Abbott Laboratories

Good morning, and thank you for standing by. Welcome to Abbott's first quarter 2019 earnings conference call. All participants will be able to listen only until the question and answer portion of this call. During the question and answer session, you will be able to ask your question by pressing the star 1 keys on your touchtone phone. Should you become disconnected throughout this conference call, please redial the number provided to you in reference to Abbott earnings call. This call is being recorded by Abbott. With the exception of any participants' questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's express written permission. I would now like to introduce Mr. Scott Lineweber, Vice President, Investor Relations, Licensing, and Acquisitions.

Good morning, and thank you for joining us. With me today are Miles White, Chairman of the Board and Chief Executive Officer of Robert Ford, President and Chief Operating Officer, and Brian Yor, Executive Vice President, Finance and Chief Financial Officer. Miles will provide opening remarks, and Brian will discuss our performance and outlook in more detail. Following their comments, we'll take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2019. AVID cautions that these forward-looking statements are subject to risk and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological, and other factors that may affect AVID's operations are discussed in Item 1A, Risk Factors, to our annual report on Securities and Exchange Commission Form 10-K for the year ended December 31st, 2018. HABIT undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law. Please note that first quarter financial results and guidance provided on the call today for sales, EPS, and line items of the P&L will be for continuing operations only. On today's conference call, as in the past, Non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which is defined in our earnings news release issued earlier today. With that, I will now turn the call over to Miles. Okay, thanks, Scott, and good morning.

Today we announced results for the first quarter, and we're off to another good start. Our sales growth was strong and right on target, coming in at 7% on an organic basis in the quarter. An ongoing earnings per share of 63 cents exceeded our previous guidance range. Our full year 2019 adjusted earnings per share guidance of $3.15 to $3.25 remains unchanged and reflects mid-teens growth at the midpoint on a constant currency basis. As we've discussed previously, our emphasis today is on organic execution in the company. Today, all of our businesses have positive long-term outlooks and are well positioned with excellent products and attractive markets. At the start of the year, we issued guidance that reflected another year of strong performance. And through the first quarter, we're right on track with those expectations. We're particularly pleased with the exceptional performance of several long-term growth drivers that are leading the way, including Freestyle Libre, MitraClip, and the Alinity systems. These life-changing technologies are positively impacting lives and achieving impressive results. I'll now summarize our first quarter results before turning the call over to Brian. And I'll start with diagnostics, where sales were led by core laboratory growth of 10%. Alinity, our family of next-generation diagnostic systems, is driving strong growth internationally and we continue to achieve significant above-market growth in the United States. In Europe, we are both converting existing customers to Alinity and winning competitive bids for new business at a very high rate. We also recently increased our launch efforts for Alinity H, our hematology system, and obtained a CE mark for Alinity M, our highly automated molecular diagnostic system, along with several infectious disease tests. And we're expanding our menu of tests, in key markets such as China and the United States. With a steady menu expansion on multiple different instruments across geographies, Alinity will be a significant growth driver for years to come. In nutrition, sales increased more than 6.5% in the quarter, reflecting strong execution and new product introductions. We continue to see good underlying market demand and growth, and we're achieving above-market growth in several geographies, particularly Asia and Latin America. Sales growth this quarter was balanced across our pediatric and adult nutrition businesses with our core leading brands of Similac, PediaSure, and Ensure, all contributing to strong growth overall. In established pharmaceuticals, sales growth of 5.5% was right in line with our expectations and was a sequential improvement quarter to quarter. Performance in the quarter was led by 7.5% growth in our key emerging markets, which represent the most attractive long-term growth countries for our branded generics portfolio and include India, Brazil, Russia, and China, along with several other emerging countries. Underlying growth dynamics in these countries continue to remain strong and intact. And lastly, I'll cover medical devices, where sales grew nearly 10%, led by strong double-digit growth in heart failure, structural heart, electrophysiology, and diabetes care. In heart failure, growth of 23% was led by rapid U.S. market adoption of our HeartMate 3 left ventricular assist device following FDA approval of a long-term use indication late last year. The superior patient outcomes demonstrated in the clinical trial that supported this approval have been a critical component of the growth and the share capture that we're achieving. In structural heart, Several products across our broad portfolio contributed to strong double-digit growth in the quarter, including MitraClip, our market-leading device for the treatment of mitral regurgitation, a condition caused by a leaky heart valve. During the quarter, we announced U.S. FDA approval for a new expanded indication for MitraClip, which significantly expands the number of people that can be treated. The formal process seeking Medicare reimbursement for this new indication has been initiated. During the quarter, we also filed for CE Mark for our new TriClip device, a first-of-its-kind minimally invasive device for repairing a leaky tricuspid heart valve. We plan to initiate our U.S. pivotal trial for TriClip in the coming months. I'll wrap up with Diabetes Care, where sales grew over 40% in the quarter, led by Freestyle Libre, our market-leading continuous glucose monitoring system, or CGM. Libre continues to perform exceptionally well with worldwide sales of $380 million in the quarter, reflecting growth of 80%. In a relatively short amount of time, Libre has achieved global leadership among CGM systems for both Type 1 and Type 2 users. In order to meet the tremendous demand that we're seeing for Libre, we're adding a significant amount of new manufacturing capacity, which will come online starting in the second half of this year. So in summary, we're right on track with our high expectations to start the year. All of our long-term growth drivers are intact and achieving significant growth, including Freestyle Libre, MitraClip, and Alinity. And we're well positioned to achieve the top tier sales and EPS growth targets that we set at the beginning of the year. I'll now turn the call over to Brian to discuss our results and outlook for the year in more detail. Brian?

