Baxter International Inc. (BAX) Earnings Call Transcript & Summary

Good morning, everyone. I'm Robbie Marcus, the Medtech analyst at J.P. Morgan. I'm very happy to introduce Baxter's CEO, Joe Almeida. Joe, happy to have you.

Thank you, Robbie. Thank you. Good morning. Robbie, thank you for having us here. I would like to start with our safe harbor statement, it's a very long one and encourage you to take your time in our website to read it, will take you about an hour. Let me tell you a little bit about Baxter. Baxter is an 85-year-old company. It's been in the business for a long time and operates in the very critical areas of health care, first, by medically necessary products. You go to any hospital, you see an IV bag from Baxter; you go to people who have ESRD at home, they will have solutions and cyclers from Baxter. We are in the home. We are in the hospital. Within the hospital, we're in the ICU. We are in general ward floors, emergency rooms. We also have facilities distributed all over the world. We ship product limited amongst continents. We make products in China for China, in the U.S. for U.S., in Brazil for Brazil, in Europe for Europe. We have a well-positioned supply chain to be able to continue to grow our business. We're uniquely positioned to deliver value to our stockholders. We have 6 different groupings of products. We call them our franchises. We are market leaders, either #1 or #2 in every single one of them. Our Renal Care, are highlights in our peritoneal dialysis, either automatic cyclers or just by gravity. We're #1 in the world. Medication Delivery, we're in most markets, #1 in IV solutions. We are #2 in the U.S. in pumps. Pharmaceuticals is a business that has been extraordinarily important for Baxter. Baxter has technology that is unique in delivery of injectable drugs. Also Nutrition, for patients who cannot process food through the digestive system; we call parenteral nutrition. With Advanced Surgery, which we have is a significant amount of products, helping surgeons prevent or stop severe bleeding. And Acute Therapies, this addresses tremendous need for an ICU for kidney failure. We are in more than 100 countries. And 75 million patients a year get touched by our products. 75 million patients. So in Baxter, we have one simple mission of saving and sustaining lives. Everything we do is around that. So when we describe our strategy, which is focused on innovation, it has the prime objective to support 3 of our 4 top goals or top-quartile goals. First is patient safety and quality. There is no compromise. That's #1 in people's minds across Baxter. We are investing significant in innovation. So we want to grow through innovation, bring that to the company. We want to be the best place to work. We want to be a place that people like to come every day to work and feel good about the company. So if you do those 3 things right, and we satisfy our mission, our employees know the performance is just a result of it. I'd like to talk a little more about the patient safety and quality objectives of the company. We are -- continue to invest in quality in a very focused but widespread way in terms of our plans. We have areas of investment. Our indicators are showing significant improvement in our CAPA's reduction. We had retired 5 legacy warning letters this year and we continue to strengthen our relationship with our -- with the agencies. We now sit with the FDA to discuss voluntary programs in our medical device facilities, and we feel very comfortable that our employees really do understand what quality means for our patients. As I said, we continue to invest significant resources in maintaining this position. We also are a corporate citizen that has significant responsibility in every community that we serve. We are a global company. And in the communities we serve or the communities that we expand the access to care, we continue to reduce our environmental footprint, which has been a trademark of Baxter, as you can see, by a significant amount of awards that the company has received. Just to highlight a few of them, one is America's best largest employers. One of the most just companies in the world, FTSE4Good and so many, the Dow Jones Sustainability Indices. So Baxter has had this commitment for many, many years. It's part of our legacy. And we are a company that no matter where you come from, you'll feel good working for Baxter. We are focused on inclusion and diversity and being very successful doing that. When we transition to look at our portfolio and our opportunities for growth, we look at this in 3 different ways: innovation; market development; and strategic partnerships. So let's take a look at our innovation in our pipeline. We have focused our attention in developing products that have unique value proposition to the marketplace. So as an example, Myxredlin, which is ready-to-use insulin. Today, insulin in the U.S. is batch-made in the pharmacy or the hospital. It is one of the products that cause medication errors. The potency of insulin is -- reduces quite drastically when it's compounded after a week or so of being made. Our product is made in Northern Illinois, ready-to-use. It's been successfully launched in the U.S. And we're starting to see the adoption of this product, which has the potency of day 1 and day -- the last day of the 24th month of the shelf life, the same. It is a very, very good product. We got really good comments from several health systems. We also have our PrisMax. PrisMax was launched in 2019. It is our CRRT device, which is continuous renal replacement therapy. This is a machine that is used in the ICU to rescue patients who have acute kidney injury. That simplicity and efficacy has been a trademark of our CRRT machines. We've been very successful launching that. So -- and lastly, I want to talk about our pumps. Spectrum IQ was launched in 2018. Today, if I'm not