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spk02: Good morning, and thank you for standing by. Welcome to Abbott's fourth 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 key 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 Express written permission. I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations, Licensing, and Acquisitions.
spk01: Scott Leinenweber Good morning, and thank you for joining us. With me today are Robert Ford, Chairman 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 will 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 2022. Abbott cautions that these forward-looking statements are subject to risks 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.
spk05: Thanks, Scott. Good morning, everyone, and thank you for joining us. Today we reported another strong quarter and highly successful year for Abbott. For the year, we reported organic sales growth of 23% and ongoing earnings per share of $5.21, which reflects more than 40% growth compared to the prior year and exceeded the original EPS guidance we set last January. These last couple of years have truly been unique on many levels. The challenge throughout the pandemic has been the sheer breadth of its impacts, and for Abbott, It's reinforced the value of our diversified business model, which is uniquely balanced across multiple dimensions, including our business mix, customer and payer types, innovation cycles across our businesses, and geographic footprint. We've always said that our business model allows us more opportunities to win during the good times and makes us more resilient during the tough times, and never has this been put to the test more so than over the past couple of years. It's been tested by a major global pandemic and has proven to be highly resilient, delivering strong growth and returns for our shareholders. COVID testing has been a big part of this, of course. We delivered a billion tests last year and approximately 300 million in the fourth quarter alone and continue to play a significant role in the world's response to the pandemic. But just as importantly, we demonstrated Abbott's strength across our company, delivering strong growth across our businesses while continue to expand our portfolio with innovations that will fuel our success for years to come, regardless of the pandemic situation. Turning to our outlook for 2022, as we announced this morning, we forecast ongoing earnings per share of at least $4.70. which reflects nearly 50% growth compared to our pre-pandemic baseline in 2019. We forecast organic sales growth for our base business, excluding COVID tests, in the high single digits. And our guidance includes an initial COVID testing sales forecast of $2.5 billion. We're seeing very strong demand for testing to start the year with the recent emergence of the Omicron variant As you know, forecasting COVID testing demand for more than a few months at a time has been challenging. Therefore, our initial forecast compromises sales that we expect to occur in the early part of the year. And we'll update this forecast one quarter at a time over the remainder of the year. I'll provide more details on our 2021 results before turning the call over to Bob. And I'll start with nutrition, where sales grew nearly 6% in the fourth quarter and over 7.5% for the year. Adult nutrition delivered 9% growth for the quarter and double-digit growth for the year, led once again by Ensure, our market-leading complete and balanced nutrition brand, and Glucerna, our leading diabetes nutrition brand. In pediatric nutrition, U.S. sales growth of more than 10% for the year was led by strong growth of Pedialyte, our oral rehydration brand, and market share gains for Similac, our market-leading infant formula brand. During the past year, we continued to expand our nutrition portfolio with several new product and line extensions, including the launch of Similac 360 Total Care in the U.S. and continued global expansion of our Pedialyte, Lucerna, and Ensure brands, with line extensions such as plant-based, lower sugar, and high protein products. Turning to medical devices, continued recovery from the impact of the pandemic and strong growth in diabetes care drove sales growth of 16% in the quarter and nearly 20% for the year. In diabetes care, sales growth of nearly 30% for both the fourth quarter and full year was led by Freestyle Libre, our market-leading continuous glucose monitoring system. Libre sales grew over 35%, which translates to year-over-year growth of $1 billion to a total of $3.7 billion in 2021. This past year, we continued to strengthen our medical device portfolio with several pipeline advancements and launches. In the U.S., expanded Medicare reimbursement coverage for MitraClip, will make it possible for more people to benefit from this life-changing technology. We launched NeuroSphere Virtual Clinic, a first-of-its-kind technology that lets patients communicate with physicians and receive new treatment settings remotely. We received U.S. FDA approval for AMPLATS, or Ambulate Heart Device, which treats people with atrial fibrillation who are at risk of ischemic stroke. And we received U.S. FDA approval of our portico heart valve replacement system for people with severe aortic stenosis and CE mark for Navitor, our latest generation transcatheter aortic valve replacement system. Moving to established pharmaceuticals, or EPD, where sales increased nearly 6% in the fourth quarter and over 10% for the full year. Strong performance was broad-based. across several countries led by India, Russia, and China. EPD has performed well throughout the pandemic fueled by strong execution and a steady flow of new product introductions in our core therapeutic areas. I'll wrap up with diagnostics where COVID testing was a big part of the story, but far from all of it. COVID testing sales were $2.3 billion in the fourth quarter with rapid testing platforms. including BinaxNOW in the U.S., PanBio internationally, and IDNOW globally, compromising approximately 90% of those sales. Demand for testing continues to remain strong, and we remain committed to help ensure broad access. Since the start of the pandemic, we've invested significantly to build both U.S. and international manufacturing supply chains, and we're working to expand our capacity further to meet global demand. Excluding COVID testing sales, worldwide diagnostic sales grew over 8% in the fourth quarter and 13% for the year. We continue to roll out Alinity, our innovative suite of diagnostic instruments, and expand test menus across our platforms. During the year, we placed more than 3,000 Alinity instruments for immunoassay and clinical chemistry testing, with approximately two-thirds of those placements coming from share capture. And in molecular diagnostics, excluding COVID testing, sales grew double digits in both U.S. and internationally as we continue the rollout of our Linity M instrument for molecular testing. So, in summary, 2021 was another highly successful year for Abbott. We continue to play a vital role in combating COVID-19 as a result of our massive scale we built in rapid testing capacity. All four of our major businesses delivered strong performance this past year and are well positioned for continued success going forward. And we continue to strengthen our overall strategic position with a steady cadence of important new products from our pipeline in several attractive growth areas. I'll now turn over the call to Bob.