Thanks, Myles. As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis, which is consistent with our previous guidance. Turning to our results, sales for the first quarter increased 7.1%, and exchange had a negative impact of 4.8% on sales versus the prior year. Reported sales increased 2% in the quarter. Regarding other aspects of the P&L, The adjusted gross margin ratio was 58.6 percent of sales. Adjusted R&D investment was 7.4 percent of sales. And adjusted SG&A expense was 32.3 percent of sales. All of these ratios were in line with previous guidance. Turning to our outlook for the full year, we continue to forecast organic sales growth of 6.5 to 7.5 percent. Based on current exchange rates, we would expect exchange to have a negative impact of around 2.5% on our full-year reported sales, with the vast majority of the impact expected to occur in the first half of the year. We continue to forecast an adjusted gross margin ratio of somewhat above 59.5% of sales for the full year, which reflects underlying gross margin improvement across our businesses. We continue to forecast adjusted R&D investment of around 7.5% of sales, and adjusted SG&A expense of around 29.5% of sales for the full year. Turning to our outlook for the second quarter, we forecast adjusted EPS of 79 to 81 cents, which reflects strong double-digit underlying growth, partially offset by the impact of foreign exchange on our results. We forecast organic sales growth of around 7%, and at current rates, we would expect exchange to have a negative impact of around 4%, on our second quarter reported sales. We forecast an adjusted gross margin ratio of somewhat above 59 percent of sales, adjusted R&D investment of a little less than 7.5 percent of sales, and adjusted SG&A expense of around 29.5 percent of sales. Lastly, we forecast net interest expense of around $150 million in the second quarter. Before we open the call for questions, I'll now provide a quick overview of our second quarter sales growth outlook by business. For established pharmaceuticals, we forecast mid single digit growth, which is comprised of mid to high single digit growth in our priority key emerging markets, along with a modest decline in other EPD sales, which reflects the recent continuation of a non-core low margin supply agreement. In nutrition, we forecast mid single digit sales growth. In diagnostics, We forecast Abbott's legacy diagnostics business, which is comprised of core laboratory, molecular, and point of care to grow mid to high single digits. In rapid diagnostics, we forecast low to mid single digit sales growth. And in medical devices, we forecast high single digit sales growth, which reflects continued double digit growth in several areas of this business. With that, we will now open the call for questions.

Thank you. Ladies and gentlemen, if you have a question at this time, please press the star, then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. For optimal sound quality, we ask that you please use your handset instead of your speakerphone when asking your question. And again, ladies and gentlemen, that's star one to ask a question. And our first question comes from Matt Taylor from UBS. Your line is open.

Thanks and good morning. Thanks for taking the question. So it was encouraging to see a lot of the big growth drivers here stay on track and really drive healthy double-digit growth. I was wondering if you could spend some time on each of those and specifically address Libre. I think a lot of investors are anticipating Libre 2 and other enhancements that you could make there in addition to all the capacity you're adding. So can you talk about the pathway for Libre and some of the other big growth drivers?

