Q4 2019 Earnings Call
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Good morning, and thank you for standing by welcome to Abbott's fourth quarter 2019 earnings Conference call. All participants will be able to listen only until the question and answer cancer portion of this call.
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I would now like to introduce Mr., Scott line, and Weber, Vice President Investor Relations licensing and acquisitions.
Good morning, and thank you for joining us.
With me today, our miles wide chairman of the board and Chief Executive Officer.
Robert Ford, President and Chief operating Officer, and Brian Your Executive Vice President Finance and Chief Financial Officer.
Miles will provide opening remarks, [noise], Brian will discuss our performance and outlook in more detail.
Following their comments, we'll take your questions before we get started some statements made today maybe forward looking for purposes of the private Securities Litigation Reform Act of 1995, including the expected financial results for 2020.
Cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward looking statements economic competitive governmental technological and other factors that may affect habits operations are discussed in item one a risk factors tour.
And your report that Securities Exchange Commission Form 10-K for the year ended December 31st 2018.
Abbott undertakes no obligation to release publicly any revisions to forward looking statements. It was as a result of subsequent events or developments, except as required by law.
Please note that financial results and guidance provided on the call today for sales S. In line items of the piano 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 habits ongoing business performance.
These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release.
Okay and regulatory filings from today, which are available on our website at <unk> Dot com.
Unless otherwise noted our commentary on sales gross refers to organic sales growth, which is defined in our earnings news release issued earlier today.
That I will now turn the call over two miles okay. Thanks, Scott good morning.
2019 was another highly successful year for habit are focused execution resulted in strong financial performance, including ongoing earnings per share of $3.24, reflecting 12.5% growth on an absolute basis, and even higher growth when excluding the impact of currency.
All four of our businesses performed well contributing to full year organic sales growth of more than 7.5%, which is above the guidance range. We set at the beginning of last year.
The successful year was capped off by a strong fourth quarter with organic sales growth of 8.5%, including double digit sales growth in medical devices established pharmaceuticals, and core laboratory diagnostics, along with ongoing EPS growth of more than 17%.
Our consistent strong performance demonstrates that our business model is working exactly as intended we built the company very deliberately through a multiyear process to deliver superior results for years to come.
We have shaped our businesses to align with important trends to make sure when the right places with the right products and we've targeted businesses that are focused on some of the world's greatest health care concerns for example.
Diabetes, and cardiovascular disease disease or to the most significant health care challenges of our lifetime their chronic long lasting and dramatically increasing in prevalence around the world.
Nearly every healthcare decision begins with a diagnostic test and this testing not only occurs in the traditional hospital setting.
But also increasingly an alternate sites such as physicians offices pharmacies and even at home.
Proper nutrition is a foundational element of good health across every stage of life.
What are your a newborn baby <unk> child striving to grow or an aging adult working to overcome a health condition.
And access to healthcare continues to expand rapidly in emerging markets, where 85% of the world's population resides.
We shift our company to achieve scale and leadership positions in all of these areas.
Investments, we've made and our focus on execution are working.
Product pipelines are strong operating culture is strong and we're well positioned to achieve sustainable strong growth for years to come.
For 2020 were forecasting another year of top tier financial performance as we announced this morning, we forecast organic sales growth of 7% to 8% and adjusted earnings per share of $3.55 to $3.65, reflecting double digit growth.
I'll now provide a brief overview of our Tonight 2019 results and 2020 outlook for each business and I'll start with diagnostics.
Where sales grew 6.5% in the fourth quarter led by double digit growth in core laboratory testing.
The rollout of Alinity continues to go well in Europe , where we're winning new business at a high rate and successfully renewing existing contracts that come up for bid.
We continue to expand our rollout of Alinity systems across multiple key markets, including U.S.
Where last year, we obtained FDA approval of a windy for blood and plasma screening and have made significant progress.
Obtaining regulatory approvals for critical mass of our immuno assay and clinical chemistry test menu.
I will turn now to nutrition, where sales increased 6% in the quarter led by strong growth across several countries and segments of our business, including Southeast Asia, and Latin America across both pediatric and adult nutrition as well as above market growth in the U.S.
In pediatric nutrition growth was driven by PD assure our nutrition solution to help kids grow and thrive and PD alike, our oral rehydration product, which continues to see unprecedented uptake with both children and adults.
In adult nutrition global growth of 10% in the fourth quarter was led by ensure our leading complete and boundless nutrition brand and grew sirna, our leading brand for people with diabetes.
Moving now to medical devices, where sales increased nearly 11.5% in the fourth quarter led by double digit growth and structural heart diabetes care Electrophysiologist and heart failure.
In structural heart sales increased 17% in the fourth quarter over the last couple of years, our portfolio and long term growth opportunities. In this area has strengthened considerably we've been building our position organically in this area for quite sometime when in 2017, the combination with St. Jude created what I'd now consider a best in class.
Structural heart portfolio.
Mitraclip, our market leading device for the minimally invasive treatment of mitral regurgitation or leaky heart valve is the cornerstone of our portfolio with annual sales this past year of nearly $700 million growing 30%.
Last year, we obtained an important new indication in the us that significantly expands the number of people that can be treated with Mike clip.
And just last week, we announced that we're initiating a clinical trial that offers the potential to expand the treatable patient population even further.
