Good morning, ladies and gentlemen, and welcome to Baxter International’s Second Quarter 2020 Earnings Conference Call. Your lines will remain in a listen-only mode until the question-and-answer segment of today’s call. [Operator Instructions] As a reminder, this call is being recorded by Baxter and is copyrighted material. It cannot be recorded or re-broadcasted without Baxter’s permission. If you have any objections, please disconnect at this time. I would now like to turn the call over to Ms. Clare Trachtman, Vice President and Investor Relations at Baxter International. Ms. Trachtman, you may begin.

Thanks, Katherine. Good morning, and welcome to our second quarter 2020 earnings conference call. Joining me today are Joe Almeida, Baxter’s Chairman and Chief Executive Officer; and Jay Saccaro, Baxter’s Chief Financial Officer. On the call this morning, we will be discussing Baxter’s second quarter 2020 financial results and full-year 2020 financial outlook. A supplemental presentation to complement this morning’s discussion can be accessed on our website in the Investors section under events and news. This presentation includes related non-GAAP reconciliations. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for full-year 2020, new product development, business development and regulatory matters contain forward-looking statements that involve risks and uncertainties. And of course, our actual results could differ materially from our current expectations. Please refer to today’s press release and our SEC filings for more detail concerning factors that could cause actual results to differ materially. In addition, on today’s call, non-GAAP financial measures will be used to help investors understand Baxter’s ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in our earnings release issued this morning and available on our website. On the call this morning, we will be discussing operational sales growth, which adjusts for the impact of foreign exchange and the acquisition of Seprafilm, which closed on February 14 of this year. Now, I’d like to turn the call over to Joe. Joe?

Thank you, Clare, and thanks everyone for joining us today. I hope that you and your families are healthy and safe. Like the last quarter, I want to begin by recognizing all of the healthcare providers and the first responders, who continue to work tirelessly in combating COVID-19. Our deep appreciation also goes to all the clinicians and researchers, who are advancing knowledge, treatment and promising vaccine candidates to address this global pandemic. Three months ago, we were hoping to see some easing in the trajectory of this deadly pandemic by now. Sadly, while the hotspots may have shifted, the infection rates and impact to remain staggering. Baxter’s second quarter performance reflects the evolving impact of pandemic conditions on the global healthcare landscape and on our own operations. As you saw in today’s press release, Baxter reported a year-over-year decline in both net sales and earnings in Q2 2020 while demand for certain pandemic-related treatments and technologies reached historic highs within the quarter. We also saw a negative impact on our results from significantly lower rates of hospital admissions and a reduction in elective procedures. The implementation of various shelter-in-place initiatives globally, as well as patient concerns regarding potential COVID-19 infection risk and the healthcare setting contributed to these trends. During the quarter, we continued to experience significantly heightened demand for our acute therapies products due to COVID-19. According to a number of third-party sources, 20% to 30% of COVID-19 ICU patients will develop acute kidney injuries requiring treatment with a renal replacement therapy, of which week continuous renal replacement therapy or CRRT, is the preferred option. In addition, our chronic renal care business continues to deliver sustained mid-single digit constant currency growth in peritoneal dialysis product portfolio. We continue to highlight the advantages of peritoneal dialysis therapies plus our…

Thanks, Joe and good morning, everyone. As Joe mentioned, our second quarter performance reflects the resilience of our diversified portfolio, even in an uncertain healthcare landscape. Our unwavering focus is on meeting the needs of patients and providers globally with medically essential products and therapies. Turning to our second quarter of 2020 results. Global sales of $2.7 billion declined 4% on a reported basis, 1% on a constant currency basis, and 2% on an operational basis. Increased demand for our acute therapies portfolio, along with solid performance in Renal Care and Clinical Nutrition were offset by declines in our Advanced Surgery, Pharmaceuticals and Medication Delivery businesses largely driven by the impact of COVID-19 on surgical procedure volumes in hospital utilization. We estimate that there was over $180 million in revenue downside for the quarter related to COVID-19. On the bottom line, adjusted earnings decreased 24% to $0.64 per share, reflecting lower sales and higher margin businesses, incremental COVID-related operations and logistical expenses as well as higher interest expense and the higher tax rate. Now, I’ll walk through performance by our regional segments and global business units. Note that for this quarter, constant currency growth is equal to operational sales growth for all global businesses, except for our Advanced Surgery business, for which we will provide both constant currency and operational growth adjusting for the acquisition of Seprafilm. Starting with our three regional segments. Sales in the Americas declined 5% on a constant currency basis and 6% on an operational basis. sales in EMEA advanced 1% on both the constant currency and operational basis. And sales in our APAC region advanced 5% on a constant currency basis at 3% operationally. Moving on to performance by global business units. global sales for Renal Care were $919 million, advancing 5% on a constant…

