Q1 2020 Earnings Call
[music].
[noise], Hello, and welcome to <unk> quarter 2020 earnings call.
The request Beaties today's call is being recorded.
It will be available for replay through February 13th 2020 on the investors page.
The B.D. dot com website or by phone at 805 858367 for domestic calls an area code 4045, 373.06 for international calls using confirmation number 688645.
Eight.
I'd like to inform all parties. That's your life had been placed didn't listen only mode into the question enhance their segments.
Beginning today's com isn't it makes no need to Lucky senior Vice President of Investor Relations.
The Lucky may begin.
You posh a good morning, everyone in thank you for joining us to review our first fiscal quarter results as we referencing our press release, we are presenting a set of slides to our company I remarks on this call. The presentation is posted on the Investor Relations page on our website at B.D. Dot com during today's call. We will make forward looking statements and it is.
Possible the actual results can differ from our expectations.
Factors that can cause such differences appear in our first fiscal quarter press release, and then the M.D.N.A. sections of our recent F.C.C. filings.
We will also discuss some nongaap financial measures with respect to our for farming. Our first quarter results include in charge of $59 million related to a voluntary recall and then asked infusion business to address certain software and alarm prioritization matters.
I'm going along with the details of purchase accounting and other adjustments can be found in the reconciliations to got measures in the financial schedules in our press release and in the appendix of the Investor Relations slides a copy of the release, including the financial schedule. It's posted on the B.D. Dot Com website.
Leading the call. This morning is Tom fallen Chief Executive Officer in President also joining us our Chris three D. Executive Vice President and Chief Financial Officer, and Chief Administrative Officer, Alberta, <unk> Executive Vice President and President of the Medical segment, Simon Campion Executive Vice President and President of the intervention.
Segment, and Patrick Kaltenbacher Executive Vice President and President as the Life Sciences segment. It is now my pleasure to turn the call over at a time.
Thank you Monique and good morning, everyone.
You saw on earnings release, this morning, where we brought down revenue any P.S. guides for the year and let me just say that resetting expectations is certainly not how I want to start my first call a C.E.O.
So before we jump into what's happening with Alaris I want to say that how we're going to discuss topics on today's call is what you can expect for me.
Straight talk accountability and on on wavering commitment to quality and regulatory compliance our values and doing what's right.
And at our core media is a very purpose driven company went to find true. We are how we operate and what actions we take and you can expect that our purpose and values will be at the heart of how we respond to the current situation with hilarious.
Every company is going to face challenges and the real measure of the company strength isn't whether or not we face challenges is how we respond and I'm personally focused along with my entire leadership team on fully resolving the situation.
So let me take you through what happened starting with what we said in November and even more recently and how're conversations with the F.D.A. have continued to evolve even specifically this week.
November we told you we were planning to make some improvements to our alaris palm software, including upgrades to alarm prioritization and optimization.
We indicated then that we were an active discussions with T.F.D.A. about the timing and implementation of these improvements.
Relying on our quality process with any infusion business and how we've managed to Lyrist software updates overtime.
I believe we could take a phased approach to releasing a liver software updates and it'd be is releases did not require 510 k. clearance.
We then issued the first phase of our software updates in December and we resume shipping as we shared with you last month.
There were ongoing dialogue with D.F.D.A., including an Indepth discussion this past Monday, we learn at the F.D.A. disagreed with our conclusion about the need for a new 510, K. clear, it's really software upgrades.
And then later the consent decree B.S.T.A. has requested that we combine all the lyrics software enhancements recall remediation updates and.
Changes made to be Alaris system overtime into a single comprehensive 510, k. filing, which we're going to submit in the fourth quarter of F.Y. 20.
Ractically continuing to collaborate with the F.D.A. to ensure we meet their expectations for this upcoming regulatory submission.
I want to be clear here that why we relied on our infusion quality processing system.
We have now learned that in this case it did not meet F.D.A.'s expectations, and we're committed to taking the appropriate actions to get this right.
I also want to be clear that we fully stand behind the safety and the clinical benefits of our product, which is used in the care of 70% of patients undergoing infusion therapy and that's the responsibility we do not take lightly.
We've provided guidance to our customers on how to mitigate potential risks until our software is fully remediated. We've also created a dedicated team of clinical consultants to support life training for health care providers.
Well, we will continue to support existing customers to ensure they have access to the alaris system under medical necessity.
