2011 Annual Report Baxter International Inc. Baxter International Inc. Baxter International Inc. One Baxter Parkway 2011 Deerfield, Illinois 60015-4625 Annual www.baxter.com Report Printed on recycled paper using soy-based inks. The cover and narrative pages of this annual report contain 10% post-consumer recovered fiber. The financial pages contain 30% post-consumer recovered fiber. Financial Highlights * Represents earnings per diluted share (as calculated in accordance with generally accepted accounting principles (GAAP)), after adjusting earnings to exclude special charges. Please see the company’s website at www.baxter.com for a reconciliation to earnings per diluted share. About our Cover: “PD First” Policies Take Root in Asia Pacific Region In 2008, the government of Thailand implemented a “PD First” policy, encouraging the use of peritoneal dialysis (PD) over in-center hemodialysis (HD) to expand access to treatment and enhance quality of life for patients with end-stage kidney failure while controlling costs. The result has been a sharp increase in the number of PD patients in Thailand, from about 1,000 in January 2008 to more than 10,000 at the end of 2011. Kanyakorn Piasukho of Bangkok was diagnosed with chronic nephritis in infancy and experienced acute kidney failure in 2009. She relies on PD therapy as she awaits a possible kidney transplant. Baxter projects the number of PD patients in Thailand to reach 35,000 in the next five years. Several countries throughout the Asia Pacific region, including Malaysia, Taiwan, India and Vietnam, are evaluating and implementing similar policies that encourage the use of PD over HD to help drive increased access, optimize outcomes and manage the growing need for renal disease treatment with limited healthcare resources. In Hong Kong, which has had a PD First policy for nearly 20 years, PD penetration is about 80 percent. paragraphs.com Baxter’s commitment to the health of Thailand’s residents extends to the company’s response to extreme rainfall and flooding that devastated parts of that country in late 2011. Baxter took decisive action to ensure that the affected area’s PD patients continued to Design: Newsweek 2011 Green Rankings Logo, ©2011 Newsweek/The Daily Beast Company LLC. Used by permission and receive necessary PD supplies. The company also coordinated an emergency shipment of intravenous solutions, provided survival kits protected by the Copyright Laws of the United States. For more information, visit www.newsweek.com/green. and offered assistance to Baxter employees impacted by the disaster. © Baxter International Inc., 2012. All rights reserved. References in this report to Baxter are intended to refer collectively to Baxter International Inc. and its U.S. and international subsidiaries. Innovation + Care 2011 Annual Report Baxter International Inc. Dear Shareholders Baxter International delivered another strong year through our focus on life-saving, life-sustaining products and our ongoing commitment to innovation. Over the course of 2011, we touched millions of lives with our core product portfolio, increased investment in research and development (R&D) to accelerate our new product pipeline, intensified business development to augment organic growth, and gave back to the communities we serve through industry-leading sustainability programs. By staying focused on our core mission, Baxter achieved a high level of financial performance and drove enhanced value for its shareholders. 122534_Narr.indd 1 3/6/12 4:15 PM 2 Acceleration through Innovation Advancing our R&D Pipeline For 80 years, Baxter’s success has been built on a simple Baxter’s enduring growth depends on a consistently innovative mission: serving patients at their times of greatest need pipeline of new offerings that broaden our portfolio of medically with a diverse portfolio of medically necessary products necessary products and therapies while reinforcing our and therapies. The company is also constantly evolving, leadership in core therapeutic areas. Last year’s R&D advancing patient care with cost-effective offerings that expenditures reached a record level for the company. address important clinical needs. Throughout 2011, we introduced a number of new products, expanded indications of existing products and advanced The global macroeconomic environment continued to pose approximately 20 key R&D programs in late-stage clinical serious challenges in 2011, creating barriers and complexities development, many of which have the potential to profoundly throughout the healthcare industry. Nevertheless, Baxter improve the treatment and delivery of care for chronic was able to accelerate sales growth and profitability, while diseases like hemophilia, immune deficiencies, Alzheimer’s expanding