Another giant may be broken up

Baxter announced that it will spin off its Global Kidney Care and Acute Care businesses to form a new public company over the next 12-18 months. The move aims to increase its operational efficiency, improve long-term performance, accelerate innovation, and create additional value for all stakeholders.

These divisions generated approximately $5 billion in sales for Baxter in fiscal 2021 and $3.286 billion in the first three quarters of 2022.

Baxter plans to announce details of the restructuring efforts on the Q4 earnings call on February 9, 2023, but cannot guarantee 100% completion of the spin-off or that any other strategic transformation plans will not occur.

The spin-off Baxter will focus on connected medical devices, technologies and pharmaceuticals in hospitals, doctors' offices and other places of care, and the new kidney care company will provide dialysis innovations for patients with acute and chronic kidney disease.

Core business split

The spin-off kidney care is Baxter's largest business unit, which includes peritoneal dialysis (PD), hemodialysis (HD) and add-on dialysis treatments and services; The Acute Care business includes continuous renal replacement therapy (CRRT) and other organ support therapy products concentrated in intensive care units (ICUs).

In fact, at the Q3 earnings conference in October 2022, Baxter hinted that the company plans to review its portfolio.

It is worth mentioning that two other companies that are considered the "dialysis triumvirate" along with Baxter, Fresenius and DaVita, also announced plans to create a new kidney care company in May 2022.

Baxter said the new company will face a market size of about $15 billion and is expected to grow at a compound annual growth rate of between 3% and 4% over the next 3 years.

Baxter's new kidney company will continue its nearly 70-year history of kidney treatment. Kidney therapy devices in homes, clinics and intensive care units now reach more than 1 million patients in more than 70 countries, and about 75 percent of the company's revenue comes from outside the United States. Approximately 60% of the Company's total sales will come from peritoneal dialysis systems, totaling approximately $2.8 billion, and 23% ($1.1 billion) will come from hemodialysis systems. Spending on acute care such as continuous renal replacement therapy and life support hardware accounted for about 17 percent, or about $800 million.

According to the company, its R&D pipeline also includes products under development that are expected to be launched in 2023 or 2024. Around the same time, the kidney business will be independent, including digital patient monitoring and management tools, as well as acute kidney injury and sepsis diagnosis.

Future or divest biopharmaceutical solutions

In addition, Baxter announced other strategic alternatives, including simplifying its business model and manufacturing layout. At the same time, the company also plans to improve its capital structure, including a review of strategic alternatives for its Biopharmaceutical Solutions (BPS) business.

The BPS business provides contract manufacturing services to the pharmaceutical and biotechnology industries. The segment generated $669 million in revenue in 2021 and is Baxter's fastest-growing business. Baxter said it has continued growth opportunities, but the BPS business has limited alignment with the rest of its portfolio and that potential sales or other deals could help Baxter streamline its focus.

Baxter also said that under its restructuring plan, the split BPS makes it poised to become a "more robust hospital solutions and connected care company." The company plans to make strategic investments to accelerate this vision.

It is reported that the proceeds from the spin-off and the potential sale proceeds from Baxter's biopharmaceutical solutions business (plus Baxter's own drug sales revenue of about $3 billion) will be used to help pay off its debt following its $10.5 billion acquisition of Hillrom in December 2021.