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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

OR

Commission file number 1-4448

Baxter International Inc.

(Exact Name of Registrant as Specified in its Charter)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:    None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      ü      No                     

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes      ü      No                     

The aggregate market value of the voting common equity held by non-affiliates of the registrant as of June 30, 2003 (the last business day of the registrant’s most recently completed second fiscal quarter), based on the per share closing sale price of $26.00 on that date and the assumption for the purpose of this computation only that all of the registrant’s directors and executive officers are affiliates, was approximately $15.5 billion. There is no non-voting common equity held by non-affiliates of the registrant.

The number of shares of the registrant’s common stock, $1 par value, outstanding as of March 1, 2004 was 612,327,565.

Documents Incorporated By Reference

Portions of the registrant’s annual report to stockholders for fiscal year ended December 31, 2003 are incorporated by reference into Parts I, II and IV of this report. Portions of the registrant’s proxy statement for use in connection with its annual meeting of stockholders to be held on May 4, 2004 are incorporated by reference into Part III of this report.

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ADVATE, ALYX, ARALAST, ARENA, Baxter, ENLIGHTENEDHRBC, EXELTRA, EXTRANEAL, INTERCEPT, NANOEDGE, PREMASOL, PROMAXX, RENALSOFT and SYNDEO are trademarks of Baxter International Inc. and its affiliates.

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Baxter International Inc., One Baxter Parkway, Deerfield, Illinois 60015

PART I

Item 1.     Business.

Company Overview

Baxter operates as a global medical products and services company with expertise in medical devices, pharmaceuticals and biotechnology to assist health-care professionals and their patients with the treatment of complex medical conditions, including hemophilia, immune disorders, infectious diseases, cancer, kidney disease, trauma and other conditions. The company’s products are used by hospitals, clinical and medical research laboratories, blood and plasma collection centers, kidney dialysis centers, rehabilitation centers, nursing homes, doctors’ offices and by patients at home under physician supervision. Baxter manufactures products in 29 countries and sells them in over 100 countries.

Baxter International Inc. was incorporated under Delaware law in 1931. As used in this report, except as otherwise indicated in information incorporated by reference, “Baxter International” means Baxter International Inc. and “Baxter” or the “company” means Baxter International and its subsidiaries.

For information regarding significant divestitures, acquisitions and restructurings, see Baxter’s Annual Report to Stockholders for the year ended December 31, 2003 (Annual Report), page 49, section entitled “Notes to Consolidated Financial Statements—Discontinued Operations,” pages 50–53, section entitled “Notes to Consolidated Financial Statements—Acquisitions, Intangible Assets and IPR&D” and pages 53–54, section entitled “Notes to Consolidated Financial Statements—Other Special Charges” which are incorporated by reference.

Information about Baxter’s operating results and working capital practices is incorporated by reference from the Annual Report, pages 18–37, section entitled “Management’s Discussion and Analysis.”

Business Segments

Continuing operations are comprised of three segments: Medication Delivery, which provides a range of intravenous solutions and specialty products that are used in combination for fluid replenishment, general anesthesia, nutrition therapy, pain management, antibiotic therapy and chemotherapy; BioScience, which develops biopharmaceuticals, biosurgery products, vaccines and blood collection, processing and storage products and technologies for transfusion therapies; and Renal, which develops products and provides services to treat end-stage kidney disease. Financial information about Baxter’s segments is incorporated by reference from the Annual Report, pages 69–71, section entitled “Notes to Consolidated Financial Statements—Segment Information.” Unless otherwise indicated, each of the factors discussed in Part I do not materially differ in their impact across each of the three segments.

Medication Delivery

Business Description.    Baxter is a leading manufacturer of intravenous (IV) solutions and a range of specialty products. These products meet customer needs across the spectrum of injectable medication delivery, from formulation, packaging and administration through medication management. Specialty products include pharmaceuticals such as critical-care generic injectables, anesthetic agents, nutrition and oncology products. These products work with devices such as drug-reconstitution systems, IV infusion pumps, nutritional compounding equipment and medication management systems to provide fluid replenishment, general anesthesia, parenteral nutrition, pain management, antibiotic therapy, chemotherapy and other therapies.