Beyond Mitraclip several exciting technologies are expected to emerge from our structural heart pipeline in 2020, including CE Mark approvals for try clip a first of its kind technology to repair leaky tricuspid heart valves.
And for 10, dine, which targets replacement of the mitral valve as well as us approval of portico for Transcatheter aortic valve replacement.
Turning now to diabetes care, where sales increased nearly 35% in the quarter led by freestyle Libra, our revolutionary continuous glucose monitoring system.
Several years back we saw an opportunity to approach continuous glucose monitoring or monitoring or CGM fundamentally different manner compared to others in this space.
We challenged ourselves to rethink existing paradigms as we sought to develop a solution that would truly benefit the mass population of people living with diabetes around the world that aspiration influenced every aspect of Libra highly accurate simple to use, particularly affordable and easy for patients to access.
The results of our unique approach had been remarkable by any measure Libra has quickly become the global market, leading wearable CGM.
Its user base has roughly doubled each year to its current level of approximately 2 million users globally, including the highest user base among CGM is in the us.
Reimbursement coverage has ramped up quickly around the world as payers increasingly recognize its highly differentiated value proposition.
The only CGM, it's widely available through the pharmacy channel, which is which is a significant benefit for patients as it simplifies the process of acquiring the product.
In 2019, Libra to achieve full year sales approaching $2 billion, an increase of 70% versus the prior year and importantly, as we plan for the substantial growth opportunity to come we significantly expanded our manufacturing capacity to keep up with anticipated demand for this life changing technology.
Now I'll wrap up with established pharmaceuticals, or LPD, where sales increased 10% in the quarter led by growth across several geographies in Latin America and Asia.
For the full year sales increased 7% for the second year in a row as this business continues to execute its unique branded generic strategy in emerging markets.
These markets are growing rapidly their populations are aging their middle classes are expanding and health care spending is increasing due to improving access to healthcare.
Our strategy to build significant presence and scale in these markets is unique and continues to result in Ics and strong growth.
So in summary, this was another highly successful year with strong performance across our businesses. We continued to strengthen our leadership positions in some of the largest and fastest growing areas in healthcare and we're entering 2020 with great momentum across our businesses and targeting another year of strong organic sales growth and double digit EPS growth.
I'll now turn the call over to Brian to discuss our 2019 results and 2020 outlook in more detail.
Ryan.
Thanks Myles.
Scott mentioned earlier. Please note that all references to sales growth rates unless otherwise noted are on an organic basis, which is consistent with our previous guidance.
Turning to our results sales for the fourth quarter increased 8.5%.
Exchange had an unfavorable year over year impact of 1.4% on fourth quarter sales.
Regarding other aspects of the personnel. The adjusted gross margin ratio was 59.4% of sales adjusted R&D investment was 6.7% of sales and adjusted SGN expense was 28.3% of sales.
The fourth quarter adjusted tax rate was 12.8%.
Lower than our previous full year guidance of around 14.5% due to continued implementation of an adaptation to the us tax reform regulations.
Our fourth quarter tax rate reflects the aggregate adjustment to achieve our full year revised effective tax rate of 14%.
Turning to our outlook for the full year 2020.
Today, we issued guidance for adjusted earnings per share of $3.55 to $3.65.
For the full year, we forecast organic sales growth of 7% to 8%.
And based on current rates, we would expect exchange to have a negative impact of around one half of 1% on our full year reported sales.
We forecast an adjusted gross margin ratio of around 59% up sales for the full year.
Which reflects underlying gross margin improvement across our businesses.
Offset by the impact of investments to support the rapid market adoption of our lender the diagnostic systems.
Investments in Leibrand, Mitraclip manufacturing capacity expansions and the impact of currency mix.
We forecast adjusted R&D investment of approximately 7% of sales.
And adjusted SGN expense of around 29.5% of sales.
We forecast net interest expense of around $515 million.
A non operating income around $200 million.
Lastly, we forecast and adjusted tax rate of 13, a half to 14% for the full year 2020.
Turning to our outlook for the first quarter, we forecast adjusted EPS of 69 to 71 cents, which reflects double digit growth.
We forecast organic sales growth of around 7% and at current rates would expect exchange to have a negative impact of a little more than 1% on our first quarter reported sales.
We forecasted adjusted gross margin ratio of somewhat above 58.5% of sales adjusted R&D investment of somewhat above 7% of sales and adjusted SGN expense of around 32% of sales.
Lastly, we forecast net interest expense of around $130 million in the first quarter.
Before we open the call for questions I will now provide a quick overview of our first quarter and full year organic sales growth outlook by business.
For established Pharmaceuticals, we forecast mid to high single digit growth for both the first quarter and the full year.
In nutrition.
We forecast growth of around 4% for the full year and growth of 3% to 4% for the first quarter.
In diagnostics, we forecast mid to high single digit growth for both the first quarter and full year.
And in medical devices, we forecast double digit growth similar to last year for both the first quarter and full year.
With that we will now open the call for questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press the star and the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the keel. Please press the pound key for optimal sound quality. We ask that you. Please use your handset instead of your speaker phone when asking your question.
Again, ladies and gentlemen that Star then one to ask a question.
And our first question comes from Bob Hopkins from Bank of America. Your line is open.
Great. Thanks for taking the question.
So I guess first miles congratulations on such an incredible run a 20 plus years of value creation.
Obviously incredibly impressive track record.