mistaken, we have 6 of our top U.S. institutions, hospital systems, using Baxter pumps. And this is the pump that will be the base for the new platform I'll talk to you in a little bit. But we have one of the best drug libraries in the world. This pump is bidirectional, EMR integration allows us to -- for documentation, for out of documentation out of programming. So this pump has done extremely well in 2019. We preannounced our earnings yesterday. And this one -- this was one of our highlights. We sold the most amount of pumps ever in the history -- recent history of the company in 2019. And the result is because the quality and the meeting of the customer needs of this Spectrum IQ. We also are very focused in market development. And there are 3 examples here. The first one is the -- supporting the expansion of the PD market in U.S. with the executive order launched by President Trump in the -- in 2019. This positions Baxter to take significant advantage of that executive order, which will be eventually put into rule sometime in 2020. AMIA has demonstrated great efficacy in providing patients with PD treatments overnight, and also is a therapy that is being supported by a software called Sharesource, which has been very well received by physicians. We have a new version 2.0 and a 3.0 launch in 2020. Also another market development is how we see bleeding in the OR. It was always a conversation between passive and active hemostats. We turned the game on that. And we talk about the VIBe Scale, which quantifies the type of and the amount of bleeding, creating for the surgeon the ability to select the right hemostat. This today is being used by the FDA when they look at approval of products of hemostats or sealants. We also are creating a significant amount of evidence when it comes to Theranova. Theranova is our new dialyzer. We launched a few years ago. We invest $25 million in clinical trials. And this product right now is in process of getting an add-on payment that will be effective if everything comes to fruition in 2021. We are very excited about this product. It's unique and provides the closest device to a natural human kidney. So we're really excited about that. And that is independent of the monitor that is used for hemodialysis; it doesn't matter. If we use a normal hemodialysis monitor, this product can be used in any supplier, and we have data that shows the equivalence of something called HDF, which is a higher flow hemodialysis, which is used mostly in Europe and some parts of Asia. So we're very excited about how the company has transformed itself and created the ability to develop adjacent markets and to create opportunities for the products that have been with the company for a while. We also are very focused on collaborations. We have just signed with COSMED. COSMED is an indicator. It's a calorimeter that indicates the need for parenteral nutrition. Remember, if the patient can't eat, most certainly, there's something -- the patient will probably -- in the ICU, it's difficult to understand when to start feeding the patient. And this technology now that we are representing across the globe can do that accurately. We also started with Ayogo Health CKD&Me. CKD is the pre stages of ESRD. It's when you treat the patient to postpone dialysis, and we're doing with Ayogo is this comprehensive education program that will allow us to be successful in pre-treating the patients, delaying the dialysis and hopefully, guiding the patient into therapy, which will be done at home. Lastly, we -- with bioMérieux, we create a development of biomarkers for acute kidney injuries. So we can understand when to start the patient. It's all about when to start the therapy because effectiveness of therapy has a lot to do when to start. You start too late or too early, it's detrimental. So with this biomarker, we'll be able to start AKI or CRRT for the patients at the right time. So as you can see, these are just examples of a great journey that the company has embarked in creating and revamping this innovation pipeline. Our pipeline is robust. We're looking at in 2020 products launched in '18, '19 and '20 for $1 billion in sales, with vitality index nearing high single digits. Great opportunities in 2020 as the new pump platform being launched in July. We have a new large volume pump. We have a syringe pump followed by 2 other pumps, the PCA, which is patient-controlled analgesia as well as the ambulatory pump. We have Sharesource analytics coming up. It's a version 3.0, using artificial intelligence to select the patients that need the most attention by the nephrologists at a clinic. And so imagine clinics in the future having more patients at home and the number of nephrologists may not go up as needed. This application allows the nephrologists to select and will be a machine-learning application. This selects what patients will need more urgent attention. So this becomes really important in the world of AAKHI. We are also launching -- we're in the middle of clinical trials for PIVA, specialized monitoring. If you know PIVA, we work very well with our acquisition of Cheetah. So the hemodynamic balance monitor for patients. And we are also very focused on differentiated molecules, which are generic molecules that have unique delivery system. And we do the fill/finish and the develop and the formulation of it. So if you think about this, we will generate in 2023 approximately $1.7 billion in new product sales compared to 2015 when we had very little, probably less than $100 million in sales of new products. So this is a new Baxter. As we do this, we're still very focused in looking at productivity and efficiency improvements. We will hit over $1 billion this year in cost savings. And we are really focused on 4 areas, actually, strategic growth areas, allocating resources to effective fund research and development and as well as commercial