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Strategic Focus.    This business continues to strengthen its portfolio in geographies such as Europe, Latin America and the United States by enhancing its IV solutions and nutrition businesses, growing its multisource injectable franchise and expanding its contract manufacturing services. It continues to increase penetration of higher-margin specialty products in markets where it has a strong base in IV solutions, such as India, China and Mexico. The business also is leveraging the integration of infusion-pump data into hospital information systems and expanding formulation technologies to enable pharmaceutical partners to develop new drugs with challenging formulation or delivery needs.

Product Development.    Reducing medication errors is one of the biggest challenges facing hospitals today. In 2003, Baxter introduced bar-code technology for its flexible, plastic intravenous solution containers that offers enhanced readability and other features that improve patient safety. By the end of 2004, most of Baxter’s IV bags are expected to carry the ENLIGHTENEDHRBC bar code. In addition, the company implemented Baxter’s Patient Care System, a wireless patient-information and medication-management system that works with Baxter’s bar-coded solutions and other products to provide a comprehensive, integrated approach to reducing medication errors. Also in 2003, Baxter launched its SYNDEO patient-controlled analgesia (PCA) pump, which combines an intuitive user interface with enhanced safety features, and received U.S. Food and Drug Administration (FDA) approval for PREMASOL, an amino acid solution for infants and young children requiring IV nutrition. In addition, Baxter continues to develop new technologies to enable its pharmaceutical partners to develop drugs with challenging formulation or delivery needs. These include the company’s NANOEDGE technology, designed to enable water-insoluble drugs to become medications, and PROMAXX inhalation microspheres, a platform that allows for sustained release of a drug over a period of time.

BioScience

Business Description.    Baxter is a leading producer of plasma-based and recombinant proteins used to treat hemophilia, immune deficiencies and other blood-related disorders. Other biopharmaceutical products include vaccines for the prevention of diseases, and biosurgery products like fibrin sealant and others used in hemostasis and wound-sealing in surgery. Baxter also is a leading manufacturer of products used to collect, process and store blood for use in transfusion therapies. These include manual blood-collection systems, automated instruments for collecting and separating blood and blood components, leukoreduction filters and pathogen-inactivation systems.

Strategic Focus.    This business is focused on increasing quality of care for people with hemophilia, immune deficiencies and other conditions through advanced technologies and value-added services. It also is focused on increasing access to much-needed therapies for underserved populations and protecting healthy individuals from current and future infectious-disease outbreaks through development of new vaccines. For transfusion medicine, Baxter is focused on enhancing the safety and availability of the blood supply, despite a shrinking eligible donor pool, through advanced automation, leukoreduction and pathogen-inactivation technologies.

Product Development.    In 2003, the FDA approved ADVATE, Baxter’s new recombinant Factor VIII concentrate for hemophilia. The company received approval in Europe in 2004. As the first and only Factor VIII made without any added human or animal proteins in the cell culture, purification or final formulation process, ADVATE represents a breakthrough in hemophilia care by eliminating the risk of infections caused by viruses that could potentially be contained in these proteins. Also in 2003, Baxter launched ARALAST, an alpha-1 antitrypsin (AAT) therapy for treatment of hereditary emphysema, and began clinical trials with Arriva Pharmaceuticals on a recombinant AAT therapy. In the area of vaccines, the company was awarded a contract to develop and produce a vaccine against Severe Acute Respiratory Syndrome (SARS) for use in clinical trials by the National Institutes of Health, and is partnering with Avecia on a recombinant anthrax vaccine. Baxter launched the ALYX Component Collection System in the United States and Europe in 2003. The ALYX system allows blood centers to collect two units of red cells per donor compared to one using manual collection. The company and its partner Cerus also received approval in Europe for the INTERCEPT Blood System for platelets, a technology to inactivate pathogens in collected blood components.

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Renal

Business Description.    Baxter provides a range of products for people with kidney disease. The company is the world’s leading manufacturer of products for peritoneal dialysis (PD), a home-based therapy that Baxter helped pioneer in the early 1970s. PD products include specialty solutions, container systems, solution-exchange devices and automated PD cyclers. Baxter also provides products for hemodialysis (HD), a therapy Baxter pioneered in the 1950s, which generally takes place in a hospital or clinic. HD products include HD machines and dialyzers as well as instruments for continuous renal replacement therapy, an acute therapy that represents the fastest growing segment of the HD market.