And in light of that the first question I'd Love to ask both you and Robert to comment on a kind of bucket I know is on the mines of most investors from a big picture perspective, and that is the the durability of the incredible 7% revenue growth outlook that you guys have expressed for 2020 and beyond and the main reason I want to ask that question is that when you take a step.
Back there is no other company in Medtech modeling anything close to that kind of growth off of that larger the base.
Especially for multiple years, so miles per you I guess, just if you wouldn't mind, providing some big picture thoughts on that durability talking like and then for Robert maybe getting a little bit more specific on the product areas that give you the confidence long term and whether or not M&A or divestitures could play a slightly bigger role going forward I hope you maintain that.
Level of growth. Thank you.
Bob This is miles the temptation.
Sure.
Sort of say something that sticks my successor, with just unbelievable goals for the future et cetera is overwhelming [laughter].
So to speak first.
You know seriously.
We have been building what we've got here.
For an extended period of time it Didnt just happen it's not based on.
A single driving product are driving business. It's it's it's actually quite broad based across all of our businesses.
And while.
You know a lot of people have commented to.
To me or us that GE, you got a lot big numbers and you know hard for a big company to grow et cetera, we don't actually feel like that'd be a company and.
We don't necessarily feel even though we've got leading positions in so many of our businesses. We are actually feel like the law big numbers is working against US we feel like the opportunity for growth if you've got an innovative pipeline and you're in markets, where there is a natural tailwind of growth demographically or from an innovation standpoint.
So on.
I don't really think that this whole notion of.
Our size or big numbers applies if we were a tech company you wouldn't be asking OSAT.
Because we'd be too small so I think if we look at the size of the opportunities, where we placed the company and its businesses.
And the portfolio of products and geographies and so forth I think theres enormous.
Market opportunity, that's untapped and I think theres enormous.
Penetration to be tapped and I think there's some obvious examples out there and fortunately in all of our businesses I think.
Every one of them is innovating and creating new products and innovating to replace older products.
Way, that's really never been true before and and it's across the board and so it was we look forward at that and model. It. We think our growth rates are sustainable how far out are they sustainable I don't know, but years anyway and are we going to have speed bumps, we're going to have speed.
Bumps of our own making we're going to have speed bumps from.
Trade, we're going to have speed bumps from exchange, we're going to have speed bumps in any number of ways as all companies haven't do.
And yet we and we have them now and we're still growing at a very healthy strong rate.
And I I credit the innovation pipeline.
So some smart acquisitions at the right time with the right businesses. The REIT strategies right bids I credit the execution of our organization and the culture of execution that is here.
I have super confidence in.
My successor.
No qualms oil.
The minute you up retire everybody thinks show to diversify your holdings picture to concentrated in one thing I only wish I had more and.
You know.
Ill remind them every day that I'm a shareholder but.
Which he knows but but I have nothing but confidence in the pipeline the management the products the strategies and the new leader Who's who's going to take over for me I have tremendous confidence in Robert and he's got all the abilities all the skills et cetera. So.
We can keep talking about the law big numbers in Gee, how do you grow on this base.
We don't feel.
Slowed or.
Anything by that we feel like we've got tremendous opportunity to sustain our growth rates.
Yes, Bob This is this is Robert here.
As you as you're aware you know under miles his leadership last 20, plus years habits been reshaped several times.
I was.
Close to him into the board when we went from this last reshaping the company to really position and aligned.
Our businesses to kind of high growth markets geographies et cetera, and as Michael said it wasn't just the acquisition piece of it which was important but it was also how we looked at our internal R&D, our internal innovation and how we thought about it. So obviously with the with the transition here to CEO . There's a natural question of the incoming.
Do they think differently is there a change in strategy is a different way of thinking and I can tell you I'm I'm very much aligned with Myles, we see things very similar.
As it relates to our strategy, how we operate that philosophy of the company Division, we have for Abbott and in the last 18 months for me in particular to be kind of close to miles. During this this transition period being closer to him with his mentorship and learning how he has been able to kind of create value as as you referenced in the beginning there.
That leaves me with my number one priority to do that is to really execute as Michael said on on these organic growth opportunities, we have and we have multiple growth drivers as as you know Bob that in my opinion there they're in their very early stages now whether its LIBOR rate the linearity.
He rollouts are rejuvenated cardiovascular portfolio I think we've got a great opportunity in a and our adult international nutrition business, our branded generic pharmaceutical business in the emerging markets, which is a very unique strategy. So I look at all of that and.
Your question up how sustainable is I think all these opportunities are in the early stages here and it's really going to be up to me and the team here to make for the we maximize on all of these opportunities. So we've got to a portfolio thats aligned to the biggest areas of medical need attractive geographies as Michael said about the pipe.
Line, it's a very rich pipeline, we talk about how this pipeline has evolved and how we havent seen as rich as a pipeline at Abbott in a long time and it's a nice cadence also it's not just a kind of one and done we've got multiple kind of rollouts here.
Our operating the way we operate is very strong in miles talked about our culture, we set high aspirations for ourselves and we do have a culture of accountability of execution and then you layer that end with 100000 of colleagues around the world that are passionate.
We care about what they're doing they believe in what we're doing they believe in our strategy I think we've got all the elements here to commit to be able to sustain this kind of growth rate going forward.
Great. That's that's Super helpful. Just one super short follow up on diabetes.
