system, to treat kidney failure caused by COVID-19. The system, which launched in the U.S. in July, last year helped drive a 4 percent increase in Baxter's acute therapies business—one of its smallest segments. Baxter also is launching Oxiris, a blood purification system that has been used in Europe and Asia for more than 10 years, in the U.S.
The company's initiatives around non-COVID products likely are taking a back seat as it ramps up capacity to meet hospitals' needs. Baxter plans to hire 2,000 temporary and permanent workers globally, including 800 in the U.S., and keep certain facilities running around the clock.
"We're well equipped to supply the world with the products that we need and the products we have," CEO Joe Almeida told analysts on an earnings call last month.
But Chief Financial Officer Jay Saccaro said supply chain costs are rising and warned that Baxter "will carry some extra inventory of critical products, and products we think are likely to be stockpiled in the event of a broader-scale pandemic."
Higher fixed costs and inventory could become a drag after the crisis eases, when financially stressed hospitals stop spending so much on emergency kidney treatments. Among Illinois' more than 200 hospitals, inpatient revenues are down between 30 and 50 percent, and outpatient revenues are down 50 to 70 percent, according to the Illinois Health & Hospital Association, which estimates that the facilities are losing a total of $1.4 billion a month.
"They're walking kind of a tightrope," says Morningstar analyst Julie Utterback. "There's this higher near-term demand, but, as they said a short time ago, we didn't think (continuous renal replacement therapy) would have that sort of demand. What happens in the longer run if they have all these increased costs associated with new employees and manufacturing lines and demand drops to more normalized levels?"
Meanwhile, a main area of growth for the company will see big declines as hospitals cancel elective surgeries to focus on COVID-19 patients in intensive care, predicts Edward Jones analyst Ashtyn Evans. Accounting for 8 percent of Baxter's business, advanced surgery sales—including surgical sealants that control bleeding—increased 10 percent to $877 million last year. Evans also figures declining surgeries will hurt sales of anesthetics, another important business for Baxter. As a result, she expects companywide revenue to decline by less than 5 percent next year.
There's no sign that the fight against COVID-19 has helped Baxter's biggest business, renal care, which accounts for one-third of total sales. Sales were flat last year on sluggish demand for traditional dialysis equipment. But the unit could eventually get a boost from the growing popularity of its peritoneal dialysis systems.
The treatment offers end-stage renal disease patients more flexibility than traditional hemodialysis since it can be done at home and more frequently. Home-based care is more convenient than a trip to the dialysis center, especially when people are hiding from a virulent pathogen. A new Medicare rule incentivizing less expensive home dialysis also could drive demand for peritoneal systems.
"There's a pretty compelling reason for the peritoneal dialysis modality to take shape and be something strong going forward," Almeida said, noting demand for at-home dialysis products has increased in China and predicting a similar rise in the U.S.
Another side effect of COVID-19 for Baxter's business could be an acquisition, as struggling sellers lower their prices.
"We kind of took a long, long pause on speaking about large acquisitions or midsized acquisitions. We could not justify prices," Almeida said. "I think perhaps having a good amount of money in the bank and asset values being down, I think may be an opportunity for us to continue to look at M&A landscape."
This article orginally appeared in Crain's Chicago Business.