Good morning, ladies and gentlemen, and welcome to the Baxter International's First Quarter 2021 Earnings Conference Call. Your lines will remain in a listen only mode until the question and answer segment of today's call. First. As a reminder, this call is being recorded by Baxter and is copyrighted material. Call.
If you have any objections, please disconnect at this time. I would now like to turn the call over to Ms. Claire Trackman, Vice President, Investor Relations at Vaster International. Ms. Trachman.
You may begin.
Good morning, and welcome to our Q1 2021 earnings conference call. Joining me today are Joe Almeida, Baxter's Chairman and Chief Executive Officer and Jay Sekharro, Baxter's Chief Financial Officer. On the call this morning, call. We will be discussing Baxter's Q1 2021 financial results and full year 2021 financial outlook. Please note, starting this quarter, the financial schedule, quarter, which breaks out sales by key product categories, will now include the sales of our biopharma solutions contract manufacturing quarter.
Historical schedules reflecting this new structure, along with a supplemental presentation to complement this morning's discussion, call. Thank you, sir. Our first question comes from the line of David. Please go ahead. Thank you, reconciliation.
With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook quarter. For the Q2 and full year 2021, new product developments, business development and regulatory matters contain forward looking statements call. That involve risks and uncertainties, and of course, our actual results could differ materially from our current expectations. Please refer to today's press release and our SEC filings for more detail concerning factors that could cause actual results to differ materially. In addition, on today's call, call.
Non GAAP financial measures will be used to help investors understand Baxter's ongoing business performance. Call. The reconciliation of the non GAAP financial measures being discussed today to the comparable GAAP financial measures is included in our earnings release issued this morning and available on our website. As mentioned in our press release this morning, during the Q1, Baxter strengthened its European and global pharmaceuticals portfolio call. With the acquisition of the rights for certain territories outside the U.
S. To the widely prescribed chemotherapy medication, Calyxt, call, also known as Dachshund in several geographies, including the U. S. This strategic acquisition, which closed on February 17 of this year, supplement Baxter's previously existing U. S.
Rights to Doxil, which the company acquired in 2019. Quarter. As a result of this acquisition, on the call this morning, we will be discussing operational sales growth, which adjusts for the impact of foreign exchange call as well as the international sales of Helix and Doxil. Now, I'd like to turn the call over to Joe. Joe?
Call.
Thank you, Claire. Good morning, everyone, and thank you for joining today's call. I hope that you and your loved ones are healthy and safe. Call. I'll begin with an overview of Baxter's Q1 performance.
Jim will take a closer look at the financials, including our outlook for Q2 and the year as a whole. Call. Baxter delivered 1st quarter sales growth of 5% on a reported basis and 1% on both on a constant currency and operational basis. This represents solid performance in the face of an unprecedented pandemic call as well as a challenging year over year comparison, given the heightened sales we experienced a year ago as our customers prepared quarter for the impact of COVID-nineteen. On the bottom line, 1st quarter adjusted earnings per share of $0.76 quarter.
This decrease reflects the negative year over year impact of COVID on our results in the quarter. Quarter. On a segment basis, Asia Pacific delivered growth of 8% at constant rates. This growth reflects strength across the region, quarter. While much of the region is progressing in its recovery, we continue to monitor the situation in India, which is experiencing the highest COVID infection rates around the world.
Sales results in EMEA were flat year over year and declined 1% in the Americas, also at constant currency rates. Call. Sales in both of these segments continue to be impacted by lower rates of hospital admissions and surgical volumes due to the pandemic. Looking at performance by business. Acute Therapies led growth across all of our product categories with sales increasing 28% on a constant currency basis.
Results were driven by ongoing heightened demand globally Probexxo's continuous renal replacement therapy or CRT technology amid COVID-nineteen. As we discussed last year, we expect acute therapies demand to recede from its pandemic peak and return to more typical levels over the course of the year. Call. Our biopharma solutions business advanced 11% year over year on a constant currency basis, call. All grew at low single digits at constant currency.
Growth in renal care continues to be driven by demand for our peritoneal analysis or PD products globally. I would point out that demand from both our in center HD and PD businesses has been dampened call. We expect the SRD patient volumes to stabilize and return to normal over the next 18 to 24 months, but the pace of the recovery may vary by market. PD growth is expected to continue outpacing HD growth market wide for the foreseeable future. Beyond the general lifestyle benefits of home based PD, This therapy continues to be recognized as a biotreatment option amidst pandemic conditions.
In addition, the new CMS end stage renal disease treatment choices or ATC payment bottle went into effect in the U. S. At the start of the year, which supports extended access to home therapies. HD will remain a critical treatment option in numerous markets. As a pioneer in dialysis broadly, Baxter is committed to innovation across both modalities, enabling clinicians and patients to make the right treatment choices based on their distinct needs.
Quarter. Last quarter, I highlighted the FDA's 510 clearance of our Home Choice Clara APG cycler as one more way quarter. We are supporting PD growth in the U. S. More recently, we received 510 clearance of our leading edge AK98 hemodialysis system, improvement platform that is currently in use in more than 90 countries worldwide and now launching in the U.
