Baxter International Up on Distribution Deal with Rockwell
Shares of Baxter International Inc. (BAX) rose 1.7% following the announcement of an exclusive distribution agreement of its subsidiary Baxter Healthcare Corp. with Wixom, MI-based Rockwell Medical, Inc. (RMTI). Following the agreement, Baxter Healthcare will commercialize Rockwell's hemodialysis concentrate product line in the U.S. and in some overseas markets for 10 years.
Under the terms of the agreement, Baxter can also expand the distribution agreement for two additional 5-year terms upon meeting certain sales milestones, coupled with a $7.5 million payment related to the first extension.
In order to retain the exclusive distribution rights, Baxter needs to buy products from Rockwell at a pre-determined price based on gross margin. Further, the company needs to meet minimum annual purchase levels in order to retain the rights.
Through the agreement, Baxter will leverage Rockwell's unique distribution operations in order to provide specialized customer and delivery service for concentrates. However, Rockwell will retain sales, marketing and distribution rights for its hemodialysis concentrate products in some foreign countries, where it has an established commercial presence.
For the exclusive commercialization rights, Baxter will pay $20 million in cash to Rockwell. Further, it will buy $15 million of Rockwell common stock.
The investment in Rockwell shares is being made at a price per share equal to the average closing price of its shares over the last 12 months (or $11.39 per share). These apart, Rockwell is eligible for milestone payments totaling $10 million related to the expansion of its manufacturing capabilities to serve customers across the U.S.
In March this year, Baxter had announced plans to split-up its biopharmaceuticals and medical device segments into two independent companies in order to put greater management focus on the two businesses, effectively commercialize product offerings, efficiently allocate resources to high growth areas, and bring flexibility in deciding on growth and investment strategies.
Baxter’s biopharmaceuticals/bioscience division will focus on immune deficiencies and blood-related disorders and includes the plan to form a partnership or sale of its drug development programs based on the flu and Lyme diseases.
Baxter’s medical products division manufactures intravenous (:IV) solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, IV nutrition products, infusion pumps, and inhalation anesthetics.
The medical products business contributed $8.7 million or 57% to Baxter’s overall revenues in 2013. The business will continue to integrate the $4 billion acquisition of Swedish dialysis maker Gambro AB, completed last September, which complements its existing renal therapies franchise.
Baxter expects to complete splitting up the business in mid-2015. The transaction will take the form of a tax-free distribution to the company’s shareholders of a new publicly traded stock in the new biopharmaceuticals company.
Baxter expects to incur one-time charges due to the split up during the reporting periods preceding the separation. However, the company does not expect it to impact the financial guidance for 2014.
Currently, Baxter retains a Zacks Rank #4 (Sell) while Rockwell Medical sports a Zacks Rank #2 (Buy). Other well-performing stocks in the medical products industry include ICU Medical, Inc. (ICUI) and ZELTIQ Aesthetics, Inc. (ZLTQ). Both of them carry a Zacks Rank #1 (Strong Buy).
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