Baxter and Abbott Refuse to be Toppled by Foreign Currency Headwinds

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Global pharmaceutical companies Baxter International Incorporated (NYSE:BAX) (Deerfield, Illinois) and Abbott Laboratories (NYSE:ABT) (Abbot Park, Illinois) this week reported earnings for the third quarter of their 2009 fiscal years. Although negative foreign exchange reduced both companies' bottom lines, Abbott and Baxter experienced year-over-year net earnings increases of 36.5% and 12%, respectively. Baxter's net income rose from $476 million in 3Q08 to $532 million in 3Q09, while Abbott's net earnings rose from $1.09 billion in 3Q08 to $1.48 billion in 3Q09.

Baxter's net sales remained flat from last year, at $3.14 billion. The company's CELVAPAN H1N1 flu vaccine, which was approved for use in Europe last week, is expected to generate an additional $30 million to $40 million in sales in 4Q09, according to Chief Financial Officer Rob Davis.

Sales for Abbott increased 3.5% from last year, rising to $7.76 billion. While operational sales were actually up 8.4%, negative foreign exchange reduced actual gain. HUMIRA, approved for the treatment rheumatoid arthritis, psoriatic arthritis, Crohn's disease and other conditions, remained a very strong seller for the company, with sales of $791 million internationally and $700 million in the U.S. The company continues to reel from competition of the generic form of Depakote, used for the treatment of epilepsy and bipolar disorder. Abbott estimates that sales of the generic form of the drug have reduced the company's total U.S. sales by 10.5 percentage points. "Overall, we're pleased with our third-quarter performance year-to-date," said Abbott Chief Financial Officer Thomas Freyman in a conference call. "We're delivering strong operating results while taking strategic actions to ensure our top-tier performance over the long term."

If Abbott and Baxter are at all representative of the sector as a whole, the Pharmaceutical & Biotech Industry has been able to keep its head above water throughout the economic slowdown, especially in comparison with other industries. While both companies' net earnings increased strongly from last year, without the impact of negative foreign exchange, growth of sales and earnings would have been absolutely stellar.

In regard to capital investment, both companies seem to be playing it safe for the time being. Industrial Info is currently monitoring approximately $29 million of Baxter's projects in North America. With the exception of a warehouse expansion, the North American projects primarily involve routine plant maintenance. The warehouse expansion is occurring at Baxter's biologics facility in Hayward, California, and involves a 25,000-square-foot expansion to increase production capacity. Construction on the project began in May this year and is expected to wrap up in early 2010.

Abbott also appears to be acting relatively conservatively in regard to spending, with Industrial Info monitoring $24 million of planned maintenance shutdowns for the company. A single Abbott project stands out, however. Since 2006, Industrial Info has been tracking plans for a grassroot pharmaceutical research campus being developed by Abbott in Pleasant Prairie, Wisconsin. Construction of the estimated $150 million project is currently planned to begin late next year, delayed one year from the initially planned start date. Information on these and other projects can be found in Industrial Info's Pharmaceutical & Biotech Tracker - Online Database.

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