Baxter: More Heparin Problems

We highlight Baxter International, Inc. (BAX - Analyst Report) and Pfizer, Inc. (PFE - Analyst Report).

Not long after reporting a decent first quarter, Baxter International (BAX - Analyst Report) has made headlines once again for its heparin product.

A renewed heparin-related scare began over the weekend, with two deaths announced and a third patient suffered complications. The common link between all three patients is the administration of heparin. Initial reports indicate that the pharmaceutical ingredients were sourced in North America, likely from Pfizer (PFE - Analyst Report). The contaminant from the Chinese factory during the 2008 scare (over-sulfated chondroitin sulfate) was not found in the recently tested samples.

Additionally, the mode of drug delivery differed. The heparin currently under investigation was delivered in pre-mixed, intravenous bags, whereas last year’s tainted heparin was found in vials and drug-coated devices.

For the quarter, net sales (excluding FX) increased 6% y/y. Higher margins on an adjusted basis combined with share repurchases drove EPS higher.

It is too early to know the fallout from this. Heparin is a small product within Baxter's portfolio, contributing only $30 million in 2007. However, the recent incident adds further uncertainty to the discovery process underway for the class action suits filed in 2008.

We have kept our 2009 revenue estimates higher than those provided by the company. Our 2009 adjusted diluted EPS estimate remains within management’s guidance of $3.72-$3.78. We remain bullish on this stock with a target price of $59.40 per share.