Sure, Matt, thank you. I think I would say a couple things first before I focus just on Libre. We're seeing strength across the board in a lot of device and diagnostic areas. There's a geography here and there, a product line here and there that we might not be completely satisfied with, but I think If you look at us, our product areas, even competitors in various spaces in medical devices, this whole sector is doing pretty well, and the growth rates have improved in a number of cases. I know that there was a lot of pre-earnings noise out there about the continuity of the med device sector. I have to tell you, from my perspective, I see nothing but a strong sector going forward. While we've got great pipelines and great products, I think the entire sector has a bright future ahead of it here. And the markets are all pretty attractive for us. So first of all, I think we're in a much healthier environment than might be reflected right now. And I think a lot of companies are actually doing really well in that environment. There's a lot of good new products and pipelines out there. I think the whole thing is pretty healthy. And then specifically to us, we've got, in our case, I think, great pipeline, great new products and launches in many of the segments and sectors we're in. To focus on diabetes care as a start, that's been a particular bright spot where clearly new technology and affordable technology has made a very big difference in life for diabetics, both type 1 and type 2 worldwide. Libre has been a pretty powerful leader in that segment on all counts and all points. We've been pretty enthused about its success, its uptake, its reception by patients all over the world. In a fairly short amount of time, we've achieved global leadership in terms of continuous glucose monitoring in both type 1 and type 2. I think part of the Attraction to patients is obviously not having the finger stick. The information, the continuous nature of it, the way it allows diabetics to manage their health and manage diabetes has been life-changing. And, you know, that's been reflected. And I think, very importantly, it's been affordable to a degree that it's really become a very broadly accessible technology, which was our intent with it. It's got a unique ease of use and it's got appeal for any kind of patient. So I think that's pretty important and it's reflected in the reimbursement worldwide. 80% of sales are now reimbursed internationally over 30 countries. Well over half of U.S. lives commercially, commercial lives are covered. So we're seeing a lot of support for the product in all ways. We've mentioned a number of times that we've invested heavily in capacity expansion. That is correct. We put significant investment into that. And as we've noted a couple of times, the first waves of that come online in the second half of this year. And then there's a steady cadence of capacity expansions underway that will come online sequentially after that. There won't be any constraints to the growth that is possible there. I think it's going to be a very different kind of device or diagnostic product than we've seen in the past. Because there are so many millions of diabetics worldwide, this is not a niche product, not for type 1s or type 2s. There's not a niche here. There's a massive population around the world that needs to manage diabetes, and this product will be broadly accessible to all of them. So it calls for quite a lot of capacity, and in the second half of this year, that will be initiated. We have a number of things we're expecting and waiting for. You asked about Libre 2. That is under review at the FDA. We have filed Libre 2 with alarms in the US as an ICGM. We're not going to forecast FDA review timelines, but we clearly have expectations to achieve that milestone. I'm trying to think of what else to tell you about that. It's already on the market in Europe.

Maybe just one. That was very comprehensive, and I'll give you a second to think there. I think the one follow-up I had was just on Libre, too. You mentioned ICGM. Can you talk about your confidence and your ability to get that? And I also wanted to ask about the payer dynamics. Before last call, you talked about some preferential co-pays. Can you talk about any developments that you're seeing on the payer side in terms of support for Libre?

I'll tell you what, I'll let our chief operating officer who's come from that business answer that question for you. Robert?

Yeah, so on Libre 2, specifically in the U.S., the filing of ICGM, you know, I'll just say we know what the ICGM standards are. We know what needs to be achieved. And we filed in the U.S. as an ICGM, knowing what the standards need to be achieved. So, you know, we look at what we filed and, you know, we look at the standards and, you know, we look at what we filed and we know that we meet those standards. So, to Myles' point, we're not going to forecast here as to when that approval will come through, but I think it's clear in terms of what we filed and why we filed. Regarding payers, specifically in the U.S., I think that what we've always intended for this product is to remove some of the hurdles and affordability was one of those. And if you look at a lot of the evolution of the reimbursement here in the U.S., it's slowly moving from something that was, you know, with a lot of prior authorizations, only going through mail order, to now looking very much like the blood glucose monitoring market where we start to see, you know, less prior authorizations, formulary positions that are allowing patients to go to pharmacy and pick that up. So a lot of our managed care strategy was focused on, you know, driving that shift. And a key part of that is the access and affordability. So we're seeing that in our managed care coverage. As Miles said, we're over 50% now of managed care live coverage in this patient population. And you see the shift into pharmacy. If you look at the script data, total Rx's, you can see that shift. You can see that occurring. with Libre, and that was a very intentional strategy to accelerate adoption, specifically in the U.S., by going to pharmacy, which is something that hadn't been done before with CGM systems, and we did that, and we're starting to kind of move that category into the pharmacy.

