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Edited Transcript of ABT earnings conference call or presentation 16-Jul-20 1:30pm GMT

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Q2 2020 Abbott Laboratories Earnings Call ABBOTT PARK Jul 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Abbott Laboratories earnings conference call or presentation Thursday, July 16, 2020 at 1:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Robert B. Ford Abbott Laboratories - CEO, President, COO & Director * Robert E. Funck Abbott Laboratories - Executive VP of Finance & CFO * Scott Michael Leinenweber Abbott Laboratories - VP of IR ================================================================================ Conference Call Participants ================================================================================ * David Ryan Lewis Morgan Stanley, Research Division - MD * Joanne Karen Wuensch Citigroup Inc., Research Division - MD * Kristen Marie Stewart Barclays Bank PLC, Research Division - Research Analyst * Matthew Charles Taylor UBS Investment Bank, Research Division - Equity Research Analyst of Medical Supplies & Devices * Matthew Stephan Miksic Crédit Suisse AG, Research Division - Senior Research Analyst * Robert Justin Marcus JPMorgan Chase & Co, Research Division - Analyst * Vijay Muniyappa Kumar Evercore ISI Institutional Equities, Research Division - MD ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning and thank you for standing by. Welcome to Abbott's Second Quarter 2020 Earnings Conference Call. (Operator Instructions) 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 Michael Leinenweber, Abbott Laboratories - VP of IR [2] -------------------------------------------------------------------------------- Good morning and thank you for joining us. With me today are Robert Ford, President and Chief Executive Officer; and Bob Funck, Executive Vice President, Finance and Chief Financial Officer. Robert and Bob will provide opening remarks. Following their comments, we'll take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2020. Abbott cautions that these forward-looking statements are subject to risks and uncertainties, including the impact of the COVID-19 pandemic on Abbott's operations and financial results 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, 2019, and in 1A Risk Factors in our quarterly report on Form 10-Q for the quarter ended March 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. Please note that financial information provided on the call today for sales, EPS and line items of the P&L will be for continuing operations only. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which excludes the impact of foreign exchange. With that, I will now turn the call over to Robert. -------------------------------------------------------------------------------- Robert B. Ford, Abbott Laboratories - CEO, President, COO & Director [3] -------------------------------------------------------------------------------- Thanks, Scott. Good morning, everyone, and thank you for joining us. I hope you and your families are staying healthy and safe during these challenging times. Today, we reported ongoing earnings per share of $0.57, which is significantly above analysts' expectations. Based on our performance and momentum for the first 6 months, along with our expectations for the remainder of the year, we now forecast adjusted earnings per share of at least $3.25 for the full year 2020. As I stated on our last earnings call, we anticipated this past quarter would be our most challenging of the year. At the start of the quarter, many areas of the world were under shelter-in-place restrictions, which led to the postponement of elective medical procedures and sharp declines in routine diagnostic testing. Encouragingly, as we progressed through the quarter, we saw steady improvements in both testing and procedure volumes across our hospital-based businesses. At the same time, our more consumer-facing businesses, which include diabetes care, nutrition and established pharmaceuticals, continued to be resilient in this environment, collectively growing more than 9% in the first half of the year. Throughout this time, our supply chain has remained resilient. Our financial health has remained strong, and we've continued to advance our pipeline and strengthen our long-term growth platforms with several recent regulatory approvals, including U.S. approval of Libre 2 as an ICGM, which sets a new standard for accuracy and performance and includes a new pediatric use indication; CE Mark approval of TriClip, the world's first minimally invasive device for repairing a leaky tricuspid heart valve. This is a new market opportunity for our structural heart business that has the potential to be a significant area of growth over the next several years. And U.S. approval of Gallant, our next-generation heart rhythm devices that feature Bluetooth connectivity for continuous remote monitoring, which is a capability we've been integrating across our device portfolio over the past several years, including FreeStyle Libre, our continuous glucose monitor; Confirm, our implantable cardiac monitoring device; CardioMEMS, our leading heart failure monitoring system; and several other cardiovascular and neuromodulation devices across our portfolio. These connected care capabilities allow for better ongoing engagement between patients and their health care providers. And this benefit has never been more evident than in today's pandemic, where virtual care has become necessary to safeguard against exposure between physicians and patients, while continuing to manage and implement medical interventions when they're needed. I'll now summarize our second quarter results in more detail before turning over the call to Bob. And I'll start with Nutrition where sales increased 3% in the quarter. Strong U.S. and international growth of Ensure, our market-leading complete and balanced nutrition brand, led to global adult nutrition growth of around 7.5%. In pediatric nutrition, sales were led by global growth of PediaSure and Pedialyte, our market-leading oral rehydration brand, which was offset by challenging conditions in Greater China. Moving to Established Pharmaceuticals or EPD, sales were relatively flat, following strong growth in the first quarter when we saw increased demand in late March during the early phase of the pandemic. Over the last couple of months, we've seen the virus spread and impact market demand in certain emerging countries such as Russia, Brazil and Colombia. Through the first half of the year, EPD achieved mid-single-digit sales growth, and we anticipate a similar growth profile for the second half of the year. Turning now to Medical Devices. As I mentioned earlier, over the course of the second quarter, we saw steady improvements in procedure volumes across our cardiovascular and neuromodulation portfolio. For example, at the end of June, our procedure volumes had rebounded to approximately 90% of pre-COVID levels on average in the U.S., which represents a significant recovery compared to procedure activity at the beginning of the second quarter. In Diabetes Care, sales grew nearly 30% in the quarter led by FreeStyle Libre growth of 40%. As I mentioned earlier, we obtained U.S. FDA