FDA warns Baxter on issues at P.R. plants

Baxter upstaged its own 2010 results by announcing a new warning letter from the FDA. It's the latest in a series of quality-control challenges the company has faced in recent years. But perhaps diverting people's attention was deliberate. The company's fourth-quarter numbers showed a 26 percent drop in net income compared with the same period the year before ($423 million versus $572 million)--albeit on restructuring costs--and its 2011 forecasts fell short of Wall Street's expectations. Sales did increase at a faster-than-expected rate, however.

The FDA warning deals with manufacturing violations at two plants in Puerto Rico, and although it focuses primarily on procedural snafus rather than recall-worthy mess-ups, it still spooked analysts. "History makes us see this (FDA) letter as a new blow," Leerink Swann analyst Rick Wise told Reuters. "This looks and feels worse than it probably is because of its long and complicated history."

CEO Robert Parkinson also said that it's taking longer than expected to sort out problems with an Irish plant that produced some dialysis solutions contaminated with bacteria. Fixing the problems will be "financially ... manageable," he said.

These disclosures come after several years of manufacturing issues and high-profile product problems, including the big heparin recall in 2008; that contaminated heparin is still haunting the company. More recently, Halozyme Therapeutics blamed Baxter, its manufacturing partner, for a recall prompted by vials contaminated with glass flakes (fairly or not). "Clearly, I'm not happy to have to communicate that we got a warning letter," Parkinson told analysts. "Our aspiration is zero defect here. We are better than we were, but we have to get better."

- read Baxter's release
- see the Reuters story
- check out the WSJ's coverage