spk09: Thanks, Robert. As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis, which excludes the impact of foreign exchange. Turning to our results, sales for the fourth quarter increased 7.7% on an organic basis, which was led by strong performance across all of our businesses, along with global COVID testing-related sales of $2.3 billion in the quarter. Excluding COVID testing sales, organic sales growth was 10.3% versus the fourth quarter of 2020 and 10.8% compared to our pre-pandemic baseline in the fourth quarter of 2019. Foreign exchange had an unfavorable year-over-year impact of 0.5% on fourth quarter sales resulting in total reported sales growth of 7.2% in the quarter. Regarding other aspects of the P&L for the quarter, the adjusted gross margin ratio was 57.7% of sales, adjusted R&D investment was 6.3% of sales, and adjusted SG&A expense was 26.2% of sales. Our fourth quarter adjusted tax rate was 16.9%, which reflects an adjustment to align our tax rate for the first three quarters of last year with our revised full-year effective tax rate of 15.5%, which is modestly higher than the estimate we provided in October due to a shift in the mix of our business and geographic income. Turning to our outlook for the full year 2022, today we issued guidance for the full-year adjusted earnings per share of at least $4.70. For the year, we forecast organic sales growth, excluding the impact of COVID testing-related sales to be in the high single digits. We forecast COVID testing-related sales of approximately $2.5 billion, with a significant portion of these sales expected to occur in the early part of the year. We'll update our COVID testing sales forecast one quarter at a time throughout the year. Based on current rates, we would expect exchange to have an unfavorable impact of approximately 2% on our reported sales. We forecast an adjusted gross margin ratio of approximately 58.5% of sales for the year, which reflects our forecasted business mix, underlying gross margin improvement initiatives across our businesses, along with the impact of inflation on certain manufacturing and distribution costs. For the year, we forecast R&D investment of around $2.7 billion and SG&A expense of around $10.8 billion, which reflects investments to support several ongoing and upcoming new product launches and strategic growth initiatives. We forecast net interest expense of around $500 million non-operating income of around $375 million and a full-year adjusted tax rate of approximately 14.5% for the year. Turning to our outlook for the first quarter, we forecast adjusted earnings per share of at least $1.50 and organic sales growth, excluding the impact of COVID testing-related sales, to be in the high single digits. Lastly, at current rates, we would expect exchange to have an unfavorable impact of approximately 3% on our first 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, 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 kindly ask that you please use your handset instead of your speakerphone when asking your question. And again, that's star then one to ask a question. And our first question comes from Larry Beagleson from Wells Fargo. Your line is open.
spk04: Good morning. Thanks for taking the question and congratulations on a really strong finish to a strong year. Robert, can you talk about how you thought about the 2022 guidance You know, why is $2.5 billion for COVID testing the right starting point? And how are you thinking about reinvesting the upside from COVID testing, you know, implied in the $4.70 EPS guidance? And I have one follow-up. Thank you.
