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Baxter (BAX) Closes Acquisition of RECOTHROM & PREVELEAK

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Baxter International Inc. BAX has completed the acquisition of two hemostat and sealant products from Mallinckrodt plc to widen its existing surgical portfolio of hemostats and sealants, especially for intraoperative bleeding. Notably, the company bought RECOTHROM Thrombin topical and PREVELEAK Surgical Sealant product lines from Mallinckrodt.

Baxter expects the deal to be modestly accretive to its 2018 adjusted earnings. Thereafter, the transaction deal will increasingly add capabilities to Baxter’s portfolio, driving its bottom line in turn.

The Deal in Detail

Baxter is buying RECOTHROM and PREVELEAK for an upfront payment of approximately $153 million and potential contingent payments in the near future. The deal was announced earlier in January.

 

Baxter now gains major traction from RECOTHROM’s (only stand-alone recombinant thrombin) buyout, providing more options of innovative hemostatic products to surgeons for dealing with severities of bleeding. PREVELEAK (used in vascular reconstruction) complements the company’s existing portfolio of advanced surgical sealants.

Baxter’s Surgical Portfolio

Baxter’s surgical portfolio includes products like FLOSEAL Hemostatic Matrix, TISSEEL Fibrin Sealant, COSEAL Surgical Sealant and VASCU-GUARD Patch among others. The portfolio is composed of hemostasis (addressing bleeding), tissue sealing and hard tissue regeneration as well as soft tissue repair and microsurgery with products available in nearly 60 countries.

The company consistently endeavors to improve its Advanced Surgery business. For 2018, the company expects advanced surgery business to increase 3-4% on constant currency basis.

Baxter has also announced plans to focus on launching advanced surgery products in Japan in the coming days.

Market Potential

Per a CISION report, the Global Surgical and Medical device market is anticipated to witness a CAGR of 5.93% over the forecast period of 2017-2026, reaching a worth of $828.6 billion by 2026. Considering the bullish market sentiments, we think this latest development is timely.A leading player in this niche space is Abbott ABT.

Stock Performance & Estimate Revision

Shares of Baxter have outperformed the industry in the past year. The stock has rallied 28.6%, outperforming the S&P 500’s 15.9% gain and the broader industry’s 16.4% rise.

The company’s estimate revision trend for the current year has been positive. In the past couple of months, nine analysts moved north with no revision in the opposite direction. Earnings estimates rose around 2.9% to $2.78.

Zacks Rank & Other Key Picks

Baxter carries a Zacks Rank #2 (Buy). Two other top-ranked stocks in the broader medical sector are Bio-Rad Laboratories BIO and Varian Medical Systems, Inc. VAR.

Bio-Rad Laboratories sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.The company has a long-term expected earnings growth rate of 20%.

Varian Medical has a long-term expected earnings growth rate of 8%. The stock carries a Zacks Rank of 2.

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