Becton, Dickinson and Company

Hello and welcome to BD's second fiscal quarter 2020 earnings call. At the request of BD, today's call is being recorded. It will be available for replay through May 14, 2020 on the investors page of the BD.com website or by telephone at 800-585-8367 for domestic calls and area code 404537 3406 for international calls using confirmation number 2189907. I would like to inform all parties that your lines have been placed in listen-only mode until the question and answer segment. Beginning today's call is Ms. Monique DeLecke, Senior Vice President of Investor Relations. Ms. DeLecke, you may begin.

Thank you, Stephanie. Good morning, everyone, and thank you for joining us to review our second quarter results. We hope that everyone is healthy and safe during these unprecedented times. With safety in mind, we are taking a more virtual approach today and exercising social distancing while conducting this call. Joining me in person, we have Tom Poland, our Chief Executive Officer and President, and Chris Reedy, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer. Joining by phone, we have Alberto Mas, Executive Vice President and President of the Medical Segment, Simon Campion, Executive Vice President and President of the Interventional Segment, and Patrick Kaltenbach, Executive Vice President and President of the Life Sciences Segment. As we referenced in our press release, we are presenting a set of slides to accompany our remarks on this call. The presentation is posted on the Investor Relations page of our website at bd.com. During today's call, we will make forward-looking statements, and it is possible that actual results could differ from our expectations. Factors that could cause such differences appear in our second fiscal quarter press release and in the MD&A sections of our recent SEC filings. In particular, there is significant uncertainty about the duration and contemplated impact of the COVID-19 pandemic. The data we are providing today is based on our preliminary April sales results and the trends we are seeing in our businesses. We have made certain assumptions in how we are managing our business, but that could change as we move forward. We will also discuss some non-GAAP financial measures with respect to our performance. Our second quarter results include a $39 million non-cash charge to write down the carrying value of developed technology related to the planned retirement of the BD Acuri flow cytometer platform within our biosciences business. In addition, we are working with the FDA with respect to certain features of our Alaris Infusion Pump products that are additive to our current remediation efforts. As a result, we have recorded a charge of approximately $200 million to reflect the estimated probable future costs relating to remediating Alaris products. It is possible that this estimate could increase over time. Any remediation actions will continue to be guided by our proactive commitment to patient safety. In addition, due to challenges associated with the global COVID pandemic, among other factors, we no longer expect to submit our ALERIS 510K filing in the fourth quarter. We are working closely with the FDA to assess how quickly we can get back to our previous plan, and we will provide an update on our August earnings call. These items, along with details of purchase accounting and other adjustments, can be found in the Reconciliations to Gap Measures in the financial schedules in our press release and in the appendix of the investor relations slides. A copy of the release, including the financial schedules, is posted on the BD.com website. It is now my pleasure to turn the call over to Tom.