spk05: Sure, Larry. I'd say the beginning of the year, you're coming into the year and you're trying to find the right balance, right? You're trying to find the right balance on your long-term growth opportunities and that Abbott has, which I think are pretty unique, and balancing that with, you know, I'd say probably some uncertainty. And I'd say every year there's a little bit of uncertainty in the beginning of the year, but I'd say, you know, this year is probably a little bit more than usual. So you're trying to find that balance, and I'm pretty sure we'll talk about some of the long-term growth opportunities. But if you think about some of the challenges in forecasting right now, you know, there's a lot of you know, dynamics that are existing from a macroeconomic standpoint that are out there that, quite frankly, aren't necessarily unique to Abbott, but that are out there, you know, whether it's the pandemic and, you know, the duration of the current surge, potential new waves and how long they will last, staffing shortages that we've seen for the hospital-based kind of part of our business, quite frankly, patients' willingness to go in to do a procedure during the surges. So that's probably one kind of big bucket to look at. Another area, obviously, on the macro side is supply chain and inflation challenges that every company is facing, and obviously kind of currency headwinds. So I'd say those are all challenges that are facing a lot of med tech companies, companies in healthcare, and quite frankly, a lot of companies outside of our sector. Probably what's a little bit different for us, another fact to consider in our forecast is just COVID testing and how is that going to play out throughout the rest of the year, given the magnitude of what the testing could look like, you know, between you know, it's completely going away or it's staying or increasing, you know, at this level. So factoring all those kind of elements over here, I think this was the right starting point for us just to start off like that. And I think this initial full-year guidance is contemplating not only some of those challenges, but also contemplating on the flip side a very strong underlying kind of Abbott-based business As I said in my comments, high single-digit growth, so there's definitely acceleration in a lot of our portfolio versus where we were pre-pandemic. We've got investment in this guidance to be able to support not only all of our launches that we engaged in towards the end of last year, beginning of this year. We've got launches and opportunities, and that's all been contemplated and fully funded And the initial COVID testing forecast of 2.5, I don't expect COVID to simply go to zero starting the second quarter. But the challenge of forecasting the magnitude... I felt it's the right way to, and quite frankly, I talked about this in October, we will be updating it as we go along. We've built a lot of capacity. You've seen that over this last year and a half, especially in rapid testing. So we have that capacity, and we'll be updating it. So if we had typically done our Tencent range guide here, Larry, our consensus, we would have been right in the middle of where you guys are at. But I didn't want to cap the upside, which is why we're at the least $4.70. So if I kind of sum it up, I look at our guidance now, and I say, okay, we've contemplated as much as we can of some of the challenges that a lot of companies are facing, whether it's supply chain, duration of pandemic, medical device procedures, et cetera. I've fully funded our growth platforms that we're very excited about. And there's potential for the upside of more COVID testing, because I don't think it goes away, which would then fall through at a good click and provide that upside. So I think that's probably the best way to summarize it. It's de-risked, it's fully funded for long-term growth opportunities, And we've got potential upside as we go into the remainder of the year.
spk04: That's super helpful. Robert, just for my follow-up, Libre had another remarkable year. How are you thinking about Libre growth in 2022, and what are the drivers of that growth this year? Thanks for taking the questions.
spk05: Sure. Well, yeah, I mean, you saw it. It continues to grow at a very strong rate and a very large base. 35, over 35% this year, 4 million users now. We've initiated geographic expansion of Libre 3, and that'll start in the next couple of weeks, moving out of Germany into UK and France. Those are probably kind of key markets that we're expanding over the next couple of weeks. And if I think about 2022, Larry, I mean, I'm looking at here strong double-digit growth. We've been growing about a billion dollars of incremental sales per year, and I expect that growth to be at least in that range. So that probably translates into a 25% growth. I think the biggest driver for us is, quite frankly, not just this year, but as we look forward, it's still very under-penetrated, right? You know, I'm talking about being a leader in terms of patients with 4 million users where we've talked about, you know, numbers between 60, 70, 80 million people around the world that could be benefiting from continuous glucose monitoring and sensor-based monitoring. So I'd say biggest opportunities we've got continue to be international. The CGM penetration internationally is still much lower than in the U.S. And then moving into, you know, more aggressively into patient segments that historically have been under-penetrated. You kind of look at the Type IIs on single injection therapy. So we got great opportunity there. US, I would say, is another good opportunity for us. We had a very good year this year, close to like 60% growth. I think that's the number. Now over a million users. We've made the investments that we need to make last year in terms of sales force and advertising, and that's paying dividends. In terms of new users, we continue to have a high share of new user growth. So I think combined what we're doing internationally, expansion of Libre 3, continued growth in the U.S., expanding into a pretty under-penetrated population of type 2s, and expanding I think we've still got, like I kind of said, we're still in the early innings of the Libre story here.
