- Shares in Deerfield, Illinois-based medtech Baxter International dipped more than 10% in early trading Thursday after the company said it discovered an accounting error dating back to 2014, prompting an internal investigation.
- Baxter said certain transactions the past five years used a historically applied foreign exchange rate convention not compatible with GAAP which "enabled intra-Company transactions to be undertaken after the related exchange rates were already known," the medtech reported. CEO Joe Almeida said the duration and outcome of the investigation are unknown and Baxter does not expect to submit its standard quarterly filing with the U.S. Securities and Exchange Commission on time.
- The quarter included 7% year-over-year growth in peritoneal dialysis patient volumes, executives said, which were partly offset by soft sales in in-center hemodialysis products.
The company may have to amend past financial filings and include amended year-over-year comparisons in future reports.
Baxter is "taking steps to strengthen and enhance its internal controls, and we look forward to sharing our full financial results as soon as possible," Almeida said in prepared remarks Thursday.
The ongoing investigation prevented Baxter from comparing units' performance to prior years and from offering 2020 guidance.
Also precluding Baxter from offering longer term guidance is yet-to-be finalized proposed changes to U.S. kidney care but executives reiterated the Advancing American Kidney Health initiative represents "an important potential driver" of growth. Policy changes are helping home dialysis be embraced as as the "frontline option," Almeida said, and Baxter is "nurturing" early technology in the space.
CFO Jay Saccaro also said it would be premature to comment on 2020 guidance in light of outstanding contracts with group purchasing organizations and integrated delivery networks. In the fourth quarter, however, management expects 3% to 4% reported sales growth and anticipates offering further guidance on the next earnings call.
Baxter's $2.85 billion in third quarter revenues were up 3% as reported, missing analysts' expectations by about $20 million. Almeida called out "very good momentum in Latin America" and quick uptake in Canada of continuous renal replacement therapy system Prismax, the latest version of which was launched in August.
The company also said on the call it submitted its Theranova dialyzer, a hemodialysis delivery device already sold in certain international markets, to FDA via the De Novo pathway. Baxter expects to receive input from FDA early next year.
"By that time, we are optimistic the administration will also have provided additional clarity and final rules for the proposed transitional add-on payment adjustment for new and innovative equipment and supplies," a company spokesperson said in an email to MedTech Dive following the earnings call.
Sales in renal care and medication delivery exceeded those in the second quarter, clocking in at $918 million and $701 million, respectively, while revenues in advanced surgery fell from $232 million last quarter to $216 million.
One-time items during the quarter included a $7 million charge related to updating quality systems and product labeling to comply with EU MDR by May 2020 and $40 million in insurance recoveries tied to losses incurred due to 2017's Hurricane Maria, which disrupted production in its medication delivery unit.
An Oct. 16 report from Bloomberg citing people with knowledge of the matter said Baxter was in advanced talks with French pharma Sanofi to buy its Seprafilm surgical products unit.
When asked about the report, Almeida declined to comment on M&A activity Baxter is or isn't considering but said the company is open to adjacencies that are "more reasonably priced and easier to integrate."
Baxter is still in the process of completing its $230 million acquisition of noninvasive fluid management monitoring system developer Cheetah Medical, first announced in September.
This story has been updated with information on a De Novo submission.