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spk02: Good morning, and thank you for standing by. Welcome to Abbott's third quarter 2021 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 and reference the 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 Leinenweber, Vice President, Investor Relations, Licensing and Acquisitions.
spk09: Scott Leinenweber Good morning, and thank you for joining us. With me today are Robert Ford, President and Chief Executive Officer and Bob Funk, Executive Vice President, Finance, and Chief Financial Officer. Robert and Bob will provide opening remarks. 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 expected financial results for 2021. Abbott 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 Abbott's operations are discussed in Item 1A, Risk Factors, to our annual report on Form 10-K for the year ended December 31, 2020. Abbott 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. 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 excludes the impact of foreign exchange. With that, I will now turn the call over to Robert.
spk08: Thanks, Scott. Good morning, everyone, and thanks for joining us. Today, we reported results of another very strong quarter. Ongoing earnings per share were $1.40, reflecting nearly 45% growth compared to last year, and sales increased more than 22% on an organic basis. Excluded COVID testing-related sales, which totaled $1.9 billion in the quarter, organic sales increased 12% versus last year. As we've seen since the start of the pandemic, our diversified mix of healthcare businesses continues to prove highly resilient, Even as COVID case rates surged in the U.S. and other geographies during the third quarter, strong growth in our more consumer-facing businesses, nutritionals, established pharmaceuticals, and diabetes care, mitigated the modest impacts we saw from the surges in certain areas of our hospital-based businesses. This has been a consistent theme throughout the pandemic, as evidenced by an increase in total company sales, excluding COVID tests, of 11% on an organic basis through the first nine months of this year compared to our 2019 pre-pandemic baseline, which highlights that our growth is real and not simply a function of easy comps versus last year. As a result of our strong performance and outlook, today we increased our full-year adjusted earnings per share guidance range now at $5 to $5.10 which reflects nearly 40 percent growth compared to last year. I'll now summarize our third quarter results before turning the call over to Bob, and I'll start with nutrition, where sales increased 9 percent compared to last year. Strong growth in the quarter was led by U.S. pediatric and international adult nutrition. In pediatric nutrition, Sales grew over 8.5% in the quarter, led by strong growth in the U.S. from continued share gains in our infant formula and toddler portfolio. Sales of Pedialyte, our market-leading rehydration brand, once again grew strong double digits, driven by market uptake of several recently launched new products, as well as investments we're making in direct consumer promotion. In adult nutrition, sales grew over 9% in the quarter, including mid-teens growth internationally as we continue to see strong demand for our Ensure and Glucerna brands, including new users entering these categories and existing customers increasing their usage. Turning to diagnostics, sales increased more than 45% overall and 12.5% excluding COVID testing-related sales. During the quarter, as the Delta variant spread and COVID cases surge, particularly in the U.S., demand for testing increased significantly, most notably for rapid tests. In total, during the quarter, we sold more than 225 million COVID tests globally and have now shipped over a billion tests since the start of the pandemic. Over the last several months, we've learned that COVID vaccines, while a powerful tool, are not the lone solution needed in our global fight against this virus. Testing, particularly rapid testing, which is fast, affordable, and easy to use, is an important companion to vaccines and therapeutics. Abbott has established a global leadership position in rapid testing, including a supply capacity of more than 100 million tests per month. Moving to established pharmaceuticals, where sales grew more than 15%, driven by strong execution and a steady cadence of new product introductions. Strong sales performance in the quarter was broad-based across several countries, including double-digit growth in China, Russia, and India, which led to overall sales growth of 18% in our key emerging markets. And lastly, I'll cover medical devices. where sales grew 13% in the quarter compared to last year and more than 16% compared to pre-pandemic sales in the third quarter of 2019. Strong performance in the quarter was led by double-digit growth in rhythm management, structural heart, heart failure, and diabetes care. In structural heart, we continue to enhance our portfolio in large, fast-growing markets with the recent U.S. FDA approvals of Amulet, which closes the left atrial appendage in the heart to help reduce the risk of stroke in people with atrial fibrillation, and Portico for transcatheter aortic valve replacement. In heart failure, we announced results from the GUIDE-HF trial of our Cardiomem system. As with many other recent and ongoing clinical trials across the healthcare industry, a portion of the CardioMens trial overlapped with the COVID-19 pandemic. After adjusting for this impact, CardioMens demonstrated a 28% reduction in heart failure hospitalizations. And we filed with the U.S. FDA for label expansion based on the trial data in the middle of this year. During the quarter, we also added an attractive growth platform to our vascular device portfolio with the acquisition of Walk Vascular, a commercial stage company with a minimally invasive thrombectomy system called JEDI that removes peripheral blood clots. Peripheral thrombectomy is a large, high-growth area where we could leverage our existing commercial presence. And I'll wrap up with diabetes care, where strong, Growth was led by Freestyle Libre sales of nearly $1 billion. During the quarter, we added over 200,000 new users, bringing the total global user base for Libre to well over 3.5 million users. So in summary, we continue to achieve strong, well-balanced growth across all of our major businesses, which is being fueled by strong execution and a steady cadence of new products. COVID testing particularly COVID testing, remains an important companion to vaccines and therapeutics, and Abbott has established a strong leadership position in this area. And based on the strength of our performance and outlook, we're raising our EPS guidance for the year, which now reflects growth of nearly 40% compared to last year. I'll now turn over the call to Bob to discuss our results and outlook for the year in more detail.
