Abbott Laboratories

Good morning, and thank you for standing by. Welcome to Abbott's first quarter 2022 earnings conference call. All participants will be able to listen only until the question and answer portion of this call. During the question and answer session, you will be able to ask your question by pressing the star 1 keys on your touchtone phone. Should you become disconnected throughout this conference call, please redial the number provided to you in reference to Abbott earnings call. This call is being recorded by Abbott. With the exception of any participants' questions asked during the question and answer session, the entire call, including the question and answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's express written permission. I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations, Licensing, and Acquisitions.

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 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 31st, 2021. AVID 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 AVID'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. Note that Abbott has not provided the GAAP financial measure for organic sales growth on a forward-looking basis because the company is unable to predict future changes in foreign exchange rates, which could impact reported sales growth. 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.

Thanks, Scott. Good morning, everyone, and thank you for joining us. Today, we reported results of another strong quarter. Earnings per share were $1.73, reflecting more than 30% growth compared to the prior year. Sales increased 17.5% on an organic basis in the quarter, led by double-digit growth in medical devices, established pharmaceuticals, as well as diagnostics, both with and without COVID testing-related sales. In addition to the strong results during the quarter, we continue to strengthen our strategic position and long-term growth opportunities with regulatory approvals of new products and expanded indications of use, along with continued market uptake of several recently launched products in attractive growth areas. I'll now summarize our first quarter results in more detail before turning the call over to Bob. I'll start with established pharmaceuticals, or EPD, where sales increased 13.5% in the quarter. EPD has now achieved double-digit organic sales growth in three of the last four quarters. Strong performance this quarter was led by double-digit growth across several countries and core therapeutic areas, including gastroenterology, respiratory, and CNS pain management. Turning to nutrition, where our performance was mixed. Our adult nutrition business continues to perform at a high level with global organic sales growth of 11.5% led by our Ensure and Glucerna brands. And we also achieved double-digit growth globally in our combined toddler nutrition products, which includes our market-leading Pedeshore and Pedialyte brands. As you know, however, we initiated a voluntary recall in February of certain infant formula products manufactured at one of our U.S. facilities. It's important to highlight as part of our quality system, we retain in-house samples of products that we ship to customers. Testing of retained samples related to this recall action by both Abbott and the FDA have all come back negative for the presence of the bacteria that caused the reported illnesses. The FDA and CDC found that there is no genetic match between the strains of the bacteria identified in non-product contact areas of our facility and available samples obtained from customer complaints, suggesting a different source of contamination. And lastly, no salmonella was found in our factory or product, and therefore the FDA ruled out any link to our facility. We hope these findings give parents, caregivers, and other stakeholders renewed confidence in our products. We know the situation has further exacerbated industry-wide infant formula supply shortages. That's why we're doing everything possible to mitigate supply constraints by bringing in product from our FDA-registered facility in Europe and ramping up production at our other U.S. plants. And of course, we're working very closely with the FDA on corrective actions and enhancements so that we can restart operations at the facility. Moving to diagnostics, where sales grew 35%. COVID test sales were $3.3 billion in the quarter, more than 90% of which came from our rapid tests, including BinaxNOW in the US, PanBio internationally, and IDNOW globally. Excluding COVID-testing-related sales, our global diagnostic sales grew 12% in the quarter, driven by the continued rollout of Alinity, our innovative suite of diagnostic instruments, and expanding menus across our testing platforms. And I'll wrap up with medical devices. where sales grew 11.5% in the quarter. This strong performance was led by double digit growth in diabetes care, structural heart, heart failure, and electrophysiology. In diabetes care, sales of Freestyle Libre grew more than 25% on an organic basis in the quarter, and the user base has now reached approximately 4 million users globally. In cardiovascular devices, While procedure volumes were negatively impacted by elevated COVID case rates early in the year, we saw a steady improvement in procedure trends as the case rates came down in the second half of the quarter, which has continued into April. In addition to improving market trends and our strong results, this was also another highly productive quarter for our pipeline. In the U.S., we received FDA approval for Avere, our leadless pacemaker to treat patients with slow heart rhythms. In Japan, expanded reimbursement for Libre will now cover all people with diabetes who use insulin at least once a day. Cardiomams received an expanded indication in the U.S. to treat more patients suffering from earlier stages of heart failure. And we received U.S. FDA clearance for the latest generation of our InsightX system, which provides a 360-degree view of the heart for improved cardiac mapping. So in summary, we're achieving strong growth overall and across several areas of our business. As the first quarter progressed and COVID levels decreased, we saw a steady improvement in the hospital-based procedure trends, which has continued into April. and we continue to advance our pipeline with new products, indications, and reimbursement coverage in several attractive growth areas. I'll now turn over the call to Bob.