approval for Libre 2 during the quarter. Now approved for both kids and adults, Libre 2 sets a new standard for accuracy, including when glucose levels are in the lowest range, which is critically important in order to avoid going into hypoglycemia. This leading accuracy profile results in superior alarm performance with fewer false alarms than other systems, which can be frustrating, but more importantly, significantly fewer missed alarms, which can be critical to avoiding dangerous glucose levels. Libre 2 maintains all the market-leading features that Libre brand is known for. It's smaller, easier to use and longer-lasting than other glucose monitors, and its value proposition is unparalleled with a cost profile that is not a burden to health care systems. We'll launch FreeStyle Libre 2 in the next few weeks at the same price as the current available FreeStyle Libre 14-day system, continuing our commitment to make Libre affordable and accessible to as many people as possible. I'll wrap up with our Diagnostic business, where sales grew 7% in the quarter. Similar to what we saw in medical device procedures, testing volumes in our underlying diagnostic business, which excludes COVID-19 tests, rebounded to approximately 90% of pre-COVID levels by the end of the second quarter. Over the first half of the year, we've developed and launched several COVID-19 tests across our testing platform for both laboratory and rapid point-of-care settings. To date, we've sold about 40 million tests across all our platforms in countries around the globe. As we think about the continuum of diagnostic testing for COVID-19 going forward, we see the environment unfolding across a few phases. To date, we've largely experienced the pandemic phase where testing has been prioritized for essential professionals such as health care workers as well as symptomatic patients. Molecular testing, which detects if someone currently has the virus, has been in high demand during this period. With the phased easing of shelter-in-place restrictions, we're entering a new phase where continued testing of symptomatic patients will start to overlap with broader surveillance testing of asymptomatic patients in order to better track, understand and contain the spread of the virus until we have broad vaccine availability. So in addition to molecular testing during this period, we would anticipate increased demand for other types of tests, including both antigen and antibody. As vaccines become available, we would anticipate continued surveillance testing to monitor and assess for both natural and vaccine-related immune response, which would be followed by a steady state of ongoing monitoring and tracking of vaccine protection. So looking across the spectrum, it's clear that the need for testing is large and it isn't going away. I'm incredibly proud of the work of our scientists as well of our manufacturing, supply chain and business teams are doing to lead in this area as we fight this pandemic. So in summary, while as we had expected this quarter was a challenging one from a growth perspective, we significantly exceeded expectations and more importantly, exited the quarter in a much stronger position than we entered it. We continued to advance our pipeline and achieved several important new product approvals during the quarter. And we've continued to lead in the area of diagnostic testing for COVID-19, which is significant and expected to carry forward beyond this year. I'll now turn the call over to Bob. Bob? -------------------------------------------------------------------------------- Robert E. Funck, Abbott Laboratories - Executive VP of Finance & CFO [4] -------------------------------------------------------------------------------- Thanks, Robert. As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis. Turning to our results. Sales for the second quarter declined 5.4%. Our adjusted gross margin ratio was 56% of sales. R&D investment was 7.3% of sales. And adjusted SG&A expense was 30.7% of sales. Exchange had an unfavorable year-over-year impact of 2.8% on second quarter sales. During the quarter, we saw the U.S. dollar weaken versus several major currencies, which resulted in a favorable impact on sales compared to expectations had exchange rates held steady since the time of our earnings call in April. Based on current rates, we would now expect exchange to have a negative impact of approximately 2% on our full year sales. Our second quarter adjusted tax rate of 17.7% reflects the aggregate adjustment to align our tax rate for the first half of 2020 with our revised full year effective tax rate forecast of 15.6%. This is higher than the estimated range we provided in January due to a shift in our geographic and business income mix caused by COVID-19. Before we open the call for questions, I'd like to briefly discuss a couple of items related to our capital allocation strategy. We ended the second quarter with approximately $5 billion of cash and short-term investments, which represents an increase of more than $1 billion compared to the end of the first quarter. The increase includes the impact of a bond offering we executed in June. We intend to use the proceeds from that offering to pay off debt that matures in September. Following that, we have no other debt payments due until mid-2022, which only further enhances our financial flexibility. In June, we also announced our 386th consecutive quarterly dividend payment, an impressive track record that dates back to 1924. This year also marks the 48th straight year that Abbott has increased its dividend payment, making Abbott a long-tenured member of the S&P 500 Dividend Aristocrats Index, which tracks companies that have increased dividends annually for at least 25 consecutive years. Our consistency and commitment to paying a dividend is a hallmark of Abbott's identity, and our strong financial position allows us to continue that track record even during challenging economic times. With that, we'll now open the call for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And our first question comes from Robbie Marcus from JPMorgan. -------------------------------------------------------------------------------- Robert Justin Marcus, JPMorgan Chase & Co, Research Division - Analyst [2] -------------------------------------------------------------------------------- Congrats on a much better-than-expected quarter. Maybe we could start at the top. With 2Q coming in better but still a decent amount of uncertainty about the balance of the year and the recovery trajectory, what gives you the confidence in providing an EPS floor here of at least $3.25? -------------------------------------------------------------------------------- Robert B. Ford, Abbott Laboratories - CEO, President, COO & Director [3] -------------------------------------------------------------------------------- Sure, Robbie. Thanks. Well, I'd say it's not one single factor. It's really more of a collection of factors here. And I think it -- that speaks to really the power of our diversified model, the diverse strength of all of our different businesses. So without a doubt, the Q2 EPS beat, which was pretty significant, factors into that. I think some of that really was driven by -- there's some impact there of the challenges of