spk04: Bob. Thanks, Robert. 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 third quarter increased 22.4 percent on an organic basis, which was led by strong performance across all of our businesses, along with global COVID testing-related sales of $1.9 billion in the quarter. excluding COVID testing-related sales, organic sales growth was 12.1% versus last year and 11.7% compared to the third quarter of 2019. Foreign exchange had a favorable year-over-year impact of 1% on third quarter sales, resulting in total reported sales growth of 23.4% in the quarter. Regarding other aspects of the P&L for the quarter, The adjusted gross margin ratio was 58.8% of sales, adjusted R&D investment was 6% of sales, and adjusted SG&A expense was 25% of sales. Our third quarter adjusted tax rate was 15.5%, which reflects an adjustment to align our year-to-date tax rate with our revised full-year effective tax rate forecast of 15%. The revised full-year forecast is modestly higher than the estimate we provided in July due to a shift in the mix of our business and geographic income. Turning to the outlook for the fourth quarter, we forecast $1 to $1.4 billion of COVID testing-related sales and forecast organic sales growth excluding COVID testing-related sales in the low double digits versus last year. And based on current rates, we would expect exchange to have an unfavorable impact of around one-half of 1% on our fourth quarter reported sales. With that, we'll now open the call for questions.
spk02: Thank you. If you have a question at this time, please press the star and 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 kindly ask that you please use your handset instead of your speakerphone when asking your question. And again, that's star and then one to ask a question. Our first question comes from Robbie Marcus from J.P. Morgan. Your line is open.
spk03: Great, and congrats on a really nice quarter. Thanks. So maybe after such a good quarter led by COVID testing, I feel like you have a unique perspective looking at both sides of the coin from COVID testing volumes and also device procedure volumes. So, Robert, I'd love to get your sense of where you think we are here in fourth quarter and heading into 2022, and if Any early thoughts you could give us on sort of how to think about the progression of COVID testing sales and the recovery and durability of MedTech volumes?
spk08: Sure. I think regarding COVID testing, you know, we've obviously, since the start here of the pandemic, we've been learning a lot. And I think one of the things that – as we developed our strategy for that, we always believed that the rapid test was going to be a kind of more sustainable part of the business. And I think we were pretty right there. I'd say the key thing that I, and I made this in the comments, the opening comments here, the key thing that we learned over the last, let's say, couple of months here is that vaccine is just an incredible tool for the virus. It's had a huge impact on public health around the world. But alone, it's not enough. We know that it dramatically reduces hospitalizations, dramatically reduces mortality, but I think we're all seeing here that even if you're vaccinated, you could still get and you could still transmit the virus. Obviously, you're not heading to a hospital, but I think we've all heard unseen stories of that. So I think that's the biggest kind of learning here for us as we go into Q4 and as we go into next year is that testing is going to remain an important companion here. And even with therapeutics, it's still going to remain an important part of fighting the virus. And I think we've also learned a lot about understanding kind of the difference between symptomatic testing and screening testing. And we started to pay much closer attention to understanding the channels and the platforms that are more aligned to symptomatic testing versus screening testing. And we could definitely see a correlation on the symptomatic testing with cases, cases going up, cases going down. What we don't see that correlation is on screening. So even as cases have started to come down a little bit in the U.S., actually screening demand has increased quite a bit. So I think that is another kind of key learning as we think about going into Q4 and thinking about going into next year also. The other I'd say key distinction we've started to make is understanding kind of government purchasing of tests versus kind of private. And I'd say in the beginning of the pandemic, most of our sales were focused to governments, whether international governments, federal government here in the U.S., state governments also. And that continues to be pretty strong. But what we've seen now grow pretty significantly, and I think it's aligned to the screening pieces, the private side of the market, whether it's OTC, cash pay, whether it's a lot of companies. We've seen a lot of companies in the last couple of months here sign contracts with us. to ensure that they've got rapid testing to be able to give to their