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 excludes the impact of foreign exchange. Turning to our results, sales for the first quarter increased 17.5% on an organic basis, which was led by double-digit growth in diagnostics, medical devices, and established pharmaceuticals, along with global COVID testing-related sales of $3.3 billion in the quarter. Excluding COVID testing-related sales, organic sales growth was 7.7% versus the prior year. Foreign exchange had an unfavorable year-over-year impact of 3.7% on first quarter sales. During the quarter, we saw the U.S. dollar continue to strengthen versus several currencies, which resulted in a more unfavorable impact on sales compared to exchange rates at the time of our earnings call in January. Regarding other aspects of the P&L analysis, The adjusted gross margin ratio was 59.1% of sales, which reflects higher than normal fall through on COVID testing sales as a result of significant production volumes during the first quarter, partially offset by the impacts of the nutrition recall and somewhat higher than expected inflation on certain manufacturing and distribution costs in the quarter. Adjusted research and development investment was 5.6% of sales, and adjusted SG&A investment was 23.1% of sales in the first quarter. Lastly, our first quarter adjusted tax rate was 14.5%. Before discussing our outlook for the full year, I want to provide an update on our strategic capital deployment initiatives completed in the first quarter, which included approximately $2.3 billion of share repurchases, $800 million of dividends, scheduled debt repayment of $750 million, and $300 million of capital expenditures which support future organic growth opportunities. We continue to generate strong cash flow, which provides the flexibility required to execute a well-balanced capital allocation strategy. Turning to our outlook for the full year 2022, our adjusted earnings per share guidance of at least $4.70 remains unchanged. We now forecast total company organic sales growth, excluding the impact of COVID testing-related sales, to be in the mid to high single digits, which is somewhat lower than our prior forecast of high single digits due to the recent recall event in nutrition. It is important to note, excluding sales impacted by the recall, we continue to forecast total organic sales growth in the high single digits for the remainder of our combined businesses, which includes medical devices, established pharmaceuticals, diagnostics excluding the impact of testing-related sales, and areas of nutrition not impacted by the recall. We forecast COVID testing-related sales of approximately $4.5 billion, with a significant portion of these sales expected to occur in the first half of the year. We'll continue to update our COVID testing-related sales forecast one quarter at a time throughout the year as appropriate. Lastly, based on current rates, we would now expect exchange to have an unfavorable impact of a little more than 3% on our full-year reported sales. With that, we'll now open the call for questions.

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. Again, that's star and then one to ask the question. And our first question comes from Robbie Marcus from J.P. Morgan. Your line is open.

Hi, good morning. Thanks for taking the question and congrats on a good quarter. Maybe to start for Robert or Bob, you guys put up a good first quarter, beat on COVID testing sales, had double-digit growth in most of the businesses. I was hoping maybe you can reconcile the strong one cue and the reiterated guidance and walk us through some of the puts and takes and how to think about bridging the difference.

Sure, Ravi. I think you've been on these calls for a while. We rarely raise in Q1, I would say. And despite that, I mean, we've had a great start to the year, as you pointed out. And there's a lot of good things going on at the company. We talked a little bit about procedure recovery in the comments. We've seen good recovery in our device portfolio, especially in cardiovascular Seen routine diagnostic testing improving. It'll be a little bit slower than what we've seen in devices, but definitely the trend of recovery is there. EPD execution is going very well, like I said in the comments, you know, three out of four quarters double digit. Strong COVID sales, both in the U.S. and internationally. I think that's an important aspect here is our international presence, too. Talked a little bit about the pipeline and the approvals, not just the recent approvals, but the performance of some of the recently launched products. Bob talked about our cash flow generation and the deployment of that cash flow. We're able to kind of share. part of that cash flow with our shareholders, but also to continue to invest in the business. So there's a lot of good things going on here in the business, but there are a couple challenges that we're managing, and that's probably the piece there where the reconciliation that you're looking for is actually happening. First of all, obviously managing through the recall on the nutrition side, we're working with the FDA And we've contemplated in that reiterated guidance, you know, various scenarios here in terms of kind of restart dates and share recovery curves, et cetera. So it's difficult to give an exact date right now as to when that restart starts. We're working closely with the FDA. But I see this more as a shorter-term challenge in the sense that once we once we align with restarting with the FDA, then we'll begin to execute our strategy here in terms of coming back to market, resupplying the market, and regaining the share. Probably the second other part here, which is I think a little bit not unique to Abbott, and I think you'll probably see this across a lot of companies, is just the macro environment right now is has definitely changed versus where we were in January. And it's gotten a little bit more challenging. And we expect some of that macro environment, whether it's supply chain, et cetera, to kind of be a little bit more persistent throughout this year. So that being said, wanted to see how probably these two points here play out over the next couple of months. And we'll be in a better position to be able to assess that and on our guidance going forward after Q2. But like I said, there's a lot of great momentum in the business. Devices performing very well. Diagnostics performing very well. The parts of nutrition that weren't impacted by the recall continue to do very well. I'm not a big fan of the exclude this, but for that statements, but I think in the context of how the business is performing, I mean, if you exclude the COVID piece, which was pretty significant for us, and then just look at the business without the base business, without the impacted nutrition products, our growth rate was about 11%. And I think that reflects the strength of the portfolio, the investments that we've made, and the execution. So in that guidance, that reiteration of 470, we've absorbed As Bob said, you know, more FX headwinds absorbed some challenges in supply chain, absorbed portions of the nutrition recall. So I think it's the right EPS guide right now in terms of where we are, you know, after Q1.