Strategic Focus.    Already the market leader in PD, Baxter plans to continue to expand the use of the therapy as well as grow its position through new product innovations and channel expertise. The business also will leverage its position in PD to support future home-based therapies. In addition, the company plans to strengthen its presence in in-center HD through new product introductions and technologies, and by optimizing its relationships with nephrologists. Baxter also continues to apply its therapeutic knowledge and technical expertise to new treatment areas such as continuous renal replacement therapy and renal-related pharmaceuticals.

Product Development.    Baxter introduced a number of new products in 2003 for both peritoneal dialysis (PD) and hemodialysis (HD) aimed at minimizing the challenges of renal therapy. For PD, the company launched its EXTRANEAL (icodextrin) solution in the United States and Japan. EXTRANEAL offers the potential for increased fluid removal from the bloodstream during dialysis, which helps patients continue on PD as their preferred form of therapy. For HD, Baxter introduced ARENA, the company’s newest HD instrument, in the United States and Europe. ARENA offers improved ease-of-use and a range of features to assist clinicians in setting up, administering and monitoring in-center HD treatment. The company also received FDA clearance for its new EXELTRA family of single-use dialyzers. The EXELTRA dialyzer has the thinnest high-flux membrane available in any single-use dialyzer, allowing for enhanced clearance of small and medium-sized toxic molecules from the blood. To complement its dialysis offerings, Baxter also launched RENALSOFT, an integrated software program to help nephrologists and other renal-care professionals better manage patient care from the earliest stages of treatment through dialysis and transplantation. The program provides tools to track disease progression, capture clinical information, manage co-morbidities, prepare patients for renal replacement therapies, and monitor treatment compliance.

Information regarding the net sales contributed by the company’s principal products is incorporated by reference from the Annual Report, pages 69–71, section entitled “Notes to Consolidated Financial Statements—Segment Information.”

International Markets

Baxter generates approximately 50 percent of its revenues outside the United States. While health-care cost containment continues to be a focus around the world, demand for health-care products and services continues to be strong worldwide, particularly in developing markets. The company’s strategies emphasize global expansion and technological innovation to advance medical care worldwide.

Methods of Distribution

Baxter conducts its selling efforts through its subsidiaries and divisions, many of which have their own sales forces and direct their own sales efforts. In addition, sales are made to and through independent distributors, drug wholesalers acting as sales agents and specialty pharmacy or homecare companies. In the United States, Cardinal Health, Inc. warehouses and ships a significant portion of the company’s products through its distribution centers. These centers are generally stocked with adequate inventories to facilitate prompt customer service. Sales and distribution methods include frequent contact by sales representatives, automated communications via various electronic purchasing systems, circulation of catalogs and merchandising bulletins, direct-mail campaigns, trade publications and advertising. Customers may return defective merchandise for credit or replacement. In recent years, such returns have been immaterial.

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International sales are made and products are distributed on a direct basis or through independent local distributors in more than 100 countries. International subsidiaries employ their own field sales forces in Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, the Czech Republic, Denmark, Ecuador, Finland, France, Germany, Greece, Guatemala, Hungary, India, Italy, Japan, Korea, Mexico, The Netherlands, New Zealand, Norway, Panama, Peru, the Philippines, Poland, Portugal, Russia, Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom and Venezuela. In other countries, sales are made through independent distributors or sales agents.

Raw Materials

Raw materials essential to the company’s business are purchased worldwide in the ordinary course of business from numerous suppliers. Although most of these materials are generally available, certain raw materials used in producing some of the company’s products are available only from a limited number of suppliers and Baxter has at times experienced occasional shortages of supply. In an effort to manage risk associated with raw materials supply, Baxter works closely with its suppliers to help ensure availability and continuity of supply while maintaining high quality and reliability. The company also seeks to develop new sources of supply where beneficial to its overall raw materials procurement strategy.

In some situations, the company has long-term supply contracts with its suppliers to help maintain continuity of supply and manage the risk of price increases. Baxter is not always able to recover cost increases for raw materials through customer pricing due to contractual limits and market pressure on such price increases. See “Contractual Arrangements.”