spk04: Thanks so much, Robert.
spk02: Thank you. Our next question comes from Robbie Marcus from J.P. Morgan. Your line is open.
spk00: Oh, great. And I'll also add my congratulations on a nice quarter. Two for me. I'll ask them both up front. First question, maybe you could spend a minute on cadence throughout the year. First quarter has a lot more COVID testing sales than we had thought, but also implies somewhat of a different cadence than we had been thinking. So just top and bottom line, what are the impacts there? How is inflation and FX hitting throughout? And then second question, it's probably tied into it. if you could just touch on what you're seeing in current device and procedure trends as we sit here today and how you're thinking about the evolution of that over the course of 22. Thanks.
spk05: Well, your first question's got multiple sub-questions there, Robbie. So let me take the first one and then I'll go back. So let me take the second one and then I'll go back to your first one because it does contemplate some of the challenges on inflation that might be worthwhile spending some time just talking a little bit about also. But In terms of demand dynamics, especially in the more hospital-based business here, Ravi, we saw a real nice trajectory recovery in the beginning of Q4. You know, we were – and I always like to compare versus 2019, at least for 2021, to avoid some of the comp pieces. So we were improving our growth rates in our – probably more cardio-like businesses, let's use that as a proxy, you know, to be in that kind of 3% to 4% range and improving as the quarters progressed. And Q4 was looking like, again, a continuation of that progression until probably December, where we saw a pretty big drop because of Omicron in most of the device, of our device businesses. Probably the only two that we didn't see that drop was heart failure that was probably up in the mid-20s in December versus 2019, and obviously Libre, which was up probably like in the 70s percent versus 2019. So we did have an impact in these parts of the business. Again, it's probably driven by Omicron, impact of not only staffing, I'd say, but also even just patients basically postponing a little bit and not wanting to go to hospital. And I think that's continued a little bit here into January. I'd say geographically seen a little bit more of that impact in the U.S. compared to other geographies, at least for us. Europe and Asia have held up a little bit better than the U.S. And then we've contemplated as best as we can what that recovery curve is going to look like You know, we'll see some pressure of that, I'd say, probably, you know, January, February, going into March, we expect it to get better. And then Q2 will be better. And if you look at the second half of this year, we expect for these businesses to be more at their normal run rate. So I think I'd say that's what we're seeing, and that's kind of how we're forecasting the rest of the year. I actually was pretty pleased at some of the new product launches that we had during the quarter. You know, we were always cautious about, okay, do we launch the product in this environment? And, you know, they did pretty well, both in Europe and in the U.S. too. So I think that speaks well about still the need for the products and the technologies and the innovation. So the consumer side, the consumer-facing part of our business, you know, I mentioned Libre today. But you saw it in nutrition and EPD. They've done pretty well at the pandemic. They did pretty well in Q4, so didn't necessarily see the impact of Omicron to those businesses like we didn't see it in Delta either. So we expect those businesses to be pretty resilient. And a key driver there, as I talk a little bit about Libre, is just kind of innovation. On your first question regarding cadence, I mean, part of it is this combination that I said, recovering device and core testing procedures that we see going into Q2 and into Q3 and Q4. And then, you know, as we have more, let's say, call it confidence and precision regarding our COVID testing, we'll see that kind of flow through and then we'll be able to update you. I think when we're here in April, we'll have a better sense of what Q2 is going to look like, not only for the U.S., but also internationally. And as I said, having that ability to then kind of update the forecast with that COVID number, we will let it flow through. So I think you also had a question about inflation. I mean, that is another area that we're working on and focused on, and probably asked Bob to give you some color on that.