employees. So while we see some shelf and stocking issues at the retail, and those will work their way through that in the next couple of weeks, we are seeing still a lot of companies buy tests to get to their employees. So I think all of this is basically saying, listen, I don't know how much is going to be there next year, but it's clearly here that that screening segment of the market is going to be an important part, even with therapeutics and vaccines. So I think that's going to be an important part. Our base business has done very well. It continues to be on a recovery trajectory here, Robbie. Started in Q2. We saw that in devices. We saw that in diagnostics. Yeah, there was some There was some softness during Q3 as Delta and cases increased here in the U.S. That was probably more in August, and throughout half of September, we started to see it kind of re-pick back up again towards the end of the quarter. The first couple of weeks, we like what we're seeing here in terms of in terms of some pickup. But these were pockets. I wouldn't call it like a general soft or some slowdown. There are pockets here in the U.S., some pockets in some countries. But generally speaking, that base business is doing very well. So when you think about 2022, I expect our base business, our underlying base business, to continue that momentum, very strong momentum across the board, especially with all of our new product launches. And the question here is going to be, And I think it's going to be very difficult as we go into next year to be able to forecast a full year number of COVID next year. I think we're probably thinking about, okay, well, there's probably a COVID number that we're comfortable going into 2022. And then we'll have to update on a rolling quarterly basis here how COVID is going to play out throughout next year. that's kind of how I see it. COVID testing will be there. We'll have to kind of do it more on a rolling basis as we go to next year, and our base business continues to accelerate. There was a little bit of softness in Q3, but I like what we're seeing in terms of recovery, and I like the portfolio that we built around our cardio business, our EPD business, our nutrition business, our diagnostic business, so that's all good.
spk03: Great, great. That was really helpful. And then maybe, Robert, to build on that, I know it's still very early in your planning process, but as you just said, there's a lot of variables, a lot of moving pieces. You've had a great year in devices so far, a bumper year in testing. Any early thoughts on how investors should be thinking about 2022 versus 2021 from a top and bottom line perspective? Thanks.
spk08: Yeah, I mean, I think, like I said, we're still in our process. We'll give our guidance in 2022 in January, like we always do, Robbie. And I want to see a little bit more in terms of how this pandemic's unfolding here, especially on the COVID side, but on the base business side. I think our base business, I would say, we've been pretty good at forecasting our business, both from a top line, from a margin on our base business. So I think what you can expect In 2022, is that base business getting even stronger with the rollout of all these product launches that we've announced over this year? And then the question here really is going to be kind of COVID testing. And like I said, we'll have a portion of it that I think we'll feel good about putting it in. And then we'll have to be updating on a rolling basis. And I think that's kind of how to think about it. The base business, which is probably the more sustainable piece, is building momentum, and it will go into 2022 with a lot of growth opportunity. And then we'll have to kind of look at COVID on a more rolling basis.
spk03: Great. Thanks a lot.
spk02: Thank you. Our next question comes from Bob Hopkins from Bank of America. Your line is open.
spk05: Well, thank you very much, and good morning, and congrats on some solid execution. I just have two questions, and in the interest of time, I'll just mention them both up front because the first one is pretty straightforward. The first question is just on AMULET, and I realize it's very early in the launch, but just would love your sort of top-down comments on how things are going and maybe any metrics you can share in terms of perhaps like the percentage of your us coronary accounts that are now active with amulet um so we'd love some just color there and then the second question is um more of a broad-based question you know i was just wondering if you could provide just a little bit more detail on what you're seeing on inflation and supply chain because the the headlines are obviously you know they're just constant but the message from abbott and and other companies we follow you know just seems to me that it's sort of generally manageable So just wondering if you can kind of talk to that a little bit, if you can quantify the headwinds or just give us a better understanding of why it's manageable and just put some perspective around it for us. Thank you.