Thank you. [Operator Instructions] And our first question comes from Robbie Marcus with JPMorgan. Your line is open.

Great. Thanks for taking the question. Maybe we could start with the delta in second quarter versus your expectations coming out of the first quarter? And then what gives you the confidence to put out the guidance range that you did? With still seeming uncertainty through the balance of the year, help us understand how conservative this is? How much room for upside or downside is in the guidance range? And just any color you could provide around it. Thanks.

Robbie, good morning. This is Joe. We had expected that – and positively for primarily the U.S. and Europe, the widespread or shelter-in-place initiatives and concerns in the beginning of April really reduced hospital admissions. People were fearful to go to hospitals, but the shelter-in-place put a reduction in place of cases along – if you remember, along the curve for the month of April and May sequentially. Those things combined created pressure on hospital admissions. So, let me explain to the folks on the phone that Baxter is a little different than what you think of our peers are. We are dependent [technical difficulty] by that. Hospital admissions drive another portion of our business. And home care, primarily the dialysis business drives that too. So different than many of the peers that you usually cite, Baxter is not an elective procedure-dependent company. Hence, our resilience, hence, our performance this quarter was slightly below our expectations. But it showed to be more resilient than double-digit decline that you saw in many of our peers who reported already. And the reason for that is that we have business like acute renal care and peritoneal dialysis, which are doing extremely well for different reasons. What suffers in Baxter is the business of operating room procedures, you see, with anesthetic gases. The Pharmaceutical business is down double digits versus prior year. That is mainly driven by anesthetic gases and the lack of use of some injectable medicines that would be used in general – on the general floor for alleviating urosis. Admissions to hospitals saw a double-digit decline in the second quarter. So that created the pressure that you see in our numbers. We also – transposing to your question now, we have done an extensive work on modeling with a significant amount of inputs created our own way of understanding the market. And we see in our model a modest sequential improvement. That’s why we felt a bit more comfortable in giving guidance. But if you notice our guidance, it’s pretty wide. And it contemplates a significant amount of variables that we have in place. But if you boil down to what variables drive Baxter business is the home care business, is admissions into ICU, general admissions into hospitals and the operating room affects our business, primarily the anesthetic gases and Advanced Surgery.

Okay. So maybe, as we think about that, Joe, and maybe, Jay, you could take it. How do you think about what third quarter looks like and what fourth quarter looks like? And maybe give us some of the puts and takes around the margins, both, you had pretty material R&D cuts. How do we think about gross margin, your spending on research and development? And where you could get some of the savings to offset the incremental $150 million in SG&A?

Sure. There’s a lot to that question. So I’ll hit each of the pieces. First, as we think about Q3 versus Q4, we were reluctant. We provided a larger range than we normally do at this point in the year on both the sales and the earnings for the company. And we did so because of the very wide dispersion of outcomes that are potential in the marketplace. I’m sitting here, I just saw the headline indicating a 33% decline in GDP for the quarter, which is just a shocking number and reflective of the wide range of uncertainty that we’re currently contending with. And so as a result of that, we put forth a wider range than we normally do. And we also did not share quarterly guidance, because given how things emerge, given hotspots, movements in these – in different pieces that take place, there is an inherent amount of volatility on sales in a given month. And we believe that over a longer duration of time, we have a better ability to predict. What I would say is we expect higher earnings in Q4 than Q3, and probably similar levels of sales performance in each of the quarters. Now as it relates to R&D spending, the R&D spending, we have – across SG&A and R&D, we are seeing some level of savings as a result of the pandemic and as a result of discretionary controls we’re putting in place. But what’s important to note is that we are incredibly focused on advancing the R&D pipeline. So, we will make those investments necessary to preserve this wherever possible. And like I said, and I think you see this in some of our commentary and discussions and progress that we’re making, we’re really happy with the progress in the…

Thanks a lot.

