Abbott Laboratories Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 20, 2022

There are 11 speakers on the call.

Operator

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 call. Should you become disconnected throughout this conference call, please redial the number provided to you in reference to Abbott earnings call. Call.

Operator

This call is being recorded by Abbott. With the exception of any participants' questions asked during the question and answer session, call. The entire call, including the question and answer session is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's expressed written permission. Call.

Operator

I would now like to introduce Mr. Scott Linenweber, Vice President, Investor Relations, Licensing and Acquisition.

Speaker 1

Call. Good morning and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer call and Bob Funk, Executive Vice President, Finance and Chief Financial Officer. Robert and Bob will provide opening remarks. Call for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 20 call.

Speaker 1

Abbot cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results to call may differ materially from those indicated in the forward looking statements. Economic, competitive, governmental, technological call. And other factors that may affect Abbott's operations are discussed in Item 1A Risk Factors to our annual report on Form 10 ks call for the year ended December 31, 2021. Abbott undertakes no obligation to release publicly any revisions to forward looking call. As a result of subsequent events or developments except as required by law.

Speaker 1

On today's conference call, as in the past, call. Non GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non GAAP financial measures call are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website call atabot.com. Note that Abbott has not provided the GAAP financial measure for organic sales growth on a forward looking basis call because the company is unable to predict future changes in foreign exchange rates, which could impact reported sales growth. Call.

Speaker 1

Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which excludes the impact of foreign exchange. Call. With that, I will now turn

Speaker 2

the call over to Robert. Thanks, Scott. Good morning, everyone, and thank you for joining us. Call. Today, we reported results of another strong quarter.

Speaker 2

Earnings per share were $1.73 call, reflecting more than 30% growth compared to the prior year. Sales increased 17.5 call, both with and without COVID testing related sales. In addition to the strong results call. During the quarter, we continue to strengthen our strategic position and long term growth opportunities call. With regulatory approvals of new products and expanded indications of use along with continued market uptake of call.

Speaker 2

Several recently launched products in attractive growth areas. I'll now summarize our Q1 results in more detail before turning the call over to Bob. Call. And I'll start with Established Pharmaceuticals or EPD, where sales increased 13.5% in quarter. EPD has now achieved double digit organic sales growth in 3 of the last four quarters.

Speaker 2

Strong performance this quarter call. Turning to nutrition, where our performance was mixed. Our adult nutrition business continues to perform at call. As you know, however, call. We initiated a voluntary recall in February of certain infant formula products manufactured at 1 of our U.

Speaker 2

S. Call. It's important to highlight as part of our quality system, we retain in house samples of products that we ship call. Testing of retained samples related to this recall action by both Abbott and the FDA have all come back call negative for the presence of the bacteria that caused the reported illnesses.

Speaker 3

Importantly,

Speaker 2

call. 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. Call. That's why we're doing everything possible to mitigate supply constraints by bringing in product from our FDA registered facility in Europe call so that we can restart operations at the facility.

Speaker 2

Moving to diagnostics call. In the quarter, more than 90% of which came from our rapid tests, including BinaxNOW in the U. S, PAMBIO internationally and ID. NOW globally. Excluding COVID related call.

Speaker 2

COVID testing related sales, our global diagnostic sales grew 12% in the quarter, call. Driven by the continued rollout of Alinity, our innovative suite of diagnostic instruments and expanding menus call across our testing platforms. And I'll wrap up with medical devices where sales grew 11.5 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 call.

Speaker 2

While procedure volumes were negatively impacted by elevated COVID case rates early in the year, we saw a steady improvement procedure trends as the case rates came down in the second half of the quarter, which has continued into April. Call. In addition to improving market trends and our strong results, this was also another highly productive quarter for our pipeline. In the U. S, call.

Speaker 2

We received FDA approval for AVER, 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. CardioMans We received an expanded indication in the U. S. To treat more patients suffering from earlier stages of heart failure and we received U.