spk08: Okay. Well, I'll take the AMOLED and then I'll let Bob kind of talk to kind of the inflation supply chain. I mean, I would just say it is manageable, but, you know, that we have a great team. So I'll let Bob cover that. On AMOLED, listen, we received approval in August. We already initiated the launch. I know there's a lot of anticipation, at least on the last two calls, about the data and when we're going to publish the data and why we're going to do it, the time that we're going to do it. We released that data really close to our approval. I think that was a good strategy because it allowed our team to prepare for that. I will say, you know, regarding the data, I mean, you saw when we released the data, the product's got a lot of advantages versus the product that's on the market right now. We've got pretty broad portfolio sizes, and that helps as you're looking at, you know, different anatomies and having a better fit there. The steerable sheath that we've got has resulted in great precision in the placement, and that's super important, especially when you're looking at transcatheter therapies. And then, you know, you saw the data of superior kind of closure rates, you know, without the need for blood thinners falling right after procedure. And, you know, ultimately that's why the patient went to the hospital or part of the reason why they went there. So I think we've got a great product here. I think the team has done a good job getting the contracts ready. Right now I would say we have a goal of a certain amount of contracts by the end of this year. And in the first month, we've already gotten 40% of that target. So I think that we're going to definitely hit what we need to hit in terms of getting our contracts, our accounts, the ones that we want to get on contract up and running, so we can start to build the usage and familiarity with the system. We've got a really strong commercial presence here, and I think that's a key aspect in the rollout You know, the implanters of these devices, the electrophysiologists or the interventional cardiologists, I mean, we've got a lot of great products and a lot of great call points. So that's worked out very well, too. You know, there's always a certain amount of coordination that's required there, and that coordination has been fantastic. I'm really pleased to see that. Initial feedback has been super positive. So I'm very, very happy with the initial signs. Like you said, it's about a month, month and a half into it. All the signs that I'm seeing show that we'll have a great opportunity here to establish AMOLED as another product in the category. And then on top of that, we're making the investments, like I said, to grow the category with all of our clinical trials. Catalyst is one of them that I think is important also. So I'd say, you know, first month and a half, very, very pleased with what I'm seeing.
spk04: Okay, thanks. I'll take the inflation comments. So, you know, I think inflation and supply chain are really linked together. You know, the global supply chains have not been able to keep up with the strong demand out there. And so, like others, we're seeing some increased input cost across areas of our business. You know, we're experiencing some higher shipping costs and, in some cases, higher commodity costs. I'd say the commodity costs are really more kind of in the nutrition area of the business in some areas. We have flexibility to adjust pricing a bit, and we plan to do that. In other areas, that flexibility doesn't exist, and so we're working to mitigate the impacts we're seeing, such as looking at other manufacturing costs. As Robert mentioned, we've got a very strong procurement organization and supply chain organizations, and they're doing a great job working with our suppliers And our suppliers understand the critical nature of our products. And so we've been successful in terms of ensuring that we're able to get what we need to support the business.
spk10: Thank you.
spk02: Thank you. Thank you. Our next question comes from Josh Jennings from Talon. Your line is open.
spk06: Hi. Good morning. Thanks for taking the questions. Congratulations on the strong 3Q results. Hopefully, Rob, hoping to just hear maybe some puts and takes or help us understand some of the puts and takes of the 2022 operating margin. Clearly, COVID testing is going to be a factor, but any other drivers of operating margin expansion that you would highlight as we move into 2022 and then any other levers that Abbott's able to pull to drive earnings next year, depending on how the COVID testing environment plays out?
spk08: Sure. I'd say, like I said in the beginning, I mean, 2022, our base business, our underlying base business is going to grow very strong, both on the top and the bottom. So we'll see margin expansion in that business. And that's a combination, you know, like Bob said, we've got gross margin improvement teams across all of our business that are working at ways to mitigate other manufacturing costs. So that'll be important to be able to drive margin expansion. And then just the nature of the mix as we continue to roll out our pipeline, which is predominantly focused, I'd say, on the med device side, We've got gross margin profiles there that are accretive to the company's gross margin. So I think a lot of it is really driven on the top line and driving our top line and the execution of these new product launches allows us to get that kind of margin expansion into 2022. And, you know, like I said, the COVID piece is really just one where we're going to have to go quarter by quarter. and update and roll our forecast every quarter. We'll have a number that we'll feel comfortable with, but I'd say those are the kind of key drivers here. Our product launches, our ongoing base business, margin expansions by mix, and gross margin improvement. I want to keep the same profiles that we've got right now in our base business in terms of spend, R&D, and SG&A, so those profiles we want to maintain. Obviously, if you look at our profiles right now, it's a little bit distorted because of the COVID piece. But if you look historically where we've been in the low sevens in R&D and SG&A between 20% and 30%, that's where we're going to want to kind of land.
spk06: Thanks for that. And then just a quick follow-up on Libre. We've had some consultants talk about potential for Abbott to add. other analytes onto the platform, and particularly the addition of ketone monitoring as a potential competitive advantage. Any updates just in terms of how the 3.0 on tap here, but any updates in terms of the future development plans for Libre and how you continue to maintain your competitive edge here? Thanks for taking the questions.