Great. Really good color. And maybe as a follow-up – I think a lot of investors are focused on the go forward, realizing that January and February weren't the strongest months due to some of the elevated Omicron levels. So we heard Johnson & Johnson yesterday talk about reaching pre-COVID volume levels in April. It sounds like you exited and continue to see strong growth coming out of the quarter and into second quarter. I was hoping maybe you could give us a little more color on just the volume trends you're seeing, particularly in devices and diabetes, which was one that missed the street a little bit in the quarter, and how you're seeing the geographic spread and any differences there. Thanks a lot.

Sure. I mean, I think the storyline here was very similar, as I said in my comments. I mean, it started off a little bit slower than we had anticipated in January, obviously given Omicron and the surges there and the pressure that that put on staff at hospitals. But definitely sequential improvement from a dollar perspective every month as we move along the quarter. March was very strong. I've always talked about how we compare our businesses versus pre-pandemic levels to kind of avoid some of the comp issues that ultimately do exist. If you look at our Q1 22 growth rate versus 2019, we were up about 7.3%, so well ahead of where we were in 2019. And that was pretty broad-based. You know, geographically, the U.S. was up 6%, again, versus 2019. And international, you know, was up over 8% versus 2019, too. So I think our device business has performed very well, and we've seen that improvement as we went through the quarter. The cardiovascular side has done very well, as I've kind of given those numbers. And March was And March was really strong, too. I think part of it is recovery, Robbie, that we're seeing. But also, I would also put in those numbers. You know, I made these comments about recently launched products that we started launching last year. It's always a challenge to launch these new technologies in that COVID environment. But it was the right decision to make. And we're seeing good momentum on, you know, whether it's Amulet, Navator in Europe, CardioMems. You know, the rollout of InsightX that began in Q4 of last year, our Triclip product. So I think all of that, it's the combination, I would say, of both recovery as the COVID cases subside, but also the new product launches and the pipeline that we put, which is driving this performance where I'd say we're ahead of where we were in 2019 and having good growth rate in our cardio portfolio.

Appreciate the color. Thanks.

Thank you. Our next question comes from Vijay Kumar from Evercore ISI. Your line is open.

Hey, guys. Thanks for taking my question. Robert, back on this guidance question, the testing guidance was raised by $2 billion. That's perhaps $0.40 of upside. In reiteration of this EPS, what is offsetting this incremental challenge from COVID rates? How much of this is FX versus macro Russia versus the recall or inflationary pressures? I think a little bit more granularity will be helpful.

Sure. Well, I mean, I think you hit on the key points there. I mean, inflation, you know, additional inflation pressures is impacting some of that. You know, we've got a couple hundred million dollars that we've contemplated throughout the rest of the year in terms of friction on supply chain costs, input costs, freight and distribution. You know, the recall, well, let me take a step back. The FX is probably about a nickel of friction that we're having, as we've seen the dollar strengthen. The rest of it is really coming from nutrition, but it's very difficult right now. If you could be able to kind of pinpoint exactly, we've got a couple different scenarios, as I said in the first question, in terms of the restart and the curve. You know, we are seeing more COVID tests and more COVID sales. And that, like I said, is absorbing some of these, you know, some of these challenges.

Understood. And then one on Vibra, sequentially the badness declined. And I guess my question is, you've been adding, I think, a couple of hundred thousand new patients towards. Is that new patient starts changing at all? how should they think about incremental reimbursement in Japan? And with the seasonality, what drove the sequential Libre revenue trends?