Speaker 2

S. FDA clearance call. So in summary, we're achieving strong growth overall and across several areas of our business. Call. As the Q1 progress and COVID levels decrease, we saw a steady improvement in the hospital based procedure trends, call, which has continued into April.

Speaker 2

And we continue to advance our pipeline with new products, indications and reimbursement coverage in several attractive

Speaker 4

I'll now turn over the call to Bob. Bob? Thanks, Robert. As Scott mentioned earlier, please note that all references call. Sales growth rates, unless otherwise noted, are on an organic basis, which excludes the impact of foreign exchange.

Speaker 4

Turning to our results. Sales for the Q1 increased 17.5% on an organic call, along with global COVID testing related sales of $3,300,000,000 in the quarter. Excluding COVID testing related call. Organic sales growth was 7.7% versus the prior year. Foreign call.

Speaker 4

Our earnings call in January. Regarding other aspects of the P and L, the adjusted gross margin call. The show was 59.1 percent of sales, which reflects higher than normal fall through on COVID testing sales as a result of significant question volumes during the Q1, partially offset by the impacts of the nutrition recall and somewhat higher than expected inflation on certain call. And adjusted SG and A investment was 23.1 percent of sales in the Q1. Lastly, call.

Speaker 4

Our first quarter adjusted tax rate was 14.5%. Before discussing our outlook for the full year, call. I want to provide an update on our strategic capital deployment initiatives completed in the Q1, which included approximately $2,300,000,000 of share portion and $300,000,000 of capital expenditures, which support future organic growth opportunities. We continue to generate strong cash call flow, which provides the flexibility required to execute a well balanced capital allocation strategy. Turning to our outlook call.

Speaker 4

For the full year 2022, our adjusted earnings per share guidance of at least 4 point portion due to the recent recall event in Nutrition. It is important to note, excluding sales impacted by call. We continue to forecast total organic sales growth in the high single digits for the remainder of our combined businesses, call, which includes medical devices, established pharmaceuticals, diagnostics excluding the impact portion of testing related sales and areas of nutrition not impacted by the recall. We forecast COVID testing related sales of call approximately $4,500,000,000 with a significant portion of these sales expected to occur in the first call throughout the year as appropriate. Lastly, based on current rates, we would now expect exchange call to have an unfavorable impact of a little more than 3% on our full year reported sales.

Speaker 4

With that,

Operator

And our first question comes from Robbie Marcus from JPMorgan. Your line is open.

Speaker 5

Hi, good morning. Thanks for taking the question and congrats on a good quarter. Maybe to start call. For Robert or Bob, you guys put up a good Q1, beat on COVID testing sales, had double digit growth call. In most of the businesses, I was hoping maybe you can reconcile the strong 1Q and the reiterated guidance question.

Speaker 5

Walk us through some of the puts and takes and how to think about bridging the difference.

Speaker 2

Sure, Robbie. I think you've been on these calls for a while. Call. 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, there's a lot of good things going on at the company.

Speaker 2

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, call. 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, call.

Speaker 2

3 out of 4 quarters double digit, strong COVID sales, both in the U. S. And internationally. And I think that's an important aspect here is our international call. I'll now turn the call over

Speaker 6

to the operator. I'll now turn the call over

Speaker 2

to the operator. Thank you. Thank you. Thank you. Thank you.

Speaker 2

Thank you. Our next question comes from call. 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.

Speaker 2

And but there are a couple of challenges that we're managing and that's probably the piece there where portion side, we're working with the FDA and we've contemplated in that reiterated guidance various scenarios here in terms of kind of restart dates, and share recovery curves, etcetera. 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 align point 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 it's a little bit call.

Speaker 2

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 It definitely changed versus where we were in January. And it's gotten a little bit more challenging. Call. So, and I we'd expect some of that macro environment with our supply chain, etcetera, to kind of be a little bit more persistent throughout this year. Call.