spk09: Okay. Rob, you actually kind of asked about currency and inflation. I'll cover currency first. I mean, you know, we saw the U.S. dollar kind of strengthen since the middle of last year, in particular over the last few months. And so, as I said in my opening remarks, at current rates, that's about a 2% headwind on the top line for the year. We're going to see that a greater impact in the first quarter, around 3%, and kind of in the second quarter. And it'll get the impact will be a little bit less severe as we kind of go through the course of the year into the back half of the year. In terms of inflation, you know, inflation and supply chain challenges are really, you know, kind of linked together as supply chains have not been able to catch up to the strong demand that's out there. And so we're seeing some impacts here, certainly not unique to us or our industry. And we're seeing those impacts across transportation costs, manufacturing inputs, commodities, et cetera. From a pricing standpoint, we have the flexibility to just price a bit in some areas of the business, and we're doing so. That's really more in the consumer-facing businesses, like nutrition. In other areas of the business, that flexibility doesn't exist. So I'd say in aggregate, kind of across those headwinds, we're seeing impacts on gross margin of roughly half a billion dollars, and that's contemplated in our guidance. And I think as supply chains start to normalize over time, we would expect to see improving costs in some areas. For example, in commodities for nutrition, those costs have kind of moved up and down historically over time. But, you know, currently our kind of outlook doesn't assume any significant changes kind of versus the current dynamics that we're seeing in the market.
spk00: Great. Thanks for all the answers.
spk02: Thank you. Our next question comes from Vijay Kumar from Evercore ISI. Your line is open.
spk07: Thanks for taking my question, and good morning, Robert. I had two questions. My first one was on the new product side. Robert, you made some comments on, you know, perhaps a consumer kind of product at CES, at Lingo. I'm just curious, how do you see the opportunity here, Brady? It's slightly different, perhaps, from our perspective. But for Abbott, I mean, you guys have played in consumer markets. How big is this opportunity? Perhaps some sense for when U.S. launch timing could be and should we expect more analytes? I think you guys had four analytes at CES, but I'm curious, are there other products expected to come down the pipeline?
spk05: Sure, Vijay. So we made a decision to put a stake in the ground here and start talking about what we've always believed to be another opportunity, a sizable opportunity for Abbott. And that was really using the Libre platform that we had developed to look into other analytes, other areas. I talked about this recently. Quite frankly, we talked about it several years ago also. And you referenced some of the analytes that we have been working on. ketones, lactate, alcohol, glucose for people with non-diabetes, and those are big opportunities. As I've said, the model is a little bit different. It is probably a much larger TAM in terms of people, but the usage of the sensors is... probably more intermittent than you would kind of get on a person, for example, with diabetes today, where we're very clear whether you're a type 1 on a pump or a type 1 injector or a type 2. Like, we know through the data we've covered here in terms of the usage patterns. So the usage pattern is a little bit different, but the sample size is significant. You know, if you think about, like, a keto sensor, and the opportunity to be able to provide real-time feedback for somebody who's trying to manage their keto diet, I think there's a large amount of people, a large consumer pool that, whether it's more disciplined keto diets or kind of more on an on-off basis, there's a very large amount of people there. And we'll have to just think about how to market it a little bit differently, and our go-to-market strategy will be a little bit differently. But I'd say we've always seen this as a big opportunity, and we funded it. We have a separate team that is obviously leveraging the platform, but they're managed differently. They have a completely different organizational structure, and they're just focused on developing not only the technical side of the analytes, but obviously doing all the market development work So we're really, really in the early inning stages here, but I think the numbers can be pretty significant and pretty large. And, you know, and why not over a good period of time, maybe it's even bigger than diabetes once you line these up. The first phase of analytes, you know, we announced at CES that this is our intention, that we were designing these. Timing, we expect to launch our first products outside of the United States towards the second half of this year. In the United States, we'll obviously be having the conversations with the agency in terms of how that regulatory path is going to shape up. Probably a little bit too early right now to talk about that. But we're very excited about this opportunity because we've seen this opportunity many, many years back and made the moves. On your question about other analytes, yeah, I would say Part one or phase one, I would say, is what I would call these more consumer-facing, more consumer-driven opportunities. But we are looking at other analytes that would probably have, I would say, more of a medical, clinical application, whether it's in the hospital or for discharges, et cetera. So there is opportunity there that we're also working on. So I think it's very large, and we're just in the beginning right now in terms of market creation.
spk07: That's helpful, Robert. And maybe my second question in a balance sheet, I think, you know, you guys probably have over $40 billion of capacity right now, conservatively. With valuations coming down, what kind of opportunities do you see? And, you know, one of the things that always strikes me is Abbott is very large in diagnostics, you know, number one, number two in most of your main markets. If you look at diagnostics, liquid biopsy, cancer screening diagnostics is – That's a massive opportunity, but I don't see Abbott having a stake in the ground in that area. Is that an area that would interest Abbott?
