HSP

The Food and Drug Administration has given Baxter International Inc. (BAX) two years to recall about 200,000 Colleague brand drug-infusion pumps in the U.S. while offering customers either refunds or replacement devices.

This is more time than analysts expected, which they said could help Baxter's quest to get enough replacement pumps to customers as rivals seek to take business.

The recall was first announced in May, and details regarding the timeline were clarified in an FDA order on Tuesday. The agency said the company's prior plan, to start correcting pumps in May 2012 and finish the following year, was "unacceptable," but it gave the company 24 months to accommodate hospitals.

Baxter said it still believes a $588 million charge it took in the first quarter for the recall is adequate. The company's shares edged higher Tuesday, up 4 cents, to close at $43.75.

The pumps in question are typically found bedside at hospitals, where they deliver intravenous fluid and drugs in a controlled fashion. The Colleague devices have been a long-running issue for Baxter--a large maker of health-care products including plasma-based drugs for immune disorders--amid problems linked to reports of patient injuries and deaths.

The Deerfield, Ill., company had been fixing pumps in the field for years, but the FDA decided that it didn't like Baxter's latest remediation timeline, and it ordered the company to pull pumps off the market while offering refunds or replacements at no charge. This opened a door for rival pump makers CareFusion Corp. (CFN) and Hospira Inc. (HSP), which analyst expect to work aggressively to take Baxter business. But the two-year recall may help Baxter defend its business by giving it more time to acquire replacements.

Specifically, Baxter is offering Spectrum brand pumps from a private company called Sigma International, where Baxter has a 40% ownership stake. Baxter's ability to get enough Spectrum pumps to fill customer demand has been a big question mark, but the time window announced Tuesday should give the company "time to resolve the current supply constraints at Sigma and produce enough pumps to service those customers who opt for Spectrum," JPMorgan analyst Michael Weinstein said.

"Baxter is working with Sigma to adequately increase manufacturing capacity to meet anticipated customer demand over the 24-month time period," Baxter spokeswoman Erin Gardiner said.

Also, the FDA's order said that Baxter won't be required to offer a competitors' pump, which Weinstein said indicates CareFusion and Hospira would have to offer discounts that approach Baxter's refund amounts. The FDA set the refund amounts for Colleague pumps, based on their depreciated value, between $1,500 and $3,000 depending on the type of pump. Baxter won't refund customers more than they paid, though, so if they acquired a used pump cheaply, they could get less than $1,500.

Baxter said customers who didn't buy their pumps directly from the company must provide proof of purchase to qualify for a refund. Baxter will also allow those leasing pumps in the U.S. to terminate their leases without penalty on the return of the devices.

One issue is what happens to customers with so-called triple channel pumps, which are more complex devices that Sigma doesn't make. This could be one area in particular where Baxter cedes share to rivals, although spokeswoman Gardiner noted customers can use multiple Spectrum pumps, which are considerably lighter than Colleague devices, at the same time to deliver multiple fluids.

Piper Jaffray analyst Matt Miksic, who called the final FDA order a "clear positive" for Baxter, said he expects the company to retain a majority of its Colleague market share.

Customers that continue using Colleague pumps during the two-year transition will continue to receive batteries, spare parts and service from Baxter if they submit a Certificate of Medical Necessity.

"Baxter's goal is to support a seamless transition by providing choices that best address the needs of our hospital customers and minimize disruption to the delivery of patient care," Peter J. Arduini, president of Baxter's medication delivery business, said in a release.

The recall only affects the U.S. Internationally, Baxter is updating the Colleague device and will provide customers with devices that contain a new battery-management system and upgrades to software and mechanical systems.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

(Kathy Shwiff contributed to this article.)

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