its portfolio with R&D pipeline developments that disease and end-stage kidney disease. Among these will deliver benefits for patients and healthcare providers. The accomplishments, Baxter: emphasis on innovation is not limited to scientific frontiers; it also encompasses how we do business as we introduce new • Received United States Food and Drug Administration approaches and pursue opportunities that create additional (FDA) approval for the subcutaneous administration of value for Baxter, our shareholders and patients worldwide. GAMMAGARD LIQUID 10% [Immune Globulin Infusion (Human)] (marketed as KIOVIG Human Normal 2011 Financial Performance Immunoglobulin (IVIg) outside the United States and In 2011, Baxter’s worldwide sales increased 8 percent, Canada) for patients with primary immunodeficiencies. totaling $13.9 billion. The company reported net income • Expanded the indication for KIOVIG in Europe to include of $2.2 billion, or $3.88 per diluted share, compared to net treatment for multifocal motor neuropathy (MMN), and income of $1.4 billion, or $2.39 per diluted share, in 2010. submitted a supplemental biologics license application to On an adjusted basis, excluding special items in both years, the FDA for approval of GAMMAGARD LIQUID 10% to treat Baxter’s net income in 2011 was $2.5 billion, representing an MMN in the United States. increase of 4 percent from $2.4 billion in 2010, while earnings per diluted share of $4.31 increased 8 percent from $3.98 • Submitted to United States, European and Canadian in 2010.† Cash flow from operations, including pension regulatory bodies for approval of HyQvia, Baxter’s contributions, totaled $2.8 billion in 2011. investigational immunoglobulin therapy administered subcutaneously and facilitated by recombinant human Platforms for Growth hyaluronidase for patients with primary immunodeficiencies. Baxter is delivering solid performance for customers and • Completed enrollment in the first pivotal Phase III clinical shareholders by focusing on four growth platforms – areas trial evaluating the use of GAMMAGARD LIQUID 10% for of opportunity that will move the business forward in the face the treatment of mild to moderate Alzheimer’s disease; the of the changing economic landscape. company completed a futility analysis of this trial and will initiate a second, confirmatory Phase III trial in 2012. The first and most fundamental of these platforms is our existing, broad portfolio of core products. We are constantly • Introduced NUMETA (emulsion for infusion) across Europe pursuing opportunities to optimize performance through as the first triple-chamber nutrition system designed enhancing our position in current markets and expanding into specifically for pediatric patients. new geographies. • Received FDA clearance for Baxter’s new, next-generation Building on this important foundation, Baxter is also driving automated peritoneal dialysis (APD) cycler and new growth through a robust new product pipeline, complementary HomeChoice SmartCare software for use in current business development opportunities and new government HomeChoice APD machines. partnerships that can expand access to care while strengthening Baxter’s market presence worldwide. † Adjusted net income and adjusted earnings per diluted share, each excluding special items, are non-GAAP measures. The company believes that these non-GAAP measures may provide a more complete understanding of the company’s operations and may facilitate a fuller analysis of the company’s results of operations, particularly in evaluating performance from one period to another. Please see the company’s website at www.baxter.com for reconciliations of these non-GAAP measures to each of their respective GAAP measures. Innovation + Care 2011 Annual Report Baxter International Inc. 122534_Narr.indd 2 3/6/12 4:15 PM 3 • Began a clinical trial in the United States on a new • Acquired Synovis Life Technologies, Inc., a leading provider home hemodialysis system designed to deliver high-dose of biological and mechanical products for soft tissue repair. hemodialysis in the home setting. This transaction, announced in 2011 and closed in early 2012, complements and expands the company’s portfolio • Initiated a global Phase III clinical trial to evaluate the safety of regenerative medicine and biosurgery products. and effectiveness of BAX 111, Baxter’s investigational recombinant von Willebrand factor, for the treatment and • Entered into a collaboration with Momenta Pharmaceuticals, prevention of bleeding episodes in patients with severe Inc., to develop and commercialize up to six follow-on von Willebrand disease. biologic products, also known as biosimilars. The arrangement leverages Baxter’s expertise in biologics • Received FDA approval