S. Quarter. Growth in our clinical nutrition business reflected demand for Baxter's multi chamber nutritional product offerings in the U. S. And APAC Markets as well as Nutrition Compound Growth in E and E.
Pharmaceuticals growth was driven by senior strength in our international pharmacy compounded business as well as the benefit from the recent acquisition of Calyxt Doxil rights in selected territories outside the U. S. This acquisition further strengthens our pharmaceuticals portfolio globally and in particular representative platform to accelerate growth in Europe. Adjusting for the Calyxt and Doxil acquisitions and foreign exchange, Pharmaceuticals declined low single digits year over year. Performance in the quarter reflects a challenge in comparison to the prior year quarter, which occurred before quarter.
The decline in hospitalizations and surgical volumes due to the pandemic, in tandem with heightened sales as hospitals topped up call. We're also impacted by lower rates of hospitalizations and surgical procedures as well as the challenge in comparison to the prior year quarter. Call. That said, we're seeing gradual steadily covering these trends. I expect this to continue over the course of the year, call.
Particularly as the rate of COVID vaccinations improves globally. In medication delivery, we're also quarter. By the potential of our NovoMyQ infusion platform, including our Dose IQ safety software and IQ enterprise digital connectivity release. NovoMyQ was resubmitted for FDA 510 clearance early this month. We look forward to advancing this application and anticipate day introducing this exciting technology to the U.
S. In the second half of this year. We also remain committed to broadening our presence globally Novo. My queue and currently expect to introduce this platform in Europe in 2022 as we work to enhance our product offering to address the specific needs of this region. As I wrap up, I would like to reinforce that Baxter is both well prepared and well positioned for the future.
Essential nature and durability of our portfolio, the breadth and diversity of our product lines, our expansive geographic footprint and the impact of our transformation all taken together fuel our resilience, adaptability and agility. We remain focused on advancing innovation, key to sustained growth in any industry. We have a lot to look forward to across our businesses, including new therapeutics and increasingly new value added digital solutions. You may hear about many of these at our upcoming investor conference and some even sooner. And to supplement our organic pipeline, we will continue to pursue attractive call.
Now I will pass it to Jay for a deeper dive into our financials and outlook.
Thanks, Joe, quarter. As Joe mentioned, we're pleased with our Q1 performance, particularly in light of the ongoing pandemic conditions and a tough comparison to Q1 2020, where we experienced heightened demand for select products call. As COVID-nineteen began to spread to the U. S. And other geographies, the strength and resilience of our portfolio continues to be on display quarter.
We are executing on the priorities we've set out. As Joe mentioned, this quarter we resubmitted the FDA 510 filing for Novum IQ. Our suite of next generation infusion pumps is a promising multiyear growth driver for Baxter. Call. Additionally, in line with our strategic objective, we bolstered our pharmaceuticals portfolio with the acquisition of rights to select quarter.
That will allow for future growth, particularly in our EMEA region. And we continue to execute on recent new product launches across our businesses and geographies. Quarter. Turning to our Q1 2021 results, global sales of $2,900,000,000 advanced 5% on a reported basis, 1% on a constant currency basis and 1% on an operational basis. For the quarter, We estimate that COVID negatively impacted year over year sales growth by approximately 400 basis points.
Sales growth in the Q1 did exceed our expectations driven by operational strength and the benefit from COVID vaccine manufacturing related revenues. Quarter. Also, the recent acquisition of Calyxt Doxel contributed approximately 45 basis points to growth in the quarter. Call. On the bottom line, adjusted earnings declined 7% to $0.76 per share as a negative impact from COVID on Our business and operations as well as increased interest expense and a higher tax rate more than offset operational growth in the quarter.
Quarter. Now, I'll walk through performance by our regional segments and key product categories starting with our 3 regional segments. Quarter. Sales in the Americas declined 1% on both a constant currency and operational basis. Sales in Europe, Middle East and Africa We're flat on a constant currency basis and declined 1% on an operational basis and sales in our APAC region advanced 8% on both constant currency and operational basis.
Moving on to performance by key product category. Note for this quarter, call for which we will provide both constant currency and operational growth adjusting for the acquisition of rights in select territories outside the U. S. Call for Calyxt Docsul. Global sales for Renal Care were $922,000,000 advancing 2% on a constant currency basis.
Performance in the quarter was driven by global growth in our PD business. We continue to monitor the impact of excess mortality among ESRD patients and delays in new patient diagnoses resulting from the pandemic. This is particularly notable in select Latin America markets, We saw patient volumes decline mid teens during the quarter. Our current expectation is for PD patient volumes to ramp over the course of the year. Quarter.
Although as Joe mentioned, the pace of recovery will vary by market and be further impacted by the rate of COVID vaccinations. Quarter. Longer term, we remain excited about the trajectory for our Renal Care business, in particular with our leading portfolio of home therapies. Quarter. Sales and medication delivery of $652,000,000 declined 6% on a constant currency basis.