spk05: Well, to answer that specifically, I'm not going to necessarily show all of my cards here, but I guess what I will say regarding the M&A question here is, yeah, there seems to be some dislocation now, and I think this could make sense. If there's anything out there that looks strategic for us and that makes financial sense, then, yeah, we've got plenty of capacity, as you said. We've generated a lot of strong cash flow and, quite frankly, been a meaningful step up in that cash flow over the last year and a half or so. So, yeah, strategically financial fits, as I've always said. We're in a great position now to be able to look at that. Devices and diagnostics, I will say, are the areas that we're looking at more carefully. Scott's team is always looking at everything, but he's got a more special lens here in devices and diagnostics. The areas that you reference are areas that are in the list of things that we would be interested in looking at. Tuck-in and medium-sized deals probably are more likely, again, if those situations present themselves. But again, we're always We're always looking at everything. So I would say, yeah, nothing has changed regarding what I've said about M&A. If it's strategic and it makes financial sense and we can, you know, deliver value for our shareholders, we are now in a great position as a result of all the efforts that we've had, quite frankly, on cash flow conversion and now with kind of COVID cash, that also helps.
spk07: Understood. Thank you, guys.
spk02: Thank you. Our next question comes from Josh Jennings from Cowan. Your line is open.
spk06: Hi, good morning, gentlemen. Thanks for taking the questions. Rob, just first wanted to ask a question on 2022 guidance and understand you didn't want to put a top end of the range there and cap the upside. Clearly, there's a potential upside with increased COVID testing outside of that $2.5 billion revenue gap. stream that you're expecting in the early part of the year. But just in the scenario where COVID testing does fall off and that guidance for the revenue from that franchise turns into reality, can you just refresh us on some of the other levers you have that you can pull to drive EPS growth? I think last year in June when COVID testing fell off, you know, your team talked about share repurchase, accretive M&A, some cost reduction, but just wanted to get a refresh there and and see if you could help us think through those levers. And then second question is just on the diabetes franchise, and clearly Libre has a long runway. You're looking at everything you just talked about in one of your answers about the consumer opportunity, but how should we think about the diabetes franchise and Abbott's desire to kind of leverage the positioning there with other products, either insulin delivery devices or other portfolio products? ads as we move into 2022 and beyond. Thanks for taking the questions.
spk05: Sure. On your first one, I mean, like I said, we de-risked, we fully funded, and we got the potential upside for the COVID testing. You know, if COVID testing in that scenario, which I think is highly unlikely kind of falls off, then we'll have to obviously look at kind of the investments we're making and kind of make the adjustments that we have to make, especially as we start to move into 2023. I don't think that is the case. I think that COVID testing is going to be still around. I think Omicron has catalyzed a pretty significant shift in global rapid testing and screening. And the question here is just going to be how does it, you know, how does it evolve over the, you know, over the next kind of nine months, 12 months here. So, but that being said, to your question on that scenario, you'd have to make adjustments. As I've said, we would. But right now, I'm managing, we're managing the enterprise as a whole, And we're obviously got profits that are coming from COVID that we're reinvesting into the business. If that turns out to not be the case this year, then, like I said, we're fully funded on our growth platforms. And then we'd have to kind of make adjustments or look at that investment level as we go into 2023. Buybacks is another opportunity that we've got. We've got a lot of flexibility here also. Last year, we bought I think it was about $2 billion in 2021. And I'd anticipate, you know, being active in the market again this year since we do have that capacity. And your second question, I think, was on diabetes, right? And growth opportunities.
spk06: Could you just... Sorry, absolutely. Just thinking about Anything you can share just in terms of internal development programs outside of advancing Libre and diabetes and on the consumer channel, on the sensing side, any other products within the diabetes device realm? that you could add to the portfolio. We should be thinking about the diabetes franchise, you know, just sticking with the playbook that you have that's been so successful in the last number of years and has a long runway. Thanks.
spk05: Got it. Got it. So, listen, yeah, we're in the beginning here. There's still a lot of opportunity, still a lot of underpenetration, whether it's internationally or type twos. As I've said, the key aspect here is to ensure your pipeline is relevant and is advancing and We've launched Libre 3 in Europe and we'll be expanding that launch now globally. I expect to be able to bring Libre 3 here into the U.S. I won't necessarily get into the specifics, but I figured you guys would eventually ask this. We have filed Libre 3 here in the U.S. as an ICGM to the FDA last year. I won't get into specifics about timing there, but it's the review process happens in the same agency that reviews diagnostic tests. As you can imagine, there's a lot of busy work going on with that area of the agency. We've obviously seen our data that we've submitted to the agency. We've obviously seen now data from a competitive system, and I'd say we're feeling feeling pretty good about where we stand. So I think that's a key component there is to expand the portfolio. I've talked about Libre for not necessarily what exactly is that, but, you know, we do have that as an active program. Connecting to insulin delivery systems is also part of that strategy. And, you know, we've got active programs with all pump suppliers and pen delivery systems also to be able to connect Libre onto that. So I think we'll stay focused on making the best sensor, sticking to our strategy of consumer-friendly, showing outcomes, price for access and affordability, and continue to innovate with our sensor platform and then look at opportunities to use those sensors to not only expand into other platforms, but also to connect to other devices.