You know, Matt, I know you guys like data that you can track publicly. You can track that every week. And, you know, we've been pretty pleased with the performance going through pharmacy. The patient acquisition and so forth continues to be obviously strong, frankly, right in line with our growth rates around the world, as you'd expect, because we're not trying to drive price here. We're trying to drive the volume and acquisition of patients, and obviously that's going pretty strongly. There's nothing but happiness about this product, I can tell you. We're pretty happy with it. It's doing really well. I actually think we're kind of in its early stages. At this point, there's over a million Type 1 users of Libre around the world, and those only make up two-thirds of our user base. So with this kind of a growth rate, that kind of a user base, with the capacity expansion coming online, we're obviously expecting this to be a continuingly big and bigger product for us.

Great. Thanks for all the color, and congrats.

Thank you. Our next question comes from David Lewis from Morgan Stanley.

Your line is open. Good morning. Just a couple questions for me, one more broadly for Myles and maybe a quick follow-up. Myles, I just wonder if you kind of share with us how you see sort of the pacing of the year from here. I think in the fourth quarter, the messaging was core growth drivers very much intact. Some one-off dynamics were suppressing growth, and you expected that growth to improve in the first quarter. And sure enough, that's sort of what's happened here. We're back in sort of the 7% range. As you think about the balance of the year, you have these core growth drivers doing relatively well, a couple of businesses probably not performing where you'd like them to perform. So how do we think about the pacing of the business from the first quarter on, given some of these very solid businesses and some of the businesses that are not performing as you'd like?

Well, a couple of sort of baseline comments there. You know, every year we go into the year and the gating of businesses, of earnings per share for any given quarter, you know, it tends to start out lower at the front end of the year, and it always looks back unloaded and, you know, toward the third and fourth quarters. I'd say increasingly that's leveling a little bit in that it's still a climb as the year goes on, but in our case it's reflecting growth and penetration of new products. And, you know, there's a couple of seasonalities in there, but they're not big enough to really affect the overall earnings profile. You know, we – increasingly seen stronger and stronger first quarters. But to be honest, third and fourth is always strong. But it's driven right now by the incredible growth of Alinity, Libre, HeartMate, MitraCliff. You know, there's so much real growth in the new products that are launching. that it just gets better and better as the year rolls on. So, you know, I think it's always hard to gate to the penny. We try to get our estimates to a point like that. Then we're always subject to a couple of lumpy comparisons to whatever happened last year and so on, you know, I guess because it looks optically weird when it's bumpy. But the fact is the growth is steady. As you said, it's not only intact, it's strong. There are a couple of places you could poke at and say, okay, you must not be satisfied with that. And I'd say, yeah, you're right about that. But, you know, while we've got some places we're putting a lot more focus on and we've obviously miscalled the pace of improvement, I'd say, in general, I'm glad that what we have to work on for improvement is where it is and not in these major growth drivers. So, you know, Alinity is performing strongly. We are winning over 95% of accounts where we already have the business, and we're winning almost two-thirds of the accounts where we're head-to-head with an entrenched competitor. That's pretty powerful data. When you consider that customers have to switch out mainframe systems, it's a big commitment. It takes months. They're long-term contracts. So to be winning almost two-thirds of those new business, new accounts, that's pretty significant. That's a pretty powerful endorsement by the market. of the Alinity systems and the laboratory solutions we're offering. We're seeing improvements in growth just about every place. I'm really pleased with Nutrition. You know, I've had to sit here on this call a number of times and explain, well, we're expecting it to get a little better, but it's performing really well, and I think consistently so across all geographies and across both major product lines there. That's been a nice story, and we've estimated to you that the growth rate of that business going forward we would look for in the 4% to 6% range, and obviously we're a little beyond that. I don't know that we're going to constantly be beyond that, but that 4% to 6% range is all good, so anywhere in there is pretty good for us. There does tend to be some up and down with it in some countries depending on holidays and seasons and so forth. But overall, if we're not watching it week to week, that's a pretty strong business right now, and we like what we see. The management's done a great job worldwide. So, you know, as far as quarters coming, you know, I'm hard-pressed to find a lot of things to point at as watchouts other than, as you pointed out, we've got a couple of places where we think we've got work to do to improve the performance of the business. I'm pleased that we can show that we know how to correct the performance of an underperforming business. But as you would probably rightly point out to me right now, there's a couple that are taking longer than I might have guessed.

Okay. Well, it's very helpful as we think about the balance of the year. So I guess my follow-up would just be the other major growth driver investors are focused on is MitraClip. So by our math, it looks like the U.S. business accelerated for MitraClip even before the NCD. And I wonder if you could just sort of, A, talk about the time of the NCD, what you're seeing in the U.S. And then we had this other study, MitraFR, in the European business and our sense on diligence is that's maybe suppressing some performance ex-U.S. So maybe – Time of the NCD, U.S. trends, and sort of what you're seeing ex-U.S. and outlook for the year. Thanks so much. Okay. I'm going to have Robert take that.