The sales decline reflects a difficult comparison to the first quarter 2020, where we experienced heightened demand for certain medication delivery products and hadn't yet felt the full impact from the lower rate of hospital admissions and surgical procedures. During the quarter, we estimate that U. S. Hospital admissions were down high single digits quarter. Pharmaceutical sales of $552,000,000 advanced 1% on a constant currency basis and declined 2% on an operational basis.
OUS sales of Calyxt Dosto contributed approximately $13,000,000 to the quarter. Pharmaceutical performance in the quarter was also negatively impacted by the Q1 2020 pre pandemic buy in for Select products as well as lower rates of hospital admissions and surgical volumes with sales of both inhaled anesthetics and specialty injectables declining high single digits, excluding the benefit of the Caelus Doxil acquisition. Strength in our international pharmacy compounding services partially offset this impact. Moving to Nutrition, quarter. Total sales were $234,000,000 increasing 3% on a constant currency basis.
Performance in the quarter was driven by increased demand for multi chamber bags and nutrition compounding products in EMEA. Sales in Advanced Surgery were $217,000,000 declining 6% on a constant currency basis. Sales within the quarter were impacted by lower surgical procedure volumes as well as a difficult year over year comparison quarter. As the Q1 of 2020 included a benefit of approximately 600 basis points resulting from competitor product shortages. Quarter.
Although surgical procedures experienced a slow start to the year, we expect quarterly sequential improvement and anticipate ending the year with procedure volumes quarter. Sales in our acute therapies business were $207,000,000 representing growth of 28% on a constant currency basis driven by ongoing COVID related demand. As Joe mentioned, we anticipate this demand will slow as vaccination rates increase and COVID related admissions decline. As mentioned, beginning this quarter, we are disclosing sales associated with our biopharma solutions contract manufacturing unit, which was previously presented in our other category. 1st quarter sales in biopharma solutions were $135,000,000 representing growth of 11% on a constant currency basis.
Performance in the quarter was driven by revenues generated from manufacturing COVID-nineteen vaccines on a contract basis. We are honored to play a role in helping meet global demand for COVID-nineteen vaccines. Moving through the rest of the P and L, our adjusted gross margin of 42% declined by 2 30 basis points over prior year, driven by lower sales of high margin products and increased operations and supply chain expenses quarter results resulting from COVID. Adjusted SG and A of $609,000,000 increased 3% on a year over year basis and was flat on a constant currency basis. Adjusted R and D spending in the quarter of $128,000,000 increased 4% on a reported basis and was also flat on a constant currency basis.
Quarter. Both adjusted SG and A and R and D reflected continued benefit from lower discretionary spending amid the pandemic. Quarter. The adjusted operating margin in the quarter was 17%, a decrease of 180 basis points versus the prior year. Quarter.
Net interest expense was $34,000,000 in the quarter, an increase of $13,000,000 compared to the prior year, driven by Increased interest expense from higher outstanding debt balances as well as decreased interest income due to lower interest rates. Quarter non operating expense totaled $5,000,000 in the quarter. The adjusted tax rate in the quarter was 16% quarter. It was favorable to our expectations driven primarily by discrete tax benefit recognized in the quarter. We had expected this benefit to occur later in the year.
Quarter. Let me conclude my comments by discussing our outlook for the Q2 and full year 2021. For full year 20 2021, we expect global sales growth of 8% to 9% on a reported basis, 5% to 6% on a constant currency basis quarter and 4% to 5% on an operational basis. This assumes a benefit of approximately 100 basis points to both reported and constant currency revenue growth quarter for the acquisition of Caelus Doxel, as well as approximately 300 basis points of positive top line impact from foreign exchange on reported growth. Quarter.
Our expectation remains that on a full year basis, hospital admission rates and surgical procedures will stay below pre COVID levels with rates improvement throughout the year and exiting the 4th quarter with admissions down low single digits and procedures roughly flat. Moving down the P and L, we now anticipate adjusted operating margin to expand between 40 to 60 basis points, reflecting strong Q1 performance and the inclusion of the Calyxt DASIL OUS rights. We expect this benefit to be partially offset by quarter. Supply chain and manufacturing related costs given the increase in commodity pricing and freight transport as well as a negative impact from foreign exchange. Quarter.
For the year, we expect an average adjusted tax rate of approximately 18% and a full year diluted average share quarter. Between the range of 510,000,000 to 515,000,000 shares. Based on these factors, we expect 2021 adjusted earnings, quarter. Excluding special items of $3.47 to $3.55 per diluted share. Specific to the Q2 of 2021, we expect global sales growth of 14% to 15% on a reported basis, 8% to 9%
quarter. On a
constant currency basis and 7% to 8% on an operational basis, and we expect adjusted earnings excluding quarter. Thank you. For Q and A.
Thank you. We will now begin the question and answer session. Question if necessary. We appreciate everyone's patience and would like to provide as many of you as possible opportunity to ask a question. I would like to remind participants that the call is being recorded and a digital replay will be available on the Baxter International website for 60 days at www.battster.com.
