Baxter (NYSE:BAX) announced today that it laid out a strategic roadmap for the future that includes the spinoff of two business units.
The company plans to spin its renal care and acute therapies units into an independent, publicly traded company. It expects the company to stand alone in the next 12 to 18 months.
Baxter’s spinoff move falls in line with a major spinoff trend in medtech. It also creates competition for another recent kidney care spin. In May 2022, Medtronic and DaVita announced a plan to create a new kidney care company.
GE, BD and Zimmer Biomet, among others, also recently completed spinoffs of major business units.
Other strategic plans for Baxter include a simplified commercial and manufacturing footprint, according to a news release. The company also plans to improve its capital structure. That includes a review of strategic alternatives for its BioPharma Solutions (BPS) business.
José (Joe) E. Almeida, Baxter’s chair, president and CEO labeled this period “a major inflection point.” He added that the dynamic healthcare landscape drove the decisions made by the company.
“These decisive actions are necessary to help deliver future performance and innovation at the levels we demand of ourselves in pursuit of our mission to save and sustain lives,” said Almeida. “We are confident that the strategic actions we are announcing today will help ensure that each of these entities, and the incredibly strong and dedicated group of colleagues that comprise them, are on the best possible trajectory moving forward. Realizing the full impact of these decisions will take time, but we believe they are essential to enhance our focus, fuel our innovative spirit, and, most crucially, deliver optimal results for the patients, clinicians, shareholders, and other stakeholder communities that depend on us.”
BAX shares were down more than 7% to $48.83 apiece on the news. MassDevice‘s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, was up 8%.
More on the standalone kidney care company
Baxter said its new kidney care company stands to benefit from its existing leading product portfolio. It also features a geographically diverse footprint and extensive commercial operations. The business’ capabilities support therapies delivered in the home, clinic and intensive care unit (ICU). In 2021, sales for the two units totaled approximately $5 billion globally.
The company believes a standalone company enables better positioning to pursue growth opportunities and invest in innovation. This comes through its own investment priorities and enhanced management focus.
Baxter’s board authorized the company to proceed with the spinoff plan. The company plans for the spinoff to qualify as tax-free to itself and shareholders for U.S. federal income tax purposes.
It plans for further updates in due course as the spinoff progresses. Baxter can offer no guarantees over the completion of the spinoff, nor any of its other strategic transition plans.
A new operating model for Baxter
Baxter intends to finalize a new operating model to implement in parallel with planning for the proposed spinoff.
The company expects that, once implemented, it will make it a “more integrated and nimble organization.” Baxter wants to respond to changes in the environment faster and more effectively.
It said the simplified structure should create a more resilient supply chain and greater alignment with its manufacturing footprint. This better positions Baxter to deliver against the operational and investment priorities of its businesses. It includes a restructuring plan featuring optimization of the company’s manufacturing footprint.
Baxter intends to share details for the restructuring effort on its fourth-quarter earnings call on Feb. 9.
Other strategic alternatives, including the BPS business
Baxter’s plans for the BPS business include a potential sale or other separation options.
The BPS business provides contract manufacturing services to the pharma and biotech industries. Baxter said it has continued opportunities for growth, but the BPS business holds a limited alignment with the rest of its portfolio. A potential sale or other transaction could help Baxter streamline its focus, it said.
Baxter said that, following its restructuring plans, it expects to emerge as a “stronger hospital solutions and connected care company.” It plans to make strategic investments to accelerate this vision.
That may include increased R&D investments in higher-growth and more strategic opportunities. Other opportunities include expanding investment in marketing, sales and business development.
