Baxter International Inc. Annual Meeting of Shareholders May 1, 2007
2007 Annual Meeting of Shareholders Introductions and Meeting Procedures 2007 Annual Meeting Proposals Election of Four Directors Appointment of PricewaterhouseCoopers LLP Approval of 2007 Incentive Plan Presentations Baxter Overview: R. Parkinson Financial Highlights: R. Davis Closing Comments: R. Parkinson Proxy Results Questions & Answers Adjournment
Baxter International Inc. Annual Meeting of Shareholders May 1, 2007
Baxter s Board of Directors
Baxter s Board of Directors Walter E. Boomer
Baxter s Board of Directors Blake E. Devitt
Baxter s Board of Directors John D. Forsyth
Baxter s Board of Directors Gail D. Fosler
Baxter s Board of Directors James R. Gavin III, M.D., Ph.D.
Baxter s Board of Directors Peter S. Hellman
Baxter s Board of Directors Joseph B. Martin, M.D., Ph.D.
Baxter s Board of Directors Carole J. Shapazian
Baxter s Board of Directors Thomas T. Stallkamp
Baxter s Board of Directors Albert P.L. Stroucken
Baxter s Board of Directors Kees J. Storm
Baxter s Board of Directors Walter E. Boomer Blake E. Devitt John D. Forsyth Gail D. Fosler James R. Gavin III, M.D., Ph.D. Peter S. Hellman Joseph B. Martin, M.D., Ph.D. Carole J. Shapazian Thomas T. Stallkamp Albert P.L. Stroucken Kees J. Storm
Baxter s Senior Management Team Carlos Alonso President, Latin America Joy A. Amundson President, BioScience Peter J. Arduini President, Medication Delivery Michael J. Baughman Controller Robert M. Davis Chief Financial Officer J. Michael Gatling Vice President, Global Manufacturing Operations John J. Greisch President, International Robert J. Hombach Treasurer Gerald Lema President, Asia Pacific Susan R. Lichtenstein General Counsel Jeanne K. Mason Vice President, Human Resources Bruce H. McGillivray President, Renal Peter Nicklin President, Europe Norbert G. Riedel, Ph.D. Chief Scientific Officer David P. Scharf Corporate Secretary Karenann K. Terrell Chief Information Officer Cheryl L. White Vice President, Quality
Baxter Annual Shareholders Meeting May 1, 2007 This presentation includes forward-looking statements concerning the company s financial results, R&D initiatives, product pipeline, business development strategies and other growth opportunities. The statements are based on assumptions about many important factors, including the following, which could cause actual results to differ materially from those in the forwardlooking statements: demand and market acceptance, risks for new and existing products and other therapies; our ability to identify and execute on growth opportunities, including the timely introduction of new products, and to exit low margin businesses; product quality or patient safety concerns; future actions of regulatory bodies and other governmental authorities, including the FDA and foreign counterparts; reimbursement policies of government agencies and private payers; competitive products and pricing, including generic competition, drug reimportation and disruptive technologies; and foreign currency fluctuations and other risks identified in the company s most recent filing on Form 10-K. The company does not undertake to update its forward-looking statements. Reconciliations of any non-gaap measures used in connection with this presentation are available on the company s website at www.baxter.com
Baxter International Inc. Annual Meeting of Shareholders May 1, 2007
2007 Annual Meeting Proposals
2007 Annual Meeting Proposals Proposal 1: Election of Four Directors
2007 Annual Meeting Proposals Proposal 1: Election of Four Directors Proposal 2: Appointment of PricewaterhouseCoopers LLP
2007 Annual Meeting Proposals Proposal 1: Election of Four Directors Proposal 2: Appointment of PricewaterhouseCoopers LLP Proposal 3: Approval of 2007 Incentive Plan
Baxter Overview Robert L. Parkinson Chairman & CEO
Baxter International Balanced and Diversified Business Portfolio Baxter possesses unique blend of capabilities across multiple platforms: Biopharmaceuticals Medical Devices Specialty Therapeutics Leveraging competencies across businesses to create synergies: Manufacturing & Protein Development Medical Plastics & Sterilization Drug Delivery & Enhanced Packaging Over 75 Years of Market Leadership Driven by Well-Recognized Global Brand
Global Presence With Strong Brand Equity Extremely strong image and reputation Long-standing relationships with government MOH s and healthcare providers Extensive expertise in renal home-care and unmatched intimacy with patient community Strong channel presence Providing Essential Healthcare Products Of Highest Priority In Both Developed And Developing Countries