Our first question comes from Robbie Marcus of JPMorgan. Your question please.
Great. Call. Congrats on a good quarter and thanks for taking the question.
Thanks, Robbie. Maybe call.
Maybe to start it off, Jed, let's get a little more color on the cadence that's assumed in guidance here. 2nd quarter is coming in a touch below the street, but you did raise EPS guidance a little more than the Q1 beat. So I was hoping to get a sense of Some of the items impacting second quarter is there still lag from high cost inventory flowing through COGS, Etcetera, and how to think about the margin expansion in the back half of the year.
Sure. Robbie, consistent with how we outline performance at the beginning of the when we gave guidance originally. We really do see this as a tale of 2 different halves With the shape of the second half being very different than the shape of the first half, in part that relates to admissions and surgical procedures. And in part, it relates to certain manufacturing costs, which we expect to subside to the back part of the year. Quarter.
So first, as it relates to admissions, our 2nd quarter assumption in admissions, 1st quarter, we saw about 8% Down relative to pre COVID levels. In the Q2, we're expecting to see roughly 7% down. That's kind of the working assumption that we have in place. Quarter. But in the back half of the year, we'll expect to see roughly 3% down.
And so we do see a market improvement from first half to second half that benefits on the top line. And then from the margin standpoint, we will see incremental improvements in the second half of the year, In particular, with respect to gross margin that start to drive our performance up. And so in fact, the second half Average margin will be in the 20% range or a little bit north of that as implied by the guidance that we've shared. Quarter. Now specific to the Q2, there are a few moving pieces.
What I would say is we do have sequential improvement in sales That contributes approximately $0.10 of earnings impact roughly all in. And included in that is maybe a couple of cents related to the Doxil acquisition. Now but as we think about the Q2, one of the things that's really important for us quarter. We're setting the stage for a successful acceleration in the second half and setting the stage for a successful 2022. Quarter.
We are making meaningful OpEx investments in the Q2 to support that acceleration. So we're seeing roughly about $0.10 or so of OpEx investments that take place in the Q2. And then from a financial statement standpoint, there's a tax rate. We see the tax rate from the Q1 to the Q2 tick up roughly $0.03 We saw a discrete item in the Q1 of the year. We don't expect that to repeat in the Q2.
Therefore, there's a bit of a tick up. So I think broadly speaking, as you say, we're really pleased with the Q1 performance. It's a nice start to the year. It sets the stage for a successful performance throughout the rest of the year. But I view Q2 as a little bit more of a stage setter on the way to a really solid second half of the year.
That's great. Jay, I know I'm going to try and phrase this in a way call. Maybe you'll be able to answer it. I know we're going to get the full long term guide this September Analyst Day. But you're exiting the year with over a 20% operating margin.
Your street is sitting at about 19.8% for next year. Is there anything that would prevent us from taking the exit rate in the second half and bringing that through into next year. So maybe you could just talk about maybe some puts and takes And what's in that second half margin? Is that a good go forward? Thanks.
So two things. Call. One is, stay tuned. We're really excited for our upcoming Investor Day. We're hopeful that we'll be able to conduct That in person with folks in attendance, and I believe it's going to be in the Deerfield area.
So very excited to share. And at that point, we'll share some thoughts call. On 2022 and beyond in terms of where we can take the long term platform of the business, and safe to say, We as a team are incredibly focused on margin enhancements as we've been for the last 5 years. So There will definitely be some discussion of that. The one thing I would caution you is, remember, we always have a seasonality factor in play quarter.
And Q1, Q2 are typically lower than Q3, Q4 for a whole host of reasons, but there is some seasonality that needs to be considered when you look at exit rates of Q4 margins, which typically are highest in the year.
Great. Thanks a lot.
Thank you.
Bob Hopkins of BofA Securities is online with a question. Please state your question.
Yes, great. Good morning and thanks first. I just wanted to follow-up on Ravi's questions on operating margins because I think it's a really important topic. So you're starting 2021 at 17% and you mentioned what will happen over the course of the rest of the year, including the back half. How much of the trajectory over the course of the year is dependent on the improvement in revenue growth versus things that are kind of directly in your control On the manufacturing and cost side.
Bob, thanks for the question. It's a difficult question to answer because to some quarter. They do go hand in hand. Now we have specific programs that we've earmarked on both the gross margin and the cost side. If you'll recall, call.
In our last earnings call, we talked a little bit about the digital transformation that's underway, led by Andy Fry and Talvis, our CIO. Call. We've got an enormous amount of work ongoing in terms of cost improvements and efficiency enhancements Related to that transformation and also Jim Borzey, our Head of Manufacturing and Operations has a lot in terms of accelerating operating performance in the second half of the year. So all of those things will feature prominently as we look at Q3, Q4 and beyond. But we do need as is always the case, if you're falling short of revenue expectations, it creates a real absorption challenge in the manufacturing facilities.