Yeah, I mean, I think we see some of that from time to time here, especially as you go from Q4 to Q1. Vijay, we've seen that a couple times. I'd say internationally the biggest driver of that is actually FX that created that. We've seen good growth internationally from Libre, you know, getting close to 20%. on a very large base. And in the U.S., you know, you're going to see some timing patterns there in terms of wholesaler ordering. You know, I like to look at scripts, both new-to-brand scripts and total RX scripts here in the U.S. And the sequential, you know, Q1 to Q4, there's definitely growth there. So I think we've done a really good job in the U.S. You know, we've grown our business in this quarter by 50%. Users now, well over a million users. We've made the investments in the U.S., whether it's Salesforce, DTC advertising. I think the team is beginning to hit its stride over there. They know that I'm not satisfied. We always want to see more and believe that we can do more. But I think the U.S. is starting to really hit its stride with those investments as the Salesforce gets deployed and establishes the relationships with what is new physicians that are getting introduced to CGM. So I think that's worked out very well. If I take a step back, though, and move away a little bit from the Rx's and the sequential, I think one of the key things here to really take a look at is the evolution of the CGM market. And I'm starting to really see now what we had always envisioned this market to start to be, which is a market that is shifting from what traditionally was, you know, more of a type one, you know, more of a pumper, you know, insulin pump kind of connectivity play, which is an important segment, but really start to move and expand beyond that. And we're starting to see signs of that. And I think Libre is a big driver. The value proposition of Libre is a big driver, whether it's You know, physicians and payers, quite frankly, started to see the value of the sensing technology, you know, across the much broader set of patients. If you look at a U.S. base of patients, and we get to see this because we get to see the RX data in terms of, you know, what medications the patients are using, and over 40% of our user base, which is pretty large for the U.S., is already type 2 non-intensive patients. And that, as I said, is really kind of the opportunity to expand this market and become a really strong growth driver. The Japan reimbursement that you just referenced, again, this goes back to a comment I made about, you know, we see this as a mass market opportunity. So, you know, counter to maybe how we think about reimbursement in different segments of devices where, you know, you're thinking about price of reimbursement versus patient TAM. You know, we're looking at patient TAM much more than we are on the pricing side. We've got great reimbursement in Japan, but to be able to have access to all insulin users in Japan with our product is a great opportunity for us. And then you're seeing the value proposition, again, really strong. There was a study that was published by UK NICE, and I think that, for me, is the ultimate validation of our strategy and the value proposition we offer, where it was clearly shown to be extremely cost-effective, whether you look at ICERs or QALYs in the UK by NICE, and their view here of how this can benefit a lot of patients. So that, for me, is the real exciting part of Libre, is we're really starting to see that evolution from the CGM market to become a much more than kind of a niche play and much more a mass market play, and I think we're starting to see evidence of that, whether it's new studies or reimbursement access or even seeing physicians' primary care docs start to really embrace the prescription of CGM for type 2s.

That's helpful, Robert. Thank you.

Thank you. Our next question comes from Josh Jennings from Cowan. Your line is open.

Hi, good morning. Thanks for taking the questions and congratulations on a strong start to the year. Rob and Bob, I just want to start with just a question on gross margins. The 1Q performance was the highest since 20 quarters in 2019. Just wanted to better understand the sustainability of this profile. 59.1% despite all the challenges in place in one queue and then and should investors be thinking that return to 2019 gross margin levels in that 59% range plus is achievable in the out years and then follow-up is on MitraClip. I just wanted to hear an amulet. What have you learned in the early days of the launch as a number two player in the U.S.? ? if they show appendage closure marker that you can apply to your defense strategy starting this year and maybe carrying into next year when you're defending your MitreClip turf as the number one player, assuming the U.S. Pascal launch occurs in 2023. Thanks for taking the questions.

Okay. Josh, I'll take kind of the gross margin question. In the first quarter, you know, our gross margin certainly benefited from the very high COVID testing sales. As I mentioned in my remarks, actually the fall through on that was higher than we've seen in the past because of the production volumes that we had going through our plant. We were basically running full out on that. So our first quarter definitely benefited from that. As we look at the rest of the year, obviously we're going to have to have the impact of the nutrition recall and the inflation, the increased inflation that Robert mentioned. Obviously inflation is not unique to us. As we said back in January, we incorporated a sizable amount in our guidance at that point in time. And what we've seen, and I think a lot of other companies have seen, is kind of an increase in some of those headwinds. And so we've captured that in our guidance for the rest of the year. When I think out beyond this year and where gross margin goes, I mean, gross margin is something we focus on in the company constantly. We've got dedicated teams within each business that are focused on driving gross margin improvements. I mean, a lot's going to depend, I think, as we think out in the future, the evolution of inflation and supply chain dynamics and how those evolve over time. That will be a key component. And then, obviously, as we grow the top line in our medical device business, that's accretive to the overall profile of the company. And so, you know, that's kind of where we see gross margin, you know, right now and potentially in the future.

