Baxter Ready to Sop Up Additional Revenue

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For larger health-care companies such as Baxter (NYSE: BAX), one easy way to boost revenue is to license and sell drugs from smaller companies.

In the latest such deal to go down, Baxter licensed privately held Innocoll's antibiotic "sponge." The implantable device releases the antibiotic gentamicin from a biodegradable matrix that's inserted before the surgical patient is sewn back up. Innocoll is currently testing this in two phase 3 trials to see whether the slow release of antibiotics lowers the rate of surgical infections. If the trials are a success, Innocoll will file for marketing approval with the Food and Drug Administration next year.

The sponge, which is already approved for use in 49 other countries, would be the only implantable, biodegradable sponge that's approved to help reduce surgical site infections. It would presumably compete against other antibiotics -- gentamicin is available as an injectable generic from APP Pharmaceuticals (Nasdaq: APPX) and Hospira (NYSE: HSP), among others -- but could have a much larger market since it could be used in all surgeries, not just ones where patients developed an infection.

Most of the terms of the deal weren't disclosed, but hopefully, Baxter tied a majority of the payments to the sponge gaining U.S. approval; the FDA has seemingly tightened down on approving antibiotics over the last few months. The FDA recently turned down both Johnson & Johnson's (NYSE: JNJ) and Wyeth's (NYSE: WYE) requests to expand the labels of their already-approved antibiotics to treat other types of infections.

Assuming Baxter didn't overpay, the product seems like a good addition for the health-care giant, which already sells products that stop bleeding and seal up tissue. Wringing out some additional revenue from the sponge shouldn't be too hard.

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