Baxter and Baxalta Holdings Outline Vision for Accelerated and Sustainable Growth, Showcase Innovation

In advance of the anticipated July 1, 2015, spin-off of Baxalta Incorporated from Baxter International Inc.

, executives from the companies will share their vision, strategies and initiatives underway to drive product innovation and accelerated growth over the long-term. Each company will provide updates on its financial outlook, new product pipeline and growth prospects at a two-day conference that begins today. As separate, independent companies, both Baxter and Baxalta will remain leaders in their respective markets, each with an established global presence. The businesses operate in distinct markets, and each possesses unique and compelling growth prospects, investment requirements and risk profiles. Both companies will have strong balance sheets and cash flows, and will benefit from enhanced financial flexibility and reduced complexity. This will allow each to prioritize and capitalize on unique opportunities presenting the highest growth potential within their respective portfolios. Baxter's Long-Range Plan As Baxter prepares for the spin-off, the company is focused on materially accelerating profitable growth. Baxter expects to grow sales approximately 4 percent on a compounded annual basis at constant currency rates through 2020, as a result of further penetration of existing products and therapies, expansion into new geographies and new product launches. The company has also developed a comprehensive margin improvement strategy centered on launching new products, optimizing its portfolio and streamlining its cost structure, which will result in adjusted operating margin expansion of approximately 100 basis points annually, from approximately 9 percent in the second half of 2015 to approximately 14 percent by 2020. As a result, Baxter expects double-digit adjusted operating income growth from 2016 through 2020, and improvement in adjusted EBITDA (earnings before interest, tax, depreciation and amortization) margin from approximately 15 percent in the second half of 2015 to approximately 20 percent by 2020. Baxter's initial operating margin post-spin will be negatively impacted by stranded costs associated with the spin-off, pension expenses and operational investments. These will be offset in the near-term as part of Baxter's broader margin expansion program. Lastly, the company expects cash flow from operations to grow more than 12 percent annually and exceed $2.0 billion by 2020, and free cash flow to significantly increase to more than $1.1 billion by 2020. At its investor conference today, Baxter executives will highlight Baxter's plans to advance patient care globally by optimizing its research and development efforts and global operations to enable greater scale and efficiency while also focusing on solutions that best address local market needs. In addition, Baxter expects to launch more than 20 new products over the next several years, focused on improving clinical outcomes, lowering healthcare costs and enhancing patient convenience. ''The spin-off provides us with flexibility to bring our product portfolio to market more effectively and capitalize on global opportunities and emerging trends to address patient needs while enhancing profitability,'' said Robert L. Parkinson, Jr., chairman and chief executive officer of Baxter. ''Healthcare providers are being tasked with delivering better care to greater numbers of patients in a more cost-effective manner. Baxter is a valued partner in addressing the challenges faced by governments, payers and healthcare providers around the world.'' Baxalta's Long-Range Plan As a stand-alone, global biopharmaceutical leader, Baxalta will implement a more focused and agile business model to drive growth and enhance operational performance. The company plans to drive sustainable and profitable growth with its leading differentiated brands, new indications and product launches, and personalized treatments for patients with rare and orphan diseases in three core therapeutic areas of focus: hematology, immunology and oncology. Specifically, Baxalta expects to achieve sales growth of 6 to 8 percent on a constant currency basis, and growth in adjusted operating income of at least 8 percent, each on a compounded annual basis from 2016 through 2020. This growth is anticipated to enhance adjusted operating margin from approximately 29 percent in the second half of 2015 to approximately 30 to 31 percent in 2020, and adjusted EBITDA (earnings before interest, tax, depreciation and amortization) margin from approximately 33 percent in the second half of 2015 to 35 to 36 percent by 2020. In addition, the company expects to accelerate cash flow from operations to approximately $2.1 billion by 2020, reduce capital spending, and significantly accelerate free cash flow to approximately $1.3 billion by 2020. ''Baxalta's vision is to be a global