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Baxter's Partnership in Brazil

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Baxter International (BAX) recently revealed a 20-year partnership with Hemobrás (Empresa Brasileira de Hemoderivados e Biotechnologia). Under the agreement, Baxter will ensure greater availability of recombinant factor VIII (rFVIII) therapy for Brazilian hemophilia victims undergoing hemophilia A therapy.  

Baxter will be the sole provider for Brazil’s recombinant FVIII therapy over the coming decade. During this time, the two parties will collaborate on the transfer of technology to facilitate the creation of production capability in Brazil. Hemobrás will pay Baxter for its offering, which will be converted into royalty payments once the technology transfer has been completed.  

Hemophilia A is a condition under which the human body does not generate sufficient clotting protein factor VIII. As per certain estimates, over 10,000 Brazilians have hemophilia A and most of them receive plasma-based FVIII therapy.

The news regarding Baxter still remains somewhat mixed. On the positive side, Baxter’s focus on life-sustaining products which are not commoditized, partly insulate it from an economic downturn. The company is able to generate recurring revenues, and consistent cash flow due to its focus on chronic diseases. Among other positive factors, Baxter retains a strong product pipeline with several products in late-stage clinical development.

On the flip side, despite resilience in certain sub-segments, we are concerned about relative stagnation in sales, a slightly somber outlook for hospital spending and tightening of reimbursement.

Improved execution has lifted sentiment somewhat toward Baxter. It is a good bet for value investors willing to wait as fundamentals improve further. Among others, the company competes with Becton, Dickinson and Company (BDX) in certain niches.

We currently have a long-term Neutral recommendation on Baxter. The stock carries a Zacks #4 Rank, which translates into a short-term Sell rating.

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