Speaker 2

So that being said, wanted to see how these 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 call. That and on our guidance going forward after Q2. But like I said, there's a lot of great momentum in the business, Device is 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.

Speaker 2

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 quarter. Impacted Nutrition Products, our growth rate was about 11%. And I think that reflects call. The strength of the portfolio, the investments that we've made and the execution. So in that guidance, that reiteration of $470,000,000 we've absorbed, call.

Speaker 2

As Bob said, more FX headwinds absorb some challenges in supply chain, absorbed portion of the nutrition recall. So I think it's the right EPS guide right now in terms of where we are after Q1.

Speaker 5

Great. Really good color. And maybe as a follow-up, I think a lot of quarters are focused on the go forward realizing that January February weren't the strongest months, due to some of the elevated omicron Levels. So we heard Johnson and 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.

Speaker 5

So So 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

Speaker 2

call. It 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 surge is 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. Call. 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.

Speaker 2

Call. If you look at our Q1, 2022 growth rate versus 2019, call. We were up about 7.3%, so well ahead of where we were in 2019. And that was pretty broad based. Geographically, the U.

Speaker 2

S. Was up 6% again versus 2019 call. And international 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 call.

Speaker 2

And March was really strong too. I think it's part of it is recovery, Robbie, that we're call. But also I would also put in those numbers, I made these comments about recently launched products that we started launching call. 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 call. Whether it's Amulet, Navitor in Europe, Cardiomex, the rollout of Encyte X that began in Q4 of last Sure, our Triclid products.

Speaker 2

So I think all of that, it's the combination, I would say of both recovery, as the COVID cases portion of the new product launches in the pipeline that we put, which is driving this performance where I'd say we're ahead of where we were quarter in 2019 having good growth rate in our Cardio portfolio.

Speaker 5

Appreciate the color. Thanks.

Operator

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

Speaker 7

Hey guys, thanks for taking my question. Robert, maybe back on this guidance question. Right. The testing guidance was raised by $2,000,000,000 right? That's perhaps $0.40 of upside.

Speaker 7

And reiteration of this EPS, like what is offsetting this, the incremental tailwind from call. Like how much of this is FX versus macro Russia versus the recall or inflationary pressures? I think little bit more granularity will be helpful.

Speaker 2

Sure. Well, I mean, I think you hit on the key points there. I mean, question. Additional inflation pressures is impacting some of that. We've got a couple of $100,000,000 that cost rate and distribution.

Speaker 2

The recall, well, let me take a step back. The FX call. It's probably about another about a nickel of friction that we're having call. As we've seen the dollar strengthen, and the rest of it is really coming from nutrition, but it's very difficult right now, Vijay, to be able to kind of pinpoint exactly. We've got a couple of different scenarios, as I said, in the first question in call in terms of the restart and the curve.

Speaker 2

So we are seeing more COVID tests and more COVID sales And that, like I said, is absorbing some of these challenges.

Speaker 7

Understood. Call. And then one on Vibram. Sequentially, revenues declined. And I guess my question is, call.

Speaker 7

You've been adding, I think, a couple of 100,000 new patients starts. Is that new patient starts changing at all? How should they think about incremental reimbursement in Japan? And with the seasonality or what drove the sequential Libre revenue questions.

Speaker 2

Yes. 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 of call. I'd say internationally the biggest driver of that is actually FX that created that. We've seen good growth internationally from Libre, getting close to 20% on a very large base.

Speaker 2

And in the U. S, you're going to see some patterns there in terms of wholesaler ordering. I like to look at scripts, both new to brand scripts and total RX scripts call. And the sequential Q1 to Q4, there's definitely growth there. So I think we've done a really good job call.

Speaker 2

In the U. S, we've grown our business in this quarter by 50%. Users now well over a 1000000 users. We've made the investments in the U. S.