Okay. So, yeah, we had a very good chord in the structural heart and showed growth across many of our different franchises and geographies. Obviously, MitraClip was a big driver, and we're right where we wanted to be with MitraClip. The FDA approval was a few months ahead. But I think that speaks to the data and the evidence that was generated through COAP. The label is very much in line with our expectations and reflects the COAP patient enrollment criteria. So we're now obviously working on CMS. Process is underway. These usually take between six to nine months. If you look at our experience when we achieved the primary MR reimbursement indication a few years back, That took us about seven and a half months from when we started to when we got it approved. So we know how to do this. We're currently in the process, and it'll just be a little bit difficult to forecast here, but we're very optimistic. But I'd say reimbursement is only one of the building blocks. It's definitely an important building block, but it's not the only one to really think about this business as a multi-year, double-digit kind of growth driver for us. There are other building blocks here that are very important that were currently already underway. Opening of new centers is a key aspect here, and the timing and the framework and the cycle of how we do that is important. We have currently about 350 implanting centers in the U.S., and I think over the next few years, we'll see that number get to about 550. There's a lot of training that's involved here also, Salesforce training, center training, implanter training. And if you look at a sales rep, it'll usually take them between six to nine months until they get fully proficient on MitraClip. And then there's obviously the development, support, and sustaining of a patient referral network as we build awareness of the therapy and the technology amongst the physician groups and ensure that those get funneled into our implant centers. So those are some of the key blocks. But I'd say we know how to do this. We've been doing it in the US for the last four years. And we're not going to wait for final CMS approval before we start hiring. We're already hiring more reps. We're expanding our sales force. We're expanding our clinical specialists so that we're going to be ready to go. So we're definitely taking an invest-ahead approach here. So I like our position. The MITRA is a tremendous opportunity, unmet need, and an opportunity for AVID. And quite frankly, we've been, this position didn't happen just because of COAP. We've been building this position for over a decade. So whether it's MITRA repair or MITRA replacement, we're in a pretty unique position. So I do see kind of sequential growth as we go through the year. Your question on MITRA FR, yeah, we did see that impact some of our European markets. I mean, that was a French study, so it did have a little bit of an impact on some of the kind of implanting rates in some key European markets. But I think that's... I think that's more of a transition thing. I don't think that's a fundamental change in the market in Europe. And we have expanded internationally to other large opportunities. Japan is another market where we see a very large opportunity for us. So that is also going to help kind of drive the growth. I think the micro-FR study will take another quarter or so to play out, but we do expect the international business to kind of continue its growth.

Thanks so much.

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

Thank you and good morning. Just have two pretty direct questions here. One more to focus on the growth drivers. On Alinity, a question on the U.S. launch. When do you think we'll see the full impact of that launch in the U.S.? When does that really show up in results in a meaningful way? Thank you.

You know, Bob, I'd say show up. We expect to get to almost full menu by the end of this year. Now, that's kind of a running thing, and we don't want to put a whole lot of effort out until we've got significant menu. We do have significant menu now, but we'd like to get more of it approved and then go. So I think you'll start to see the U.S. show up in the numbers really in 2020 because Even if we were launching now, I think you'd be hard-pressed to see it relative to the size of the business worldwide. We're growing at 9% right now in the U.S. without much emphasis on Alinity. So I'd say you're probably going to see a measurable impact from it in 2020. But frankly, right now in the U.S., growth rate's pretty high even while we expand that menu.

Okay. And then the other question I just wanted to ask, obviously you've got a lot of growth drivers that are driving really strong results in devices overall. One thing that's been a little weak is on the Neuromod side the last couple quarters. So I guess my question on Neuromod is, you know, do you think the weakness in the U.S. is related to a slower market at all, or are these Abbott-specific issues? And, you know, when do you think we could expect a turn?

You know, a good question. I kind of anticipated this one. This is the one where I'm going to fall on my own sword for, you know, how fast I forecasted a turn here for us. Okay, there's clearly an AVID issue here, you know, our own management, which I've said before. And, you know, I think we, I in particular, have miscalled the pace at which we would turn our own performance, and where we underestimated that. was we're expanding our sales force by 40% to 50%, and that's been a little more disruptive than I think we had expected. But I'm confident in the business. I'm confident in the management. I'm confident in the direction we're headed. I clearly wasn't right about the timing. So I'm not worrying about it from the standpoint of, boy, this business is really broken or hurt. It's not. And so I have a lot of confidence about that. As far as growth goes, I don't think that it's a high double-digit grower, but it's a double-digit grower. And I think in med devices and in some of these markets, if they become established to be maintaining a double-digit growth rate as a market segment, I think it's pretty healthy. So I haven't, you know, we're not losing any confidence in the segment or the potential in the segment or the growth in the segment. I'd put the growth sort of in that double-digit range. That's what we would expect. And, you know, it's not 50%, but it's not five either. So, you know, our performance in this particular segment is clearly underperforming what it should be. So I'd say, you know, if you want to know if the market's slowing, well, it's not 50. But slow is a relative thing. I'd take any double-digit market, and I think this is a healthy market.