Yeah, I had a question on MitraClip and Amulet. So I'll talk a little bit about MitraClip. So I'd say that the progression of MitraClip in the quarter was very similar to my commentary on our cardiovascular procedure, right? So we obviously had a high COVID case, you know, kind of impacted, but started to really accelerate growth towards, you know, the end of February and into March. So as those cases came down, we saw the improving growth rate. But I'll tell you, I mean, while the growth rate has been strong and it's been strong for a while, Josh, I don't think we've really been able to benefit yet from, you know, the FMR indication, you know, which we got kind of right in the middle of COVID. And as part of that, you know, and I talked a little bit about this, you know, to be able to benefit from, you know, this pretty significant kind of market expansion opportunity that we had with incredible robust data from COAP, you have to really start to work those patient referrals and the referral networks. And we began doing that when COVID took its first break, and then that got put on hold again when Delta and Omicron served. So I'm really looking forward, and the team is kind of already putting in place that strategy again to re-engage the patient referral network so that we can really take advantage of this indication, which is unique to us and will be unique to us for a while. Relating to competitive movements onto the market, we've just got to stay ahead. We've got to keep on investing in the product, so we've done that with MitraClip, staying ahead and iterating and improving on the performance of the product. We're investing in new trials. I've talked about our investment that we're making in moderate risk surgery patients. That'll be a great opportunity for us. And we have a great team, and we have great relationships and a strong mitral position. So not discounting the fact that we'll have competition. We've had competition in Europe for a couple years already. Germany is probably the second largest global market, and our position there remains at an 80% market share. So acknowledge that we will have competition, but we have established this Mitral leadership position, and we intend to defend it because of all the investments that we've made to create this market. So that's what I would talk about MitraClip. I still think the best is still to come because I don't think we've been able to tap into the opportunity of the FMR indication. Regarding AMULET, listen, I think the team has done a really good job, again, reiterating the same kind of comments. A little bit challenging in the beginning of the quarter, and that was predominantly driven by the fact that we wanted to start the initial cases with every case being proctored. So, you know, difficult to move proctors, you know, throughout the U.S. and travel international, et cetera. So that slowed us down a little bit in the beginning of the year. But I tell you, the team has done, you know, we spent a lot of time and attention and focus with them in February and March. And the team has definitely had a really strong exit to Q1. caught up in terms of all the contract closes that we had established as part of our plan in Q1. So I think the commercial execution is doing really well, and that's supported really by the performance of the product. And once physicians have had an opportunity to get a couple of these implants done, it's a little bit of a different technique, but they feel comfortable with it, and then they get the you know, superior closure, and naturally because of our unique dual sealing mechanism. So, you know, there was some data that came out, late-breaking data that came out of the ACC. It talked about the importance of leaks, and leaks matter, whether they're big leaks or whether they're small leaks. They do matter, and even the small leaks were associated with an increase in thromboembolic events. So I think we're in a good position now with AMULET. I'm pleased with the commercial team and what they're doing, the clinical team. And, you know, we've got opportunities here to grow. I think momentum is building with AMULET.

Thanks so much for all that color. Appreciate it.

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

Good morning. Thanks for taking the question. So, Robert, two high-level questions for me. One, I'll push my luck a little bit and see if we can get any preliminary thoughts on 2023. You're getting a meaningful testing benefit this year, which may not materialize next year. So how do you feel about your ability to grow margins and earnings next year if testing demand drops? And I had one follow-up.

Sure. Well, we had a really strong quarter regarding testing, Larry. And, you know, I think to answer your question, I think you have to kind of look at what's going on a little bit right now in the U.S. and internationally. In the U.S., we saw cases decline pretty significantly in February. But I think we all agree that some of those cases that are being reported aren't covering all cases. because of the use of the at-home testing systems that are currently available. So I think that's part of the process that we're seeing as testing, as we're moving more into this kind of endemic state. And as we move to this endemic state, listen, vaccines have been incredibly powerful to be able to prevent serious illness, to be able to protect the hospitals and the hospital system. But it's really testing that, you know, really allows us to kind of move to this endemic state and kind of live our day-to-day, and it's more about surveillance and screening and checking. And I think our product has done really well here. It's maintained a kind of preferred status here in the U.S., even with a pretty significant increase in product coming into the country. whether it's its ease of use, its shelf life, the reliability it has, its studies, et cetera. So I think that that's an important aspect as we go into 2023 is do we have confidence that, you know, even in an endemic state, does, you know, testing continue? And I would say, yeah, it does continue. One portion that doesn't get a lot of attention is our international testing business. 50% of our sales in March of COVID tests came from the international markets. And I'd say similar sense there of governments investing in testing and coming to Abbott as one of the preferred suppliers. So I think that to answer your question, you know, obviously there's a certain amount that you can't overcome, right? But I do think that as we go into next year, we'll have a portion of our testing business that will, you know, look more like a flu kind of respiratory kind of endemic state. And I think that's going to be important as we continue to grow earnings. And then on top of that, you know, like I said, you know, the the focus of our medical device business, the investments we've made in our diagnostic systems, and increasing the test menus over there. So I expect our base business to continue to grow very strongly. Yeah, it's a little bit early regarding 2023, but, you know, we are planning, we are looking, we are looking at, you know, where we're going to be able to kind of grow and And I'd say there'll be some COVID business next year. I think we're in probably the strongest position to be able to kind of capitalize and lead in that market. And then our base business is going to do very strongly next year with all the investments we've made and new product pipeline that we've got.