biopharmaceutical leader striving for excellence in advancing innovative therapies that improve patients' lives," said Ludwig Hantson, who currently serves as president of Baxter's BioScience business and will become Chief Executive Officer for Baxalta upon the spin-off. ''This is an exciting time for Baxalta, as we have a solid foundation and strong momentum. Our transformation is well underway and our compelling strategy, clinical and scientific expertise, and financial strength will position us well to drive enhanced value for patients, customers and shareholders." At its investor conference on May 19th, Baxalta executives will highlight value-creation opportunities including strategies to enhance access and standards of care. The company is strengthening its leadership position in hematology with sustainable growth of ADVATE ([Antihemophilic Factor (Recombinant), Plasma/Albumin-Free Method] and FEIBA (an inhibitor therapy), advancing innovation with BAX 855 and other pipeline assets, and leveraging scientific expertise to accelerate the development of new therapies to treat rare blood disorders. In immunology, Baxalta expects to capitalize on its broad and differentiated IG portfolio with the successful launch of HYQVIA, a transformational therapy for the treatment of adults with primary immunodeficiency, while improving supply with the addition of flexible, cost-effective capacity. Consistent with its commitment to innovation, Baxalta has implemented a new patient-centric R&D model, expects to launch 20 new products, which will contribute more than $2.5 billion in annual sales by 2020, and plans to further augment its pipeline through external partnerships and strategic acquisitions. The company is prioritizing R&D efforts around innovative candidates in its three core areas of focus, and recently acquired novel technologies in the field of immunology and hematology, including the acquisition of SuppreMol for immune and allergic diseases and AesRx for sickle cell disease. In addition, the company will highlight the recently announced acquisition of the Oncaspar portfolio for leukemia, which is expected to close in the second half of 2015. The acquisition represents a strong strategic fit with Baxalta's rapidly expanding oncology business and further accelerates the company's innovation capabilities and commercial presence in meeting unmet needs with a targeted approach in the large and growing oncology market. The acquisition will also complement the company's late-stage, partnered R&D programs that have successfully achieved certain regulatory and clinical milestones, including nal-iri (or MM-398) for pancreatic cancer and Pacritinib for myelofibrosis. Generating Financial Flexibility While Returning Value to Shareholders In conjunction with the spin-off, Baxter will receive approximately $4 billion through a cash dividend from Baxalta and will retain an equity stake in Baxalta of approximately 19.5 percent. The retained stake demonstrates Baxter's confidence in Baxalta's growth prospects and provides flexibility for Baxter's capital structure. Baxter plans to use the retained stake and the proceeds from the dividend to reduce debt and make contributions to the company's domestic pension plan. The company also will evaluate potential stock-for-stock exchanges once its targeted leverage ratio is achieved. The monetization of the company's retained stake in Baxalta is expected to be tax-free when used for these purposes and executed within 18 months of the separation. The spinoff will create two well-capitalized, independent companies with strong balance sheets, investment grade profiles, and disciplined approaches to capital allocation, each with the financial flexibility to balance reinvestment in the business with returning value to shareholders in the form of dividends and share repurchases. Following the spin-off, Baxter is targeting a dividend payout ratio of approximately 35 percent of adjusted net income, while Baxalta is targeting a payout ratio to its shareholders of approximately 15 percent of adjusted net income. The Baxter presentation will begin at 12:30 p.m. EDT today. Baxalta Incorporated will host its investor conference on May 19th, with presentations beginning at 8:00 a.m. EDT. All of the presentations and accompanying slides will be webcast live by Nasdaq OMX and can be accessed via Baxter's corporate website at www.baxter.com. Replays of the presentations and accompanying materials will also be available via www.baxter.com beginning May 19. Baxter International Inc., through its subsidiaries, develops, manufactures and markets products that save and sustain the lives of people with hemophilia, immune disorders, cancer, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. As a global, diversified healthcare company, Baxter applies a unique combination of expertise in medical devices, pharmaceuticals and biotechnology to create products that advance patient care worldwide.