execution. That's where some of the money is going to go. Operations optimization, I wanted to under -- you to understand that the company is touching the boundaries of its capacity for major product lines. We need to make investments, and some of the investments will be made with some of the savings that we are getting. We are simplifying our portfolio and one of the 4 tenets of Baxter is speed, which is a sense of urgency; collaboration; courage; and simplification. Baxter, as I said at the beginning, has a great legacy of being 85 years old, but has also the baggage of being an 85-year-old company. So we have a significant amount of simplification processes in the company that will result in incremental savings. And a continued financial discipline, we abide by zero-based budget, ZBB. We do it every year. We just had a session the other day. We continue to focus in making sure that we spend what is necessary, not what we can expand. So don't lose perspective that Baxter continues to be a great efficiency-driven company, continues to look for opportunities in the future to make these numbers even better than they are. As soon as we find the opportunities, we capitalize. We move on and we'll help fund the company's initiatives. So when you think about how do we deploy our capital, it's quite simple. There's 4 ways of doing. And I want to just make sure that it's clear to everyone, that we have spoken about how 2020 is a year that we're going to invest in quality of our products. We're going to invest in increasing our capacity in producing Theranova dialyzers. We need to put capacity to support the AAKHI kidney initiative in the United States. So there's a significant amount of investment that we're putting to work at Baxter to support a bright future. We're also still very focused on the 35% dividend payout ratio. So we're focusing on that. We understand our earnings have accelerated greater than our dividend increase, and we're still looking forward to get to the 35% payout ratio. We always have the opportunity to buy shares back. We do this as a matter, of course. Clearly, strategic M&A is our most preferred way of doing it. And -- but share repurchase is one avenue that we have used and we'll continue to use as Baxter has done well when it comes to its cash flow. So when I look at the strategic M&A, for me, it's very simple. We've got to have acquisitions that have category leadership and/or capitalize on our core capabilities, have the returns that are within our threshold and preserve the capital grade -- investment grade of the company and its capital structure. So if you think about when -- most of you ask me, are you up for a big deal? Are we going to do a big deal? And I find very difficult to do a big deal today with a significant amount of return. On invested cap, the internal rate of return, about 7%, 7.5%. It gives you absolutely no margin of error when it comes to execution. And that is very close to our cost of capital. So we have done a significant transformation of Baxter and it was done without a major acquisition. We did it the good old way. We showed you that we had opportunities in cost. We showed you we had opportunities in innovation. We're showing you that we can do M&A for adjacencies. We're bringing this all together without having a significant deployment of cash, which would bring significant risk not only to the transformation of the company, but the ability to return cash to our shareholders. So I want to give you 2 examples of how we do -- how we think about acquisition we have, monitoring being one of the adjacencies that we're very interested. We thought Cheetah Medical was right on that sweet spot. It is strategic. And it will enable us to get PIVA on the marketplace. And the other one is Seprafilm. Seprafilm is a product that has absolutely no cost for us, other than going in the bag of our sales reps. So it's a great return. We will continue to look for opportunities like that. So if you think about what we just said and how does that reflect in our results? We just preannounced our results last night with 7% sales growth as reported. And ex FX, we had about 8% to 9%. We also said that we're going to exceed our adjusted operating margins. And for the full year, we are at about 2% as reported and 5%, which is the upper range of our guidance for 2019. So for next year, we're guiding 4% to 5%, top line growth. We're also guiding 17% to 18%. I just want to rephrase the 4% to 5% top line growth ex FX and FX, in this case, is neutral, 4% to 5%; 17% to 18% GAAP operating income as a percentage of sales; and adjusted, 19% to 20%. And the reason we're doing 19% to 20%, we will have an opportunity to invest in the company in a significant way to take advantage of a few opportunities I had mentioned before, such as AAKHI as well as Theranova and other areas to do. So to close, I just want to tell you that we at Baxter are very excited about the future. We see a future with innovation being in our radar screen. We see a place where we're able to address all the legacy warning letters. We see a place with very engaged employees and a tremendous amount of focus on social responsibility. We're executing on the product launches as we said we're going to do. We're also having this big move in investment in the company to make sure that we're still ahead of any potential capacity shortfall and ability to continue to invest in quality. We are focused on integrating our recent tuck-in acquisitions. And I just want to tell you that we are focused on optimizing our businesses still. Even after taking over $1 billion in cost, Baxter's still focused in opportunities to further reduce its cost structure and its cost base. So we're also planning to hold an investor conference in the second half of 2020, probably around September time frame, we're going to be announcing that. Thank you very much. All have a great day.