Great. Thank you, and congrats on the quarter.

Thank you. Our next question comes from Larry Beagleson from Wells Fargo. Your line is open.

Good morning. Thanks for taking the question. Miles, a couple product-related questions, you know, starting with rhythm management and heart failure. U.S. rhythm management was a little soft. Was that market-related or Abbott-specific? And I understand you made some management changes there. How quickly can you turn that around? And secondly, in heart failure, that was obviously very strong management. Could you talk about the sustainability of that? Thank you, and I have one follow-up.

Thank you. I could talk about that, but I'm going to hand it to Robert to talk about.

Yeah, so in our electrophysiology business, Larry, we definitely had a lower kind of growth rate in the U.S. of about 6% when international grew 20%. That was a, it's not a market thing, that's more of an avid as we get ready to launch, as we're launching our new ablation catheter, Tacticath SC in the US, which we've already launched OUS. We obviously saw some kind of inventory depletion of the older product in getting ready for the new product. So we expect that to get back to the double digit growth rate in the US on the EP side. On CRM, you know, That is definitely another area of disappointment and obviously focus for us. We've showed some recovery in the international markets, and I think the team there has done a good job at execution, but we're obviously not satisfied with our U.S. performance. This is an important business for us, and we've got to do better. What we've seen internationally is where we've deployed a dedicated EP and CRM teams, the business does better. It does better in CRM, and quite frankly, it does better in EP. So as you saw, we recently made some organizational changes here to sharpen our focus and and create a more, I'd say, standalone vertical business unit in CRM. We think that's going to get the accountability and the focus that we need out in the commercial field, especially in the U.S. And we've got several new product innovations that are progressing very nicely, our next-gen ICD and our two leadless programs. And this structure here will ensure that they get the focus that they need. In heart failure, as you mentioned, our sales were up 23%. U.S. was up 26%, and that was the impact of, I'd say, the rapid share capture that we achieved in the U.S. in the destination therapy. I'd say a pretty strong execution for the commercial team with the product, achieving about 20 share points in that quarter. We expect that share to kind of maintain. The product has done very well, not only on our, let's say, traditional Abbott accounts, but even in our competitor accounts, that's doing very nicely also. So we look, Heart Failure's got strong potential also throughout the year with CardioMems, which is a little bit smaller product here, but it also continues to do very well.

That's very helpful. And just lastly for me, Miles, as you pay down more debt, we're starting to get more questions on capital allocation. Can you please provide us with your latest thoughts, especially as it relates to M&A? When can we expect to see a pickup in M&A? Thanks for taking the questions.

You're welcome. Well, a couple things. First of all, I think the company has done a great job of paying down debt, cash management, cash generation, etc., It's been a little unprecedented, I think, for as much debt as we had. I mean, when we were done with the St. Jude and the Lear acquisitions, I think we were at about $28 billion, something like that. We've paid down more than $10 of that, and almost $8.5 of it just last year. Another half a billion in the first quarter of this year. So our debt, you know, everybody watches net debt to EBITDA ratios. We're down to about 2X right now from what was, I think, about 4.3 when we completed the second of the two acquisitions. That's a pretty rapid pay down. We expect to be about one and a half times by year end. You know, so I think I could declare strategic flexibility achieved. Obviously, we want to keep paying down the debt. We've got nice strong cash flow. We've got a number of choices. We increased the dividend, as you know, back in December by 14%. And, you know, we tend to target that dividend at around 40% to 45% of EPS. And I think right now we're at 40%, something like that. EPS is growing pretty rapidly. So, you know, probably be adjusting that at some point. There's good times and bad times to purchase shares, as you know, and our share repurchases, we haven't done a lot of share repurchasing. We've done some, primarily just offset dilution, but that has not been a big consumer of capital. We have made significant investments internally in our growth with Alinity expansion and with Libre Capacity expansion. And again, while those are important users of our capital with high return, we still have pretty strong cash flow. So back to the point of your question. We have strategic flexibility. We have strong cash flow. We have choice. I think the question is whether or not at any point there's something out there that fits us or we're particularly interested in or that we're focused on, et cetera. And as you know, I've told you in the past, even if I had that, I wouldn't tell you. That would be true. I would say today what is also true is we are very much focused on our internal organic execution. And that's getting sort of 95% of our attention. We're not paying attention to other opportunities. We always are tracking and monitoring other opportunities. But I have to tell you right now, I don't see a very robust target rich environment out there. It's not target rich. I don't think it is anyway. And I don't see a lot of meaningful adjunctive things that necessarily fit what we're trying to do. So, you know, obviously as we move forward here, one of our challenges is going to be capital deployment because we're going to have a lot of it. And I think we're going to generate a lot of cash over the coming years. I think we're going to generate a lot of profit. And we obviously want to either invest that or return it to shareholders at the highest possible return. And if it means there's opportunities in an M&A, as you know, historically, we've always been pretty attentive and diligent about that. I wouldn't forecast it when or what. But we are out of the range where we're constrained about our choices. We are no longer constrained. And I think that's a positive. We've gotten there pretty quickly. And that means that we can consider whatever. We don't happen to be focused on M&A right now. But M&A isn't a steady every year thing. It's opportunistic when it fits the strategy and the intent of the company. And when an opportunity fits and a return can be earned. And so if something like that comes along, I'd say we're well positioned. We'd be ready to do something. But to be honest, we haven't seen something that attractive.