spk06: Great. Thanks a lot.
spk02: Thank you. Our next question comes from Joanne Wunsch from Citibank. Your line is open.
spk03: Good morning, and thank you for taking the questions. I have a big picture one and a specific one. Big picture, one of the themes of your keynote address at CES was the marriage of check-in med tech. And I'm curious if you could highlight how you sort of take that lens in terms of your product pipeline. And then my specific question has to do with your structural heart franchise. Portico is out in the market. Amulet is out in the market. And I would love just a little bit of an update on how those products are doing. Thanks.
spk05: Sure. So, yeah, I've talked about this convergence, and quite frankly, we've seen this convergence occurring probably when we were doing the St. Jude acquisition and integration, and we started to set a lot of our portfolios to be able to connect to, you know, whether it's consumer electronics or clouds or other elements like that, to ultimately be able to empower the consumer and just build provide better solutions to ultimately improve outcomes. So I think you saw the device portfolio has been going down that path for quite some time now as very pleasantly, very pleasant to see that start to look not only in the cardiovascular side, also in the neuromodulation side. As I said in my opening comments on our virtual clinic, I think that's got an opportunity to change the business model of that business, and at the same time, provide better outcomes for not only DBS, but also spinal cord stimulation, too. So you've seen that in devices. We then started to see diagnostics, and you saw a little bit of that thinking as we developed Binax. We wanted to make sure that we were kind of integrating, you know, not just our expertise and, you know, developing a an accurate test to be able to detect COVID, but also integrate it into an app where you can kind of have your pass and your phone, et cetera, and working with partners to be able to kind of do that. So I think you're seeing it across all of the portfolio. You know, in our pharma business, we're using digital tools to be able to ensure that patients are, you know, taking their medications. So that's pretty, I'd say, a strategic element going across all of our businesses and how we're thinking about it. I wouldn't say it's just one part of the portfolio, but I think it's a convergence that is happening, and we want to be leaders in that convergence across all of our portfolio. Regarding your question on structural heart, I think you mentioned Portico and Amulet. Listen, amulets, we received approval in Q3 last year, moved quickly to launch. I'd say initial feedback has been very strong, especially in the areas of superior closure rates, the need to be able to leave the hospital without blood thinners. And also, we've heard a lot of broader sizes to better fit more anatomies and give them more of that flexibility. So, So that's done very well. As part of the launch, we wanted to make sure that we had good proctoring, good peer-to-peer proctoring. So obviously that became a little bit of a challenge in November and December after Thanksgiving and into December. But I think despite all of that, I think we've done pretty well. I think we did about 500 procedures last year, mostly in Q4. And if you look at what we did in December, that would put us at about 10% market share, which I think is pretty good. Obviously, we're not satisfied with that, given what we know we can do and what we've done in Europe. But I think it's very much aligned to where we wanted to be regarding the end of the year and as we enter into 2022. So I think that's going very well. Portico... As I've said, this is an important area for Structural Heart. We know that there are two entrenched competitors in there. We think we've got great technology also, and we're going about it very systematically, very methodically to build our position. We launched our Generation 2 product. in Europe, a Navitor product. And again, that's received great feedback also. And there's, you know, pretty competitive clinical profile here for high-risk surgery patients. So we're making the investments that we know we need to make to be able to expand our position here. So I feel good about our structural heart portfolio. I've talked about how this is a Big opportunity for us. We've made the investments, and I think we're in a great position as we go into 2022.
spk02: Thank you. Thank you. Our next question comes from Matt Taylor from UBS. Your line is open.
spk08: Hey, good morning. Thanks for taking the question. So I just had two margin questions I wanted to ask. The first one, I guess I'll frame it as if we take the 150 from Q1, You know, that implies about $1.6, $1.7 for the remaining three-quarters of the year. So is that how we should view your base business earnings power, or are you still spending more through the year from some of the COVID testing profits, or being conservative, would love just any additional color on the base business earnings power X testings?