2006 Highlights Met or exceeded all key financial objectives Optimized the business portfolio by exiting lower-margin and lower-return products and businesses Introduced a number of significant new products and formed key strategic alliances and partnerships Made meaningful progress on R&D initiatives Completed the rebuilding of the senior management team Enhancing Value Through Operational Excellence And Innovation
2006 Business Accomplishments Renal BioScience Medication Delivery Making and Developing Products that Save and Sustain Patients Lives
BioScience Highlights 2006 Sales = $4.4 Billion Continued to drive ADVATE penetration 90%+ conversion in Europe; ~50% conversion in U.S. Launched in Australia, Canada & Japan Improved dynamics and growth profile of plasma proteins business Successfully launched Kiovig in Europe and Flexbumin in the U.S. Generated strong performance in BioSurgery Received approval of TricOs T Launched Adept Momentum Continues to Build in BioScience
Medication Delivery Highlights 2006 Sales = $3.9 Billion Launched AVIVA non-pvc container Announced joint venture for parenteral nutrition products in China Continued momentum in anesthesia Suprane sales in excess of $200M annually Launched Sevoflurane in key markets around the world Completed capacity expansion in pharma-partnering business Medication Delivery Now Poised for Turnaround
Renal Highlights 2006 Sales = $2.1 Billion Focused on back to basics approach and geographic expansion Drove strong PD patient growth of 7% Launched Extraneal in Mexico Baxter PD Patient Growth 7% 5% 2% 2004 2005 2006 Building Momentum by Promoting PD and Expanding Geographically
Total Shareholder Return: January 1, 2004 April 30, 2007 200 180 Baxter = +95% 160 140 120 S&P 500 = +42% DJIA = +35% S&P HC = +26% 100 80 1/04 3/04 6/04 9/04 12/04 3/05 6/05 9/05 12/05 3/06 6/06 9/06 12/06 1/07 3/07 4/07 Baxter International, Inc. S&P 500 Health Care Index S&P 500 Index Dow Jones Returns include dividends
Transitioning to Phase II of the Turnaround Phase I Rebuilt our financial strength Established a new management team; restored investor credibility Strengthened the balance sheet Re-engineered business processes Focused on core businesses Phase II Accelerate R&D investment and evolve culture of innovation Increase focus on accelerating growth Establish best practices across Baxter in keeping with our vision of being a great company Enhancing Value Through Operational Excellence & Innovation
Driving Disciplined Acceleration In Revenue Growth Baxter Organic Sales Growth ~5% CAGR ~7% CAGR Aspiration LRP 2005 Base Case LRP 2007 Base Case Aspiration Well-Positioned For Future With Accelerating Organic Sales Growth
Balanced Approach: Stratification Of Growth Drivers Strategic R&D Spending Increases Geographic Expansion R&D Productivity Improvements Tactical Optimization of Current Products/Businesses Low Risk/Investment High Risk/Investment Balancing Affordability, Risk And Ability To Execute Effectively
Accelerating R&D Investments Over The Long-Range Plan $1.2 R&D Growth CAGR = ~12% ~$1.1 B ($ in Billions) $0.8 $0.4 $0.6 B $0.0 2006 2011 Base Case LRP R&D as a % of Sales: 5.9% ~7.5% R&D Productivity And Accelerated Spending Add Future Value
Balanced Approach: Stratification Of Growth Drivers Geographic Expansion Optimization of Current Products/Businesses R&D Productivity Improvements R&D Spending Increases Investments in Wild Cards Balanced Approach To Disciplined Revenue Acceleration
Invest In Wild Card Programs Initiative Launch Date Potential Annual Peak Sales Hylenex Pandemic Influenza Vaccine BioScavenger (ButyrylCholinEsterase) Interpandemic Influenza Vaccine ProMaxx Gammagard Liquid IVIG Alzheimer's Stem-Cell Therapy Program (Multiple Indications) 2007 2007 2008 2009 2011+ 2011+ 2011+ $500M+ $500M+ $250M+ $250M $500M+ $1,000M+/- $2,000M+ Potential Sales From Wild Card Programs NOT Included In Base Case LRP
Balanced Approach: Stratification Of Growth Drivers Geographic Expansion Optimization of Current Products/Businesses R&D Productivity Improvements R&D Spending Increases Investments in Wild Cards Acquisitions Adjacencies/ Bolt-ons Business Development Acceleration Balanced Approach To Disciplined Revenue Acceleration
Baxter A History of Innovation The first commercially manufactured intravenous (IV) solutions The first commercially built artificial kidney The first flexible, plastic blood-collection container The first sterile, vacuum-type blood collection and storage unit for blood transfusions The first plastic container for IV solutions The first peritoneal dialysis (PD) solutions and delivery systems The first commercially produced Factor VIII concentrate to treat hemophilia The first commercial heart lung oxygenator for open-heart surgery