spk08: Sure. I mean, we've always said that Libre was a platform. We always, you know, I know every time you put out a number, it becomes like the next, you know, what is that and, you know, what's after that. And so, you know, we've launched Libre 2. It's doing very well in the U.S. We've launched Libre 3 in Europe. And we'll obviously be rolling Libre 3 out. Regarding your question on analytes, That is an area that we are intentionally looking at, which is using the platform of Libre, the manufacturing platform, to be able to develop new analytes. You mentioned one that we've got particular experience in, in our blood glucose monitoring. We have a blood ketone system. So that, we believe, is an important aspect, especially for type 1 and pumpers. We think that that's a real important kind of feature. If you look at going into the type 2 population, there's a lot of new drugs for type 2 where there are certain warnings regarding DKA, and we think that that might also be an opportunity, too. But that's only one analyte, and we've got a pipeline here of analytes, a dedicated team that's only focused on looking at what are the business opportunities the market needs for that. And as we get closer to those launches, which will be coming up fairly soon, we'll be updating the market. But I'm really excited about using the Libre platform here to be able to kind of expand even beyond diabetes.
spk06: Great. Thanks so much.
spk02: Thank you. Our next question comes from Larry Beagleson from Wells Fargo. Your line is open.
spk07: Good morning. Thanks for taking the questions. Robert, I wanted to focus on the device side and the pipeline. Just starting with AMULET, to ask Bob's earlier question in another way, the surveys seem to be coming back suggesting AMULET can take about a third of the U.S. market and maybe even 20% next year. You know, it's not easy for a, you know, second to market, you know, to become a market leader. But Amulet has a, you know, a nice profile. What's your reaction, you know, to some of these, you know, consensus estimates for share? Do you think you can do better? And I had a follow up.
spk08: Sure. Well, I mean, Amulet is new to the U.S., but it's not new to the international markets. When you look at the international market, Amulet's got a 50% market share. I've seen some of the reports, not all of them, but I'm aware of some of these surveys that are done with different physicians. What I read and what I see them is similar what I see here in the U.S. versus what we actually see in Europe, which is it's a great product. Its size portfolio is an advantage. Its closure rate is also an advantage. And yeah, as I said, this is a multi-billion dollar market where we think that we can be a true competitor in also. But at the same time, invest to develop it. I think that's an important part here also, Larry. So as I mentioned, we're making investments in next generation product. We're going to be making investments in in the commercial infrastructure, which is not only to be there during the implant, but also to develop the patient referral network. And we're going to be investing in clinical trials. I think the Catalyst trial is going to be comparing it to NOACs. I think that will be a great opportunity to expand the market also. So I think it's a combination of kind of market expansion and, yeah, we're competitive with our offering. We're competitive with our team and, you know, I think 50% internationally is a good aspiration to have here in the U.S.
spk07: That's helpful. And then I wanted to ask about Portico and CardioMEM. So with Portico, you have Navitur outside the U.S. Do you think you need that in the U.S. to really drive share? And do you think you can compete without an intermediate and low-risk indication, which I don't think you'll have until about 2024? And just lastly on CardioMems, how are you feeling about the label expansion and the commercial opportunity given the COVID impact you mentioned on the GuideHF trial? Thanks for taking the questions.
spk08: Sure, Larry. Let me talk about Portico and TAVI here more broadly. This is a hugely important segment in Structural Heart. We want to be a Structural Heart leader. We had that vision when we put the businesses together with St. Jude. And we know that we need to be a true player here in the TAVI space. So I'm really looking at this for us as a long game. And what I mean by that is, you know, we're launching Portico in the U.S. Navitor, to your question, is a great second-generation device. We got it CE marked, and feedback is that it's a very, very competitive device. device, its clinical profile in high risk is really strong. And yeah, I want to bring it to the U.S. also, but not because I feel we need to, because Portico is not competitive. Portico is very competitive, but in this context of building a strategy here to be a real player in the TAVI space, We know that we're going to have to bring a second generation here to the US. We'll have to also look about how do we develop further on Navitro. I think that we've got about a five share in Europe. That's not my aspiration for the TAVI space. To your point, there's two pretty well entrenched competitors in the market, but we have a higher aspiration than just a five share, which is what we have in Europe. I think the combination here of investment in the team, investment in the pipeline, in the clinical data, you're right, our kind of intermediate low-risk trial kind of reads out a little bit later on, but it's there. We're investing in it because we see this as a big opportunity for us to be a real player in this market. So I'm excited about it, and I know the team is too. to be able to kind of be a real go-to full-service player in the field of structural heart. Regarding Cardiomens, listen, I think we, you know, the data I think was pretty compelling. I mean, this is the second, and you know this, Larry, this is the second RCT trial that we've done, and I'm a big believer in RCT trials and the need for them to be able to generate the clinical evidence. We filed for the label expansion at the end of June. I think the data was very compelling. And part of it is expansion to class two and class four. And then also to be able to expand indication to patients with elevated BMP, which is today just for patients that have been previously hospitalized. So I think the combination here of the data The fact that it is already the second RCT that we've done, a very large one also on top of Champions, the Champions trial, I think there's a great opportunity here for us to develop this market. One of the things that we did in the quarter here also is we now have a more dedicated business unit for Hartfair where both the LVAD and CARDMM's team are going to be combined into one under 1GM, very similar to what we've done with our other businesses because we believe in the benefit of that focus and that attention to the business. So I think the combination of what we've submitted, our focus, this is a great opportunity for us in 2022 and beyond. I'm not going to comment on, you know, when. All I can tell you is we filed it at the end of Q2, and I think the data is very strong, and we'll just leave it like that. And, you know, I'm... highly hopeful that we'll be seeing that next year for sure.