Thank you. Our next question comes from David Lewis with Morgan Stanley. Your line is open.

Good morning. Just a couple for me. Maybe, Joe, and then I’ll shift back to Jay. Joe, just – can we just talk about the path for THERANOVA from here? And what you’re expecting now in terms of expectations for additional reimbursement either heading into 2021 or beyond? And then I’ll follow up with Jay.

Okay, David. Good morning. We carried after we received the news from CMS. We had several exchanges with them related to our submission, and we keep them abreast of the – some rapid change environment in the THERANOVA. We will submit the comments to CMS by September 4. And we plan to address CMS’ issues as well as provide new information to them since our January 2020 filing. I would say that the information will include publications of our FDA clearance trial, a randomized controlled trial with the U.S. Medicare patients, also set to be published in September in a peer-reviewed journal. Our FDA market authorization status will be shared with them and an update on our companion of studies. They include posters recently presented at some conferences in June 2020 as well as newly published manuscripts already shared with CMS. We’re confident we can address the CMS issues. This is not our decision, it’s theirs. So I don’t want to speak on behalf of CMS. But in terms of addressing what was present to us, we think we can do it as well.

Okay. So, your confidence in reimbursement for 2021, is it still would you say relatively high or…

David, I can’t speak on behalf of CMS. My confidence is very high that we’ll be able to address the questions that they posed as well with meta-analysis that we’re doing, but that doesn’t mean that they’re going to make a decision one way or the other, I can’t predict that. But I can tell you from our behalf that we are confident that we can produce all the product – all the data and documents that seems that they are not complete from their perspective.

Okay, very clear. And then Jay, just two questions from me. One is just on the surgical business, which is the business that’s sort of very similar to other medical device procedure businesses. I’m kind of curious in your guidance, what assumption you made, most of your peers are saying sort of the surgically oriented businesses will grow in the fourth quarter. What’s implicit in your guidance for the fourth quarter there? And just on spending, the $150 million, there was a sense that, that would be sort of correlated to revenue this year, but a lot of that spending got made in the first quarter. So to what extent will that spending be correlated to revenue throughout the year? And how confident are you that those spending dynamics don’t carry into 2021? Thanks so much, guys.

Sure. I will take – I was going to – David, your question was very long. Can you repeat the – I would take the first part…

The surgical procedures…

Jay would take the second part. The surgical procedures, we see improvement – a slight improvement quarter-over-quarter. We actually – we don’t comment intra-quarter, but today, I’m going to make an exception and tell you that we’re seeing a slight improvement in procedure volume into the [Technical Difficulty] For me to sit here today and affirm that we’re going to have positive growth in the fourth quarter is very difficult. We don’t know what’s ahead of us. I don’t question other companies’ ability to do that. From our perspective, growth is anything above zero, right? So if that is the case, there is a possibility, but I tell you is a possibility. I’m not going to be sitting here today affirming that procedure growth is going to be positive in the fourth quarter. We got to have a better understanding how we are controlling the hotspots in the U.S. and Europe were the major drivers of procedure growth as well as how the vaccine will impact the immunity of large swath of the population that would be ready for surgeries. So, I would say to you, there is a possibility for growth in the fourth quarter, but we are not affirming that in terms of guidance. It’s just an opinion.

That’s right. With the wide range of uncertainty around it, David, I mean, I think for us, one of the things that we are very respectful of is the large range of potential outcomes as it relates to the pandemic. And so that impacts things like, to Joe’s point, surgical volumes. Our crystal ball is cloudy, because surgical procedures are not scheduled six months in advance. So anybody who has a really good line of sight to that, I would be very thoughtful about those expectations. But as it relates to the $150 million in spending, this too is, to a large extent, related to what happens with the pandemic. To the extent that the pandemic ends and we return to business as usual, then we will have the ability to claw back the majority – the significant majority of this spending. But until such time as we have confidence that the situation is managed, our employees are safe, we’re getting the medically necessary products to our customers, we will have some level of cost resident in our P&L and, not discussed, we will have some level of excess inventory that we carry because we have to protect against things like a wave two or a resurgence or a hurricane season. So, all of these things will kind of impact us, and we’re going to watch carefully. But I think when calling when these things subside becomes very challenging at this moment.

I’m just going to add that to all of you on the call, not only to David’s question, is Baxter has ultimate responsibility to our patients and our customers. So for us, having inventory on the shelf is incredibly important because as we saw during the peak of the pandemic in the Northeast, we were having volumes that were reaching 500% of our ability to produce and having that inventory independent of government stockpiles is important for us to have it. The same applied for IV solutions. All of you’ve probably noticed, there was not a shortage of IV solutions in any markets that we serve. And one of the reasons for that is because we prepared well. As the tropical storm is hitting Puerto Rico, as we speak today, I feel very upset about that. Something we can’t control because the people in Puerto Rico had suffered enough maladies and issues with weather and hurricanes and earthquakes. But nevertheless, we do have sufficient inventory in – on the shelf to withstand any situation that hit us in the Caribbean. So, we will carry that inventory level for a while. We will then reduce appropriately, and we are starting to reduce in some areas. Listen, there is nobody more interested to take the $150 million out of our P&L than I am. And we’ll do it as soon as we can. We have actions in place right now. We have significant actions in place, including some changes in staffing some of our plants that had – needed to increase staff for the peak of the pandemic in the Northeast, and we’ll do it responsibly.

Thank you. And our next question comes from Pito Chickering with Deutsche Bank. Your line is open.

Good morning, guys. Thanks for taking my questions. The first one on PD. Can you talk about the PD business a little bit? I believe in early 2Q, it was challenging for patients to get the PD catheter, which could have impacted growth. So, can you talk about how PD growth changed throughout the quarter? And where you exited it on 2Q? And do you think that COVID accelerated the patients’ interest in home dialysis?

Pito, listen, we are very focused on [Technical Difficulty] business that had 5%-plus percent growth in the quarter. The U.S. experienced 5% growth. We had also high growth in Asia. Europe is a spot that has not grown to our expectations. But I think some of that was related to the Middle East, the emerging markets of Europe. Europe – Europe itself actually did pretty well. So, we – first of all, I don’t know if you remember that peritoneal catheters were deemed to be emergency surgery. So, they were being performed in several hospitals in the U.S. The growth of our business is very encouraging. As you know, we ramped up our production of peritoneal dialysis supplies. We are implementing capital right now to shore it up. I think the dynamics of the home therapies is really something that finally is coming to the surface as a great advantage and vis-à-vis in a crisis like we just had. So, we are very excited about this business. I think our partners are excited about this business. And you can see by the growth even in the middle of the worst quarter for this pandemic, the U.S. has 8% growth. So it’s – that’s one of the things I talk about our business is its resilience and its reliance on different sectors of the health care continuum of care that help us mitigate some of the most acute issues of hospital admissions as well as the pandemic effects on the whole – the entire health care system.

Great. And then going back to guidance again, I understand that predicting the bounce back of surgeries is virtually impossible at this point. But can you break out what percent of pre-COVID hospital possible visits you were assuming at the high end and at the low end of your revised guidance?

Pito, we didn’t hear the exact specific question that you asked.

Okay. Let me restate it, so going back to guidance again, I understand that predicting the bounce back of surgeries is virtually impossible at this point. But can you break out what percent of pre-COVID hospital possible visits you were assuming at the high end and at the low end of your revised guidance?

Yes. I’ll start – I’ll share some assumptions regarding the higher end in Q4. As we think about – and by the way, the area of most interest is the U.S., because I think this is the most pronounced. But what we’re expecting to see from a procedure rate standpoint is basically flattish in Q4 relative to prior year. From a procedure standpoint, we’ll see some softness in Q3, and then we’ll claw back as we move towards Q4. And then from an admissions rate standpoint, we do expect a sequential recovery, but we’re modeling down several kind of low single digits versus the prior year in Q4. And those assumptions support the high-end of our range. So you can model down from there to see what a low-end assumption would be. And again, it’s – we’ve done a lot of modeling on this in terms of statistical inputs. We have a variety of rich inputs to our model. But again, there is a wide range of outcomes here that makes forecasting at this point challenging.