Developing Multiple Approaches For Longer-Acting Factor VIII Treatment Currently exploring four approaches to develop a longer-acting FVIII therapy: Building on the ADVATE platform of plasma/albumin free recombinant FVIII Reducing the frequency of injections required to treat hemophilia patients Providing a significant lifestyle benefit to patients Pre-clinical data has been promising and suggests approaches are feasible Clinical trials planned to commence in 2008 Continuing to Advance Hemophilia Care
Treating Alzheimer s Disease with GAMMAGARD Liquid Chronic, progressive, neurodegenerative disorder of the brain Affects ~26 Million patients worldwide, with 90% above 65 years of age Results in cognitive decline and behavioral changes Current therapy does not stop progression Evaluating treatment of disease with GAMMARGARD LIQUID: Phase I study found 6 of 8 patients demonstrated cognitive improvement Phase II study on-going with results available in 2H 2007 Dr Alois Alzheimer 1864-1915 Addressing Unmet Medical Need
Promising Treatment for Patients With Chronic Myocardial Infraction Initiated Phase II clinical trial in 2006 CD34+ stem cells have potential to: Reduce symptoms of CMI improve clinical outcomes for patients with CMI Complete enrollment of 150 patients in 2008 If successful, technology could be applied to additional applications Committing Significant R&D Funding for Continued Development of this Exciting Opportunity
Pandemic Influenza Phase I/II study results indicate Baxter s candidate H5N1 vaccine is safe and has an excellent tolerability profile Initiated Phase III study in Europe; expect preliminary results by end of 2007 Vero-cell technology offers a number of advantages over traditional egg-based vaccines Signed contracts with a number of governments Significant Contribution To Public Health Globally
Expanding PD Indications: Congestive Heart Failure CHF Fluid Management via PD Peritoneal Ultrafiltration Congestive Heart Failure (CHF) results in abnormal fluid retention Studies show ultrafiltration can be an effective treatment for CHF Baxter initiated a Phase II clinical trial evaluating the use peritoneal ultrafiltration Ultrafiltration has the potential to offer significant benefits First Major Advancement in Treatment of Congestive Heart Failure in Decades
HYLENEX Solves Many Of The Problems Associated With IV Administration First and only proprietary recombinant human hyaluronidase Breaks down hyaluronic acid under the skin Allows for increased absorption and dispersion through sub-q infusion Provides an alternative to IV administration for patients with difficult venous access Launching in targeted areas throughout 2007 & 2008 Brings IV Like Performance Without The Burden Of IV
Current R&D Pipeline Summary Projected Launches Over The Long-Range Plan With Potential Peak Sales Of >$100M Project Pandemic Flu Potential Peak Sales >$500M 2007 2008 2009 2010 2011 Hylenex >$500M Tisseel VH/SD $500M Aralast Global Expansion $250M Global Premix Pipeline $250M Clearshot $250M Product Launches throughout LRP and Beyond Product Launches throughout LRP and Beyond Product Launches throughout LRP and Beyond Physiomoon Bio Scavenger Program Large Volumetric Pumps Solomix (Ultimate) Oliclinisol Low Cost Cycler Non-PVC Projects >$250M >$250M <$250M <$250M <$250M <$250M $250M Product Launches throughout LRP and Beyond Product Launches throughout LRP and Beyond Product Launches throughout LRP and Beyond Interpandemic Flu $250M Next Generation Cycler $1000M IGIV New Formulation $250M Nutrition Premix Generation II <$250M Home Hemodialysis $500M Fibrin Plus $500M rvwf $250M BioScience Legend: Medication Delivery Renal All projects shown are non-risk adjusted; potential peak sales are achieved over several years
Summary Confidence in our ability to achieve, or exceed, the Base Case Long Range Plan Generating improving results while minimizing downsides Focus on key franchises provides growth opportunities globally Emerging new product pipeline and prospects
Financial Highlights Robert Davis Chief Financial Officer
2006 Financial Highlights Accelerated sales growth Sales ($ in Billions) $10.4 Expanded gross and operating margins $9.5 $9.8 Increased R&D investments by 15% 2004 2005 2006 Exceeded earnings per share expectations; generated strong cash flow $1.69 Earnings Per Share $1.92 $2.23 Continued disciplined working capital management and capital allocation philosophy 2004 2005 2006 Improved the Profile of our While Meeting or Exceeding Financial Commitments
Realizing Improvements In Key Financial Metrics Gross Margin % Operating Margin % 50% 40% 30% 20% 10% 41.6% 43.3% 46.4% 20% 15% 10% 5% 16.2% 17.3% 18.5% 0% 2004 2005 2006 0% 2004 2005 2006 Driving Profitable and Sustainable Growth
