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Baxter International (BAX) Estimates Cut By RBC Capital After Delay In Hyq Product Approval

 April 17, 2012 03:54 PM

(By Balaseshan S) RBC Capital Markets analyst Glenn Novarro lowered his estimates for Baxter International Inc. (NYSE:BAX) after the recent announcement that approval of HyQ product will be delayed.

The brokerage, which maintained its "Outperform" rating and $62 price target, reduced its 2013 adjusted EPS estimate for BAX to $4.96 on revenue of $14.807 billion from $5.00 on revenue of $14.849 billion.

Novarro estimates the U.S. HyQ delay removes about $1/share of value for BAX based on his NPV analysis. His previous analysis assumed the U.S. sub-Q market would grow to about $480 million by 2015 and that BAX would take 30%-plus share by 2015.

[Related -Pfizer Inc. (PFE), Baxter International (BAX): Two Healthcare Stocks Primed To Outperform]

If the analyst assumes a 12-month U.S. delay for HyQ, he believes the lost value for BAX amounts to about $0.75/share (about $1.25/share assuming a 24-month delay). He further estimates that the entire U.S. HyQ program represents about $3.70/share based on his NPV analysis.

Accordingly, based on today's move (down $3.80/share), the street is implying the whole value of BAX's U.S. HyQ program is wiped out. Novarro believes this is aggressive. He is lowering 2013 revenue estimate for BAX by about $40 million to account for the HyQ delay.

While the analyst's model had assumed a higher contribution from HyQ in 2013, he believes that BAX can still sell some of the Gammagard Liquid supply that would have been packaged with rHuPH20 (although at a lower price point). His 2013 EPS estimate moves lower by about $0.04 to account for the lost HyQ revenues/lower GMs.

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Novarro is modeling Q1-2012 revenue of $3.3 billion, up about 0.5% year-over-year, inline with consensus, and Q1-2012 EPS of $0.99 (consensus estimate $1.00). He believes BAX will be able to hit consensus Q1-2012 estimates and reiterate 2012 guidance as his checks have pointed to continued strong IVIG demand growth and a limited return of Octapharma to the U.S. He does not believe the HyQ delay will materially impact 2012 guidance.

Today's sell-off removes some of the risk ahead of Biogen Idec Inc. (NASDAQ:BIIB)/Johnson & Johnson (NYSE:JNJ)/Eli Lilly & Co. (NYSE:LLY) data readouts. Upcoming news flow for BAX could have a more negative slant, given the second half of 2012 Phase 3 data readout from BIIB's rFVIIIFc program and the Phase 3 data readouts from Pfizer Inc. (NYSE:PFE) and LLY's Alzheimer's programs.

The analyst believes the 6%-plus decline in BAX shares today not only accounts for the delay in U.S. HyQ approval but also removes some of the risk associated with upcoming data readouts from BIIB/JNJ/LLY. Accordingly, for investors with a longer-term focus, he sees value in BAX shares.

BAX is trading up 1.15% at $54.72 on Tuesday.

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