Robert If you wouldn't mind is giving us a quick update on LIBOR to timelines and your thoughts there and then if you're willing to give us a sense or in your 2020 guidance what sort of growth assumption are you, making for the rain 2020. Thank you.
Sure.
So I'll leave rate too.
Specifically last October I, I mentioned that we were working through a handful of issues quite frankly.
We encounter this handful of issues and in other parts of our business does too. So it's nothing that's up for US is is terribly surprising its normal I'm not going to go into any of the the real specific sure, but what I will say Bob is that since that time in October I'm very pleased with the progress that we've made and.
Continue to be very confident in in LIBOR rate to and its performance in the product itself and and if I CGM label. So.
Regarding the regarding the guidance on the break to what I can tell you is that we we've got a lot of growth. We are guidance contemplates a lot. If we rate Libra growth. So we're not we're not necessarily differentiating here between between one and two.
Yes, but if you look at our Q4, we had a great Q4 would libra and that's without the break too in the U.S. It was a great way to exit and to enter 2020, as Michael said, where that where the market leader in CGM in in revenue and in the amount of patients and we are growing at.
At twice the rate.
Our strategy here has always been miles talked about challenging some of the paradigm that it has always been from the moment. We launched the look at this is a more kind of consumer retail kind of web shop online play here. So when you look at our Q4, you don't see that kind of Big Q4, Spike and then drop in Q1.
In which you usually see from kind of medical benefit Dnbi products. Our growth. This is very kind of consistent in sequential.
The west has done very well in the year I'm, obviously want to do better, but we exited the year with well over half a million patients in the U.S., we set up some goals.
For 2019 as it relates to distribution.
Payer coverage in the U.S. formulary positions and we exited 2019 exactly where we wanted to be with all of those all of those goals all favorable to leave right. So our focus in the US in 2020 here is really to take advantage of what we've established in terms of the infrastructure and drive that drive demand.
So you'll see you'll see more TV advertising, you'll see more sales force expansion, you'll see more partnerships and execution of those partnerships you will see more sampling and I think that that same momentum that you see in US is also there in our international markets, which is obviously a much larger base for.
Yes, and we saw great momentum in Q4, so our 2020 here is really focusing on international markets is expanding libra into geographies that we haven't yet launched we were capacity constrained in 2019 to the several markets that we haven't launch and we put in place now plans to roll leap.
Brains, those new geographies and rollout LIBOR rate to be into some of those libra one markets. One thing I think is important.
To kind of put front and center here is the clinical aspect of Libra.
You know it is the most studied CGM right now and if you look at the data whether it's our data whether it's real world evidence data whether it's through.
Third party government sponsored trials the all stay the same thing which is people that usually break have better outcomes. They live better. They have led to the agency drops fair hypo drops there the rate of hospitalization goes down so the value proposition that we've always envisioned for libra not only is it intact.
But we actually see it growing it's an easy to use intuitive consumer friendly product that delivers the outcomes that are real and measurable and its price for mass adoption it's affordable.
We always solve the therapy benefit not only for type ones and for Pumpers. We saw this therapy benefit for people that were on one shot a day insulin oral med patients. So we always looked at this market to be 80 to 100 million people now is going to penetrate all 100 million people that might be.
A little bit to ask operational, but what I would say is it is it more than 235 10 million people absolutely and that's how we're building our strategy investing in the product investing in awareness and investing in the scalability. So we can capitalize on this opportunity.
Thank you.
Thank you.
Our next question comes from Robbie Marcus from JP Morgan Your line is open.
Thanks for taking the question I'll Echo the sentiment miles started to see you go but we're very happy to have someone so competition is Robert step bid.
Maybe if we could turn to structural heart I was wondering if you could give an update on where we are with reimbursement and mitraclip.
And then also a bit more broadly miles you talked about some of the new product launches were going to see in 2020, maybe you could just walk us through those in the expectations throughout the year.
So rob ill take that on Mitraclip listen we had we had a great quarter had a great year and last mile said.
In his comments about 700 million dollar product growing at 30% and the interesting thing here is that the penetration of the therapy is only at about 5% right. So we see along opportunity I talked about mitraclip being a multiyear multi billion dollar opportunity here.
There are several elements to that CMS reimbursement is an important a building block we expect that sometime in Q2, but I've always said that it was more than just the CMS reimbursement for the for the indication expansion. We got we know that we need to be able to penetrate the therapy, we need to.
To open new Centrus make it more available.
To do that we need to hire more reps invest in field clinical teams to be able to to get that penetration and we've also invested in a lot of clinical evidence and building clinical evidence here. We just recently announced our study to investigate mitraclip in moderate risk surgical.
Patients. So again, we've been investing to build this market and obviously mitraclip gets a lot of attention in the structural heart portfolio, but if I, if I take a step back here.
I think it's important that we look at we've always seen.
Ill give a heart disease is that as a big opportunity for rabbit, whether it's the demographics, whether it's the medical need and we saw this unique opportunity with the same due to acquisition to to put together or mitraclip capabilities with the portfolio Saint Jude and really create a standalone business unit that was best in.
Class for structural heart, and we did that and it's been about two years that we've done that I mean, I think we're seeing really the impact of of the effect of a dedicated team R&D clinical and we've got a nice cadence of products coming out this year as a result of of that work. We've got two new see approvals that.