Thank you, Monique, and good morning, everyone. I certainly hope you and your families are doing well as we navigate this unprecedented time. Our thoughts are particularly with those personally affected by COVID-19, including healthcare workers on the front line who are caring for patients and battling this virus. As you've seen in our press release, our second quarter results were ahead of our expectations, even though the Q2 impact for COVID-19 was larger than we anticipated. While we've seen strength in our portfolio that's more directly tied to COVID-19 diagnosis and treatment, We're also experiencing significant pressure in other areas, such as products relied on in elective procedures, research, and routine care. Chris will cover this in more detail later in the call. This remains a dynamic situation, and the timing and phasing of research and more elective healthcare returning is hard to predict. That's why we've decided to withdraw our guidance for FY20. As I've shared in the past, you can expect transparency and straight talk, and so Chris will share with you what we know so far, including what we saw in April, and he'll give you more color on the many factors impacting recovery. Before we get into the impact to our business, I want to spend time on BD's response to COVID-19, because I believe it embodies what we stand for in our purpose and what makes BD unique. And so on slide four, I'd like to start by sharing my deepest thanks to the BD team around the world. I've been with the company nearly 20 years, and it never ceases to amaze me how our team rises to the occasion for our customers, especially during times of uncertainty. What I've seen in the last two months is truly inspirational, and I'm so proud to serve alongside this team. Turning to slide five, we defined four priorities that have guided our response to COVID-19 since January when we convened our crisis management team. First was to protect the health and safety of our employees. Second, maintain business continuity and mobilize our world-class operations to help combat the pandemic. Third, bring new solutions across the entire continuum of care from discovery and diagnosis to delivery of care. And fourth, take proactive measures and continue to advance our strategy so that we ultimately can emerge from this pandemic strong and better positioned. And while we are actively working to address near-term pressures related to COVID-19, we will always operate our business for long-term value creation. I'll discuss each of these in more detail now. First, protecting the health and safety of our associates on slide six. We took a number of actions very early on to help safeguard our team, including adapting the workplace for social distancing, increasing cleaning and disinfection protocols, and adding temperature monitoring at our manufacturing and distribution centers beginning in February. We've also increased personal protective equipment for employees, including leveraging our 3D printing and large-scale molding capabilities to manufacture our own space shields so we can further protect our employees. Even as we made our own difficult decisions to furlough a small percentage of our manufacturing associates, we preserved full access to healthcare benefits for impacted associates in the U.S., including covering both the employer and the employee payroll reductions during the furlough period. Turning to slide seven and our second priority, mobilizing global operations. As you know, world-class manufacturing excellence is a core competency and focus for BD. All of our critical to COVID manufacturing and distribution centers are operating at or near full capacity. You can imagine that's not easy in this environment. And we have BD associates stepping up around the world to make this happen. Just one example is we've had more than 100 of our manufacturing associates from Malaysia volunteer to temporarily relocate to live in Singapore during the border closure. They moved away from their families to Singapore in the middle of the pandemic just to help maintain operations at our Singapore plant. Two-thirds of all BD associates or more than 43,000 of our workforce who work in our manufacturing plants, distribution centers, and field service roles have continued to come into BD or to customer sites nearly every day during this crisis to help ensure our products and solutions are there when patients need us most. And I thank each and every one of them for that. We've leveraged our scale and ramp production to the highest degree possible in this environment, and three examples stand out to me. First is, to reduce the risk of exposure to caregivers, some clinicians move the Alaris system from the bedside to outside the patient room, dramatically increasing demand for IV extension sets. BDTM responded with urgency, increasing production of these sets 100-fold within just a month. we've dramatically increased the number and types of specimen collection swabs from about 500,000 each week in February to an expected 3 million in June, 3 million a week in June. We've significantly scaled production of our BD max reagents used for open assay tests, including our new molecular assay for COVID-19. We'll have increased output of open assay kits by more than 80 fold between February and June. And we're currently manufacturing six times more each month than we did all of last year. And we continue to scale that up. We're also looking ahead, recognizing a potential second wave of COVID-19, which could align timing wise with flu