All right. We could begin now. Well, if everyone didn't see, Baxter preannounced a spectacular fourth quarter yesterday, along with 2020 guidance. They preannounced fourth quarter operational sales growth of 9% versus The Street, around 5%; guided to above 18.5% to 19% operating margin range for the quarter; and guided to 2020 operational sales growth of 4% to 5%. But remember, that's off of the much higher-than-expected 2019; and as many on The Street had expected, an operating income operating margin range slightly below the prior long-range plan of 19% to 20%. So maybe we could start off with that and run through fourth quarter and then touch on 2020 guidance. And really, the 2 standouts was the Pharmaceutical business and the Medication Delivery business. Maybe if you could just touch on the puts and takes in each during the fourth quarter? And what really drove the outperformance here?

Great, Robbie. Overall, we were very pleased with the performance in the fourth quarter. 9% was some of the fastest growth that we've ever seen as a company. It certainly was the fastest since the spin-off of our BioScience business. And really, there were a number of contributing factors to that. Teens growth in Medication Delivery is something, again, that we were very pleased to report. But you have to understand, at the beginning of the year, we identified a cadence where first quarter was declined, second quarter was slow growth on the way to the fourth quarter of the year, which we expected to be the most accelerated quarter, and we delivered on that. A lot of that has to do with the tremendous work that was done by our U.S. hospital team led by Heather Knight along with Giuseppe Accogli. We had a very large pump pipeline, and we essentially put together a record performance in terms of pump sales in the quarter. But then secondly, we also had a couple of other things go our way. We had strong, large volume parenteral sales. As you recall, we put together a strategy over the last 1.5 years where we lined up a lot of long-term agreements to improve the predictability of this business, and we did so very successfully. But in this particular quarter, we also had the benefit of a heightened flu season. I expect that there was roughly $10 million or so of impact from flu sales that we did not anticipate. So a number of those factors came together. Very good growth on small volume parenterals as well, leading to a tremendous medication delivery performance a little bit ahead of our expectations. On a full year basis, at the beginning of the year, we guided to 6%. We ended up delivering 7% after all of the hard work. We also saw a strong performance in our Pharmaceuticals business. So in this particular area, great performance from our injectables portfolio. We also saw a very strong performance from compounding as well outside the U.S. So a lot of different factors contributed. And finally, I would say, our BioSurgery business was one where we did benefit from some competitive shortfalls in terms of supply. So our FLOSEAL sales were a little bit benefited by that particular factor, but overall, strong commercial performance by our team in Advanced Surgery. So overall, great performance and then, as a result of that, the areas that I highlighted, all have solid margins relative to the corporate average. So the result of that is, on an operating margin basis, our margin came in higher than expectations, partially due to mix, partially also due to better leverage as a result of the large sale space. So to your point, Robbie, pleased to report the fourth quarter. And we really believe that with the progress that we've made on the commercial front and also the innovation front, it has set the stage very well for 2020.

