"The spin-off provides us with flexibility to bring our product portfolio to market more effectively and capitalize on global opportunities and emerging trends to address patient needs while enhancing profitability," chairman & CEO Robert Parkinson Jr. said in prepared remarks.
Baxter said it expects to launch more than 20 new products over the next several years, targeting "improving clinical outcomes, lowering healthcare costs and enhancing convenience." A strategy is in place to boost global research & development efforts, with a focus on devices that "enable greater scale and efficiency" but also address the needs of local, global markets, the company said.
Expectations are for constant-currency compound sales growth 4% through 2020 on product and geographical expansion, Baxter said. The Deerfield, Ill.-based healthcare giant also plans to cut costs to achieve an adjusted operating margin expansion of about 100 basis points annually, meaning a gain from 9% in the 2nd half of 2015 to 14% by 2020.
Leerink Partners analyst Danielle Antalffy said more aggressive M&A from the company is likely in the future, noting that Baxter expects to generate more than $2 billion in operating cash by 2020 while still undertaking a 35% dividend payout ratio.
"We continue to like [Baxter] into the upcoming split and believe the stock can start to work from here with the bar now reset and significantly more clarity into the long-term growth outlook of the standalone company," Antalffy wrote in a note to investors. "Clearly, though, pipeline is the biggest driver of sales growth acceleration over the next 5 years, with BAX expecting new products to make up 10% of total sales in 2020 and ramp to ~$3B+ in sales by 2025. This does leave execution risk, in our view, but BAX has a number of shots on goal – with ~17 completely new products set to launch over the next 5 years without considering product extensions/launches in new geographies – that increase our comfort level that the company has laid out an achievable target."