Speaker 2

Whether it's sales force, DTC advertising. I think the team is beginning to hit kind of really hit its stride with those investments as the sales force gets deployed and establishes the relationships with what is call. New physicians that are getting introduced to CGM. So I think that's worked out very well. If I take a step back call.

Speaker 2

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 call. What we had always envisioned this market to start to be, which is a market that is shifting from what question. And we're starting to see signs of that.

Speaker 2

And I think Libre is a big driver. The value proposition of Libre is a big driver, whether it's physicians If you look at our U. S. Base of patients and we get to see this because we get to see the Rx data in terms of what medications the questions are using and over 40% of our user base, which is pretty large in the U. S.

Speaker 2

Is already Type 2 non intensive. And that as I said is really kind of the opportunity to expand this market and become a 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 we see this as a mass market opportunity. So counter to maybe how we TAM, we're looking at patient TAM much more than we are on the pricing side. We've got great reimbursement opportunity for us.

Speaker 2

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 call is clearly shown to be extremely cost effective whether you look at ICERs or Qualys in the U. K. 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 much more than kind of a niche play and much more 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 box start to really embrace the prescription of CGM for type 2s.

Speaker 7

That's Helpful, Robert. Thank you.

Operator

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

Speaker 8

Hi, good morning. Thanks for taking the questions and congratulations on a strong start to the year. Rob and Bob, I just call. I'll start with just a question on gross margins. The 1Q performance was the highest since 20 quarters in 2019.

Speaker 8

Just wanted to better understand the sustainability of this profile. I mean, 59.1% despite all the Challenges in place in 1Q 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 We wanted to hear an AMOLED, what have you learned in the early days the AMOLED launches is a number 2 player in the U. S.

Speaker 8

That if they show a penance closure market that you You can apply your defense strategy starting this year and maybe carrying into next year when you're defending your MitraClip turf as the number one player assuming the U. S. Pascale launch occurs in 2023. Thanks for taking the questions.

Speaker 4

Okay. Josh, I'll take the kind of the gross margin question. In the Q1, our gross margin We benefited from the very high COVID testing sales. And as I mentioned in my remarks, that actually the fall through on that was higher quarter than we've seen in the past because of the production volumes that we had going through our plant, we're basically running full out on that. So our Q1 definitely benefited 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 increase inflation that Robert mentioned, obviously inflation is not unique to us.

Speaker 4

As we said back in January, we incorporated a sizable call. In our guidance at that point in time and what we've seen, 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 question 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 call. We focus on in the company constantly.

Speaker 4

We've got dedicated teams within each business that are focused call. On driving gross margin improvements, I mean, a lot's going to depend, I think, as we think out in the future, the evolution point 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

Speaker 2

question on MitraClip and Amulet. So I'll talk a bit about MitraClip. I'd say that the progression of mitral clip in the quarter was very similar to my commentary on our cardiovascular procedure, procedure, right. So we obviously had high COVID case kind of impact, but started to really accelerate growth quarter towards the end of February and into March. So as those cases came down, we saw the improving growth rate.

Speaker 2

But I'll tell you, I 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 point from the FMR indication, which we got kind of right in the middle of COVID. And as part of that, I talked a bit about this. To be able to benefit from 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. Call.

Speaker 2

And we began doing that when COVID took its first break and then that got put on hold again when Delta and Omicron call. So, I'm really looking forward and the team is kind of already putting in place that strategy again to reengage portion, the patient referral network, so that we can really take advantage of this indication, which unique to us and will be unique to us for a while relating Competitive movements onto the market. We just got to stay ahead. We've got to keep on investing in the product. So we've done With MitraClip, staying ahead and iterating and improving on the performance of the product.

Speaker 2

We're investing in New trials, I talked about our investment that we're made in moderate risk surgery patients that will be a great opportunity for question. And we have a great team and we have great relationships and a strong mitral position. So call. I'm not discounting the fact that we'll have competition. We've had competition in Europe for a couple of years already.