So there's obviously a lot to talk about with your product pipeline. And it's probably the richest that we've ever seen, at least since you've taken over as CEO, 4% to 5% on the top line off a very high base for 2019. But I do want to -- maybe we could start on the operating margin line because we did have 20% to 21% operating margin in the 2018 long-range plan you provided. There's been a number of incrementals that have happened since then, most notably, the kidney initiative. Maybe talk about some of the differences between the 2018 guidance versus what you put out yesterday?

I will start. Jay can help here. I don't think mine is on. Is it on? Okay. We have 3 things that we want to tell our investors. The first one is we had optimized the company, quite a bit of supply chain, our plants. We made the most out of our investments everywhere. When AAKHI came to the surface, that's going to require a few things, not only in capital, but also in expense to enable the plants to be able to catch up to that kind of volume. And you make those investments the day - the year and months before we start having a volume surge. I also want to say that our growth in PD patients has come in at the high end of our expectations, and that is taking capacity a little faster than we thought in the past. So we need to invest not only for AAKHI, but also to catch up with that performance of the patients going into PD. The second thing is we have the possibility of launching Theranova in the U.S. in 2021, once approved by the FDA. We are in process of getting the add-on payment for that technology. And that dialyzer, despite the fact it looked like the same dialyzer that we make, our Revaclear or Polysorb dialyzer, that is very complex in making, takes extra steps in manufacturing. And we're going to have to use expenses this year to reduce capacity to be able to outfit the manufacturing site and sites to be able to do that. And thirdly, it's an overall investment in quality at our operations across the board in some places that we think are necessary. Remember, we this year were able to address 5 legacy warning letters. We will work very hard not to get in the same position in the future. So we'll continue to invest.

Great. I just want to say, are there any questions before I move on? Maybe we could start with renal and the kidney initiative. This is an area, huge opportunity for Baxter. I think you said something like you can double the business over the coming years, plus or minus $500 million of business today, significant revenue opportunity down the road. What are some of the infrastructure investments that you have to put in place this year? And how do we think about progression over the next few years as patients move into the home?

So if you had the time to read the executive order, which is not yet in rule, by the way, it has to be made in rule, and we're expecting that sometime in 2020, is that if you just boil down the numbers, it would imply that in 7 years, we would get to approximately 25% of penetration of PD in the United States. There are a lot of details behind that I'm not getting to here. So to get that kind of penetration, we need to put plants in place to be able to make 2-liter bags. They are used about 2 or 3 a day per patient in patients' homes when they use an automatic cycler, which is a machine that works overnight. So that opportunity is twice as much as we have today in the next 7 years. And there is a schedule where the government would like to have this done within the 7 years, and there's some incentives and disincentives if you don't do it, actually, if you are a clinic. So for us to capitalize on that, we will have to do the investments that there will be in the next few years, but also it's our responsibility as a leader in PD to invest in new technologies. So the company has 3 different opportunities that we're looking right now, 2 external, 1 internal, to be able to -- actually 4, 2 internal, 2 external, to enhance our ability to provide therapy for people's homes, either with less fluid or the ability to make fluid at home and the ability to have a more cost-effective cycler. So we are not sitting down and thinking that we're going to use the same technology for the next 10 years. We're working very hard in identifying opportunities with partners outside Baxter and within Baxter to be able to get to that technology. We think this is one of the biggest moves that I can tell you is patient-centric in our country in the last 10 years. It's because dialysis, about in 2011, went into this bundled payment, which was great at that time, but did not allow for any innovation since then. And I think having the ability to give incentives to people to bring patients' homes, where PD is your first therapy of preference, is a great opportunity. It's good for the patient. It's good for the system. And it's also good for Baxter as one of the leaders in PD.

Joe, you talked about in the presentation that Theranova provides quite possibly the closest thing to a natural kidney in terms of filtration. So just for those who are unaware, this is a dialyzer that's highly innovative. You're going to get approval probably in the next few weeks or so would be my guess potentially.

I'll -- your guess is your guess. We don't want to speak on behalf of the FDA. But...

In 2020...

It's some time, hopefully, in the first quarter and the second quarter of '20...

Half, yes.

First half of 2020 is the best said that way.