S. C.E.O. my foremost focus is on ensuring the right supporting processes capabilities and execution within the company to ensure we deliver on F.D.A. expectations.
Chris we'll discuss this more but as you stolen our news release based on this situation, we reduced our guidance range by approximately $400 million in revenue and 60 cents, an E.P.S. for fiscal year 20.
I also want to comment on China's volume based procurement initiative, and which we've shared would be impacting our M.D.S. catheter business and that we now have a much better sense of how the situation is evolving then we did last month.
So while it's progressing faster than we initially forecasted in November we expect a fully offset the impact at the BDX level. We've got several upside from the rest of our business in China, which are expected to grow double digits. During the year and they're also a few other areas that were doing better than expected in so far including flew testing.
<unk> an F.X.
We already strong company with a diverse portfolio both in terms of our products and our geography, and there's a lot of good things happening across P.D. and I want to highlight just a few.
First or Q1 results were in line with the expectations, we shared with you in November.
The business isn't the regions delivered solid performance led by life Sciences, where we saw an incremental benefit from the flu.
And are interventional segment, where we saw a growth from new products. The M.D.C.B.'s also started a bit better than expected.
During the quarter, we continue to make good progress on the Beady Bard integration.
Remain on track to deliver $100 million and costs energy use this year, which brings our total to 300 million over this three year deal period.
We also content you can you to scale or commercial programs as part of our commitment to achieve 250 million and revenue synergies by 2022.
Continue to make good progress there with things we've talked to you about in the past such as the European Biosurgery incubator, Bachelor access management, and our international product registration.
Another strengthen f. White 20 is our ability to deliver on a robust pipeline of new products and we're already off to a solid cadence with 11, new launch is so far in Q1.
And there's three I I'd like to just call your attention to.
In medical we're continuing to innovate and her vascular access portfolio.
And we recently launched the new power pick providing a catheter with solo to valve technology, which makes the catheter easier to care for early feedback from customers is extremely positive.
In life Sciences, we recently introduced the Beady court molecular system, it's targeted in Europe.
This flagship innovation completely automated molecular laboratory work flow and our initial system configuration is available with the beady Unclarity H.P.V.S.A., which is used for cervical cancer screening and diagnosis.
We're still very early in this launched but we feel really good about the progress we've made so far having already signed 10 high value volume account in Q1 of course, we're new to the H.P.V. market and so all of that as new business for B.D.
In interventional, we received clearance for elevation.
Or next generation vacuum assisted breast biopsy device, which helps ensure tissue samples high quality tissue samples regardless of the density of breast tissue. It's early but we're getting very positive clinical feedback here as well.
We're excited by these in or other launches and our long term innovation pipeline.
What you see on slide five captures our major launches for F.Y. 20.
But it's only a small portion of the total active r. and D. projects do we expect to bring to market over the next three to five years.
We're also entering several new higher growth market spaces, with our overall r. and D. pipeline focused in markets growing one to two per cent faster than our existing product portfolio.
And we see elements over automation, an information informatics capabilities in the pipeline across each of our three segments.
Including now in interventional, we're we're starting to leverage bds capabilities to digitize the legacy Bard portfolio.
[noise] before I turn things over to Chris I want to make some comments on the Corona virus.
First as it comes to the Corona virus, the health and the safety of employees in China and the around the world is our top priority.
Are closely tracking the virus in China, and we're paying particularly attention to the guidance from the U.S.C.D.C.T.W.H. joke and health officials in China.
As you'd expect from US. We're also supporting response efforts in China by providing in kind and monetary donations to the <unk> Red Cross and project hope.
P.D. doesn't manufacture do we don't have any manufacturing or distribution operations in the <unk> or who they province.
And we are at hearing to the guidance from the Chinese government and extending the Chinese new year holiday until February 10th at our offices and facilities in Sioux Jo Ann Shanghai.
From a supply chain perspective about 95% of the products, we manufacture in China or sold and used with in China.
We currently have sufficient inventory of the few products that we export from China to meet current demand and within China imports of goods and raw materials are being received as expected.
In terms of business impact of course, the situation is still very dynamic.
We are closely watching and balancing to trends first we are seeing fewer people go to the hospital to seek standard care.
The same time, we have received and installed several urgent orders for additional giddy Max molecular systems.
Which are being used in corona virus testing.
This will take you through Howard contemplating this within our guidance.