That's super helpful. And, Robert, you know, you're in a unique position with your strong balance sheet. I saw, you know, you mentioned on the call you bought back, I think, $2.5 billion in stock this quarter. What are your updated thoughts on M&A? And if you can't find attractive assets, are you going to continue to return cash to shareholders like we saw this past quarter? Thank you.

Sure. On the M&A side, yeah. I mean, I'll sound like a broken record here, Larry. I mean, we're always looking. We're always studying. We're always looking at ways to be able to add to the company, add to our business, but it needs to be strategic. And from that perspective – I don't want to dilute our growth rate. I don't want to dilute our profiles. We need to make sure that we're looking at assets that will be additive to our growth rate and to our profiles, at least the top line. That's always there and we're always looking. Regarding, you know, the approach, listen, it's always a balanced approach, Larry. We're generating strong cash, strong cash flow. We've got a lot of financial flexibility here. We'll return $3 billion in terms of dividend this year. Bob talked about what we've done regarding buybacks. And, you know, we're always going to look at this kind of balanced approach. We've made investments in our organic opportunities for growth. because I believe that those are great returns for our shareholders, whether it's Libre, MitraClip, expansion of our medical devices, diagnostics. Those are all opportunities that deliver great returns for our shareholders, and we'll take that balanced approach. And if there is an opportunity for more, we'll do more.

Thanks so much, Robert.

Yep.

Thank you. Our next question comes from Joanne Wunsch from Citibank. Your line is open.

Good morning, and thank you very much for taking the question. I'd like to circle back a little bit to the nutritional business. A lot of the feedback that I get from investors is some level of concern regarding brand name, brand damage, if you will. And I'm curious your thoughts on what it would take to sort of revamp this business up. Thank you.

So are you referring to the nutrition business?

Yes.

Okay. Listen, we've got a very robust manufacturing network and a robust quality system. Obviously, there's a shortage of product in the market. I highlighted some of the things that we're doing to be able to kind of resupply the market. A key aspect of that is going to be the restart, and we're in that process. We've got a strong brand with Similac. We've maintained a lot of contracts. We've been able to supply those contracts, even with a little bit of this shortage. So I feel confident in our team's ability here to look at, once we get restarted, to be able to resupply resupply the market and build back our share. We had just launched, Joanne, a new product last year, end of last year, with a blend of five HMOs, and that's a significant advancement. And we were expecting that based on everything that we had studied and seen was going to be a big growth driver for us and kind of brand enhancer. So So I think that's going to be important. And, you know, yeah, we'll have to make some investments as we go back to the market. But, you know, I'd say historically when some of these issues have happened in the past, whether it's Abbott or other manufacturers, you know, Shared does recover. You know, the question is just kind of the timing and the curve of that recovery. But Shared do come to recover. And you can look at past situations with other competitors and even with us

Thank you. And as a follow-up, forgive me for asking it this way, what's next? I mean, I don't think we're going to be talking about COVID testing in a year, or I hope we're not going to be talking about it. But how do you see the sort of forward momentum of the company? Big picture. Thanks. Thanks.