spk07: Thanks, Robert.
spk02: Thank you. Our next question comes from Cecilia Furlong from Morgan Stanley. Your line is open.
spk01: Great. Thank you for taking the questions. I wanted to ask about just your neuromod business SDS as well as other deferrable procedures. And can you walk through just sequential trends in the quarter if you've started to see recovery and some of your more deferrable procedures trending ahead of others, and also how you're thinking about the ability to recapture deferred procedures if the majority of procedure recapture can occur in 4Q, or if staffing shortages, does some of this recovering procedure recapture flow into 2022? Sure. Well,
spk08: I would say this is probably, out of our device businesses, the business that's had a little bit of a harder time in terms of recovering post-COVID. It's probably more elective, like you said, Cecilia. So it has been lagging a bit. It's been pretty flat, I would say, in terms of kind of its trajectory, if we look at our trials and our implants. But that's really something that we can't control. in terms of how that is going to bounce back. We have visibility to the pipeline of patients. We work closely with the surgery centers, and we've got visibility to that. We're not expecting a big bolus to come into Q4, and then we'll have to see how Q1 and Q2 of next year looks like to be able to give a better sense there. But what we can control, and that's what we focus the team on, is on our pipeline. And I think the team here has done a really good job. I'd highlight a couple things here that we've done. NeuroSphere, which is this novel remote care platform, we've launched it. It's the first kind of system that was approved by the FDA. We did a full market release at the end of June. And I really like the numbers we're seeing. We've done over 5,000 remote programming sessions. And not only is it a remote programmer, but it also allows us to get visibility of the patients in the funnel. So using the adoption of that tool is great because I think it'll have a real big change on the sales and service kind of business model that exists in this business. So that's gone very well, and I think that'll help get better visibility Another key thing here is entrance into the rechargeable segment, which is about half of the market. We really don't have a competitive system in there, and the team has developed a rechargeable system that is best in class, significant advantages versus the market leaders in this segment. So we're looking forward to bringing that product to market next year. And then we've also made investments in trials. I think probably the most notably one is Distinct, which is an indication for non-surgical lower back. We've completed enrollment in that study. So I think the combination of these factors here are important for us to be able to kind of take share. And then if we see the bolus of patients come back in Q1 and Q2, that'll be an additional tailwind for us.
spk01: Great. Thank you. And I wanted to ask as well about your recent acquisition of Walk Vascular. And really at a high level, can you talk about your outlook just for the underlying market growth in the peripheral space over the next several years versus some of your other high-growth target end markets, including diabetes and EP? And are there other areas you'd look to build out around your vascular business? And beyond that, too, just what's your current outlook for pursuing a PE indication for the thrombectomy system? And thank you.
spk08: Sure. So we've been looking at this area for quite a bit. As I always say, we're always looking, we're always studying. And this was an opportunity that we saw. We think it's an attractive segment. We see it at about $700 million, growing double digits. And this kind of fell right into that sweet spot of kind of strategic, you know, makes sense strategically for us. We've got a commercial footprint out there with an endovascular sales and service team. We know the customers. We have the call point. And we've got the capacity here to be able to leverage our manufacturing expertise here to be able to kind of scale up manufacturing. So this made perfect sense for us. to be able to add it to the portfolio, and that integration is going pretty well. I don't expect any significant contributions in Q4, but as we go into next year, I think it'll have an impact on our vascular business. And yes, I mean, like I said, there are plenty of segments in the endo space, I would say, that we continue to study, we continue to look at areas that we're interested in, and You know, if we find the right moment for us to be able to add those opportunities, we will. Regarding your question on the P indication, yes, absolutely. We know that is very important in the peripheral space. So we're investing. You know, that's one of the key aspects in the integration is to invest to be able to get that indication established. So, yes, we are working on that.