Will continue to closely monitor the situation and keep you updated as it evolves.
With that let me turn the call over to Chris.
Thanks, Tom and good morning, everyone.
Sure. It take you through our first quarter results and guidance for the four year I'd like to reinforce Tom's remarks on the Alaris pump issue.
As you would expect from US we take this matter very seriously we did not anticipate the current alaris from situation to materialize. The way that it has no you're sure you that the senior management team is fully committed to resolving the situation.
So what's that let me review our first quarter results.
This is Tom mentioned were delivered solid performance in the first quarter.
Go to revenues grew 2.5% on a currency neutral basis.
Revenue growth was in line with our expectations.
Oh provide more color on the first quarter revenue growth in a moment when I take you through the results by segment and geography.
First quarter adjusted he P.S. was $2.65, which is at the high end of our guidance range.
City P.S. declined to about 2% you're over a year and it was about flat on a currency neutral basis.
As expected adjusted D.P.S. growth reflects solid operating performance offset by the exploration of the Gore royalty and a very tough compared to last year as first quarter tax rate of 11.2%.
Operating margins of 24% were in line with our expectations for the quarter.
We also continued to do you leverage during the first quarter paying down approximately $90 million of debt.
<unk> 31st start gross leverage ratio was 3.5 times and we remain on track to achieve our commitment to do you lever to below three times this calendar year.
Moving on to Slide 10, I'll review, the medical segment revenue growth.
P.D. medical revenues decline, 1.1% and the first quarter in line with our expectations.
As expected first quarter performance in the medical segment was impacted by the new volume based procurement process being adopted in certain Chinese provinces, which is specific to our catheter business within our medication delivery solutions portfolio in China.
Outside of China, we saw a strong growth in our vascular access management portfolios solutions.
In addition is anticipated revenues and medication management solutions declined due to limited installations are hilarious bumps.
Pharmaceutical systems strength of over 9% reflects our ability to meet high demand for Prefilled will syringes as a result of our ongoing investments in capacity as conversion from <unk> appreciable devices continues.
As expected diabetes care revenues were about flat compared to the prior year driven by anticipated pricing pressure in the U.S. and the timing of borders that drove a strong queue for last year as discussed on our previous earnings cool.
Attorneys a slide 11 in the B.D. life Sciences segment revenues increased 7.4% in the first quarter revenue growth was driven by strong performance in diagnostic systems and bio sciences units.
Frozen diagnostic systems was broad based across point of care flu or molecular diagnostic platforms, and our microbiology solutions as well as our women's health and cancer portfolio.
Contingency over 20 per cent growth and beady Max no receiving very positive feedback on our B.D. core launch in Europe.
Very strong growth in bio sciences was driven by licensing revenues and demand for instruments and reagents. This was partially offset by a tough comparison due to the divestiture of the advanced Bioprocessing product line during last year's first fiscal quarter.
Growth in Preanalytical systems reflects a tough comparison to the prior year when revenues grew 7.6% driven by additional capacity brought on to meet demand for our push button blood collection sense and the timing of distributor auditor orders.
No turn into slide 12, and the Biddy Interventional segment revenues increased 5% of the first quarter with mid single digit growth across all three business units.
Revenue growth in peripheral intervention was broad based including performance in our wavelength <unk> products that continue to perform extremely well.
D.C.B. related revenues were slightly better than planned as the trend we have been seeing since D.F.D.A. letter has improved excluding the D.C.B. impact revenues and peripheral intervention over 8%.
First quarter revenue growth in surgery reflects strong double digit performance and bio surgery and high single digit growth and hernia.
We saw a robust growth across the U.S. Europe and China as you May recall, we re launch pro gel last year now approaching or historical run rate in sales.
Revenue growth in your <unk> critical care continues to be driven by performance across or acute urology home care and targeted temperature management business.
Moving to slide 13, and our geographic revenues.
Market screw two per cent in the first quarter as gross than the U.S. and the life Sciences and interventional segments was partially offset by a decline in the medical segments as anticipated due to the infusion pumps software upgrade as previously discussed.
We also saw saw a strong performance in Europe, and vascular care within M.D.S. molecular diagnostics lab automation and women's health in cancer in diagnostic systems, and hernia and bio surgery within the surgery in it.
[noise] emerging markets revenues group, 5.1% for the first quarter performance was driven by nearly double digit growth in China, and the broader Asia Pacific region.