Patents and Trademarks

Baxter relies on a combination of patents, trademarks, copyrights, trade secrets, know-how and confidentiality agreements to protect the company’s products and technology. Baxter owns a number of patents and trademarks throughout the world and has entered into license arrangements relating to various third-party patents and technologies. Products manufactured by Baxter are sold primarily under its own trademarks and trade names. Some products distributed by the company are sold under the company’s trade names while others are sold under trade names owned by its suppliers. Trade secret protection of unpatented confidential and proprietary information is also important to Baxter. The company maintains certain details about its processes, products, and technology as trade secrets and generally requires employees, consultants, parties to collaboration agreements and other business partners to enter into confidentiality agreements. In the aggregate, the company’s intellectual property rights are of material importance to Baxter’s business. However, Baxter believes that its overall business position is not materially dependent upon any single patent or trademark.

Baxter’s policy is to protect its products and technology through patents and trademarks on a worldwide basis. This protection is sought in a manner that balances the cost of such protection against obtaining the greatest value for the company. The company also recognizes the need to promote the enforcement of its patents and trademarks. Over the past few years, Baxter has increased its enforcement activities by aggressively taking action in various countries to protect its patents and trademarks. Baxter will continue taking all commercially reasonable steps to enforce its patents and trademarks around the world against potential infringers. However, there can be no assurance that any action will result in favorable decisions. Moreover, patents relating to particular products, uses, formulations or processes may not preclude other manufacturers from employing alternative processes or from marketing alternative products or formulations that compete with the company’s products. In addition, third-parties could independently develop know-how similar to Baxter’s unpatented proprietary information.

Competition

The changing health-care environment in recent years has led to increasingly intense competition among biotechnology, pharmaceutical and medical device companies. Although no single company competes with

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Baxter in all of its businesses, Baxter faces substantial competition in each of its segments, generally from global and domestic health-care companies of all sizes. There has been consolidation in the company’s customer base, and by its competitors, which has resulted in pricing and market share pressures. Some competitors, principally large pharmaceutical companies, have greater financial, research and development and marketing resources than Baxter, and large pharmaceutical companies are increasingly competing in the same markets as Baxter. Competition is focused on price, cost-effectiveness, service, product performance, and technological innovation. Pressure in these areas is expected to continue.

Many factors contribute to pricing pressure on Baxter and others in the health-care marketplace. Governments around the world utilize various mechanisms to control health-care expenditures, such as price controls, product formularies (lists of recommended or approved products), and competitive tenders which require the submission of a bid to sell products. Sales of Baxter’s products are dependent, in part, on the availability of reimbursement by government agencies and health-care programs, as well as insurance companies and other private payers. Many state governments have adopted or proposed initiatives relating to Medicaid and other health programs that may limit reimbursement or increase rebates that Baxter and other providers are required to pay to the state. In addition to government regulation, managed care organizations (MCOs) in the United States, which include medical insurance companies, medical plan administrators, health-maintenance organizations, hospital and physician alliances and pharmacy benefit managers, continue to put pressure on the price and usage of health-care products. MCOs seek to contain health-care expenditures, and their purchasing strength has been increasing due to their consolidation into fewer, larger organizations and a growing number of enrolled patients. Baxter faces similar issues outside of the United States. In Europe and some other markets, for example, the government provides health care at low cost to patients, and controls its expenditures by regulating prices or limiting reimbursement or patient access to certain products.

Competition has intensified in each of Baxter’s segments. In the BioScience business, the competitive environment for plasma-derived products has changed dramatically due to the entry of foreign competitors into the U.S. market and increased output by manufacturers, resulting in increased supply and pricing pressure. Competition in the recombinant marketplace has also increased, primarily due to the reentry of Bayer AG and Wyeth as manufacturers of recombinant Factor VIII and the expansion of their manufacturing capacity. The Medication Delivery business expects increased pricing pressure from generic competition for injectable drugs, and from group purchasing organizations (GPOs) in the United States. See “Contractual Arrangements” below for further discussion of Baxter’s relationship with Premier Purchasing Partners L.P. and other GPOs. In addition, the Medication Delivery business may face increased competition after the spin-off of the hospital products business of Abbott Laboratories as the new company, named Hospira, focuses its resources on the hospital market. In the Renal business, global and regional competitors are continuing to expand their manufacturing capacity for PD products and their PD sales and marketing channels.

The company intends to manage the challenges resulting from this intense competition by focusing on the following: