UPDATE 2-Baxter shares hit in new recall, glass flakes seen

* Halozyme says recalling 3,500 vials of Hylenex

* Recalls drug filled into vials, packaged by Baxter

* Cites Baxter “manufacturing failures”

* Baxter shares fall 3.2 pct, Halozyme falls 3.4 pct

By Ransdell Pierson

NEW YORK, May 17 (BestGrowthStock) – Baxter International Inc
(BAX.N: ) shares fell 3 percent on Monday after its partner
Halozyme Therapeutics Inc (HALO.O: ) voluntarily recalled certain
lots of their fluid-absorption drug due to tiny flake-like
glass particles in vials of the product.

It is the latest of several recalls and other setbacks that
have tarnished the reputation of Baxter — one of the world’s
biggest blood-product companies –in recent years.

Halozyme accused Baxter on Sunday of “manufacturing
failures” in handling of its drug, called Hylenex. It is an
injectable fluid that temporarily makes tissue beneath the skin
better able to absorb other fluids, such as injections on the
upper back or other parts of the body.

Baxter co-promotes Hylenex and is responsible for filling
the drug into vials and packaging them.

Halozyme, in a separate release issued on Monday, said it
was recalling about 3,500 vials of Hylenex as a precautionary
measure, although no medical problems have yet been associated
with faulty batches.

Halozyme said it had sent a notice of breach to Baxter,
asserting Baxter failed to provide the drug in accordance with
the terms of their development and supply contracts. If Baxter
is unable to remedy all material breaches within 120 days,
Halozyme said it may terminate the Hylenex relationship.

But Baxter spokeswoman Deborah Spak said on Monday the
vials were in compliance with specifications when they left the
company’s factory and the glass flakes were seen later —
during a spot check of the product after it had left Baxter’s
possession.

“We have no reason to believe there was a breach of the
agreement by Baxter,” said Spak, who added both companies are
continuing to investigate the problem batches.

The incident comes just weeks after Baxter agreed to begin
recalling about 200,000 infusion pumps deemed faulty by U.S.
regulators. The Deerfield, Illinois-based company said it would
take a charge of $400 million to $600 million for the recall of
the pumps, which deliver fluids and drugs intravenously.

Earlier this month, a Nevada jury ordered Baxter and Teva
Pharmaceutical Industries Ltd (TEVA.TA: ) to pay a combined $500
million in punitive damages to a Nevada man who contracted
hepatitis C during an outbreak of the liver-harming virus two
years ago.

Attorneys for the Nevada plaintiff alleged the man and more
than 100 others contracted the virus after the injectable
anesthetic propofol was reused for colonoscopy and endoscopy
procedures. Teva made the product and Baxter distributed it.

Teva said it continues to believe the evidence shows the
company acted responsibly. The label for its propofol product
clearly states it is for single patient use only and that
aseptic procedures should be used at all times, the company
said.

“While Baxter has had more than its share of negative
newsflow over the past month, we estimate that Hylenex was on
track to generate revenues of less than $10 million this year,”
JP Morgan analyst Michael Weinstein said on Monday in a
research note.

He forecast the financial impact on Baxter would be
“minimal.”

Weinstein said Baxter and Halozyme will investigate the
root cause of the Hylenex issues over the next few days to
confirm no other products are affected.

“Assuming the problem can be identified and these checks
come back clean, we expect the issue to be immaterial to Baxter
going forward,” Weinstein said.

Even so, investors were spooked by the news. Baxter shares
were down $1.39, or 3.2 percent, at $42.14 in early-afternoon
trading on the New York Stock Exchange. Halozyme shares fell
3.4 percent to $7.22 on the Nasdaq.

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(Reporting by Ransdell Pierson; additional reporting by Anand
Basu in Bangalore)

UPDATE 2-Baxter shares hit in new recall, glass flakes seen