China revenues reflects strong double digit growth in life Sciences, and interventional segments as anticipated.
Medical segments performance in China was also in line with our expectations.
Drawing double digit growth across M.M.S. diabetes care in pharmaceuticals system was offset by the impact of volume based procurement related to peripheral count that as an M.D.S.
As we started the new fiscal year, the situation and trying to remain fluid.
When we provided guidance in November we told you about a new volume based procurement process that several <unk> provinces had adopted which was modeled after similar initiatives for generic drugs and other spending categories.
Well the program covers a wide variety of consumable medical products for B.D., it's focusing or 200 million dollar per referral considered portfolio within R.M.D.S. business.
Well, we anticipated that it would expand we have now seen volume base for German expanded a faster rate.
In addition, we are seeing distributors reduce inventory levels in large part due to anticipation of this new procurement process and we are assuming that will continue.
It's Tom said, we expect to fully offset the impact at the BDX level.
However, as a result of these dynamics, we now expect low single digit growth in China for the full fiscal year <unk>.
Excluding the M.D.S. portfolio, we are seeing hide double digit growth in China and are pleased with our performance in that region.
Turn into slide 14, which recaps the first quarter income statements.
As discussed revenues grew 2.5%.
Includes 80 basis points of pricing pressure, which is in line with our expectations as we had anticipated pricing would be most acute in the first quarter at certain prior year pricing agreements annualized.
For the full fiscal year, we expect pricing to decline approximately 50 to 60 basis points.
Moving down the P.N.L. gross profit grew approximately 3% euro of the year gross margin was a solid 56.5%.
S S.G.N.A. as a percentage of revenue was 26.5%. This reflects additional deferred compensation expense due to strong stock market performance in the quarter.
For your reference deferred compensation expenses fully offset and the other income net line.
An underlying basis S.S.G.N.A. expenses grew in line with sales and reflect our ongoing focus on discipline spending and you achieved meant of sparred cost energies.
R. and D. as a percentage of revenues was 6% for the full fiscal year, we expect to invest $1 billion, an r. and D., which reflects our continued commitment to drive innovation.
As a result operating margins decrease 50 basis points or 40 basis points on a currency neutral basis, which is in line with our expectations.
Our tax rate was 15.3% of the quarter in line with our full year guidance range of 14% to 16%.
And as expected, we paid preferred dividends of $38 million in the quarter. As a reminder, the preferred shares will convert and may have this year.
Adjusted earnings per share with $2 in 65 cents as previously discussed.
I turned into slide 15 in our gross profit in operating margins for the first quarter.
Gross profit margin of 56.5% improves 30 basis points on a performance basis.
This reflects our continuous improvement initiatives and costs energies, partially offset by the impact of pricing.
Operating margin of 24% decline 50 basis points in the quarter or 40 basis points on a currency neutral basis.
As previously discussed this was driven by higher deferred compensation expense recorded within S.S.G.N.A. that is offset below operating income and the other income that line item.
Excluding the impact of deferred compensation operating margins would've increase 40 basis points currency neutral.
Currency at a negative impact of 10 basis points on a grip on boats gross and operating margins in the corridor.
Moving on to slide 16, and a four year for fiscal year 2020 revenue in you know God.
As you've already heard from time, we are revising our revenue growth guidance to 2.5% to 3.5% specifically due to the alaris situation.
Are updated range reflects several scenarios based on our ongoing conversations with the F.D.A. with the bottom end of our range, assuming a very limited ability to ship Alaris palms this fiscal year.
By segment for the full year, we now expect beady medical revenue growth to be about flat <unk>.
We expect those P.D. life Sciences, and Beady interventional revenue growth be at the high end of our previous guidance ranges of six to seven per cent and 5% to 6% respectively.
We now anticipate low single digit growth and developed markets in fiscal 2020.
In emerging markets. We now expect mid single digit growth driven by diversified bayes low single digit growth in China as previously discussed and strengthen E.M.A.
But it's in our new guidance for F.Y. 20, we now expect revenue growth in the second quarter to be approximately 2% and eat P.S. to be between $2.40 in $2.50.
Includes in approximately 20 to 30 million dollar headwind from Corona virus within the quarter.
Descent impact is contemplated within our full year guidance range.
Moving down the P.N.L., we have updated or gross profit margin S.S.G.N.A., an operating margin guidance to reflect the fusion pump impact.