forecasting that I think we all had in April. But a good portion of that beat really comes from strong performance across the businesses. I mean if you look at our 4 businesses, 3 out of -- 3 of them, 3 out of 4 of them are actually posting mid-single-digit growth for the first 6 months of the year. But as you look at the base business and think about base business as ultimately Abbott without COVID testing, I think we saw a nice recovery in the second quarter. Yes, there's probably still some uncertainty, but I think we saw a real nice recovery across our base business. If you look at the diagnostic and the device businesses that were probably more impacted, we -- as I described, we exited June with about 90% pre-COVID -- at pre-COVID levels. So -- and that was on average. I can tell you, there were some markets or some segments of our portfolio that we actually saw growth in the month of June. So -- and that happened I'd say, both in the U.S. and internationally. And that's important because obviously, there's maybe some concerns of resurgence here in the U.S., but a large portion of our sales of these businesses are concentrated internationally, too. And we're not seeing those same concerns in those markets. And nutrition was interesting too, I would say, as I look at that base kind of recovery or that base trend in Q2. I mean we thought that there could be some impact of pantry stocking in Q1 that drove nutrition performance. We actually did better than that, and I think part of that was some stocking. But what we've now seen through some of the share charts, Rob, is that we picked up share in both pediatric and adult nutrition. So again, nice recovery, nice performance of the base business in Q2, and I see that momentum carrying forward to the second half. I mean we've got a lot of product launches, label and reimbursement expansions. I can go through some of them. We'll probably talk about them. But if you think about Libre 2, I've got high expectations about that launch in the U.S. TriClip and Tendyne, and these are product launches that we've started to roll out in Europe. We've gotten great feedback in the first months of launch, and we expect kind of good momentum for those products in that geography. The NCD certainty, I think, now in terms of lease time lines for MitraClip is a real big plus for us. And the Alinity expansion that we continue to roll out, I'd say, a nice launch now of Alinity m in the U.S. and we're using COVID here to jump-start that launch. So I'd say the combination of nice recovery in Q2 and that momentum being powered through all these launches and all these products that we've historically been talking about is a big factor there. And then I'd say finally, COVID testing, in my prepared remarks, I talked a little bit about kind of the phases we're going to be going. But ultimately, the demand here and the need will be with us for the foreseeable future. So we've got a comprehensive portfolio, whether it's point of care, whether it's core lab, whether it's lateral flow, different types of tests, whether it's molecular PCR, antibody. So I think we really have a competitive portfolio. And as we look at going into the second half of the year, the competitive position combined with the demand that's going to be there, we're going to be adding in the second half. We'll be adding in terms of new tests, new formats. And also important, we'll be adding in terms of manufacturing capacity, whether it's our molecular platforms, whether it's our lateral flow platform. So we've been working at manufacturer expansion during this quarter. So the notion here that we're -- somehow our competitive position is threatened. I think that we -- we'll be adding competitive position. We'll be adding to it. And I see the demand being there. So you factor all this in, Robbie, you look at our beat, our base business recovery in Q2 fueled by a lot of these kind of product launches carrying that momentum forward, look at the acceleration of our COVID testing across all of our platforms. You can then do some risk adjustments to some of the points that you've made there about maybe some resurgence in some states. But I felt that once you factored all that in, I felt confident about reinstating our guidance, and I thought that a number of $3.25 was a good starting point as we go into the second half. -------------------------------------------------------------------------------- Robert Justin Marcus, JPMorgan Chase & Co, Research Division - Analyst [4] -------------------------------------------------------------------------------- Great. That's a lot of wonderful color. Maybe if we could turn the second question to testing. And the 2 things I wanted to focus on was the durability of the testing, not just for the second half of this year, but as you think out beyond into 2021-plus, how durable is the serology testing? And then second, if you could just give us an update on where you stand in some of these other tests like the lateral flow test and then anything else time line or product-wise you could comment on. -------------------------------------------------------------------------------- Robert B. Ford, Abbott Laboratories - CEO, President, COO & Director [5] -------------------------------------------------------------------------------- Sure. We spent some time looking at kind of what that demand curve will look like. And obviously, our understanding now is much better informed than what it was in March. I'd kind of highlight a little bit the different phases that we'll see. And I think we're now moving into, I guess, what I would call this more recovery phase here as some of these shelter-in-place restrictions are being eased not just in the U.S. but globally also. And that's ultimately the part of the demand curve that I actually see where most of the testing is going to occur, where you're really here trying to do broad surveillance beyond just symptomatic or essential workers. And I can see that phase lasting quite a bit actually, at least until there is a proven kind of vaccine and vaccine availability. And I think once that happens, we'll probably be getting into what I would call like a vaccine phase here, where I still think you're going to be needing to do surveillance testing of the virus. And that's probably where I'll also think that we'll see an increase in serology and antibody testing. And I see that, that's going to be an opportunity for us and for other companies here that have the antibody test. I see that as being kind of a real kind of demand driver on the serology side. But I'd say as we look at this recovery phase that we're in probably over the next kind of 12 months here, we're going to see broad testing. And I think that, as I said, the platforms that we've built is important because you're going to need to have different solutions for different environments, different countries, different trajectories that countries are on. So I like our position. The other thing I would say is there's -- it's good to see a lot of science and a lot of approvals of new tests and that's really important. But as we all know, one thing is to ultimately solve the scientific question of detecting the virus and finding the antibody, but you got to be able to have the scale and the manufacturing footprint to be able to kind of scale up and build. And I think that's what we focused a lot on over -- definitely over the last 90 days is looking at the portfolio of tests that we have and adding our manufacturing capacity to them. And it's not just one single site or one single technology. We're really looking at bolstering manufacturing capacity across all of our testing platforms. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Our next question comes from Vijay Kumar from Evercore. -------------------------------------------------------------------------------- Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [7] -------------------------------------------------------------------------------- Congrats on a solid execution here. So Robert, I had a 2-part question or 2 questions, if you will, one on the product side, one on the guidance. Maybe I'll start on with the product side. I think you made some bullish comments on Libre. There has been some confusion on the street on the labeling side, on the ICGM label, but lack of an AID compatibility, if you will. Maybe parse this out and explain how you see this Libre franchise in the back half heading into next year. And in your perspective, do you think this labeling is an issue or is this more of a sell-side issue? -------------------------------------------------------------------------------- Robert B. Ford, Abbott Laboratories - CEO, President, COO & Director [8] -------------------------------------------------------------------------------- Sure. Well, I mean, I think you saw -- let me just start off then with kind of the trajectory here. I mean you looked at our first quarter trajectory in terms of sales growth, new user additions as measured by prescription data here in the U.S. and other data sources outside internationally. And we were on a real strong kind of trend as we were going into Q1. And then obviously, COVID had a little bit of an impact on our new user acquisition growth rate. I mean we were definitely growing new users through Q2, but I think you could see in the data that we all kind of felt a little bit of an impact in May. And that's probably just the impact of shelter in place where patients weren't going to their physicians either to get their prescription or just weren't going to the physician's office. But you see now, I mean, if you look at the data, you see the pickup in the month of June. And you look at the exit of June, we're probably very close to the rate that we were before we came into COVID. And as I said, that was a rate that was growing really nicely in terms of new users. So I'm encouraged by that recovery there. I would say the biggest encouragement I have here for the second part of the year is not only that recovery, but obviously the approval of Libre 2 here in the U.S. I think it's a product that's been long-awaited from physicians, payers, consumers, the diabetes community. We had launched it in Europe about a year or so ago. So I think I look at this, and it's not really a catch-up for me. It's really setting a new standard, as I said in my comments, regarding accuracy and performance. It's got the best accuracy across the board, whether -- and again, this is a 14-day sensor versus our closest competitor being a 10-day sensor. But even with that longer range of use, better accuracy overall, better accuracy in the low range and high range, better accuracy with kids and adults, so I think that's very important. And one thing that we wanted to make sure we got right here, Vijay, was kind of regarding alarms. We had heard a lot about from consumers, when we were developing Libre, the frustration with alarms. And so we really put that feedback, really put the consumer really at the core, at the heart of what we're doing to try and build the alarm. So not only does the accuracy have better alarm performance, whether it's fewer missed or fewer false, but we added a feature there, which is optional alarms. And it's the only CGM that will have that where you can actually toggle between deciding when you want alarms and don't want alarms. And I think that's an important mindset of how we brought that consumer into it. So I look at the combination of all this, Vijay, and I look at the base core of the Libre brand, which I described. And I think the overall value proposition is really second to none here. It's simple, easy to use. It's connected, consumer-friendly device. It's been like that from day 1 once we started the design process back in 2011. And I think one of the things that gets lost a little bit in the feature battle sometimes that happens is the outcomes. Outcomes are really important for the payers and for the physician community. And we showed some really powerful outcomes data at the ADA this year regarding A1c improvements for Type 2 patients that aren't on insulin, so Type 2 patients on oral meds, and I think that's very important. And we priced this for mass adoption. Our -- we don't measure success here, at least not for this product, which we've always talked about of being a mass market opportunity. We don't measure success of how high of a reimbursement we got. We measure success about broad access. So that as a framework, to answer your question on the AID, it was interesting to see the reaction regarding that aspect of our approval. I think it provided a lot of insight to some of the mindset here, some of the people that follow this space. But listen, pumps are going to be important. They're going to be an important segment of the market. The fully automated pumps are pretty amazing technologies. They're great technologies. But for context, these types of pumps, they really just compromise about 1% of the insulin users here in the U.S. So listen, we're very confident that we'll be connected to the full assortment of all the pumps and pens, and we've got everything we need here. But our vision and our strategy was much bigger and has always been much bigger than that. We see this as a mass market opportunity that includes both Type 1s, Type 2s, whether you're an insulin, non-insulin. And when you look at the world like that, you're talking tens and tens of millions of people. So we're excited about Libre 2 approval in the U.S. I think it sets a new standard, and I got high expectations for it here in the U.S. -------------------------------------------------------------------------------- Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [9] -------------------------------------------------------------------------------- No, that's extremely helpful, Robert. And one quick one on the guidance. I think you mentioned the exit rate on procedures was at 90% of pre-COVID levels. If procedures remain at 90% in the back half, one, are you still expecting to hit the $3.25 EPS number? That's -- I'm assuming -- and if that scenario plays out, it's going to be a mix impact on margins just given devices have higher margins. So where is the upside coming from? I think you mentioned something about antigen testing. I'm just curious how you guys are thinking about that opportunity? And are you baking in some upside from Libre as well? -------------------------------------------------------------------------------- Robert B. Ford, Abbott Laboratories - CEO, President, COO & Director [10] -------------------------------------------------------------------------------- Listen, you've just basically rattled off all the different factors that we've been looking at as we've looked at the $3.25 kind of floor scenario for us over here. So all those things were factored in. We've actually had some countries where we're actually seeing procedure growth. I mean in China, for example, which was probably the tip of the spear, we actually saw procedure growth in the month of June and healthy growth. So we factored all of that in there. We factored in the launch of Libre 2 and the expectations that we think that we can drive in terms of new user acquisitions and recovery there and we factor all this in. And if you ask, where is the upside, well, listen, there could be upside on all these factors here. I would say if you look at how we built the forecast, a big portion of that is our manufacturing, our manufacturing expansion. All of those are on time, they're on sequence. We've allowed for a little bit of wiggle room there, I would say. But if they continue to be on target and on time -- again, it's not one single expansion. But if they continue to be on time, we could potentially see a potential for upside to that number. But all these factors that you've laid out here, we've sort of contemplated that in that $3.25 scenario. -------------------------------------------------------------------------------- Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [11] -------------------------------------------------------------------------------- Congrats again. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Our next question comes from David Lewis from Morgan Stanley. -------------------------------------------------------------------------------- David Ryan Lewis, Morgan Stanley, Research Division - MD [13] -------------------------------------------------------------------------------- Robert, just another follow-up here on guidance. I guess I appreciate the $3.25 and obviously, you have some incremental profitability coming from the mix of diagnostic testing. So is a good way of thinking about this year something around mid-single-digit revenue growth in that range? And I wonder, if you think about '21, and I know it's obviously pretty early, our math has you sort of comfortably above pre-COVID levels. But any kind of qualitative commentary you can give us on '21 would be, I think, helpful. I have a quick follow-up. -------------------------------------------------------------------------------- Robert B. Ford, Abbott Laboratories - CEO, President, COO & Director [14] -------------------------------------------------------------------------------- Yes, sure. On your question regarding this year, yes, I mean, I think the math would, at this level, would suggest that, but -- that kind of mid-single-digit growth range. But as I said in the previous question, depending on how some of this manufacturing ramp-up occurs and the scaling of it occurs on the COVID side, the rolling out of our new tests, we could be ahead of that. And that would then imply a different kind of -- a different type of growth rate for the full year. But even at the $3.25, we're definitely accelerating our growth rate versus where we were at pre-COVID levels. So I think that the combination of these factors here, I could -- we can see us potentially entering next year with a high top line growth rate because of the combination of a strong base business, a strong base Abbott with an additional layer here of COVID testing. -------------------------------------------------------------------------------- David Ryan Lewis, Morgan Stanley, Research Division - MD [15] -------------------------------------------------------------------------------- Okay. And then just related to that, Robert, just in terms of the diagnostic outlook here, we assume you're expanding capacity. We have both the lateral flow tests coming. How should we think about the capacity expansion on sort of m2000 versus ID NOW? I think your business was sort of $600 million here this quarter. How can that scale up here after the coming quarters? We certainly see an outlook here that's probably $2 billion to $2.5 billion for this year. But just give us a sense of where you think the bigger opportunity lies between m2000 and ID NOW and what steps you're taking there to expand capacity. -------------------------------------------------------------------------------- Robert B. Ford, Abbott Laboratories - CEO, President, COO & Director [16] -------------------------------------------------------------------------------- Yes, I think that's a good range if you want to dollarize it. And -- but I'd say, listen, we're looking at capacity expansions across all the platforms. So you mentioned m2000. We actually did a really good job at doing -- at expanding capacity through the quarter. We're also looking at expanding capacity for our Alinity m system, which I think is going to get a really nice kind of jump-start here in terms of its launch with the COVID test. It's a very attractive system in terms of kind of its features and -- its competitive features, whether it's a throughput or ease of use, not only versus m2000, but also versus other systems there. We're also investing in ID NOW capacity expansion. We talked a little bit about that when we came out with approval. We knew that 50,000 tests a day wouldn't necessarily be enough. It was a good start, but it wouldn't be enough, and we've been working very diligently to be able to do that. And on the lateral flow side, we began rolling the tests outside and in some international markets. We'll start to bring that here in the U.S. And we think there's a use case for both an antibody and an antigen test also. And we're investing capacity there also. So it's really not just, I'd say, one kind of area, but really looking across the entire suite of solutions here. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- Our next question comes from Kristen Stewart from Barclays. -------------------------------------------------------------------------------- Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [18] -------------------------------------------------------------------------------- Thanks, Robert and the entire organization, for all that you're doing on the COVID side. Just wanted to get a little bit more specific on just timing for the U.S. for an antigen test, and if there's anything that you can provide, just kind of more specifics on just the manufacturing capacity or just kind of how big you think kind of the COVID testing opportunity could be? And just kind of correct me if I'm wrong, it just sounds like -- and kind of my thought is that this COVID testing opportunity could definitely be something that not only kind of sticks around into 2021, but obviously, it could just be something more durable provided that not everybody may be willing to sign up for a COVID vaccine if one is developed and hopefully, obviously, one is developed. And then if I could just have a follow-up too, if you could explain a little bit more of the dynamics of what's going on in China with Nutrition. -------------------------------------------------------------------------------- Robert B. Ford, Abbott Laboratories - CEO, President, COO & Director [19] -------------------------------------------------------------------------------- Sure. Let me just talk about kind of overall demand there. I mean I agree with you, and that's how we see it. We see the -- that COVID testing will stick around. Even when you have a vaccine, I think that I can see patients going to a physician's office with a fever, and they want to know is it influenza, is it the flu, is it COVID? So yes, so we think that the capacity that we're building is not only for, I'd say, a high demand during the next 12, 18, 24 months here, but we do the -- a steady state, as I said, that it will continue to be there. Regarding your question on antigen, I won't give kind of specifics in terms of timing. What I can say, and I talked about it in Q1, is that we've really looked across our entire agnostic platform and not only the instrumented side, but the non-instrumented side as it relates to lateral flow testing. As you know, a lot of this lateral flow test came with the acquisition we did of Alere, and we're intending to maximize that scale that came with the acquisition. So we feel good about the test that we developed for the antibody. We're rolling it out. The antigen side, again, it's going to be -- we've been working very hard on this. And I think it will just fall into the same kind of bucket and value proposition here where we'll have a lot of scale to be able to use this, produce a reliable test that's easy to use, that's affordable. I think that's the critical aspect here. If you want to get some more mass screening, more mass volume, the tests need to be more affordable. And one of the ways you do that is you remove the restriction on the instrument, so -- or requiring an instrument. So we're working on that test, and we've been building capacity for it. So -- and that's factored it a little bit into our guidance. I think you had a question on Nutrition, right? Yes. So specifically, in China, yes, it's been a tough market, I'd say, for a lot of companies, I'd say, especially some of the multinational foreign companies. We've also seen a little bit of a decline there in birth rates, so that's kind of slowed the market growth down a little bit. So -- but it's -- we're not overly dependent on China Nutrition within Nutrition. And obviously, within Abbott, our Nutrition business has been pretty resilient in the quarter. We actually saw some pretty strong growth in pediatrics in some of other Asian markets, too. So listen, it's an important market for us. It's about 7% of our Nutrition sales. The market conditions are shifting there a little bit. And we'll continue to be competitive as we can there with our new product launches and innovations that we're launching. And we'll see that dynamic, I think, still kind of play out a little bit here in the next quarter or so until we can get some of our new launches kind of rolled out. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Our next question comes from Matt Miksic from Crédit Suisse. -------------------------------------------------------------------------------- Matthew Stephan Miksic, Crédit Suisse AG, Research Division - Senior Research Analyst [21] -------------------------------------------------------------------------------- Just maybe changing gears a little bit, if you could talk a little about some of the pipeline products that -- recently approved and in the pipeline and time line, like the CE Mark for TriClip and Tendyne for tricuspid and mitral. Maybe how to think about those products adding to the growth in the back half and into early '21. And then for the pivotal for Amulet, the NCD for CardioMEMS, what's different this time on that product, which was kind of ahead of its time last time? Maybe just help us understand how to think about or model those. And then I have one follow-up. -------------------------------------------------------------------------------- Robert B. Ford, Abbott Laboratories - CEO, President, COO & Director [22] -------------------------------------------------------------------------------- Sure. Well, we've been investing strong and heavily in the structural heart business. And I think your -- you've just kind of mentioned a lot of a lot of the output of those investments as we're building the portfolio and the pipeline of our structural heart business. I would say, MitraClip is still in the early innings. And I think that we've been working hard to kind of expand that market. And think about the NCD coverage here in the U.S., I mean in the U.S., we did close to 12,000 procedures last year, and the NCD is going to give us opportunity to target 250,000 procedures. So I think -- I still think there's a lot of opportunity in the mitral space, in the repair side. Specifically, on TriClip, listen, I think this is a great opportunity for us. We got a lot of feedback from the physician community about wanting to see a repair system for the tricuspid area. They were trying to get there using the MitraClip, but it's a difficult area to get to. So we took a lot of the feedback here and redesigned the delivery catheter for the clip to be able to get to the tricuspid area. And we've got CE Mark. We've launched it. We've gotten great feedback in terms of its -- the biggest challenge was getting there in an easier way. And I think that the TriClip with the redesign has kind of helped that. I think it's about a -- think about the market size here. It's probably about 1/3 of the size that I think of the mitral repair market. That's how we've looked at it. And it's going to take a little bit of time to develop. If you think about how we developed the mitral repair market, you need to build a steady base of experienced users here to build good data on its efficacy and then you start to kind of roll it out. So I think this is really in the early stages here. We've got some growth baked in, in the second half of this year. But this is probably a multiyear kind of growth here for us, but it's an exciting one given our position that we have in mitral. On Tendyne, this was an important play that we made. We knew that we wanted to be a company that had a broad suite of solutions in the mitral area. And having a repair would be one part of it, but then having a replacement device would be another part of the value proposition. And right now, we're the only company now that -- be able to offer that solution to our customers to be able to repair, and if repair is not needed, to be able to have a transcatheter solution for replacement. So we got CE Mark in January. We started to roll it out, again, gotten very good feedback. And we'll -- we don't have, I'd say, a lot of sales baked into the second half year. We really want to kind of develop the use, develop the data. Both these products, the TriClip and the Tendyne, they're currently under trial here in the U.S.. Our projected launch here for a Tendyne product in the U.S. is late in 2022, and the TriClip here in the U.S. sometime in 2023. So we've got a nice kind of cadence here of product launches. You mentioned Amulet. This is another exciting area for us. It sometimes gets lost in the shuffle and the richness of the pipeline of this division here, but it's one that is not lost with me or with the management team here. We've completed our enrollment, and now we've got an 18-month kind of end point. So we'll