Baxter Posts Impressive 2Q Earnings and Outlook, Promising Data in Alzheimer’s Disease For Gammagard, Positive Read-Through on Halozyme

With most global drug companies missing estimates on currency and international economic woes, Baxter (NYSE: BAX) put up an impressive quarter, beating Wall Street’s top and bottom line estimates. Gross margin also came in above expectations, suggesting Baxter is well-positioned in this tough environment. Revenue guidance for 2012 was reiterated, with annual growth of 4-5%, implying total revenues for the year in the $14.45-$14.59 billion range (above Street expectations for $14.17 billion). EPS guidance of $4.50-$4.56 is largely in-line with the Street consensus estimate of $4.52. Expect BAX to trade up today, particularly on the heels of positive clinical trial results for its IVIg product, Gammagard, earlier this week. This trial, led by Weill Cornell Medical College, showed that Gammagard stabilized cognition, memory, daily functioning, and mood in patients diagnosed with Alzheimer’s disease for a period of 3 years. A Phase III trial is being conducted by Baxter and should report out in several months. If the trial confirms that Gammagard indeed slows the progression of Alzheimer’s disease and perhaps improves symptoms in some patients, this could represent a major opportunity to expand the IVIg market, with sales potential in the tens of billions of dollars according to Wall Street analysts.

Halozyme (NASDAQ: HALO) is working with Baxter to develop a subcutaneous form of Gammagard so that the patient can take the treatment at home. If approved, HALO’s more convenient version of Gammagard (currently given in an hour long intravenous infusion at a clinic or hospital) is likely to become a leading treatment for Alzheimer’s not only because of the improved administration, but also because the cost would be much lower if a patient can self-inject the treatment at home. BAX said on its earnings call this morning that it remains in discussion with the FDA on the Halozyme formulation (called HyQ), and expects a complete response letter from the agency with details on what is necessary for an approval of the product. HALO up in pre-market trading, and is likely to continue to trade up into Baxter’s communique on the roadmap forward from FDA later this Summer.