Thanks for the comprehensive answer.

Thank you. Our next question comes from Vijay Kumar from Evercore ISI.

Your line is open. Hey, guys. Congrats on a nice start to the year, and thanks for taking my question. So maybe I'll start one on the guidance and have a follow-up. On the guidance, MitraClip approval came in earlier. I know on the last call you said you're not expecting any inflection in MitraClip, but it looks like there might be some contribution in the back half And I think FX, you know, assumptions change modestly. It's slightly better. We had a one QB, nutrition coming in better. I'm just curious on, you know, the guidance, you know, not being tweaked or, you know, changed. I know it's not your style, but I'm just curious on the guidance after the year.

Yeah, Vijay, thanks for the question. You know, you kind of answered it at the end of your question there when you said it's not my style. I rarely, if ever, raise in a first quarter You know, because I kind of feel like if I raised in the first quarter, why didn't I put it in the original plan three months ago, you know, or six months ago? But I have generally waited, you know, to consider such a thing in the mid-year because, you know, at various points in time, well, there's been a number of times we've all been burned by exchange, you know, around April, May, June or something for the remainder of the year. I don't actually expect that this year. I'm no forecaster of exchange and we're not currency traders, as you know, but, um, you know, just based on what we all see, you know, we were all like, like all industries, all companies, all, all multinational and so forth. We were all cautious about, you know, China trade and exchange and volatility, the price of oil, uh, even Brexit, you know, these were sort of the big factors everybody talked about. Um, you know, oil is almost 70 bucks and, uh, I don't think Brexit is weighing on a lot of minds. It's weighing on a lot of European minds. It's weighing on a lot of UK minds, and it depends on how much business you've got tied up in the UK. Companies have had time to figure out how to mitigate a lot of these things and deal with them. I'd say the reason that we didn't look at raising in the first quarter is because they just don't raise in the first quarter. We're obviously off to a strong start. As I told you before, all of our growth story is solid and intact, not seeing any, gosh, I feel like I should knock on wood, I'm not seeing any threats to the growth vehicles in the business, and while some analysts have speculated that med tech or med devices is somehow slowing, I tell you, I don't see that. And I don't think a lot of other CEOs in medical devices are seeing it either. In fact, if anything, I see projected growth rates rising across competitors. I take that as a very healthy signal from the industry that people are seeing positive, robust opportunity. I think a lot of people have new products and robust pipelines, and I think that's healthy for the whole sector worldwide. There's a lot of things that haven't changed, but we've been navigating those kinds of things for a while, and doing well as an industry and as a company. So, you know, could we have raised in the first quarter? Well, a lot of you may think so. I'm a little more cautious than that. I always kind of wait until mid-year to kind of assess things. I like how the company's performing. I think the company's performing really well. You know, I'm not sure we've ever had such healthy pipelines so broadly across the line in the company, so I don't have any negatives. I'm just... thinking that one quarter into the year seems a little early to me. That's about as much as I can tell you, and that's an honest answer.