spk01: Thank you very much.
spk02: Thank you. Our next question comes from Vijay Kumar from Evercore ISI. Your line is open.
spk10: Oh, hey, guys. Thanks for taking my question. Robert, my first one was going back to testing. I think your Q4 assumptions of 1 to 1.4 billion, that's a sequential step down versus 3Q. I'm curious... Where are we on capacity right now, and what is the demand for these testing products right now? Are we seeing any sequential step down in demand right now? And I think you guys did win about $600 million-ish of DoD contracts. Is that baked into that Q4 number, or is that a fiscal 22 contributor?
spk08: Okay. So regarding the Q4 forecast of 1 to 1.4 here, our capacity is we can do significantly more than that, Vijay, especially as we've, you know, Q3 we didn't have the full ramp-up, but now we're, you know, finishing this month here. We'll be in full ramp-up mode. So we can do more than the one-four. I think the factor here that we're looking at is, as I said in the opening comments here in the first question, I continue to see the surveillance and the screening market to continue to increase. And, you know, that's with kind of Binax and IDNow also. So we've got those businesses, you know, everything we can make, we're rolling in here. I'd say the only question we've got here a little bit is on the symptomatic, and that's what you see maybe in this step down here, is assuming as cases decline in the U.S., that we're going to see a little bit of a decline in symptomatic testing. So that's one part of the factor. The other factor in the one-to-one-four is just pricing. We've got a market leadership position in rapid testing. especially in OTC. If you look at Nielsen data, you'll be able to see that we were at about 90% share before the month of September. We dropped to about 60 just because of supply, and now we're back up to 75 share, and we're seeing a little bit of price pressure. So in that number, I baked in some price pressure to ensure that we maintain that market leadership position as we see more market entrants come in, Um, you know, but if, if, if we don't need that price, uh, then that will obviously, uh, you know, drive another beat, uh, to that number two. But so that's, those are the drivers and the thinking there, Vijay, um, uh, a little bit of pricing pressure. And, uh, what are we going to see on the symptomatic testing?
spk10: So, sorry. I know the DOD contract 600 million is that, uh, Is UMN Q4 or is that a fiscal 22 contributor?
spk08: Well, we're going to have to, yeah. So the DOD contract is actually a, I think you're quoting the maximum amount of the contract, which I know is kind of what got a lot of the news headlines. But the contract actually has a minimum amount, which is significantly lower than that. less than $100 million. It's really going to depend here on the DOD and the federal government in terms of their purchasing. We factored in a little bit of that minimum piece in Q4. As I talk about going into next year, that'll be a portion of the part that we will feel comfortable with adding on. It's a pretty big range, Vijay, in terms of what the maximum is and what the minimum is.
spk10: Understood. And just one on your earlier comments, Robert, on the SG&A, looking back at historical trends of 29% to 30% R&D at 7% of revenues, was that a comment referring to fiscal 22, what the optics as a percentage of revenue should look like for your base business, and then what you know, the variable, you know, over and beyond that should be COVID. Is that the right way to think about fiscal year?
spk08: No, that comment was more about ensuring that we don't – you don't see that there's a drop in investment. When you look at our profile in Q3 in terms of R&D, it's down to 6%. Our SG&A is down to 25%. So that comment was more about, you know, there's a little bit of a distortion factor here because of COVID-19. And we're going to make sure that we continue to invest in the business. If you look at the investment we've made, Vijay, this year, we've added about a billion dollars between R&D and SG&A to the business so that we can continue to drive the top line and at the same time drive the long-term sustainability of the business with the R&D investments. I talked about how we could pulsate that spend not only this year, but as we go into next year, a portion of that spend is a little bit more discretionary on the SG&A side, and we'll be looking at that. So the comment there was more about ensuring that there wasn't a distortion. We at least understood the distortion of COVID in terms of our profiles.
spk10: Understood. Thank you, guys.
spk02: Thank you. Our next question comes from Matt Mixick from Credit Suisse. Your line is open.
spk00: Hi, thanks, and congrats on the strong results. So maybe just to follow up on some of the things you were just talking about, sort of this concept of reinvesting the proceeds of this very strong COVID business. So there's a perception out there, I think, because COVID testing is maybe not permanent and hard to predict that it's somehow less effective. important or, you know, harder to value than the rest of your businesses. But, you know, the last few months, obviously, you know, in this quarter, a billion five of upside in Q3 is, you know, by our estimates, more than half a billion in operating cash. And that's, you know, goes up against your two or two and a half billion dollar operating cash run rate. So, you know, the question is, is in addition to kind of being part of the solution, as you've talked about to the pandemic, Maybe drill down a little bit into some of the things you were just describing, opportunities to invest behind. Which ones of your growth programs do you see an opportunity to sort of dial things up? And how, if at all, does this change maybe the way you think about M&A and your activity on that front? Thanks.