It creates a real absorption challenge as you look at things like fixed SG and A and R and D costs. So there is some it's important That we do see the acceleration on the revenue line in order for us to deliver what our expectations are. Now having said that, I do believe that quarter. We have the right revenue projection in place. And I think our ability to forecast revenues in light of this highly volatile environment has really improved Quite substantially over the last 18 months.
So, I think the assumptions that I outlined that support the second half call. Hopefully, prove reasonable, but we'll have to wait and see.
Okay. Thank you for that. And then Just a follow-up actually on operating margins, thinking a little long term. If you're starting if this year you end up successful and we end up at around 18 point percent as you're guiding. The Street model is roughly 100 basis point improvement in 20222023.
And you'll give us all the specifics in September, and I'm sure we're all looking forward to that. But just directionally, is there are there things that we should be considering that would suggest That those numbers are way off?
Again, it's hard for us to comment in the context of call. We've taken the guidance off the table and we did it because of a lot of different reasons. The guidance was stale. It was from 2018. We've had a global pandemic Since we provided that guidance and a lot of different things have happened.
So, what I can tell you is and by the way, it's a little painful We don't share anything because this team is committed to margin improvements. We focus a lot of our energy and efforts on it. And culturally the notion of efficiency enhancing the efficiency of our operations that is center stage. Call. So for all of those reasons, I'd love to share some commentary on future margins.
But I think in light of the fact that We still want to see what how the pandemic plays out and our assumptions valid for the rest of this year and what happens to 2022. Quarter. In light of that, it's a little difficult and I'll have to hold off on commenting on future years' margin performance.
Jay, if I just may ask, Bob, we're not going to comment on the Street expectations question. But what I want our listeners and investors to know is the company is really focused on margin improvement through a few levers. The first one is new product launches. This year, we're launching more than 20 new products, including we're hopeful to obtain The 510 from the FDA on the NuCom platform. Then we also have Very good momentum in the integrated supply chain led by Jim Borze.
We also have Excuse me. The digital transformation that is touching every corner of the company with significant redesign of the finance function in the company and other functions in the company that will completely be redesigned in the use of artificial feature intelligence and use of Box. So we have a lot of momentum going up. So we are not going to discuss a specific number, just telling folks We're not just sitting here. We've had significant amount of work going on in Baxter to continue to improve our margins.
First. Thank you.
Thanks, Bob.
Matt Miksic of Credit Suisse is on the line with a question. Please state your Amit Mehdi with Credit Suisse. Your line is open. Please state your question.
First. So Jay, I had one that I that you're that we've gotten over the last couple of months, I think, about Baxter and some of comments that you've made and some of the comments that you've made today regarding projections on things like procedures and hospitalizations. First. And I know it's a challenge to make those kinds of projections given the variability in the environment and sort of the newness of call process that we're all going through. But can you help us understand a little bit how you get to some of The thoughts you have on first half, second half and census levels, etcetera, and your visibility to those and sort of Confidence as we kind of get into the year that we are going to wind up where you're describing and assuming in your guidance.
And I have one follow-up.
Quarter. Sure. And I will tell you that this is an area we have invested a lot in, and a lot of this work Done by our Americas team led by Giuseppe Acoli and Heather Knight. And it starts with aggregation of data sources. There are a number of proprietary data sources that we now have in place that really give us good line of sight to why in terms of actual patients admitted to hospitals along with surgical procedures.
So We have a number of sources and then of course there's a lot of publicly available sources. But early on in the pandemic, if we rewind over a year, We didn't have the availability of data sources for information because, frankly, this was hospital admissions was never a variable That was very concerning to us. It was always something that would grow a couple of low single digits each year. And so in light of the Q2 last quarter. We saw a 20% decline.
Giuseppe and team started spending a lot of their energy and effort assessing and understanding data sources. But then the second thing that we did was we started to do some work in terms of anticipating and forecasting With some artificial intelligence looking at a variety of data sources that could predict behavior. Quarter. And ultimately, what we found is, in the Q4 of last year, in the Q1 of this year, the model that we built, And I'm talking most specifically to the U. S.
Because I think that's a big driver for us and it's also a discrete data set that lends itself to a level of analytics that perhaps other markets it's a little more challenging. What we found was Q4, Q1, we were largely in line with our expectations within a tolerance range that was acceptable. And so we've applied that same analytic lens looking forward. Now we could be wrong, of course, and we've quantified in the past What a mistake would cost us from an admission standpoint. I believe 1 percentage point in the U.
S. Per month is a couple $1,000,000 and so that's the sort of the penalty for being wrong. But I think quarter. Throughout, once we got through Q2 of last year, our ability to anticipate what the outcome was going to be has been Significantly better and past performance is no guarantee of future performance. We have caveats related to forward looking statements that Claire shared at the outset of this call, but I feel like we have done a nice job really I don't know, Joe, if you'd like to add anything.
Jay, I think you're covered very well. Thank you.
Thank you.
I know this is becoming a bit of a topic for the call, but it is important, obviously. So maybe If you could describe where the resources that you put to work when you came, let's say, in couple of years leading up to this pandemic, a fair amount of effort on 0 based budgeting and all sorts of operating efficiencies and rethinking of R and D spend, etcetera. And I'm just wondering, where is the flex In your organization to get after get back after some of those opportunities or how is the how do you anticipate your Organizations are shifting to get after sort of the next leg of margin opportunity coming out of at the end of this year.