Great. Thanks so much.

Thank you. Our next question comes from Bob Hopkins with Bank of America. Your line is open.

Great. Good morning, Joe and everybody. First question is on your guidance related to COVID. Thank you for providing that $180 million number for the second quarter. It sounds like that’s the net impact of COVID in the second quarter. I’m just curious for your guidance for the back half of this year, what do you assume the net impact of COVID is on your business and the projections you gave us?

Yes. And the projections that we shared, it's roughly somewhere around $130 million, $140 million of negative impact related to COVID. So that's the assumption that we put forth. And underlying that assumption or the assumptions that I laid out for Pito in the U.S. and then kind of similar assumptions, although a little bit of a better marketplace in Europe and Asia Pacific.

Okay. So that $130 million is for the back half?

Yes. That's embedded in the guidance.

Yes. Thank you. That’s helpful. And then I just also wanted to see if we can get a little more color on Medication Delivery. It sounds like the pump business did about as you expected. It sounds like the issue with infusion sets. Was that 100% related to what's going on with COVID?

Largely, if not 100% related to the pandemic, to the hospital sensors, okay? We did not see any competitive threat in this – in the pump area. As a matter of fact, I think we did as expected in terms of pump sales that we had predicted internally to the company. We don't disclose that specific target. So as we also have launched pumps outside the U.S. EVO IQ is launched outside U.S., the syringe pump. So we're starting to have a global portfolio of pumps, as you know. And we've been advancing in the U.S., our current SIGMA SPECTRUM. And we're looking forward to hear from the FDA on our new pump platform, which we hope to hear some time in September.

Great. Thanks very much.

Thanks, Bob.

Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Your line is open.

Thanks for taking my question. Jay, one on, I guess, a clarification on the prior question from Bob. The – I guess, the assumption here is excluding COVID impact, the underlying business is growing mid-singles. So there's no change from your LRP ex COVID. Is that the correct math here for 2Q and back half?

Yes. It's a – what I would say is relative to expectations and what we previously shared, which is, remember, there were some slight departures between what we shared in January regarding this particular business and the original LRP that we shared a couple of years ago. So relative to guidance that we shared at the beginning of the year, the primary driver of change really relates to COVID impacts. I mean – so that's – and it's substantial. And we've seen an incremental cost, but then also this impact on – in particular on our Medication Delivery business, the combination of those two factors, cost and sales, really, that's the big driver this year in terms of our performance.

Then Joe, maybe on – a question on LRP here. Ex COVID, right? I mean, when I look at sort of what you guys laid out, has anything changed at all? It feels like since then, things have gotten incrementally positive. I didn't hear talk about the President's initiative on home care. Where are we on that? When you look at the free cash flow year-to-date performance, I'm just curious, has anything changed on free cash flows at all? Thank you.

Hi, Vijay, we – our long-term perspective for our business as we had outlined in our prepared remarks has changed. What we look at the R&D portfolio of the company, there are some puts and takes, but we don't see great change from the original plan that we had in place. There are puts and takes, the things that came out, things that don't – that didn't work, things that are new or work in a put-in. So in terms of innovation, because I think the LRP of the company has two major drivers – I would say, three major drivers. One is the home care push PD. That's a big driver for us. The second one is the whole innovation underlying push the company is undertaking. Remember, we're looking at this year close to sales of new products over the last three years to be close to $1 billion. Even in the year of COVID, we feel very comfortable with the number that is coming out of our innovation. We're very excited about our new pump platform. We're excited about new things we are developing in other areas. Our PrisMax has launched well, and it was a great product for the right time. So that's the second lever. And the third is continuously attacking the cost basis of the company. And for that, there's two areas of focus. One is the digital transformation of Baxter which we started, and creating significant change in how we do business internally and sometimes with our customer as well as a complete revamp of manufacturing, which will be several years to do it, but will create some good opportunities. So those for me are the areas, the underlying conversation for the LRP. This is the conversation we have with the Board, and that's what we would have with our investors. Those are the four areas, three areas with one divided into two, that I would say are the major drivers for the company future.