season. We're preparing additional capacity to ensure we can address both demand for a flu test and an antigen COVID-19 assay. Given that the symptoms are pretty similar, we're also anticipating potential higher demand this fall as well. I also want to reassure you that as we've ramped production, our commitment and focus to delivering the highest quality products has remained extremely in focus. While we're experiencing historically high demand for critical to COVID products, there's also negative pressure on product categories tied to routine healthcare visits and lab testing, elective procedures, and non-COVID research. For example, during Q2, we began to see a significant decline in elective procedures. During the end of the second quarter, demand for research reagents and instruments slowed dramatically as research institutions and labs temporarily closed due to lockdown. As a result, we have temporarily slowed or suspended production at a few of our non-COVID related manufacturing sites to preserve liquidity. We're in frequent contact with our customers and we're closely monitoring demand signals and we're ready to start immediately, resume production immediately as soon as those procedures and research restarts. Our ability to adapt and mobilize our global operations to respond to the pandemic is a testament to our best in class manufacturing capabilities, the dedication of our employees, and the strength of our public-private partnerships. Throughout the pandemic, we've regularly engaged federal, state, and local government officials around the world to help safeguard operations and minimize the risk of supply chain disruption. It's clear the strength of our global operations network is a significant advantage for BD and the healthcare providers who rely on us. Turning to slide eight, another advantage unique to BD is the strength and diversity of our portfolio, which I believe, as I've said in the past, is unmatched in our industry. We're leveraging our expertise and capabilities to deliver solutions across the continuum, from research to understand immune response, to diagnosis and surveillance, to medication management, delivery and critical care, and ultimately to prevention as we look ahead to a potential vaccination campaign. First, in order to treat a disease, You have to better understand it. And that's why scientific research on COVID-19 continues to move forward, even as many labs and institutions pause or postpone other important studies. And our bioscience business has been helping researchers better understand how the immune system responds to COVID-19 and why some people are more affected and others show only mild or no symptoms. And we believe this scientific research is key to better understanding and ultimately battling COVID-19. Turning to slide nine, we've launched a full portfolio of COVID-19 diagnostic solutions, which help healthcare providers answer two basic questions, who has it and who had it. And so as you think about who has COVID-19, we've leveraged our strength in molecular diagnostics to bring to market three molecular tests, two with a CE mark and two that have received EUA approval from the FDA in the U.S., These tests are designed exclusively for the BDMAX system, which is already in use at over 1,000 laboratories worldwide. The tests are conducted on-site, mostly at hospital labs, and increase time to result to just two to three hours of up to 24 samples at a time. We've now shipped test kits to more than 500 hospitals around the world, and moving forward, we're able to provide approximately 250,000 tests per week, or about a million a month. We're also hard at work developing a fourth diagnostic, a point of care antigen test that leverages our Veritor platform targeted to diagnose COVID-19 in less than 15 minutes. There's broad interest in this test and with nearly 30,000 Veritor devices already in mostly non-acute care centers across the U.S., we expect this could be a real game changer for testing capacity and helping in restoring the economy. This test is still under development and we're evaluating performance with samples now. Pending that outcome, we would submit for EUA authorization and we'll keep you updated as this progresses. To test for who had COVID-19, we've partnered with Biomedomics to market a serology test that can detect antibodies in blood to confirm current or past exposure to COVID-19 in as little as 15 minutes. In fact, the published data in the Journal of Medical Virology was one of the world's first for a COVID-19 serology test. Given the latest guidelines from the FDA on performance characteristics for EUA approval of serology tests, we're currently validating performance of a second generation enhanced version of this kit, which is produced and we are testing, moving forward with that testing now. We are proud of the portfolio of COVID-19 diagnostics we've built and launched in record time to help address this urgent public health need. Turning to slide 10 and our solutions for treatment and care, BD's global scale is nearly unparalleled, enabling patient care in almost every country around the world. In fact, about 90% of patients that enter an acute care setting are touched by a BD product. Although overall hospital utilization is down due to COVID-19, countries and healthcare providers have been preparing for the worst, setting up surge field hospitals and expanding ICU beds. BD teams around the world answered the call, working to help set up these facilities and ensure access to critical to COVID medical