Speaker 2

Germany is probably The 2nd largest global market and our position there remains at an 80% market share. So acknowledge that we will have competition, But we do 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. Call. 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 More indication.

Speaker 2

Regarding AMULAT, listen, I think the team has done a really good job. Again, reiterating the same kind of comments, a little bit challenged in the beginning of the quarter, and that was predominantly driven proctors throughout the U. S. And travel international etcetera. So that slowed us down call.

Speaker 2

Has definitely had a really strong exit to Q1, caught up in terms of all the contract closes that we had established call 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. Call. 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 And they get the benefits of what the data shows is superior closure. And that's really because call of our unique dual sealing mechanism.

Speaker 2

So, yes, there was some data that came out Late breaking data that came out of the ACC, which talked about the importance of call. Leaks and leaks matter, whether they're big leaks or whether they're small leaks, they do matter. Call. And even the small leaks were associated with an increase in thromboembolic events. So I think we're in a good position now with AMOLED.

Speaker 2

Call. I'm pleased with the commercial team and what they're doing with the clinical team. And we've got opportunities here to grow. I think momentum is building with call.

Speaker 8

Thanks so much for all that color. Appreciate it.

Operator

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

Speaker 9

Good morning. Thanks for taking the question. Call. So Robert, 2 high level questions for me. 1, I'll push my luck a little bit and see if we can get any preliminary thoughts call.

Speaker 9

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.

Speaker 2

Sure. Well, we had a really strong quarter regarding Larry. And 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.

Speaker 2

In the U. S. We saw cases decline portion. 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, right, that 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.

Speaker 2

But it's really testing that point. 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, studies, etcetera.

Speaker 2

So I think that that's an important aspect as we go into 2023 is, do we have confidence that even in an pandemic state, does testing continue? And I would say, yes, it does continue. One portion point that doesn't get a lot of attention is our international testing business. 50% of our sales in March call of COVID test came from the international markets. And I'd say similar sense there of governments investing in testing call.

Speaker 2

And coming to Abbott is one of the preferred suppliers. So I think that to answer your question, obviously there's a certain amount that you can't call. Right. But I do think that as we go into next year, we'll have a portion of our testing business that will poll look more like a flu kind of respiratory kind of endemic state. And I think that's going to be important call as we continue to grow earnings.

Speaker 2

And then on top of that, like I said, 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. Yes, it's a little bit early regarding 2023, but we are planning, point. We are looking at where we're going to be able to kind of grow. And I'd say, there'll be some COVID business Next year, I think we're in a probably the strongest position to be able to kind of capitalize and lead in that market.

Speaker 2

And then our base business is going to do very call next year with all the investments we've made and new product pipeline that we've got.

Speaker 9

That's super helpful. Call. Robert, you're in a unique position with your strong balance sheet. I saw you mentioned on the call you bought back I think $2,500,000,000 in stock this quarter. Call.

Speaker 9

What are your updated thoughts on M and 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.

Speaker 2

Sure. On the M and A side, yes, 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.

Speaker 2

Questions. We need to make sure that we're looking at assets that will be additive to our growth rate into our profile. Call. At least the top line. So that's always there and we're always looking.

Speaker 2

Regarding the approach, listen, it's always a balanced approach, Larry. We're generating strong cash, strong quarter. We've got a lot of financial flexibility here. We'll return $3,000,000,000 when you in terms of dividend this year. Bob talked about what we've done 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.

Speaker 2

And if there is an opportunity for more, we'll do more.

Speaker 9

Thanks so much, Robert.

Speaker 7

Yes.

Operator

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

Speaker 10

Good morning and thank you very much for taking the question. Call. 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 call. Brand name, brand damage, if you will.

Speaker 10

And I'm curious your thoughts on what it would take to sort of revamp This business up. Thank you.

Speaker 2

So are you referring to nutrition business?

Speaker 10

Yes.

Speaker 2

Okay. Call. Listen, we've got a very robust manufacturing network and a robust quality system. Call. Obviously, there's a shortage of product in the market.

