3 Things Baxter International Inc.'s Management Wants You to Know

"No one likes change except a wet baby," said the wittiest man who ever lived, Mark Twain.

Change is inevitable, but top executives often ignore it to the point that change happens in spite of them, rather than because of them. Fortunately for stockholders, Baxter International's (NYSE: BAX  ) management team seems to be an exception.

In fact, the main takeaway from Baxter International's second-quarter earnings call was that this healthcare multinational's leadership is grabbing hold of change in a bid to reignite growth.

"We are embracing a mind-set of reevaluating anything and everything that we do," said CEO Bob Parkinson.

Baxter reported "strong growth across its global franchises" in the second quarter, with worldwide sales totaling $4.3 billion, up 16% from $3.7 billion reported in the same period last year. Despite earnings headwinds from coming competition for its flagship product Advate, a treatment for hemophilia, Baxter also confirmed its financial outlook for 2014. The guidance range for adjusted earnings was narrowed per diluted share to $4.10 to $5.20.

Spinoff on track
Baxter is continuing forward with the spinoffs of its bioscience and medical products segments, according to Parkinson: "During the quarter, Baxter announced a number of new product pipeline achievements and approvals, advanced collaborations, and marked progress toward our separation into two leading health care companies. We remain on track to complete the separation by midyear 2015."

But key controversies swirl around the stock, particularly the sustainability of Baxter's hemophilia franchise. Let's dive deeper and see if executives have some answers.

Advate: a core asset at risk
A new plant in Singapore boosts Baxter's production capacity for blood-clotting factor Advate by 50%. That sounds great, but it won't be helpful if demand drops off.

Baxter is working hard to prevent that from occurring. Parkinson pointed out that "Baxter was granted multiyear awards for Advate in the U.K and in Australia," In addition, the drug is being rolled out in emerging markets such as Brazil, Turkey, and Russia.

Right now, Advate is a big driver for Baxter. But Biogen Idec recently launched rival Eloctate, which can be infused half as often as Advate, which is a significant advantage.

While global demand for Advate is strong, Baxter's long-term answer is its own long-acting factor (known as BAX 855). Timing is critical, however, as the drug may not be available for 18 months. According to the CEO:

We've now completed dosing for all patients in the Phase 3 clinical trial for BAX 855.

We look forward to sharing top line data in the third quarter, and continue to expect to file in the U.S. before the end of the year.

Infusion of growth from Gambro
Baxter's Gambro acquisition greatly expanded the company's presence in the international dialysis market. Overall, Baxter saw sales for its medical products business increase by 24% to $2.5 billion, with the dialysis branch posting eye-popping 60% year-over-year growth.

But Gambro has also weakened Baxter's profit margins. The company's gross margin was 47.9% in the quarter, down from 52.8% in last year's second quarter.

Ready, set: Go Baxter?
One of my favorite stock picking strategies is to find companies in strong sectors that have missed the run-up, but could be about to turn the corner.

With the overall healthcare sector expected to post revenue growth of 12.2% (the highest of any sector) and earnings growth of 15.9%, this is clearly a strong sector. And Baxter has been underperforming its peers over the past year.

Wall Street is currently bored with Baxter, but that's exactly the reason it needs to be on your radar. To quote Mark Twain again, "Whenever you find yourself on the side of the majority, it's time to pause and reflect."

American's favorite humorist was all about leading change, rather than letting it control you. I think he had something there. And so -- according to their recent words and actions -- do Baxter's executives.

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