technologies. For an example, we recently saw increased demand for our PICSIS rapid emergency deployment offering, where we can deploy and install PICSIS med stations in about a week to help set up temporary field hospitals like we did at the McCormick Center in Chicago. We've also seen high demand for our portfolio of vascular access devices, infusion sets, and injection devices, which are critical to safe and effective medication delivery. Hospitals have also turned to our targeted temperature management devices to help in the care of symptomatic COVID-19 patients, and we've seen strong demand for our acute dialysis catheters as one of the complications of serious COVID-19 is multiple organ failure, including acute kidney injury. I also want to comment on infusion pumps, which, as you know, are critical devices in acute care, and especially the ICU, as each patient on a ventilator is often connected to multiple infusion systems. Outside of the U.S., we have more than tripled manufacturing and customer shipments of our infusion pumps for EMEA in response to COVID-19. We've accelerated the distribution agreement that will expand BD's offering in infusion and help address rising demand for infusion pumps in select countries throughout Europe. And I'll speak to this in further detail later on. In the U.S., we've established a process for existing customers of the BD Alaris system to receive additional Alaris pumps upon certification of medical necessity. Our team is continuing to work diligently and with urgency to prepare the comprehensive 510 filing we discussed in February. And while our team has been driving to submit that filing in the fourth quarter, due to challenges associated with the global pandemic, among other factors, we anticipate extending our initial timing for submission until after Q4. We don't have a more precise timing at this point and we're actively continuing to collaborate closely with the FDA to ensure we meet their expectations. I want to ensure you that we are committed to getting this done and done right. It's our top priority and we've added significant dedicated resources. We're making significant incremental investments and we're rotating in top talent from across BD to drive this program to completion. My executive team is directly engaged on this on a daily and weekly basis to ensure that we are best positioned to work through any potential obstacles that might challenge our progress. And as I said, this is the critical priority for the company. In connection to the charge that Monique described, we are working with the FDA following their on-site inspection of our MMS facility in San Diego during the quarter. The FDA made a number of observations in a Form 83 notice we received in April, and while we were early in the process, we're already beginning to implement certain corrective actions to address the observations. We're also taking this seriously and we're working collaboratively with the FDA and making necessary investments in keeping our focus on quality and doing what's right for our customers and patients. We're going to continue to keep you posted on our progress here. Finally, looking ahead to the development of a potential vaccine, we're in active and ongoing discussions with multiple countries around the world to provide the maximum support possible for the world's response to COVID-19, including production of syringes for potential large-scale vaccination campaigns. As the world's largest manufacturer of needles and syringes, we have already ramped up production of injection devices in anticipation of a surge in demand for these products. It's important to acknowledge, of course, that BD is not immune to the financial impacts of the coronavirus, which we certainly saw in China this quarter. And while our underlying pre-COVID business remains strong, as evidenced by our solid Q2 results, we expect to continue to see significant pressure on certain businesses as we move forward. And on slide 11, I want to give you a better sense of these headwinds and the uncertainties around the pace of recovery, which Chris is going to explain in more detail. So elective and non-urgent procedures are down significantly, which is having a direct impact on our surgery and peripheral intervention portfolio. There's a wide range here with elective procedures for oncology and end stage renal disease being least impacted and our hernia and peripheral arterial disease and biosurgery businesses being the most impacted. As some states begin to allow elective procedures to resume this month, there's clear interest and willingness by hospitals and physicians to restart elective procedures in a controlled and phased way. The survey of our top accounts that we've done indicates that 80% of our customers want to begin resuming these elective procedures by some degree by early June. And while our customers clearly want to restart procedures, there are some questions of patients' readiness to return, and we're monitoring that closely as well. We certainly have, to date, have seen sentiment among patients mix, particularly for procedures that fall in the mid-range of procedure prioritization. Secondly, with non-COVID hospitalization down, we're monitoring the impact of our business both in terms of products used in inpatient care as well as to capital budgets. Since China and several other countries are a few months ahead of the U.S., we're closely monitoring their recovery and utilization to see what we can expect as we look forward. In diagnostics, we're seeing