UPDATE 5-Baxter cuts outlook on weak plasma; shares sink

* Lowers 2010 profit target to $3.92-$4.00 per share

* Cites health reform, weaker market for plasma products

* Q1 adjusted EPS of 93 cents in line with expectations

* Q1 sales rise 11 percent to $3.1 billion

* Shares plunge 14.2 percent (Adds details on health reform, analyst comments)

By Susan Kelly

CHICAGO, April 22 (Reuters) - Baxter International Inc (BAX.N) cut its full-year profit forecast on Thursday due to health reform costs and a weaker plasma protein market, a surprise move that sent its shares down more than 14 percent.

Chief Executive Officer Bob Parkinson said the weak U.S. economy had shown that use of the company's market-leading plasma treatments was more "optional" than anticipated, and he expressed disappointment at having to lower the outlook.

"The facts are we miscalled this," Parkinson told analysts on a conference call. "Clearly the market is growing much more slowly than we anticipated."

Plasma proteins and antibody therapies account for roughly 20 percent of Baxter's sales. The company also makes intravenous drug pumps and devices used in kidney dialysis.

Parkinson, with a reputation on Wall Street for hitting financial targets, said this was the first time in his six years as CEO that he had been forced to reduce Baxter's forecast.

"I don't like lowering guidance," he said. "I don't want to do it again."

JPMorgan analyst Michael Weinstein said health reform costs would shave 10 cents per share off the company's 2010 earnings, but the hit from plasma weakness would be even worse.

"The size of this shortfall is surprising," Weinstein said.

Parkinson said the U.S. market for plasma products, which are used in the treatment of autoimmune diseases, was growing no more than 1 percent or 2 percent as cost pressures dampened prescription and utilization rates. He also acknowledged that Baxter lost market share previously gained from competitors struggling with supply problems.

Avondale Partners analyst Daniel Owczarski said the stock's sharp sell-off reflected Baxter's bellwether status in the plasma market and investors' surprise at the extent of the drop in demand for the pricey treatments.

"It's expensive therapy to be able to keep patients on it," he said.

Shares of Baxter competitor Talecris Biotherapeutics TLCR.O, a maker of plasma products, fell nearly 13 percent to $19.20, while Haemonetics (HAE.N), a supplier of plasma collection equipment, declined more than 5 percent to $57.32.

Baxter reported a first-quarter net profit of $525 million, or 86 cents a share, up from $516 million, or 83 cents a share, a year earlier.

Excluding a one-time charge for post-retirement prescription drug benefits under U.S. health reform legislation, Baxter said it had earned 93 cents a share. That matched the analysts' average estimate compiled by Thomson Reuters I/B/E/S.

The Deerfield, Illinois-based company said first-quarter sales rose 11 percent to $3.1 billion.

Leerink Swann analyst Rick Wise said Baxter's margins came in as expected, total revenue met his forecast, and the medication delivery and renal businesses outperformed.

"Baxter had a very good quarter," Wise said. "But understandably, investors today are focusing on the negative impact of health care reform and the clear message that, at least for a time, the plasma protein market is under greater pressure than we had thought."

Baxter lowered its outlook for 2010 earnings to a range of $3.92 to $4.00 per share from its previous forecast of $4.20 to $4.28. It now expects sales growth of 1 percent to 3 percent, excluding the impact of foreign exchange, down from its prior outlook of 5 percent to 7 percent.

The company said its revised outlook included an estimated $80 million hit from U.S. healthcare reform legislation, as expanded Medicaid rebates will affect its hemophilia and plasma businesses.

Baxter projected an "incremental" effect on earnings in 2011 from the pharmaceuticals tax that is part of the reform package, with a tax on medical devices kicking in in 2013.

"The $80 million impact that we've reflected for this year represents the lion's share of the cumulative impact" over five years, Parkinson said.

Shares of Baxter were down 14.2 percent at $50.60 on the New York Stock Exchange. (Reporting by Susan Kelly, editing by Gerald E. McCormick, Lisa Von Ahn and Gunna Dickson)