We expect this year miles mentioned them try clip. This is a modified version of our mitraclip to treat the leaky heart valve, we believe it's a big opportunity because.
Maybe if mitral therapy is low.
You know tricuspid leaky valve treatment or repair is even lower.
So we know that we know how to build this we did it with mitral and we're going to go about doing at the same way building the capabilities. The clinical evidence another big opportunity. We have is 10 died.
This this will be the first minimally invasive mitral replacement valve.
So if you think about our team right now we've built a lot of competency on mitral repair and now we're going to put in the hands of this team not only the opportunity to offer repair, but also a replacement solution. That's minimally invasive I think theres a great opportunity for us in that space to both those products are enrolling here in the U.S. So.
We do plan to bring those to the U.S.
On the aortic side, we've made investments on portico, we knew that we needed to make some some clinical and some R&D investments here to increase the the competitiveness of the system and we'd like to data, we think theres going to be a segment of the population segment of the market that we will be able to compete effectively it's it's under FDA review in.
And we expect approval shortly.
And then finally on our structural interventions. This is a part of the portfolio that doesn't get a lot of lot of attention here, but it's about a quarter of our structural heart business. It's growing double digit we've got great products. There we've seen a great ramp up with our stroke prevention technology, the P. AFFO, our congenital little business and.
Let me, let which is right now under clinical evaluation the U.S. for.
Treatment of La so I take a step back here I said, yes, Mitraclip is a big growth driver, we got a lot of things going right. There, we're making the right investments from a from a clinical from a commercial perspective, but I look at the portfolio. That's been built here and I'm very excited it's very complete.
It's very differentiated and isn't there is a nice cadence robbie to the launches.
Great appreciate that and maybe just a quick follow up.
When it is still hasn't really started launch in the U.S., yet you put up 13% growth in core lab in the fourth quarter, how should we be thinking about the impact in 2020 from a Wendy both in the U.S. and outside the U.S.
Yeah, I think that we're going to continue to see this kind of roll out of the Alinity platform. The challenge, we had a little bit in the U.S. and miles talked about the progress. We made is that when we launched in Europe , we had a more complete kind of assay menu.
And that allowed us to more.
With more intentionality go after the market you know the existing accounts new accounts and then the west we've now achieved.
I would say a critical mass of assay menu test panel et cetera that allows us to have that same kind of intentionality. We had in Europe have that same intentionality move into the U.S. Q4, we did have some capital sales that brings up the growth rate a little bit, but I think you're going to say the same kind of growth rate.
In the U.S. same kind of ramp up that we saw.
In Europe .
Thanks, a lot.
Thank you and our next question comes from David Lewis from Morgan Stanley . Your line is open.
Good morning.
Selling to broken record, but I'll reiterate miles this some fairly significant and unique value creation over these last 20 years of congratulations again on behalf of shareholders.
Robert miles just starting off with a couple businesses that had lagged in 2019 that are actually showing some improvement here in the back half of 19 wish for Neuromodulation and CRM, some pretty decent improving specifically in the fourth quarter imminent. Robert you can just talk through.
What specific changes had made in those two businesses and how you're thinking about the outlook or sustainability of those franchises into.
2020 that a quick follow up.
Sure. So lets less part other with neuro then I mean, I think we had we had a tough year full year in neuro when we came into the year, we talked about some of the challenges we were up against and there are really too we had obviously the salesforce expansion and some of the disruption that that created but we felt it was important to due to.
Make that sales force expansion and then some of the market declines that we saw we kind of seeing.
Double digit growth since the beginning of the year kind of saw that go to flat and even negative growth rate. So I think that this the salesforce expansion PC, we kind of got past that in the middle of the year you know, it's a it's a unique selling model about 30% to 35% of our sales team in the West was was new was under a year. So.
We spent a lot of time getting much speed not on with their territories, but how to go about the selling process et cetera, and I think that's that's largely behind US now obviously, if you look at the sales reps the ones that have seven to 10 years of experience, they're much more productive than the ones that I've got 12 months, but we're seeing nice steady ramp up.
In terms of productivity those new sales reps.
The other thing we talked about was how innovation and new product launches could kind of fuel the market growth and I think you saw that in Q4, not only with us, but even with some of the other players in the market come out with new product launches at least what I've seen now from some of the Preannouncements, having kind of an impact there and so we came out with.
Our product launch proclaim XR.
Early in Q4, and I think you saw the impact of that in in Q4, I I think it's a modest it was a modest improvement we we expect more and a lot of our focus here in 2020 is going to be to ensure that this new sales team has got innovation at to sell so where we're expanding our MRI portfolio, we know we need to do.
Yeah.
We're launching a new radio frequency ablation.
Generators. This is an important part of our customers practices and and we felt that we weren't as competitive with our offering there. So we we developed a new system that will be rolling out this year.
And we also believe that programming and connectivity connectivity to devices consumer devices is an important aspect.
Patient adoption of the therapy. So we'll continue to work on how we integrate the implanted device into into those into those.
Theres more consumer products actually got a nice cadence of Rollouts there.
On the CRM side, we talked about this in the beginning of last year, we had.
We encounter some challenges and we felt that one of the things that we needed to do for the CRM side was to make sure. It got more focus and more attention not only from not only for me, obviously, but from a from a management team. So we made a an organizational structure change.