Mike, there are 3 very specific areas of that we are Very, very focused. 1 is integrated supply chain. From the moment we buy raw material, it is whatever raw material it is all the way to deliver The delivery to the customer. We have the specifics. A matter of fact, coincidentally, I just reviewed that yesterday with the team, We have programs in all areas, from cost of raw materials to the cost reductions in our manufacturing facilities, the ability to predict cost of logistics, which has been a headwind for the company and for many other companies around the globe With containers and shipping lanes being clogged up, so those things are progressive increasing net cost reduction of integrated supply chain that pleased me.
The second thing is digital transformation because Baxter quarter. You did indeed remove costs from your G and A, but not enough. We got to a point that now we need to redesign our processes. So I just gave an example to supplement Bob's question to Jay is finance organizations, a large group within the company Does a great job, but also we can do things in a much more concise and better way. So we're looking at that call from digital transformation of our quality organizations, regulatory affairs, As well as the research and development.
We shift research and development within the company. People ask me, Why don't we spend more in restructuring development? Always, we can spend more money. There's always opportunity to put more money, but we are now this year Piping out 22 new products, a brand new platform of pumps that this company never had And we're doing this with the R and D resources that we have by shifting location of labor, But also becoming more effective in doing that. And lastly is the mix of the news this new product that will come into play quarter for the margin accretion.
So there is opportunity in G and A and gross margin quarter. Via reduction in cost from integrated supply chain as well as the mix due to new products.
Very helpful color. Thanks, Joe.
Pito Chickering of Deutsche Bank is online with a question. Please state your question.
Good morning, guys. Thanks for taking my questions. The first one is a follow-up on the cadence question, but focusing on revenues versus the OpEx that you're spending in 2Q. Quarter. January February were tough for most of the country due to COVID surge and storms.
But can you give us some color on the exit rates in March and maybe April that you're seeing within medication delivery, advanced surgery and acute therapies. I'm just trying to understand the dynamics
of the COVID tailwinds and headwinds as you head into 2Q?
Sure. So overall, I think what we outlined was admissions Q1 down roughly 8% on the way to 7% in Q2, and that very much has impact on our medication delivery business and the performance there. And then from a I didn't mention this, but from a surgery standpoint, quarter. We saw it down kind of low single digits, maybe 4% in the Q1. We're expecting to see a sequential improvement to the Q2 of the year, Maybe down 2%.
And my comments are specifically related to the United States. And our April trends, what we've seen thus far is Broadly speaking, supportive of the comments that I've made. Now having said that, for all of the reasons that you know well, Pito, The Q2 of the year represents a very, very easy comp for areas like medication delivery. So whereas in the U. S.
Quarter. And globally, we saw a decline in the Q1 of the year. We expect to see a fairly reasonable growth level in the Q2 of the year In large part because of the easy comp and then some of the easing that we're seeing from an admission standpoint.
Okay. And then for Renal Care, can you give us some more color on what you're seeing within the U. S, Europe and other markets? I believe you mentioned that LatAm was down in mid teens. How How should we think about the increased mortality on the ESRD patients as it relates to both our in center products and our PD products within those geographies in 2021?
And And also, have you seen increased PD demand as patients with RATHER B at home versus center and as patients get vaccinated, are they keeping on PD?
Peter, this is Joe Amador. So I would say that we saw The decline in census just as was outlined by the providers and by us before, there was a significant death because patients are off therapy. But when we look at the dynamics of the market, we still see The U. S, the PD patient growth, even with that in the U. S.
Was 3.3% and the outlook for the year is 6 quarter. The issue that was dampened the number overall is significant reduction in Latin American patient census, primarily in Mexico, some in Brazil as well due to fatalities due to COVID-nineteen And also a reduction in census until the once COVID hit in Europe. Europe was starting to Recover and start to gain really good momentum until COVID hit. So we are optimistic even for PD this year, different than 6.1 percent outlook for the year. And the dynamics quarter.
Correct to your point. PD is shown to be a home therapy that in crisis like pandemic shows an increased value of convenience and safety for the patient By staying home instead of having to travel to the clinic. And I think I believe that The ESRD disease state in the U. S. With the changes In guidance for home therapies, you're going to continue to see this therapy gaining momentum.
So even though we had COVID in the beginning of the year affecting heavily a lot of areas in the U. S. We still see good growth going forward. Thank you.
Great. Thanks so much.
Call. Laurence Biegelsen of Wells Fargo is on the line with a question. Please state your question.
Good morning. Thanks for taking the question. 1 on Nova MyQ, 1 on BPS. Joe, on Nova MyQ, Just what's your confidence in that second half twenty twenty one approval? Is it still the 3 510s that you filed last year and what's in the 2021 guidance?
And I had one follow-up.