Thanks guys.

Thanks, Vijay.

Our next question comes from Matt Taylor with UBS. Your line is open.

Hi, thanks for taking the question. So the first question I had was just because there's been a lot of focus on this on the call for the $120 million in costs that you're talking about. Could you just parse out some of the bigger buckets, so it makes it easier for us and the investors to understand how some of that could go away? I know you've talked about overtime labor, PPE and shipping. Are those some of the big ones? And assuming the pandemic ended tomorrow, how long would have take some of those to dissipate?

Yes. Matt, maybe I'll make some commentary, but we will stop short of doing line item cost review. The – from an overall standpoint, you're right, expedited freight is an important and significant driver. One of the things that we had to do is because we were seeing higher levels of absenteeism, we were also having to hire temporary workers to mitigate that shortfall in employees. And so that was another expense that we've experienced. PPE is another expense. Now this will be more ongoing. So we'll look to manage this as effectively as we can because, frankly, I think that PPE will be here to stay in manufacturing facilities. And then like I said, overtime and incremental bonuses for frontline workers, those others comprise the majority of the spending that we've experienced. It's important, when you get back to our priorities: number one, employees safe; number two continuity of life-saving supply. We have to ensure that and we've done that. And so we're proud of the progress there. But we're mindful that there has been a real economic cost associated with this. And we will look to manage this down as quickly and swiftly as we can. Can I give you a time line in terms of exactly when? If the pandemic were to end today, should we be able to recoup the vast majority of those expenses in next year's budget? I believe the answer is yes, but we'll have to go through our budget process. And clearly, the pandemic is not ending today. This is going to be with us for a time. And it's going to be with us in terms of the level of severity. So that's maybe some color for you on this $150 million.

And then one follow-up on Med Del. You mentioned that pumps are in line with your target. One of your competitors called it a pretty large bolus of placements under EUA. Do you expect to see something like that? And maybe you could also just talk about the potential for a U.S. pump launch for the new platform and the timing of that?

Matt, I can't comment on a competitor EUA status and what they sold or not. But I can tell you that we performed as planned in terms of our pump placements. And we remain very excited with the potential launch of our new pump platform. As you know, it is a brand new platform, very robust in terms of electronics as well as the modality of syringe pump that we never had as a company. So I think the market is ready for something new, something that is designed for the future. And we will accommodate future digital health updates. So we're excited about that. So I can't comment on our competitors, but I can tell you that we are ready to go back to the market with a new product despite the fact, we just launched our version 9, which is a robust and very good pump about 1.5 years, two years ago or actually two years ago into July, it was July 2017 when we launched that – July 2018, I'm sorry, July 2018. So, very excited about new pump platform. So – and not only that, Baxter has a global platform now because the new pump platform for us is going to be a global business, despite the fact that now we went back to the outside markets with an interim product, which is EVO IQ, which is doing very well. So we're going to position ourselves as a strong pump competitor in the future with a platform that is expansible and will allow our customers' future expansion in digital health.

Okay. Thank you, Joe.

Thank you. Our next question comes from Joanne Wuensch with Citi Research. Your line is open.

Good morning, everybody. I have two questions. Is it possible to quantify how much of the first quarter purchasing impacted the second quarter? And then I'll ask my second question now, as we look forward and think about 2021, I recognize your many, many moving parts, but is there a way to start gating what you think the business may look like and if not in terms of numbers, maybe qualitatively or in terms of products? Thank you.

Joanne, let me take your last question first and Jay will take the first part of your question. In 2021 is a little early for us to give any kind of commentary on 2021. Qualitatively speaking, everything will depend upon how back to normal is going to be. We feel that the peritoneal dialysis momentum probably will continue. And that is a good thing for Baxter. We hope by then, not affirming, but we hope that we have a new bump platform already launched and ongoing, so there are some – and we have some launches of some molecules. So, I think 2021 back to normality is Baxter back to normal. Very difficult to see this at the moment right now, the forecast is a little foggy, but we hope the great companies, which are developing these vaccines and some of the actions taken in terms of palliative health across the globe will help us go back to normal. Jay?