Q1 of last year, which which got finalized in Q2, where we separated the CRM business from the key business and we didn't do it just from a field sales perspective, we did it up you know really across all functions. So we have dedicated CRM.
Business unit with a dedicated leader R&D et cetera, and I think you've seen some of the.
Output of that focus in the second half of the year I would like to see a couple more core to strung together.
So that's what we're sure that's what we're we're we're spiraling here too, but I think one of the biggest impact of that focus obviously the field has an impact but I'm more excited about the focus on the R&D side I think we had kind of slowed down our R&D innovation over here and that focus.
That dedicated business unit focus.
I think you'll see the output of <unk> of that not only in 2020, we had a couple of product launches in the U.S. and new I CD and in Europe also but we've we've got plans for a nice cadence of innovation and 21 and 22. So I'm excited about kind of what we've done there obviously, it's early innings in terms of this business.
To be creating but I like what I see.
Okay and just two quick follow for me just Robert on Mitraclip is there a specific embedded assumption in the guidance for for Mitraclip and how acutely do you think we see that recovery in the back half and then your margin guidance about 50 basis points is a little lower than 2019, consistent with our numbers, but if you could just highlight two or three of the examples of significant reinvestment for growth.
2020, that'd be super helpful. Thanks, So much.
So I just on your question about Mitraclip recovering growth and I think we've been pretty strong in our growth rate. The U.S. has done very well and what we saw in the international market. If that's what you're referring to and we did see that kind of impact of the of the of the some of the studies that came out in Europe .
Packed us in the first quarter, but every quarter sequentially flat, we've seen improvement I think we've we've passed we pass that on.
Regarding the guidance I mean, we've got a lot of growth as I said would libra, we've got a lot of growth here we've contemplated.
As I said CMS approval.
But but I have been fairly consistent with this CMS approvals going to be an important aspect here, but it's not just that right. It's the we've been showing really strong growth in the U.S. even without.
Even without the reimbursement and that's the result of the investments that we've been making both in the field and clinical perspective.
So the other question is on is on margin expansion.
Sorry, if I say just margin improvement is an ongoing focus for us David has been well continue to be whether thats gross margin, whether that's the leverage we continue to get asked you then yes, notably we did see that this year you may be off just a little bit from our model in the foreign currency mix, we have a little bit of a headwind next year, but we have our gross margin expansion plan.
On the underlying but keep in mind as Robert said with these investments that we're doing for growth whether thats continued LIBOR expansion, whether it's the most recent mitraclip expansion, we announced and as well as the precedent uptake of Alinity, that's present in a little bit of a headwind, but that's a good news item in the short term and longer term, you'll continue to see those gross margins expand.
As we as we look out over the years.
Great. Thanks, so much.
Thank you. Our next question comes from D.J. Kumar from Evercore. Your line is open.
Thanks, guys. Congrats on a really nice brings here one maybe on the on not nutrition does say this coming really strong I know China has been a bit of bother with some regulation regulatory changes a couple of years ago.
Could you comment on what you're seeing in China is a productive and back.
Has something changed in China for you guys.
Also we achieved a pretty strong growth rate in Q4, and that's despite some of the softness that we did see in China, We talk a little bit about it in Q3 D.J. you know, we we've seen some improvement but some of those dynamics are still there whether it's the birth rate or some of their kind of competitive intensity.
We have you know obviously developed a plan here as we you know as we were going into Q4 and going into 2020 here a big part of that strategy to address some of those competitive.
Dynamics, there is a is innovation and product launches and we put a plan together here, we've got a nice steady steam a stream of a cadence of launches in China, but I do think that if it does point out to the strength of our nutrition business that we're able to post.
This kind of growth rate.
Despite still some continued softness in China, and I think that speaks to that the strength of the business you know miles talked about we had some very strong growth in south Southeast Asia, and Latin America on both sides of the business pediatric and adult and.
I don't think that I think it shows this China's an important market for us for sure it hasn't contingents our attention, but we're not we're not overly reliant not overly reliant on it.
That's helpful. Robert in one diagnostics.
I know flew the trend.
Topic, Du jour, but just curious about what that means for diagnostics up on the core lab side Alinity really strong trends are you spoke about continued share gains in Europe I'm just curious.
Where we are in on the U.S. side.
Have you is a win weighed on the U.S. side compared with the Europe or is that something.
We should be expected for the back half heading into 2021.
Yeah, I as I said in Europe , I think we've had kind of good success in Europe , we talked about winning new businesses that that 50% rate.
The renewals of our existing business or retailing neely nearly all of that business.
And I think in the west right now it might be little bit too early just because you don't we really didnt.
Haven't intentionality the launch that we had in Europe now that we've got a more complete menu I think our ability to compete and our competitive fitness, let's call. It that way in U.S. increases to the same level that we've had that we've had in Europe .
Great. Thank you guys.
Thank you.
And our next question comes from Larry Biegelsen from Wells Fargo. Your line is open.
Good morning, Thanks for taking the question congrats on another really strong quarter miles I'll echo with the other it goes the other commented that I'll Miss interacting with you on these calls always always insightful infant.
Just two quick questions one maybe for Robert on on capital allocation I know this isn't a few calls before but you guys have paid down a lot of debt recently.
Are you a Robert maybe thinking about M&A, a little bit differently should we expect more tuck ins.
In 2020, and I just have one quick follow up.
Sure I.