Yeah, well, yeah, I don't think we're going to be talking about COVID testing the way we're talking about it, you know, today or how we've talked about it in the past year. But like I told Larry, I mean, I do think that there's going to be an opportunity for COVID testing to play a role in this kind of endemic state. And as I've said in the past also, you know, what COVID has allowed us to do is to further accelerate what we believed was a key trend in COVID. in diagnostics and point-of-care diagnostics, which is the expansion and the decentralization of that testing outside of the lab into pharmacies, into people's homes, and it being connected. So I think COVID has accelerated that, I guess I would say, and we're obviously building menus where we'll be able to add to the IED now instrument, more panels, more different tests. Remember when we started the pandemic, we had about 20,000 kind of instruments. That's now five-fold in terms of the opportunity that we have to be able to expand menu into basically an asset that's been capitalized and deployed into the market. So that's what we've been working on from that perspective on the, I guess I would say on the rapid on the rapid testing side, on the decentralized testing side. I'd say going back to the device portfolio, there's still a lot of what next in our pipeline of products that we've just launched that are still in the early innings here. One of them that we got approved This quarter, which I'm really excited about, is Avere and our leadless pacemaker. I think this is going to be a great opportunity to kind of reignite growth back in our CRM business. I mean, we've seen an improvement already with the existing portfolio and had a 4% growth this quarter. But I think Avere is a real kind of game changer for our CRM portfolio. Obviously, the single chamber is a smaller part of the market. We know that. It's about 15%. But I think when you're coming second to the market, you get to observe what needs to, you know, what could be addressed that maybe the first generation didn't do. And I think that, you know, our product, whether it's retrievability, its ability to be retrieved, its longer-lasting battery, right now it's about 2X product that's on the market. But I think what's really exciting about this is its ability to upgrade products. to a dual chamber device. So it's upgradability is what we're hearing extremely big interest from the physician community. So I think that's a great opportunity for us that, you know, I think is really going to start to show as we evolve our trial for dual chamber and begin to collect data there. I think that's going to be a great opportunity for our CRM portfolio. I look at CardioMems as another great opportunity that we have just really just started. The expanded indication is going to really open up the market. I've seen some of the implant trends that we've seen post, you know, post-expansion indication, and that gives me a lot of excitement about what this product can be. We talked about AMULET. I think that the TAVR piece is one that, you know, as I've said in the past, we're investing I think Navator is an extremely competitive product, and we're seeing that in Europe as we've launched it and been six months in the market now. So there's great opportunities over there. Libre 3 is an opportunity for us, not only in the U.S., but in Europe to continue to expand the market. I think Lingo, as I said last call, is another great opportunity that is really in the early stages. to look at using our biowareable sensors outside of diabetes and looking at opportunities there. So I think we have a lot of what nexts that are pretty early in their early stages. And then on top, all the products that we've been talking about right now also. So I'm excited about the what next.

Thank you. Thank you. Our next question comes from Travis Steed from Bank of America. Your line is open.

Hi, good morning. Thanks for taking the questions. Tristan, the inflation supply chain, it sounds like it's gotten about $200 million worse than the $500 million you had built into the P&L, just to confirm that. I'm curious what you're seeing the biggest pain points. Is it wages, raw materials, shipping costs, and expectations on when that could start to ease to some degree, or how you're thinking for potential offsets with price?

Yeah, Travis, I'll take that question. This is Bob. So, as we said back in January, we did incorporate a sizable impact into our 2022 guidance, which was about $500 million on the gross margin line. And as Robert mentioned, we've now incorporated an additional $200 million in gross margin impact in our current guidance. The biggest impact we're seeing is really on logistics. and commodities and some other manufacturing inputs. It's not so much on the labor front. Labor is a smaller portion of our total product cost. So it's really on the commodities. You know, in terms of when this will ease and change, I mean, that's very, you know, I think there's a lot of things that affect that and where the, you know, where inflation may go. We do know that historically, On commodities, we do see cycles. We do see, you know, commodity costs go up, but they also come down. And we would expect at some point, and it's very difficult to kind of call exactly when that will be, you know, we will see some, you know, some of the inflationary pressures subside.

And then, given your presence in China, we'd just kind of love to hear your thoughts on both China from a procedure standpoint standpoint and also supply chain standpoint, you know, just given how much of a business you have there. And any thoughts on the progress you're making with Libre 3 and the FDA would be great, too. Thank you.

Sure. I think regarding China, I saw a little bit of an inverse in terms of what we saw in all the other geographies where it started off pretty well in the quarter and then, you know, as the lockdown started to occur specifically in Shanghai and towards the end of February and into March, started to kind of see the impact of that in our procedures. We look at our testing platforms as kind of an early indicator and a proxy, so we saw those go down also during the month of March. And I'd say over the last two weeks in April, started to see a recovery of those diagnostic testing. So I think what we saw was a lot of the testing that was being done in the major kind of cities was shifted over to kind of PCR testing together with rapid testing. And that obviously impacted some of the, you know, some of the routine hospital testing. But we're starting to see that now probably two solid weeks of kind of positive trend back in the right direction. Still not at the level we were before the lockdowns, but definitely starting to move in the right direction there. So I would expect, you know, just based on patterns that we've seen in the past that, you know, we're starting to kind of move to, you know, sequential week-over-week improvements in the procedures. And, you know, not all procedures are the same. You know, some of them return faster. You know, some of them have a different kind of recovery curve. But I do expect kind of the impact that we saw in March and a little bit in the beginning of April on devices start to kind of improve. Sorry, you had a question on Libre 3?

Yeah, Libre 3. Any update on how the progress is working with the FDA or what the label might look like? Just any additional color would be great. Thank you.