Filing and hopefully getting differentiated reimbursement in the U.S. starting January 1, 2021. So as people think about the opportunity, maybe just give us how many potential patients there are in the U.S. And then what's your manufacturing capacity to fill that supply over time?

I think we spoke yesterday, Robbie, at dinner. About 70 million dialyzers used here in the U.S. This is an estimate. First of all, Baxter does not have capacity to produce 70 million dialyzers turnover. But we will have capacity to produce a fraction of that, which we think is sufficient, and we have 2 plants, 1 here and 1 in Germany, that we can turn eventually to produce dialyzers, which are turnover, which will supply the market. We don't think every clinic will adopt them, but I think will be an adoption curve to it and would be very interesting in the 2 years, which are the demonstration years of the effectiveness of the technology, that we can get legislative support to move this agenda to a more permanent change to the add-on payment. We are confident in the performance of the dialyzer. We're confident in the intellectual property that we have on this dialyzer. And we think that if we execute well in manufacturing to be able to convert the plants, it can be a meaningful opportunity for the company. We'll get you more details on that meaningful opportunity when we look -- when we sit down with you folks in September 2020, our Investor Day in Illinois.

Great. Questions?

Just in terms of your guidance for 2020, I'm sorry, if you've already answered this question. But have you factored in any of these accounting costs into the margins? Or is that a different cost that may come as you give out the findings of [indiscernible]?

When we talk about our GAAP operating margin, we have included costs associated with the internal investigation that we've referenced in the press release. So that is reflected. When we share ultimate guidance for 2020, we will include that in our GAAP earnings forecast, along with our free cash flow and our operating cash flow. So that will all be reflected appropriately at such time.

Any other questions? I'll keep moving. Medication Delivery is another one of your divisions where you have a deep pipeline with a number of launches coming this year and next year. The most notable coming in 2020 is a syringe pump to add to your large volume platform; next year, an ambulatory and PCA pump. So maybe you could just speak to exactly what the full offering of products adds to the Baxter selling effort. How does this open up the opportunity to hospitals that don't currently purchase from you?

Robbie, I will ask -- I will add that we're launching this year a new pump platform. It's not an add-on to the current very successful SIGMA SPECTRUM IQ, which I showed during the presentation, which has done very well in -- since it was launched in '18, but primarily in '19. This is a platform that has a large volume pump and a syringe pump that we hope to launch in July, today it's currently with the FDA. We also hope to launch towards the end of the year PIVA, the -- our PIVA sensor as we're in the middle of our clinical trials for the hemodynamic monitoring, patient monitor or fluid balance, better said, for the patient. In 2021, we're looking at PCA and ambulatory pump. The PCA will be the same platform used for the syringe and large-volume pump coming in 2020. So we're excited about those launches because it's the first time in Baxter's, I would say, history, but I'll say the first time in a long time that we will have a full platform. So we can compete effectively, actually against companies which have full portfolio. We believe with the drug library, which is an award-winning drug library, with a pump that will have higher precision than the current one in low flows, which allows for better treatment of chemotherapy patients and identical programming characteristics and workflow amongst them and one gateway system that will help integrate into the hospital EMR, we think we become a stronger competitor in the marketplace with potential opportunities. As today, we have between 23% and 24% of market share and want to just also say that when we sell a pump today, we sell into accounts that have to buy from somebody else the other 2 pumps. So we think there's an opportunity for us to come in and better compete for their business with the products we have.

We've been following the flu trends in Australia where they had a severe season. We've seen elevated rates in the U.S. so far. Did this benefit Medication Delivery this quarter? And if so, how much of an extra benefit? I know there's always some benefit but...

We ask Jay to get the flu so we could help the quarter.

Yes. I actually was diagnosed with influenza B at the end of December and suffered through that for a few days. Actually, Joe did it last year. So next year, Clare will have to get the flu.

We're rotating our senior management through the flu season. The flu season had, and Jay said, about...

$10 million.

$10 million worth of influenza in order of IV fluids in the month of December. Mostly, I'm sure, distributors are creating a bit of a stockpile so they don't get surprised and they'll have the product in -- primarily in times like during Christmas and New Years when the factories are not shipping product or they need the stockpile. But eventually, this will be used up in the first quarter and life goes on.