That's fair enough, Miles. It's the macro, it's not the fundamental. I guess related to that, the question we're getting a lot, and not maybe just specific to Abbott, but the sector, is the sector, the fundamentals that we're seeing, is this sustainable? I think specific to Abbott, it Libre, you know, can Libre be a north of $5 billion product for you guys longer term? And the reason I ask is sustainability. I think you guys gave some numbers on MitraClip in terms of TAM. Libre, I think you've kind of left it open-ended saying it's a multibillion-dollar product, and I'm just curious whether the Libre 2 that was submitted to the FDA, is that the same product as the Libre 2 in Europe, or was the algorithm changed for the U.S. submission? Thank you.

The similar product, this is Robert, a similar product, this has got a different label.

And on the TAM for Libre, can this be north of $5 billion for you guys longer term?

Listen, we've always thought of this as a, I mean, if you look at the amount of diabetic patients in the world where this technology is, tends to have a greater impact. It tends to have a greater impact with insulin users, right? Whether you're a type one or a type two on a conventional kind of injection therapy, And there are 40 million of them around the world, 20 million of them in emerging markets, and the other half in developed markets. So, you know, we think this is, you know, as we said, a multibillion-dollar opportunity, you know, whether it's two, three, four, five. I mean, you can look at these patient segments and patient numbers, and it's very big. So, yeah. Yeah.

You know, Vijay, I'd add a couple of things to that. We're investing in capacity expansion accordingly, but there's sort of more to this story. As you know, there's a Libre 2 in Europe. There's a Libre 2 under review in the United States. There's a Libre 3 in development and has been in development for some time. And there's, you know, a lot of potential opportunities. for expansion of this product to other analytes besides glucose or additional analytes to glucose for the diabetic. There are other improvements that we can make in the product. All of that is in development. We know this platform well. It is a platform. It is not just a glucose test kit. And so there's a There's a, well, I guess what I call an R&D development innovation strategy with it that is underway, has been underway. Our capacity expansion plans are well planned. We've already got almost a million and a half users of Libre. And, you know, to be honest, we haven't exactly let the floodgates go. So, you know, I think you can kind of back into the math of that. This product is amazing. Already, look, it's probably a billion and a half or more in sales, more, and it's growing at 80%. So it doesn't take very long to figure out the math of what you just asked. Thank you, guys.

Operator, we'll take one more question.

Thank you. And our final question comes from Chris Pasquale from Guggenheim. Your line is open.

Thanks. I appreciate you fitting me in. Miles, one follow-up on Bob's neuro question. We've seen new product launches drive momentum for a number of companies in that market over the past couple of years. You guys really haven't talked much about your pipeline there. Are there new products coming that could help turn that segment around, or is it really just a matter of letting the dust settle on this Salesforce expansion?

Well, I'd say it's kind of like when you've got some issues with your own commercial execution and your sales force and you know you've got to go fix them, it's kind of like ducking the question to go talk about your pipeline. So my own thought has been let's just address the sales force answer and not try to dodge and weave here about our own execution, which we admit we can do better and we're going to do better. Now, having said that, yes, is there a pipeline in development? Robert?

Yeah, so to that point, we also know that our first and foremost priority is the field execution. We also know that innovation and evidence also has an impact on our ability to kind of grow. So we've doubled our R&D investment in this business since taking it over about two years ago, and I do expect to see two new systems in the pain area come to market toward the end of this year, beginning of next year, and I think that will have a positive impact. obviously ensuring that our sales force is getting up to speed and doing what it needs to do. Evidence is also another important driver here. So we do have trials that we're investing and working on for differentiated claims, whether it's pelvic pain or pre-back surgery kind of claims. So your point of, yes, we are investing in We have to make sure we address the field force, but we do have a pipeline here that we know we're going to need to be able to have a sustainable double-digit growth business.

Thanks. That's helpful. And then my last one, just structural heart, already a bright spot for the company today and feels like it has the potential to get even better as the pipeline there matures. Could you just go through your latest thinking on Tendine in Europe, which we should be getting relatively close to here, and then also Portico in the U.S. Thanks.

Yes, so I think that's one bright area in the device portfolio. We've made a lot of investments here. We talked a bit about TriClip that we should see towards the end of this year. Tendine, to your point, we filed it last year for CE Mark, so we're also right now on target to see that come to market at the end of this year. We've got a fourth-generation MitraClip product that will be coming more towards the second half of this year also, so we're excited about that. And, you know, TAVR, you know, we expect to see that in the U.S., Portico in the U.S. in the first half of next year.

Okay, well, good. Thank you, operator, and thank you for all of your questions. This now concludes Abbott's conference call. A webcast replay of this call will be available after 11 a.m. Central Time today on Abbott Investor Relations' website at abbottinvestor.com. Thank you for joining us today.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.