Question. Larry, thanks for asking me questions. I was trying to feel a little lack of love here. Now, Peter, and you are the only ones asking the questions. So I'm happy I'm back on the call again.
So We believe Novo MyQ, what we did is we clarified a lot of questions and made a much better application
first
That's in the 510 ks. We still have 2 or 3 more products that will come down the pipe Towards the end of the year, our PCA pump. We also have ambulatory pump and another accessory. So when we look at this market, we are we don't, 1st of all, speak on behalf of the FDA. Call.
We are very happy with the way we put together the 510 application For the FDA, but that doesn't mean that we speak on behalf of the FDA. The FDA will do what the FDA has to do. When they're ready and if they approve, We have some sales in the second half of the year, modest, but we have some. I don't know if Jay wants to give a bit more color on that.
Joe, I yes, in terms of sales guidance, we do have sales included for Nova MyQ in the second half, quarter. Sort of north of $30,000,000 but it's nothing. It's sort of similar to levels that we expected last year.
That's helpful. Joe, I'll continue to give you more love here on BPS. First. Why break that out now? Kind of is this a strategic business for Baxter?
So high level thoughts on it. And just more near term, the vaccine COVID vaccine opportunity is still $50,000,000 to $100,000,000 on an annual basis, But you also have that other $50,000,000 investment in November 2020 that I think is not related to COVID vaccine. So just Talked about why breaking it out now and the kind of near term opportunities you seem to have quite a few tailwinds in that business. Thanks for taking the questions.
Call. So Larry, I will speak, but I'll let open also for Jay to chime in on this. We did for management purpose. We did this because it's the way we manage the business. And it was always in the other and there's a large number in others, so we prefer to have that separate.
So, Jay, any more color on the leasing?
No, that's exactly right. It's an important business unit for us, one that we focused on, I made some investments in and I think it really does leverage numerous core competencies of Baxter. It was hiding in this other category. We wanted to take the opportunity to shed a light on it and allow investors to see specific performance for this without being clouded by other items. Call.
And Larry, our guidance has $50,000,000 to $100,000,000 possibility in it For incremental vaccine for 2021, so we stay with that number. We made investments in quarter. Yes. We have 2 facilities, 1 in Europe, 1 in the U. S.
That are benefiting from some of this investment. And we believe that that's the right place to create capabilities. We have unique capabilities there. We do a very good job. We have very happy customers.
So we believe that it is a good profit margin for the company is accretive to Baxter overall, and it takes very little SG and A to run. So we have a really good technical group. It is a good business, good customer reputation. So why not invest more And benefit from such capability we have in house.
Thank you very much.
Joanne Wuensch of Citi is online with a question. Please state your question. Good morning and thank you for taking the questions. I have 2. The first one is, it seems like there were a couple of ebbs and flows from COVID-nineteen in quarter.
If you
could just pull this apart
a little bit more? And then also similarly, there looks like there are a number of drivers to the guidance for
the year. If you could
just sort of highlight what those may or may not be? Thanks.
First. Sure. Maybe I'll start with these, Joe, and then you can chime in. And I'll answer your second question first question. In relation to puts and takes with respect to the full year guidance, overall, if we take the full year quarter.
And disregard the quarters for a moment. The strong operational performance that we've seen from a sales standpoint plus some incremental vaccines adds roughly $0.10 to our overall guidance. In addition to that, we have some OpEx savings that's about $0.04 call. But one of the things that we highlighted in the script was the supply chain costs that we've seen in the short term. And really, with the highly volatile environment from a global logistics market standpoint, From a raw materials pricing standpoint, resin prices, some of this impacted by the freeze in Texas, Some of this impacted by the global supply chain challenges, along with Suez Canal.
We are expecting a fairly substantial Increase in supply chain costs related to those discrete items. And that really eats up the vast majority of those upsides that I characterized a little bit ago. And then in addition, we've added the Doxil acquisition That's a little north of $0.10 in terms of full year impact. FX and other items, all that stuff kind of washes on a full year basis, although we do see some movement amongst quarters. So that really is the overall drivers of the full year performance.
And what I would say is Very excited about the strong operational performance, very mindful of the current environment that we're faced with respect to shipping and container costs, resin costs, etcetera. We do expect that will alleviate over time, but we've tried to put the right projections in Given the acute situation that we've seen over the last several months and we anticipate for at least the next several months.
And Jillian, I'll take the second or the first part of your question, which was on the impact of COVID in the quarter. So if you recall, last year. In the Q1, we had about $45,000,000 to $50,000,000 of a benefit from COVID related purchases as hospitals prepared for the pandemic. So we had about $45,000,000 to $50,000,000 of that. Now this quarter, it negatively impacted sales north of by north of $50,000,000 So that's why we called out about a 400 basis point impact on our growth this year, this quarter from COVID.
Now again, we saw positive benefits in our acute therapies. We saw some vaccine related revenues in our VPS. But then in general across The remainder of the businesses, we saw a negative impact from COVID during the quarter. So hopefully that addresses your question.
Please state your question.