Speaker 2

I highlighted some of the things that we're doing to be able to process. We've got a strong brand with Simulac. We've maintained a lot of contracts. Call. We've been able to supply those contracts even with a little bit of this shortage.

Speaker 2

So I feel confident in and build back our share. We had just launched Joanne a new product last year, end of last year, with blend of 5 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. Call. So I think that's going to be important. And yes, we'll have to make some investments as we go back to the market.

Speaker 2

But I'd say call. Historically, when some of these issues have happened in the past, whether it's Abbott or other manufacturers, share does call. The question is just kind of the timing and the curve of that recovery, but share do come to recover and you can look at past situations with other competitors and even with us.

Speaker 10

Thank you. And as a follow-up, forgive me for asking it this way, call. What's next? I mean, I don't think we're going to be talking about COVID testing in a year. I hope we're not going to be talking about it.

Speaker 10

Call. But how do you see the sort of forward momentum of the company, big picture? Thanks.

Speaker 2

Yes. Well, call. Yes, I don't think we're going to be talking about COVID testing the way we're talking about it today or how we talked about it in the past year. But point. 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.

Speaker 2

And as I've said in call. Also, what COVID has allowed us to do is to further accelerate what we believe was a key trend in diagnostics and point of care diagnostics, which is the expansion and the Centralization of that testing outside of the lab, into pharmacies, into people's homes, and it being connected. So I think that COVID has accelerated that, I guess, I would say. And we're obviously building menus where we'll be able to add point to the ID Now instrument, more panels, more different tests. Remember when we started the pandemic, we had about 20,000 instruments, that's now fivefold in terms of the opportunity that we have to be able to expand Menyoo into basically an asset that's been capitalized and deployed into the market.

Speaker 2

So that's what we've been working on from that perspective on the I guess, I would say on the rapid testing side, on the decentralized testing side. Question. 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 Avera and our leadless pacemaker. I think this is going to be a great opportunity to reignite growth back in our CRM business.

Speaker 2

I mean we've seen an improvement already with the existing portfolio and had a 4% growth quarter. But I think Avera 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 call. But I think when you're coming second to the market, you get to observe what needs to what could be addressed that maybe call.

Speaker 2

The first generation didn't do. And I think that our product whether it's retrievability, its ability to be retrieved, call. It's 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 call to upgrade, to a dual chamber device.

Speaker 2

So, its upgradability is what we're hearing Extremely big interest from the physician community. So I think that's a great opportunity for us that I think is really going to start call 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 call 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 expansion indication and that gives me a lot of excitement about what this product can be.

Speaker 2

We talked about AMULET. I think that the TAVR piece question is one that as I've said in the past, we're investing. I think Navator is an extremely competitive product and we're seeing maturity for us, not only in the U. S, but in Europe to continue to expand the market. I think Lingo, as I said, question.

Speaker 2

Last call is another great opportunity that is really in the early stages, but to look at using our bio call centers outside of diabetes and looking at opportunities there. So I think we have a lot of what that are truly 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

Operator

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

Speaker 6

Trish on the inflation supply chain, some of it's gotten about $200,000,000 worse than the $500,000,000 you had built into the P and L, just to confirm that. Call. 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

Speaker 4

Yes. 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 $500,000,000 on the gross margin And as Robert mentioned, we've now incorporated an additional $200,000,000 in gross margin impact In our current guidance, the biggest impact we're seeing is really on logistics and commodities and some other So it's really on the commodities. In terms of when this will ease and change, I mean, that's a very I think there's a lot of things that affect that And where the where inflation may go.

Speaker 4

We do know that historically on commodities, we do see cycles, we do see call. 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 point.

Speaker 6

And then point. Given your presence in China, we'd just kind of love to hear your thoughts on both China from a procedure standpoint and also supply chain standpoint, just call 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.