spk08: Sure. I think you captured pretty well all the elements there of how we look at COVID. As I said in the beginning, when we started this, there's definitely an opportunity to accelerate the strategy of decentralized testing because of COVID, and that strategy has been in place, and that's an area that we are investing in. to ensure that we do have an ability so we see more testing in pharmacy, more testing in urgent care centers, and testing that goes beyond COVID, that even goes beyond flu and RSV and respiratory viruses by developing assays that will be used on that rapid testing platform. So that's one investment for sure. You can see the impact on the investment on some of the business. You see it in nutrition. So, we have been putting more discretionary advertising and direct consumer promotion in that business, and you could see the step up in the growth rate there. We've obviously put investment into Libre, both on the SG&A side. You see, you know, we've rolled out a new TV commercial and funded that to a level that we feel is competitive, is leading in terms of messaging. increased our sales force in the US and other key markets for Libre so that we can call on more physicians and you see the impact there on Libre I mean we did almost a billion dollars of sales of Libre this quarter and the in the US is about 65% we're making great progress in penetrating the type 2 population whether it's a non-insulin users or non-intensive insulin users, we've got about a 90% market share. Non-insulin users or non-intensive insulin users, we've got about a 90% market share of that segment at least. So that growth is also being supported. And we've got all these new product launches that I've been talking about on the cardiovascular side that require, you know, feet on the street, whether it's Salesforce, clinical specialists, and we're funding that also. So I think that that's very clearly where we're putting our investments. We've talked about R&D investments. and making sure that we've got pipeline beyond 22 and 23. And that's predominantly been in the diagnostics and device areas also. So it's been pretty broad base. You know, that billion-dollar increase has kind of gone well across all the businesses. And if I ask my general managers and my presidents of my businesses, do they have a next tranche of where they would go, they would have that list ready to go too. So there's no shortage of opportunity. And then the other topic you talked about or touched on was the cash flow generation as a result of the COVID business. And yes, it has generated a lot of cash. We have. invested some of that cash in the organic opportunities we have, whether it's manufacturing sites here in the US for COVID, for MitraClip, for Libre. So we've made those internal investments, but we've also looked at where we could provide the best return to our shareholders, and you saw that in the form of our dividend increase at the beginning of this year. We increased our dividend by 25%. You saw that we also probably saw that we bought back shares in Q2, and we've stepped that up even further in Q3, and we've got capacity to do more of that in Q4, if that makes sense for our shareholders. So we find a way to kind of deploy that capital And on the M&A side, I mean, I've talked about this. You know, if we think there's a strategic fit for us, one that is financially justified for us, that we can do better with it, that we can make it better, and that there's value for our shareholders, we'll do that also. Right now, I'd say I think the MedTech and diagnostic valuations out there, especially for the ones that we would be interested in, high-quality, high-growth assets, is a little bit frothy. So we're in the mode of studying and paying attention. I think the good news here is that we don't really need M&A to be able to support what I think is pretty top-tier performance here. So that's pretty comprehensive in terms of how we're looking at COVID, and it both funds our internal organic growth and allows us to either provide some more value to shareholders through buybacks, dividends, and If there's a growth vehicle out there that I think would make sense, we won't be shy for that also. I'll just close here a little bit and just say our results, we're achieving very strong growth across all of our businesses. I'm very excited and proud about the pipeline that all the businesses have been focused on. We've historically really focused on organic pipelines, and that continues to be highly productive. We're entering to very – new and attractive growth segments across our portfolio, and there's more products along the way there. So we're investing in our key platforms, as I've said. COVID testing is going to be an important companion to vaccines and therapeutics. At what level? I can't say right now for next year. I've given a range on what I think it's going to look like in Q4, and there could be opportunities there for us to do better than that. But I think the rapid test here is really the value proposition that's going to make sense going into next year. And we're a leader in that segment. We've built scale. We've built manufacturing. And we know how to operate in this environment, whether it's retail pharmacies or direct consumers. So our focus right now is we're going to finish strong 2021, enter into 2022 with a lot of momentum. and I think we're well-placed strategically here as we go into next year. So with that, I'll thank you all for joining us today.
spk09: 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's Investor Relations website at abbottinvestor.com. Thank you for joining us today.
spk02: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
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