Hi. Thank you for taking the question. So I wanted to just ask one about the acute therapies business. The growth has continued to be really strong as you called out the demand for CRT. How long do you expect that to pursuit.
I know you're saying it can go down over the course of the year. Do you still think there's a strong quarter or 2 or do you expect a big fall off here in the second quarter?
Matt, we still see COVID unfortunately raging across the globe. I think you have 2 things going on. 1 is, we do have this therapy more, being quarter. And understood across the globe even more than once before its benefits. 2nd, you have countries which still have issues.
You can still see demand coming in. And even the United States, we still have A good number of people, unfortunately, are being treated with this technology because of COVID. So but we expect that This is a high single digit, sometimes very low double digit growth as a technology as a product line. And we expect to see a reduction of the current levels to what's more normal, which is high single digits as time goes by this year into next year.
Yes. And Matt, just to add to that, 1st. We will see declines because of the very substantial comp issues in Q2 and Q3. So we'll see a decline starting in Q2. And To Joe's point, this is a solid high single digit growth engine for us.
That's kind of how we view it. But the peculiarities of this year, Despite continued COVID demand in the Q2, we saw just an unbelievable unprecedented level of demand in Q2 and Q3 of last year. So it does lead to declines.
Got you.
Got you. Could I just ask one on the in license? It seems like a nice little pickup for you. And in the context of you also investing in biopharma solutions, you got like 2 sides of the house, right, pharma and device kind of broadly speaking. Maybe just talk about strategically how you see those fitting together and Are we going to see more on the pharma side or is it just that the last couple increases in investment have been there?
Matt, we do have two sides of the house, but they're very connected. The way we go to market, the way we and contracts and our devices also are devices that are becoming more intelligent, but they are transporting fluid When we look at business development, we look at business development across the spectrum of Baxter, what is the objective of business development is to expand into adjacencies, quarter. Sure. Our core and sometimes go away from the adjacencies into an area that may benefit the company in the future. Always, always thinking where is the puck going, right, instead of going at the puck where it is today.
So that's our philosophy in M and A. You're going to continue to see the tuck ins because those are good for the company, leverage our sales and marketing organizations as well as our manufacturing groups. So these 2 tuck ins were very beneficial. 1, Primarily Calyxt version of DOCSIP in Europe helped us create a structure to add more pharmaceuticals organically and inorganically there. Call.
So our philosophy is always enforce and make the core stronger, going through adjacencies and also look where the puck is going in healthcare and make sure that we don't miss debt trend.
Great. Thanks. That's helpful insight. Thanks, Jill.
Vijay Kumar of Evercore ISI is on the line with a question. Please state your question.
Hey, guys. Congrats and a nice start here. Maybe I'll start one on the guidance and the positive side. This is Manesh. Jay, I guess, you beat the quarter, right?
The expectation was for low single declines, constant currency, you guys came in up low single. If I understand the annual guide correctly, the constant currency guide raise was mostly a function of KLX. So So I guess my question is, is the underlying business coming in better than expectations in Q1? Why wouldn't that flow through in the back half?
Sure, Vijay. We did see
a little bit of operational strength in the Q1, and some of that relates to slightly better admissions than we experienced in the than we had originally modeled. And so as a result, we did see a little bit better performance in the Q1. But given where we are in the year, given some of the challenges that renal the renal patient census is faced with At this point, it's a little difficult to call full year strength at this stage. We'll have to continue to watch if the renal patient sense It stabilizes if admissions and surgical procedures come in line or better than what we've modeled, we'll certainly update. But at this point in time, I think We've got a reasonable guidance for the balance of the year.
Understood. Then Joe, one for you. Mostly around capital deployment. I wasn't sure if you guys bought back any stock in the quarter, but The larger question around M and A philosophy, maybe could you just recap to us on how question. Your process around M and A has changed, if it has, over the past few months.
Vijay, good to hear from you.
How are you doing? Well, thank you.
So question. The philosophy in how we are disciplined about how you deploy cash has not changed. As I actually answered a little bit of your question before, we will continue to look for tuck ins in our core businesses. Not very easy to find them because the size of our businesses and the particularity of our businesses, but we'll continue just couple of small ones in the Pharmaceuticals business. We'll continue to look for those opportunities.
We're going to adjacencies. We're looking at things to Sure. Where we can have advantage, but more importantly also, we're starting to look at the healthcare theater in general. And trying to anticipate with what we saw last year And how healthcare is moving and the direction is moving. So where should Baxter go?
And we always talk about intelligent devices. We always talk about the integration with the hospital systems, with the deployment of our own gateway for the new pumps. So if you think about how do you participate where actually the puck is going, No, the part is today, so the company can revitalize itself as well. So these are all areas that we look. Call.
We're very eager to continue to export opportunities. But as I always say, if we do not find the right opportunity, We're not going to sit on cash and have cash on the whole in our markets. We will bring the either share buyback As well as increase in dividends.
Understood. Thanks, guys.
And Vijay, we repurchased approximately $300,000,000 in shares in the quarter.
That's helpful, Vijay.
There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call with Vaster International. Thank you for participating. You may now disconnect.