spk09: Yeah, Matt, I'll take that. This is Bob. So, we don't really think about earnings, you know, or at the bottom line base versus COVID. We manage the whole company. You know, obviously, the first quarter is benefiting from, you know, the majority of the COVID sales that we've got forecasted at this point in time, kind of our starting point. But we funded, you know, our growth throughout the, you know, the rest of the quarter. So, what you have is, you know, COVID testing, initial COVID testing sales in that first quarter, but, you know, our investments throughout the entire year. And so, you know, as we update our COVID testing each quarter, kind of as Robert talked about, you know, that will fall through certainly at a higher level than our overall margin profile.
spk05: I just add on to that, Matt, we absolutely expect there to be COVID testing after the first quarter. The question is, at what level? And as I said in the beginning, to be able to kind of forecast a full year out like that, given the magnitude of how this can shift, it's just prudent to do it a quarter at a time. So when we're here in April, we'll have a better sense of what Q2 is going to look like in terms of COVID testing, and we'll be able to kind of update you there.
spk08: Okay. Can I just have one follow-up? Go ahead. So on gross margin, you mentioned that there's about 500 million headwind from, you know, inflation supply chain. And so I guess if we add that back in, you're getting to gross margins closer to 60% X that. And I was just wondering if you could talk about expectations for gross margins going forward longer term if things normalize and, you know, if you could kind of see those levels in 2023, if things improve, or just pluses and minuses on gross margins longer term.
spk09: I think the ad back gets you a little bit below that, but the way we think about gross margin every year is looking for ways to expand that. Every one of our businesses has dedicated teams focused on gross margin initiatives, and you're seeing some of that benefit actually in our 2022 forecast helping to offset the impact of the inflation that we're seeing. We continue those programs. They're not a one-year program. We do them every year, and we'll continue those into next year. The other thing we're seeing is a benefit of the business mix. As medical devices and routine diagnostic testing recovers, that benefits our overall gross margin. For the business, obviously, Robert talked about a lot of the opportunity, some of the opportunities, there's even more, that we have to drive growth in our medical device business as well as in diagnostics. And as we grow those businesses, that will have a positive impact overall on our gross margin profile.
spk05: Okay. Let me wrap up here then. Thanks, Bob. Listen, I'll finish by saying a little bit how I started. I acknowledge that there's a lot of uncertainties in the macro environment right now and the challenges that that creates in terms of, you know, in terms of forecasting for investors, at least in the short term. You know, pandemic, how long will it last, phases, transition to endemic, recovery curves of procedures. I get some of the challenges of that forecasting, but if I If I look at the market here at the start of the year and look at healthcare sector, specifically med tech and diagnostics, definitely been disproportionately hit by some of those uncertainties. And I think if you take a step back, I think it's important to remind ourselves that healthcare still remains a very, very important need and a great long-term growth area. Because I think none of the long-term growth market fundamentals have changed during the pandemic. If anything, some of them have gotten even better and accelerated. So I think the demographic trends are still very favorable. And procedures and routine testing, they're going to come back, whether it's a month, two months, et cetera. It's just difficult to predict with that perfect degree of precision, but they'll come back. And if you look at the innovation pipelines across the entire industry, they've never been stronger. And within that context, I think Abbott's pretty uniquely positioned here. We're in great markets, leading positions in several large, fast-growing segments, diabetes, devices, diagnostics, including COVID testing, nutrition, emerging market pharma. We have strong positions, brands, franchises across all of these. So, And to one of the questions, I think we're leading in the digital transformation that's going to be more patient-centered care, whether it's with bi-wearables, whether it's connected devices, remote monitoring, et cetera. And then you layer that diversification that I talked about in my opening comments, which I think is very unique. It maximizes our growth opportunities, and it does provide a natural hedge. to some of these macro environment impacts that we're going to see from time to time. And that diversity is not just on the business mix, but customers, payer types, obviously geographic footprint, and a very strong and resilient supply chain. So you translate all that into real strong, sustainable, strategic financial health, whether it's growing revenues, cash flows, dividends, We've got a rock-solid balance sheet. I've talked about the opportunities that we have with it. So I think we're in a really good position strategically, financially, and I'm excited about all the growth opportunities that lie ahead of us. So with that, I'll wrap it up, and I'll thank everybody for joining us today.
spk01: 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.
spk02: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a wonderful day.
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