2006 Total Shareholder Return 30% 24.8% 20% 15.8% 19.0% 10% 7.5% 0% S&P Healthcare Composite Index S&P 500 Index Dow Jones Industrial Average Index Baxter
Completed Phase I And Executing On Phase II Of Turnaround Phase I Rebuilt our financial strength Phase II Continue focus on margin expansion and working capital improvements Established a new management team; restored investor credibility Strengthened the balance sheet Re-engineered business processes Focused on core businesses Continue disciplined execution and meeting commitments Deploy discretionary capital to optimize shareholder value Accelerate R&D spending; continue focus on process improvements Continue focus on core and geographic expansion, while pursuing adjacencies Creating Value With Sustainable Financial Performance
1 Excludes the impact of foreign exchange; 2 Excludes Transfusion Therapies revenues in 2006 & 2007; 3 Cash flow from continuing operations less capital expenditures 2007 Financial Outlook Q1 2007 Actual FY 2007 Expectation Organic Sales Growth 1 Excluding Transfusion Therapies 2 : Operating Margin: E.P.S: Cash Flow From Continuing Operations: Free Cash Flow 3 : 8% ~10% 19.6% $0.61 $215 Million $122 Million 4% - 5% ~8% ~20.5% $2.60 $2.65 ~$2.3 Billion ~$1.6 Billion First Quarter Results Reaffirm Financial Progress And Reinforce Our Confidence In Future Performance
Base Case Long-Range Plan: Improved From Two Years Ago 10% 8% 6% Organic Sales Growth CAGR 6% - 8% 30% 25% Operating Margin % ~23% 4% 3% - 5% 20% 20%+ 2% 0% LRP 2005 LRP 2007 15% LRP 2005 LRP 2007 14% 12% 10% ~10% EPS Growth CAGR 11% - 13% $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 Cash Flow from Operations ($ in Billions) ~$2.0 ~$3.0 $0.5 8% LRP 2005 LRP 2007 $0.0 LRP 2005 LRP 2007
Baxter s Capital Allocation Discipline Improved Debt Structure Reduced gross debt by $2.2B since 2004 Received upgrades from S&P and Fitch Extended maturity profile of remaining debt Reduced Liabilities Contributed more than $600M to pensions Reduced net investment hedge liability Returned Capital Paid 2006 annual dividend of $371M in January, 2007 Increased dividend 15% (annual basis); adopted quarterly dividend payable April, 2007 (~$110M per qtr) Reinstituted share repurchase program and expanded remaining authorization Successfully Executed Recapitalization Of Company
Capital Allocation Discipline: Intended Uses Of Cash Flow 100% 50% Discretionary ~ 30% Potential Investment ~ 40% Returned to Shareholders Operational ~ 30% Invested in Working Capital & Capex 0% Average over LRP Period Deploy Capital To Potential Investments Only When Accretive To Share Repurchase Benchmark
2007 YTD Total Shareholder Return 30% 22.5% 20% 10% 5.1% 5.5% 8.5% 0% S&P 500 Index Dow Jones Industrial Average Index S&P Healthcare Composite Index Baxter
Summary Focused on continued value creation during Phase II Continue to focus on optimizing what we have Grow with discipline, focusing on margin expansion Drive further improvements in working capital and generate strong cash flow Continue to execute against consistent and disciplined capital allocation framework We are confident in our ability to deliver our enhanced long-term growth expectations through disciplined execution Creating Value With Sustainable Financial Performance
Sustainability at Baxter Robert L. Parkinson Chairman & CEO
Our Commitment to Sustainability Operating in a sound and ethical manner Using financial resources wisely Employing a diverse workforce and providing a safe, healthy and rewarding work environment for our employees Contributing to communities in need and victims of natural and man-made disasters Providing safe, high-quality products Expanding access to care for the underserved Reducing the company s environmental impact At Baxter, We Have A Responsibility To Balance The Needs Of Today With Those Of Tomorrow
2006 Sustainability Highlights
Our Commitment to the Environment Initial member of Pew Center on Global Climate Change Charter member of U.S. EPA Climate Leaders program Founding member of Chicago Climate Exchange Awarded 2006 Climate Protection from U.S. EPA Corporate headquarters in Deerfield carbon neutral facility
Our Commitment to the Community The Baxter International Foundation contributed more than $35 million to communities in need in 2006 Donated ~$15 million in vital medical products to more than 44 countries Committed funds to support disaster relief efforts globally Granted funds to 70 organizations in 20 countries to increase access to healthcare
Our Commitment to Innovation Making and Developing Products that Save and Sustain Patients Lives
Baxter International Inc. Annual Meeting of Shareholders May 1, 2007