strong demand for our comprehensive portfolio of COVID-19 offerings. However, the deferral of routine care, as you know, is having a significant negative impact on diagnostic testing overall, which of course leads to temporarily lower use of sample collection devices. Again, we're closely watching China here to see what we can learn about the pace of recovery for routine tests and sample collection. And in research, where temporary lab closures have had an immediate and significant impact on demand for our bioscience reagents and research instruments, we expect recovery is going to take some time. We're paying attention to when researchers are going to be able to head back to work and how long it's going to take for lab testing and experiments to restart. In anticipation of the pressures we're now seeing in our business, we've been very prudent and proactive, taking swift action to reduce costs and reinforce our strong liquidity position. And Chris is going to speak in greater detail to those in just a few moments. At the same time we are taking proactive measures, we're also continuing to advance our long-term growth strategy and prepare for our next phase of value creation. In each of our segments, we're deeply focused on executing our strategies to grow, simplify, and empower, as shown on slide 12. We're always going to drive growth through category innovation, and we're not taking our foot off the gas when it comes to R&D. Across each of our segments, we have a strong portfolio with a robust innovation pipeline that's weighted towards solutions for faster growing markets. During the quarter, we continued our strong cadence of delivering our R&D pipeline, introducing nine new products in the quarter. Let me share a few highlights of our strategic progress to demonstrate why I'm confident we're seizing the right opportunities to emerge from this pandemic strong. In medical, I mentioned earlier we had accelerated the distribution agreement with MedCaptain Medical Technology Company, who developed and CE marked an innovative new infusion pump platform that's tailored for the European market. We're very pleased with the first steps in this collaboration, and it's enabling us to help advance our medication management presence in the region, as well as our global expansion strategy. In interventional, we're continuing to execute our strategy and advance solutions for faster-growing markets. During the quarter, we released both a 300-millimeter and AV low-profile Lutonix balloon. Supported by these launches, we continue to see sequential improvement in the use of drug-coated balloons prior to COVID. We were also early in our launch of DryDoc 2.0, which is a technology designed to enable the continued use of the PureWIC female incontinent device in the post-acute and in the home. Shortly after the close of the quarter, we completed the acquisition of Straub Medical, which is a privately held company focused on devices that treat or restore blood flow to clotted or blocked vessels. This acquisition further expands our portfolio with a proven device that's approved with dual indications for arterial atherectomy and thrombectomy in the US. It has solid existing sales in Europe and China. We'll be leveraging our strong existing channel and expertise in endovascular technology as we bring this product to the U.S. and accelerate existing sales around the world. Finally, within BDI last week, we completed the submission of additional data for our Lutonix BTK filing. This is now continuing FDA review. Turning to life sciences, this quarter we launched the FacSymphony S6 system, our new cell sorter with six-way sorting and up to 60 panels of detection. The S6 enables an end-to-end solution for high-parameter cellular analysis and reinforces our commitment to research solutions. We also launched the BD-Kistra RITA instrument in Europe, and we submitted the 510K filing with the FDA this quarter, continuing to execute on our strategy of modular laboratory automation solutions. The BD-RITA RITA system the BD Keister reader system transforms the manual, hands-on workflow of plate reading into a fully automated and digital process that enhances lab efficiency and reduces time to result. I also want to give you an update on our launch of the BD Core system in Europe, which, as you will recall, is a fully automated molecular platform for high-volume labs. When we announced this new innovation last quarter, we were still very early in the launch, but BD Core continues to exceed our expectations and installations move forward even in light of COVID-19, I think reinforcing the customer interest in this platform. Also during the quarter, we completed the acquisition of Nat Diagnostics, an early stage company with a very innovative platform in the fast growing molecular point of care market. This acquisition will ultimately extend the breadth of BD's solution offerings into molecular point of care testing. We are advancing this new molecular point of care platform in development and we'll keep you updated as this system advances closer towards launch in the next few years. I'm excited about the progress we're making and the three agreements we've completed, the Straub Medical, Nat Diagnostics, and MedCaptain, which are evident that we continue to invest in growth in all three segments, even during this pandemic. And while we're navigating real near-term pressures, I'm confident the steps we're taking now will put BD in the best position for the long term. With that, let me turn the call over to Chris.