Sure. Like I mentioned on the call, we filed as an ICGM. I don't have much to kind of update you there regarding that. I will say that we have moved Libre 3 in Europe into, you know, from kind of more of a limited rollout in Germany. a while back to kind of more of an accelerated conversion from Libre 2 to Libre 3. And I think the process started really well in Germany. We got initial feedback from physicians, very positive feedback from the reimbursement system also. And that gave us the confidence here to kind of really begin to accelerate this market transition. in Libre 3. We did that in Libre 2 also when we moved from Libre 1 to Libre 2 in Germany. That took us about a year. I think it's going to be faster than that with Libre 3. And we've got over 90% reimbursement coverage for Libre 3 in Germany. So that's now moved into high gear, not only in Germany, but for the rest of the year. So I'm focused a lot on what we can do with Libre in the countries that we do have it approved. And right now, Everything that we're seeing is that it is a very, very compelling product.

Great. Thanks a lot.

Okay, operator, we'll take one more question.

Thank you. Our last question will come from Matt Mixick from Credit Suisse. Your line is open.

Thanks so much for squeezing me in. Just in the context of some of these new products, I did want to maybe follow up with just a level set expectations for, for example, the Avidity rollout and menu expansion. You know, very strong growth in the quarter. Robert, if you could maybe talk about what's the, you know, duration of this rollout. You know, I know it started into the pandemic and, What does that look like through this year and potentially through next year? And then I know you've talked a few times here about AMULET. Just love to get your updated thoughts on where you think SHARE could go in the next year or 18 months. You've made some comments in Q4. I know the pace is picking up here in the U.S. Any numbers you could put around your thoughts there would be super helpful.

Sure. I mean, Alinity is a multi-year strategy and rollout here, Matt. We're doing it not only with immediate assay. We're doing it with clinical chemistry. We're doing it with hematology. We're doing it with transfusion. This has never been done at this kind of scale to be able to really recycle all of our systems. So I think that if you look at the way the market is set up, The contracts are lasting between seven to 10 years. So on any given year, you've got 15% of the market that's coming up for an RFP. So regarding its legs, like you're asking, I mean, I still think that we've got multiple, multiple years here. The COVID pandemic definitely slowed that down in terms of the renewal cycles. A lot of hospitals focusing on just I'm just dealing with the COVID, but I guess what I would say is there's plenty more to come. The key here is to balance between in that 15% that comes up for RFP, what's renewal, so an existing customer, and what's kind of share gain. And I think the team has done a really good job at being able to look at having a real strong balance about not just defending the base, and we've done that pretty well. So I'd say nine out of ten accounts we've been able to maintain. And then if you look at the business that's coming up for grabs, I'd say our win rate here is over 50%. So when you think about that math, retaining 90% and winning 50% of the new businesses, that's what ultimately drives our top-line growth. Once you put those instruments in, then the key aspect here is to be able to expand the menu use of those instruments while they're in an account. You've got the capital deployed. You've got the service cost that's been deployed there. Everything we can do to be able to add new menus, new tests, et cetera, is accretive from both the top and the bottom line. That's a big focus of the team on the R&D side is to be able to expand the menus concurrent to what I would say is this kind of placement strategy that we have with the new systems. Amulet, on your question on Amulet, listen, I think we continue to capture share. We estimate that we're in double-digit share position here in the U.S., Longer term, I would say our aspiration is to build a significant share position. The European market is much smaller than the US market. In that market, we have a 50 share. I think the key thing here is for us is to, every time you're a new player coming into the market, you have a different technology. We believe ours is superior, but it's different in terms of how it gets used, how it gets implanted. you need to make sure that the physicians, as you roll it out, learn how to use our product, our implant, our system. And from there, you build off there. So I think we'll be looking at not only expansion into new accounts, but also utilization in existing accounts. And that's the piece that I'm actually getting very excited about. As we've looked at the accounts that we started you know, back in September and October, we're starting to see nice share movement over there. So that's very exciting for us. That's great.

Thanks so much.

Yeah, let me just close here. I think we've had a very strong start to the year, like I said in my prepared comments. You know, we've reaffirmed our guidance that we set back in January, absorbing, I would say, you know, impact of the nutrition recall, which we're working hard on to reduce to restart. Other parts of nutrition are doing very well, and I expect them to continue to do very well. We're absorbing, as Bob said, challenges with inflation and supply chain that many companies I know are facing, and we're absorbing some headwinds on FX side. That being said, There's a lot of great things that are going on at Abbott in the company, a lot of positives. I talked about them in the beginning of the call, and I expect all of that positive to continue and to that momentum to continue to build on that business. Like I said, excluding COVID, excluding some of the recall products, our base business grew 11% in the quarter, and the team is focused on building off that and building off that momentum. So thanks.

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

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.