expect to file by the end of this year and have a launch sometime in 2021. And that will be a nice kind of growth opportunity as we go into next year also. -------------------------------------------------------------------------------- Matthew Stephan Miksic, Crédit Suisse AG, Research Division - Senior Research Analyst [23] -------------------------------------------------------------------------------- Terrific. And then just one follow-up, if I could, on EPD and emerging markets. I know it's a little bit more of a narrow geography to think about, but maybe similar to the way that everyone was trying to sort of gauge the recovery or the way that COVID sort of paces through the developed markets in Q2. Any sense of how to think about the cadence of -- are we at a trough point? Or should we trough the impact in August here or in this quarter in EPD and in emerging markets? -------------------------------------------------------------------------------- Robert B. Ford, Abbott Laboratories - CEO, President, COO & Director [24] -------------------------------------------------------------------------------- Yes. So we saw a little bit of softness in Q2, as we discussed. I think it's partially due to some of the purchases that I think were pulled forward a little bit in late March as it relates to kind of the quarantine mandates in certain countries. If you look at our Q1 performance, it was over 9%. So I think what we've seen here is once we saw the data, the data comes here a little bit of a lag to us. We were able to kind of see what happened. And you kind of see this contraction, sharp contraction in the market kind of in the March, probably more April, May kind of time frame here. And early indication starts to show a little bit of a bounce back in June, but it's not going to be -- you can't make a definitive conclusion across all markets because they're all at different phases. So I think right now, probably the ones that are being hit the most are probably kind of Russia and Brazil. But we actually saw, similar to devices, we saw a nice recovery in China in our EPD business also and saw the kind of growth rate that we had been seeing. So double-digit growth rate in the quarter in China. So I guess what I'd say is the impact of quarantine and the virus, it kind of moved from China, started moving east. And I would say kind of the emerging markets were probably the most laggard part of that movement. And I'd expect to see them come back in a similar fashion in terms of some of the developed markets that we saw in devices and diagnostics also. So... -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Our next question comes Joanne Wuensch from Citibank. -------------------------------------------------------------------------------- Joanne Karen Wuensch, Citigroup Inc., Research Division - MD [26] -------------------------------------------------------------------------------- A very solid quarter. A couple of very quick questions. Can you give us an update on Libre 3 and when you're thinking of the timing of that? Can you also comment on how you're thinking about the run rate for MitraClip, particularly with COAPT data behind it and now CMS coverage in front of it? And then lastly, expense management. I got the impression from some of your comments that you're leaning in on some investments. And if there's anything that you can give us regarding big picture and/or the cadence on that, that would be great. -------------------------------------------------------------------------------- Robert B. Ford, Abbott Laboratories - CEO, President, COO & Director [27] -------------------------------------------------------------------------------- Sure. I guess I would take your first question on Libre 3. We've gone through a long journey here, so I think I want to prioritize a little bit on Libre 2. But what I will say is the following. We've always said that Libre was a platform product. We've always said that we would have different iterations. Libre 3 has been in development for some time. But I'm not going to provide any details on product capabilities or time lines as it relates to this point. My focus here is going to be really to maximize kind of Libre 2 launch. But we do have a team that's been working on it, and we're excited about it. And when we have more details to kind of share, we will share. Regarding MitraClip, yes, it was an interesting quarter for sure. We saw a pretty sharp decline in clip procedures in the month of April and probably about half of May. Then we started to see a nice kind of ramp up. And so we exited Q2 in June with about 85% of where we were in pre-COVID levels, and that continues to kind of trend up. So I think you've -- you talked about kind of a key growth driver for us. The NCD is an important part. I'm glad to see the process moving forward. I think it represents a significant growth opportunity for us. I think it more than doubles the U.S. market opportunity, as I said. And it's nice to see that we could have an expected time line here that could potentially result in an NCD approval at the end of the quarter. So I'm -- as I said in the previous question about the structural portfolio, we've got a lot there, but MitraClip is still in its early innings, and this is a great opportunity here for us. Regarding your question on spending, we've been careful obviously about spending. And obviously I think you see a natural cadence of less spending, whether it's travel and stuff like that, that we saw. But -- and so that just naturally happens. But we've paid a lot of attention to R&D and R&D spend and ensuring that not only do we not slow down our programs, but are there other opportunities that we have to be able to accelerate them, and we have been looking at that. I think some of the challenges and some of the R&D spend is that some of that spend is these clinical trials. So obviously, that -- with some of the follow-ups, enrollments slowing down, you'll see that. But we've tried to take some of that favorability and look at product development side to be able to continue to build our pipeline, build our sustainable kind of growth story. So yes, that's got a lot of attention and focus from me and the management team and ensuring we don't lose the opportunity on the R&D side. And then the other investment we've been making, as has probably been pretty clear, is we're putting in a lot of manufacturing capacity. That includes not only capital, but also project expense. And we're managing those opportunities very, very closely also. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- And our last question comes from Matt Taylor from UBS. -------------------------------------------------------------------------------- Matthew Charles Taylor, UBS Investment Bank, Research Division - Equity Research Analyst of Medical Supplies & Devices [29] -------------------------------------------------------------------------------- So I really had just 2 follow-ups on 2 of the bigger themes here. So one is on the floor of $3.25. It seems like you've been very thoughtful about how you've layered together all these different moving parts for the second half of the year to get to that floor assumption. I guess my question is kind of taking the inverse of that. So what would have to happen, what would have to go wrong for you to not achieve that floor? Would things have to get significantly worse? Maybe you could just speak to that. -------------------------------------------------------------------------------- Robert B. Ford, Abbott Laboratories - CEO, President, COO & Director [30] -------------------------------------------------------------------------------- Yes. I mean, listen, we've looked at every -- a lot of different scenarios here, Matt. We've got a lot of great data that we -- that's pretty proprietary to us. I mean I think I mentioned this in the last quarter where a lot of the laboratory testing that happens on our systems in the hospitals, we get to see that data every day, every night and we've been aggregating it. And we look at not only the volume of tests that are being done, but we also look at the type of different tests that are being done. And so I think we've got a pretty good insight in terms of what's actually happening in the hospitals beyond just the headlines. Those are important, but we haven't relied on headlines or models to do this. We've really looked at it at a very granular level using the assets that we have to be able to kind of put our own forecast together. On the device side, the way our compensation is struck with our sales reps, they've got to log their procedures. So we have a fairly accurate representation of the kind of procedures that are occurring at the hospital. So we've factored all this in and factored in the different components of our manufacturing of COVID. And that's why I feel confident, again, in reinstating and reinstating at $3.25. So what you're trying to figure out is what needs to go wrong here. I think even if there is a shutdown, another shutdown, which I personally don't believe will be there, I think we know a lot more now. The hospitals know a lot more versus what happened in the first shutdown. And I think we're going to have a lot of manufacturing capacity to be able to deal with that from a testing perspective. And then you also have to have that same granularity not just in the U.S., so looking at different states. But you also have to look at it around the globe. And around the globe, there are different countries on different situations, too. So... -------------------------------------------------------------------------------- Matthew Charles Taylor, UBS Investment Bank, Research Division - Equity Research Analyst of Medical Supplies & Devices [31] -------------------------------------------------------------------------------- And then maybe one other follow-up. So you talked about Libre 2 and all the exciting aspects of it. I was wondering if you could at least qualitatively talk about the kind of acceleration or pickup or additional opportunity that you see for that in the second half of the year? And are you going to immediately be able to blast that out? Or is there some kind of conversion time for you to get up to full speed on the manufacturing of the new product? -------------------------------------------------------------------------------- Robert B. Ford, Abbott Laboratories - CEO, President, COO & Director [32] -------------------------------------------------------------------------------- Well, on the manufacturing side, I'll just answer that quickly. I mean you know that we've been investing in manufacturing, manufacturing capacity and scale. We knew that was going to be an important aspect for our strategy when we look at it as a mass market. So from a manufacturing standpoint, we don't have that issue. We've got teams that are already kind of building product, putting them in boxes, ready to start shipping them to wholesalers and retailers here in the U.S. Regarding kind of qualitative assessment of the opportunity, I mean, I guess, I'll just go back to there's -- you can look at the penetration of CGM in the U.S. here. And again, it depends on the kind of lens you want to look at. If you want to look at it through the lens of AID systems and connected pumps, you're going to have a market. If you're going to look at it through the lens of at least how we're looking at it, which is mass market, Type 1s, Type 2s, whether you're on insulin or whether you're not on insulin, you're looking at a large -- you're looking at 15 million, 20 million people here in the U.S. And you can look at the amount of users we have. You can look at the amount of users that the other systems in the market have. And you can add that up and you can say, "Okay, there's a lot of opportunity here for that kind of growth." The question is what is the product that best suits that kind of penetration, that more mass market penetration. And I'll make the case not because I've been with this product for a while. But I'll make the case based on what I've heard from payers, what I've heard from the system that ultimately have to pay for it, that Libre has got everything -- Libre 2 has got everything it needs to be able to kind of accelerate that penetration. And I'll point to the study that we published at the ADA with a Type 2 non-insulin user. I mean that is a significant A1c reduction for people on oral medication that you probably don't see in terms of other studies with other drugs. So I think Libre has shown that it is just as effective at providing outcomes for type 2 patients that are on oral medication versus those that are on pumps. So I'm very bullish about the opportunity that we have for Libre 2 in the U.S. as I am for Libre as a whole in -- around the globe. So let me just wrap up here then by just -- we knew that Q2 here was going to be our toughest quarter of the year, and we beat those expectations. I think part of it was probably some difficulty in forecasting. But a good portion of that was our performance, our strong performance across our businesses. We can see a base business that's -- if you exclude the COVID test, we've got product launches, we've got channel expansions, new reimbursement claims. So we continue to forecast a steady acceleration, a quarter of work-over improvement of our base business. You then have the COVID testing, which, as I said, I think will be here with us for the foreseeable future. Not only do we have a very complete portfolio, we're going to be adding to it, but we're also investing in manufacturing capacity and scale. And I think that's an important role here to play, an important role to play in meeting that demand. So a floor of $3.25 I thought was a good place to start as we reinstate our guidance. But if you look at our product launches, both U.S. and internationally, our manufacturing expansions and depending how that goes, we could see a situation where we're heading in next year with a very high top line growth rate and really compromised here of a strong base Abbott business with now an added layer of growth from COVID testing. -------------------------------------------------------------------------------- Scott Michael Leinenweber, Abbott Laboratories - VP of IR [33] -------------------------------------------------------------------------------- Okay. 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 11:00 a.m. Central Time today on Abbott's Investor Relations website at abbottinvestor.com. Thank you for joining us today. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a wonderful day.