Speaker 2

Call. Sure. I think regarding China, saw a little bit of an inverse in terms of what we saw in all the other geographies where started off pretty well in the quarter and then as the lockdown started to occur, specifically in Shanghai towards the end of February and into March, We 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 forms is kind of an early indicator and a proxy. So we saw those go down also during the month of April during the month of March.

Speaker 2

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 routine hospital testing. Portal testing. But we're starting to see that now probably 2 solid weeks of kind of positive trend back in the right direction. Call. Still not at the level we were before the lockdowns, but definitely starting to move in the right direction there.

Speaker 2

So I would call. I suspect, just based on patterns that we've seen in the past that we're starting to kind of move to sequential week over week Improvements in the procedures and not all procedures are the same. Some of them return faster, 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 Sorry, you had a question on Libre

Speaker 6

3? Yes, 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.

Speaker 2

Call. 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. Question.

Speaker 2

I will say that, we have moved Libre 3 in Europe into 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. Call. And I think the process started really well in Germany. We got initial feedback from physicians very positive feedback from call. The reimbursement system also and that gave us the confidence here to kind of really begin to accelerate this market transition in Libre 3.

Speaker 2

We did that in Libre 2 also when we moved from Libre 1 to Libre 2 in Germany. It 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.

Speaker 2

So I'm focused a lot point 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 call.

Speaker 6

Great. Thanks a lot.

Speaker 1

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

Operator

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

Speaker 3

Hey, 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 call. For example, the avidity rollout and menu expansion, very strong growth in the quarter. Robert, if you could maybe talk about what's the duration of this rollout? I know it started into the pandemic.

Speaker 3

And what does that 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.

Speaker 3

S. Any numbers you could put around your thoughts there would be super helpful.

Speaker 2

Sure. I mean Alinity is a multiyear strategy and rollout here, Matt. We're doing it with hematology. We're doing it with transfusion. This has never been done at this kind of scale to be call.

Speaker 2

Tracks are lasting between 7 to 10 years. So on any given year, you've got 15% of the market call. That's coming up for an RFP. So regarding its legs like you're asking, I mean, I still think that we've call. We've got multiple, multiple years here.

Speaker 2

The COVID pandemic definitely slowed that down in terms of The renewal cycles, a lot of hospitals focusing on just dealing with the COVID. But between in that 15% that comes up for RFP, call. 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 calls we've been able to maintain. And then if you look at the business that's coming up for grabs, I'd say call.

Speaker 2

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 That's what ultimately drives our top line growth. And then 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, right? You've got the capital deployed. You've got the service call.

Speaker 2

That's kind of been deployed there. So everything we can do to be able to add new menus, new tests, etcetera, is accretive from both the top point on the bottom line. So that's a big focus of the team on the R and 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. So On your question on AMOLED, listen, I think we continue to capture share. We estimate that we're point.

Speaker 2

And double digit share position here in the U. S. Longer term, I would say, our aspiration point is to build a significant share position. The European market is much smaller than the U. S.

Speaker 2

Market. Yes. In that market, we have a 50 share. So, 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.

Speaker 2

Call. So, you need to make sure that, the physicians as you roll it out, learn how to use call. 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 So utilization in existing accounts.

Speaker 2

And that's the piece that I'm actually getting very excited about. As we've looked at the accounts that we started back in September quarter. We're starting to see nice share movement over there. So that's very exciting for us.

Speaker 3

So, let

Speaker 2

me just close here. Point. Our guidance that we set back in January absorbing, I would say, impact of the nutrition recall, which we're working hard on 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 in the supply chain that many companies I know are facing call.

Speaker 2

And we're absorbing some headwinds on FX side. That being said, there's a lot of great things that are call. 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 quarter. And the team is focused on building off that and building off that momentum.

Speaker 2

So call.

Speaker 1

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 am Central Time today on Abbott's Investor Relations website at abbottinvestordot call. Thank you for joining us today.

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Earnings Conference Call
Abbott Laboratories Q1 2022
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