I think what you'll see is the same philosophy. The same framework that we've had a full this years, which is a very kind of balanced approach as as you've said a lot of our focus last couple of years has has been to pay down debt, we paid down close to $10 billion over the last two years are our net debt EBITDA ratios in is around.
1.5, now and we've got kind of payments that are due in the next next few years and that's all kind of contemplated in our in our capital plan.
Other thing, we're always going to have a mindful eye here Larry is ensuring that portion of that capital goes back for our shareholders. Our dividend is a big part of our identity. We've increased our dividend for 47 consecutive years. This year, we just announced a 13% increase so.
And we announced also at the end of last year.
Or share repurchase about $3 billion, we do that from time to time, mainly mainly to kind of offset.
Dilution.
We'll also look at our growth opportunities and we've talked a lot about them, whether it's the rollout of alinity, whether it's the manufacturing expansion of of LIBOR rate.
We just announced in Q4, a new manufacturing site, a second manufacturing site for Mitraclip. Those are all great returns for our shareholders in terms of the return of that capital and then on the M&A side. You know, we're not looking to do any deals right now I think the framework that miles. This has has always work. This is true to me which is.
You know it needs to meet our threshold of it being strategic or or at the same time opportunistic and we've been looking at it a lot. We were always studying we're always looking and I haven't seen anything crossing the radar here that kind of falls in falls into those two those two buckets, but we're we're always going to keep looking.
As we've always done.
Perfect and then just one housekeeping.
Brian and Brian Congratulations on your retirement and I'll Miss you as well.
Just FX on the on Etsy impact in 2020.
Thanks for taking the questions.
Yes.
All FX, it's around a nickel Larry.
Thanks, Brad it's something that you got it.
Thank you and our next question comes from Rick Wise from Stifel. Your line is open.
Good morning, everybody.
Maybe I'll start off with.
PD.
PD.
Robert is always a little bit of a black box medical device for all the said to me I won't Greg everybody else into it.
Hey, currently doing exceptionally well strong fourth quarter, and you're saying mid to high single digits for 2020, but maybe just give us a little update them. The key drivers what could get you to the upper end of your range and maybe some of the challenge is just give us some perspective about what you're thinking about for 2020.
Sure I.
I heard this comment couple times now about kind of NPD, our pharma business kind of being a black box or not as transparent as and it's not as understanding I mean, I will say here. The biggest focus of this business is is taken opportunity of the geographic dynamics right.
You can either have a proprietary pharmaceutical business, a little bit more higher cost versus pure generic business, which is obviously very very cheap our branded generic business kind of sits between those two those two bookends I come from an emerging markets I can tell you that win.
We by medications.
You know, it's not reimbursed see pay for it out of pocket and you're willing to pay a little bit of a premium to ensure that what you're getting is high quality product and I think that that's what this business has been built on is taking advantage of that dynamic of.
This population in these markets.
Growing with their disposable income and allocating some of that to their health care costs on brands that they trust.
And that's what we've been building over these years a key driver of this strategy here is you need to be.
You need to have the breadth and depth in your therapy classes. So we have a comprehensive portfolios in the job sees that we're competing.
There their deep in each therapy class you need to be Omnichannel, you need to be present in the Doctor's office you need to be present in the pharmacy, you need to be able to kind of communicate directly with the consumer and you need to be local you know you need to have a local R&D engine organization and manufacturing to.
To be able to move fast with the opportunities that you see and I think that's at the core of our strategy.
One of the challenges in this business as miles as always said is the FX piece of it but the the performance growth.
We expect it to be in this kind of high single digit growth and a big driver of that is being in the right markets with the right infrastructure with the right products with the depth and the focus on execution.
Great.
Turning to.
Two other areas.
Okay.
Heart failure business has done a great job.
How sustainable is the robust growth we've seen.
And maybe talk a little bit about the implications of the.
Less invasive surgical approach for heart made three what that might mean and just last any touch.
A little bit on Alere, it's been a little bit, but a disappointment one of them next steps help us understand.
What's going on and.
Where we go from from here with earlier. Thank you so much.
Sure.
On heart failure, I mean, we had a very successful 2019, we achieved the destination therapy indication for Heartmate three at the end of 18 to that rolled into 19. So you saw the growth rate of about 20% you Rick that growth is predominately driven by share gains.
And specifically here in the U.S.. So we exited 2019, our estimation right now is through our internal data.
North of north of 80%.
So as we go into 2020, you know, we expect that to you know to not be at that 20% rate now and some newer more of what the market is growing which is we expect to be in that and that mid single digit range, but I do believe that we've got a lot of opportunity I talked about cadence of innovation in or products.
One product that's <unk>.
Pretty quiet, but we've done a really good job. There are just cardiomems condiments is now close to $100 million growing 30%.
We continue to enrolled in our in our and our guide HF trial, that's going to be used to open in NCD app at the outcomes. There also extremely.
Extremely meaningful in terms of hospitalization reductions et cetera. So I think that'll be kind of our next driver of growth in heart failure and I'm very pleased with what the team has been able to build in that business.
I'm going to your question on Alere, you know, it's been a little bit of a we'll call. It like a mixed bag here. We've had some businesses that we brought into Abbott and I think we've done very well with them we've accelerated their performance if I look at the.
Infectious disease portfolio in our developed markets that's done.