Sure. Joanne, we estimate around $40 million to $50 million of sales that sort of accelerated in the last couple of weeks of March ended up being pre-buying early buying from Q2 negatively impact in Q2 sales.

Thank you very much.

So it is it is just interesting that when you look at our forecast for the year, Baxter, despite the fact that we are negatively affected by COVID in many areas, including in admissions to hospital, just to supplement your question, Joanne, we see a range of outcomes that can give us a slight positive to a slight negative performance versus prior, which in a situation like this is shows the resilience of our portfolio shows that our home care beds are done correctly, and things are placed – our beds are placed in the right places. One last comment I like to reiterate on research and development, is despite the fact there's variations and research and development, and those are our costs that can be postponed. That's absolutely 100% focus in innovation at Baxter. And we have no intentions to let that down one iota. So we may have changes in few millions of dollars between quarters or between 2020 into 2021. We are responsible people here will do the right thing to make sure that our expenses are in control. Everybody knows that, but there is a bigger commitment to innovation and to our research and development groups, which are doing extraordinary job very difficult circumstances to have data completing clinical trials, data submitted to agencies for product approval, like to finish the call by just reiterating that. Thank you.

We have time for one more question,

Okay. And that question from Larry Biegelsen with Wells Fargo. Your line is open.

Good morning. Thanks for fitting me in. A quick one on injectables and one on capital allocation. Joe, just on injectables, you’ve talked about that. You're excited about the pipeline there. Any major new launches this year, Sumant has talked about it, an attractive cardiovascular product. And capital – go ahead Joe?

Capital allocation, I'm sorry, I cut you off. I was going to answer your first part of the question. Just finish that. Sorry, Larry.

I just wanted to get them both, because we're running out of time. Sorry. So on capital allocation, just thoughts on M&A and in this environment. And when would you reconsider reinstating the share repurchase program? Thanks for taking the questions guys.

Larry, we have a couple of things launched 2021, a large bolus in 2022. So, we're excited about the pipeline. We have not deviated talk about LRP. That's one thing that we have is holding pretty true in the last few years is the pipeline in pharmaceuticals. Despite the fact, we made drop some molecules, we're able to add more. So, there's good momentum there. Remember Baxter, if pharmaceutical injectables is always is renewing itself, as we leave behind the old molecules, they work to be, it used to be the biggest drivers of sales for the company as these products become generic in other companies come in our portfolio is revamping itself to be able to offset that and moving on, if you'll notice we speak none nothing about cyclophosphamide and that's a real testament to our pharmaceutical team that he's starting to launch the products like dexmed or like our pre-mix injectable insulin and all their products that are part of our portfolio. In terms of capital allocation I let Jay comment on share buyback, in terms of acquisitions, we're still very focused. We have several small deals that we had looking at all the time. As you can see by Jay’s prepared remarks, we have over $4 billion in cash in the balance sheet. This is a company that he has a solid, solid financial position and that afford us to continue to look for opportunities. The pandemic has slowed down a little bit because the month of April and May were very hectic across the globe, but we are engaged very much so and continuing to look ahead inorganic opportunities. Jay?

Sure. On share buyback I think what I would say is, we are very pleased with the durability, the resiliency of our business, the ability to maintain cash. We're over $4 billion. And if you think about it, our earnings well down year-over-year by roughly $0.20, all of that is explained by offloading the pension, which was a smart capital allocation move along with the bond offering that we did. So, if you think about it, those two items, which were really insurance policies for the company cost us $0.20 and explained fully on the year-over-year delta. And so we feel very good about our ability to withstand this pandemic and continue to thrive over the long-term. Having said that, you know, I think it's premature at this moment in time to begin share buybacks. Once again, we'll watch as this evolves. We'll carefully study way to, we’ll carefully ensure that our business continues to withstand as it has thus far. And once we have better line of sight to where this goes, I think we'll be able and willing to reinstate the program, which has been a very important part of our capital allocation approach over the last many years. So stay tuned, but not yet. Thank you.

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call with Baxter International. Thank you for participating. You may now disconnect everyone. Have a great day.