And Robbie, that's our early estimate. Once we report earnings for the fourth quarter, we'll share a little more detail in terms of specific impacts on Medication Delivery and if there was an acute impact as well.

So within Medication Delivery, minus $10 million, you still beat The Street estimate by $35 million, plus or minus. So maybe if you could break out was it better performance in LVP, SVP, better pump placements, all of the above? How do we think about the performance?

Yes. There was a few million dollars of year-end true-ups on charge backs and rebates and so on. And that's an exercise that we undertake each year. So there was a small benefit associated with that. But to your point, Robbie, we did see strength really across the board in this particular area. Large volume pumps came in very much in line with our expectations; infusion systems, very significant growth in the quarter. Our LVPs benefiting from some flu stock-up, we did see some incremental volumes here. And then in SVPs as well, we saw a very strong performance in the quarter. Remember, this has been an area that had been impacted by the hurricane. So we had been severely constrained and seen slow uptake rates, but working hard over the course of the year, we really paid that off in the fourth quarter. So in fact, it was really each of the areas of the business that contributed to the strong performance.

Maybe if we touch on the Pharmaceutical business, was the other standout in the fourth quarter. Can you run through, we have 3 different businesses within Pharmaceuticals. We have anesthesia, pharmacy compounding and specialty injectables. Which of those stood out to drive the outperformance?

I would say -- I'll pass on to Jay. But I would say, compounding which is an outside the U.S. business did extremely well. That's a result of new biosimilars, new molecules, these oncology drugs. This is Baxter producing product to be used in hospitals in Australia, New Zealand, England or United Kingdom and a little bit in parts of continental Europe. But mostly in those locations, they still use significant compounding operations versus premixes. But I'll give it to Jay to comment on the other 2 areas.

So overall, to Joe's point, Q4 was just another outstanding performance for compounding, which has been an area of overachievement over the course of the year. We do expect that to moderate down in 2020. We don't expect these accelerated rates of growth coming from our compounding business and in fact, one of the areas that we've been very focused on is enhancing the profitability of the compounding business because this is inherently a lower-margin business than Baxter's corporate average. The other 2 areas of the business, anesthesia, this has been a challenging area for us, frankly. We've seen declines over the last several quarters and years, and we anticipate further declines going forward. And there are a number of factors in play here. Utilization of low flow, anesthesia being one; really some of the challenges that hospitals are putting in terms of cost controls and how they think about utilization of the different gas options that they have; along with generic competition. So we anticipate continued declines in this area. But in the quarter, once again, our injectables business was stellar. We had very solid performance coming from Baxter, Metabot; our Claris business with great sales. We also -- for some of the premixed molecules that Baxter brings to the market, we had great performance. In the fourth quarter of last year, we launched dexmedetomidine. We're still seeing significant growth 4 quarters later. So we had very nice growth coming from dexmed, which is a premixed version of PRECEDEX. And then furthermore, we launched -- we just launched Myxredlin. Joe commented on this in the presentation. Early days in this particular product, and it's not a noteworthy impact yet in 2019, but this becomes an important driver for us as we look at growth in the 2020 time frame. This premixed version of insulin, we really believe is a differentiated offering that we can help hospitals solve a critical problem with.

So Jay, I realize the investigation is still ongoing, and there is not much you could say on free cash flow or below-the-line items. But I know historically, you've said the underlying tax rate for Baxter is plus or minus 18% going forward. Is that still a reasonable way to think about the business, if you can comment?

Yes. I think that's in the range. One of the things that we saw in the first half of last year, we had a much lower tax rate than our normal expectations. And really, there were 2 drivers of that. We had a very significant set of option and stock exercise in the first quarter of last year, yielding to this windfall FAS 123R benefit. And then in the second quarter, we restructured some tax provisions that we had outside the U.S. and the result of that was also a benefit. So I would say that the first half tax rate is -- was an anomaly for us. And the 18% to 19% range as we think about 2020 and beyond, that's kind of an area of focus for us, maybe over time ticking up to 20%, depending on earnings mix.

Great. I think with that, we're out of time. Thank you very much. Appreciate the time.

Thank you.

Robbie, thank you.