Thats done very well, yes of course, there's some there's some opportunity there would you know with the flu season, but I think the team has done a really good job here expanding the portfolio and looking at those that installed base beyond just the flu test and our Cardiometabolic business has done very well to growing in the in the high.
You know the high single digits low double digits. So I think those two businesses. We've done a really good job with and I think the team has done a good job on the cost side with the synergies too.
But you have pointed out that there are some parts of the business here, where we were not pleased with we're not satisfied or emerging markets infectious disease segment.
Had a tough 29 teen part of that is kind of end geo purchasing cycles and dynamics in certain markets, but we've got to do better than that and we've we've implemented a strategy here to to really look at other emerging markets outside of the African continent here and build the value.
Composition of those tests in and other emerging markets.
Toxicology business too I don't think we've we've been able to kind of fully maximize the value there and that that one there has got a lot of a lot of attention too. So we had a good Q4, a lot of focus here a lot of good growth in the U.S. and I think part of that was a little bit of the flu, but if we can get these two business here are emerging.
Markets and our toxicology business to.
Execute on the plans that we put in place for them I think you'll see that has kind of a mid growth mid single digit kind of growth business for us but.
I look at the the trend and the dynamics of these these products to the opportunities we have the strategy to get into these business is still very much in tact also miles talked about more and more testing and move into alternative channels. We continue to see that and you know we're targeting steady improvement here.
Sure I, but I think the long term growth opportunity because of that trend is is very positive.
Thanks and congratulations.
Thanks, Operator, we'll take one more question.
Thank you and our final question comes from Kristen Stewart from Barclays. Your line is open.
Hi, Thanks, so much for taking my question congratulations miles on their retirement and Brian There next chapter in the past spawning bump.
Just I guess that couple of cleanup questions.
In terms of.
The I guess PDP product does just wondering if you can maybe update us on just the timelines there for expected launch and then also for amulet as well just kind of expectations for lawsuits against some some timelines and then also I think you Robert had often mentioned just some.
Products within the CRM business launching there could you maybe update us on expectations for that franchise. I think you mentioned, new IP platform in some other milestones to expect with Dan the CRM portfolio. Thanks.
So sure on P.H.P. and amulet I mean, those are still I'd say a couple of years away. So we're still in kind of clinical.
Evaluation of that will then kind of put the information together submit to the FDA. So I'd say, you're you're kind of normal timelines over there. So you can look at about a couple a couple of years away.
On the CRM side like I said I I think the biggest opportunity we had when we change the structure was to kind of get the innovation going so.
We've got two product launches, we've got a new version of new update to our implant more cardiac monitor planned for this year, we've got a new life CD plan again for both us and Europe and our growth expectations here are to be to do better than what we've been doing steady sequential improvement.
We've had some challenges.
And I think that these products. It will will allow us will allow us to continue that sequential improvement here.
So and then.
Okay.
Go ahead.
I was just going to say and do you see any opportunities I think.
Bob I mentioned this but any opportunity is different from divestitures within medical devices or elsewhere within the portfolio or worse than smaller tuck in I know you said it sounds like you were going to do any larger scale M&A, but just more product line that bring into the portfolio from a from a more of a tuck in acquisition front technique.
LNG.
Earlier stage.
Listen if I, if I take that and just talk about our model. We have a diversified model I fundamentally believe in our diversified model I think you've seen sequential improvement in all four areas over the last couple of years.
From a big picture perspective, you know when you go into each one of them can you find some areas that we can do better and we should do better yeah, we can and we've talked about some of those today, but that doesn't mean that we don't think they're great opportunities that just means that we need to focus on doing better and an executing better on that.
So as I look at these four businesses I I like the businesses we have.
Okay perfect.
Thank you very much.
Okay Smiles again.
Ill wrap up and close for us. So first of all thank you all very much for your very kind comments and on behalf of both Brian and I well speak and tell you that it's been a great honor and a great pleasure for us to lead our company.
It's been a.
Tremendous experience feel like I've had two or three careers here.
In the last 21 years and probably have.
Brian was estimating this morning. This was our 85th or 86, the earnings call and therefore, I can't tell you that I that I know, yet whether I'm going to miss him, but but it should have a lot of them and they're always challenging there always interesting opportunities to converse with you about the prospects of the company and so forth I I feel like I leave the company.
In perhaps its best position ever.
In terms of products and growth future opportunities et cetera, as I said at the beginning.
I'm very pleased.
With the succession and the management team. This year, it's it's not just the CEO . That's a that's changing the seat CFO is changing and Bob phone crews a long time.
Evan employee and extend our controller for a number of years and been in some of my most challenging jobs. It Abbott and so forth will be an absolutely superb ER successor to Brian .
You know that a lot of our management team has changed over the last couple of years as we move to a next generation of leaders managers and the company in it I think it's a great mix of people that are home grown and also have come to us either through Saint Jude or other outside places and what is really happy with the team. We've got the pipelines. We've got the positions. We've got we think.
Our success is sustainable and I think the track record that weve laid down over the last years.
He has been recognized that way and we're appreciative of the recognition that all of you have given it is.
As I commented tongue in cheek.
Significant shareholder the company I will obviously be watching closely [laughter] and and especially in.
In the immediate future as the chairman so with that we'll close the call. Thank you all very much and.
Thanks, Roger Sport.
Very good. Thank you operator, 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 habits Investor Relations website and have an investor Dot com.
Thank you for joining us today.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day [noise].