Alright dated S.S.G.N.A. and operating margin guidance ranges also include the first quarter Impactive deferred compensation.
For the full fiscal year, we now expect gross margin to be about flat year over year at the midpoint of the range.
Operating margin to improve approximately 50 basis points on a currency neutral basis.
The balance of a piano guidance expectations for the full fiscal year 2020 remain unchanged.
Moving on to Slide 17. This reflects our revise D.P.S. guidance for the total year as you can see we now expected deliver adjusted D.P.S. of $11.90 to 12010 cents, which reflects our latest view on F.X. and the impact of Alaris palms.
In summary, we delivered a solid first quarter in line with our expectation.
We continue to make good progress on the B.D. Bard integration and on bringing to market are robust innovation pipeline launching 11, new products during the quarter.
Moving to the balance of the year, we take the news we delivered today very seriously and we are fully committed to resolving you'll ever situation and returning to our long standing track record of delivering value to customers their patients and shareholders.
Thanks, and I'd like to now open the call up for Tonight.
[laughter] employees now for questions.
If you have a question or comment please pastime, one oh, you're touchtone phone if at any point. Your question. If he may remove yourself from the q. by pressing the pound key.
<unk>.
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Thank you I first question comes from the line Anthropy Marcie K.P. Morgan.
Brain. Thanks for taking the question, maybe we could just start with that the pump impact and help us understand you know of.
400 million plus or minus that you lower guidance by how much exactly is for the pump <unk> fiscal 20 wine and you know just ask on my questions. Here you know maybe as you walk us down through the P.N.L. It seems like there is stuff 40 per cent contribution.
March and hit from that 400 million to the 60 cents help us.
Get to that number.
Hey, Robbie this is Tom let me just I'll take the first two questions and then turn into Chris for your last one so of the 400 million that is a that is essentially are is pumped capital that run able to shit of course, we have a very large large installed base in the field, we we aren't expecting a any meaningful impact on our consumer.
Mobile business there.
We we actually I've seen some increasing consumable demand certainly because of the flu season and as we mentioned we remain you know we stand very strongly behind the quality of the product and it's it's continued I know usage in in delivering 70% of infusions, you know, particularly in the U.S. on the lingering into 21, so I would I could.
Say at this point is like we we know what we need to do to to address this situation and that's to submit the updated 510 k. within queue for as I shared so that's where focused on right now the the timing in which we're gonna get you know, we're working collaboratively with the F.D.A. and I'd say, we'll give you updates is as that progress is.
Terms of our ability to to open up and be resume shipping. So as we continue that collaboration with the F.D.A., we'll have more visibility and we'll keep you updated.
I would just sad to to provide clarity to the guidance change up until the M- fusion pump issue. This week in our meeting with the F.D.A. This week, we were fully planning to reaffirm our guidance for fiscal year 2020.
The 2.5% to 3.5% revenue growth guidance.
Rooms, essentially on the low end that we sell virtually no pumps and you know of our 450 ish kind of U.S. infusion pumps business. The range above that would expect the normal range of guidance that we would've had prior to this issue as well as the potential upset.
Selling some pumps under the medical necessity.
So maybe I just quickly what's the breakdown knows how much you're lowering for.
<unk> versus Corona virus and for the increased yeah. So that the reimbursed what I would say, 100% pumps because as you think about the puts and takes that we had this year. We <unk> we are seeing upside on the flu side, we're seeing.
Better performance in in D.C.B.'s as we talked about so we we have some strong performance and the rest of the business China outside of the value based volume Bayes procurement is doing extremely well strong double digits across interventional life size. So we had some upside we.
He did take into consideration the acceleration of the volume based procurement.
That stepped up just to kind of give you a sense. That's a 200 million dollar peripheral catheter business for us.
Last quarter, we took it down by about 40, we have accelerated that by about 60, partly because of accelerations in the province tenders that we're seeing but even more dramatically the the distributors taking down inventories in anticipation of these tenders and.
So that's an additional 60, so we've taken down an additional 60, so that takes us down to about 100 million left in that business going forward. That's 60, plus the Corona virus of about 20 to 30, where offsetting with the the strong performance as I talked about in other parts of the busy.
So as I said going into this week, we had all that in the mix and would have still reaffirmed our guidance for the year. So you can think about that take down is entirely the alaris pump issue.
Thanks, a lot.
Our next question is coming from the line of David Lewis was Morgan Stanley.
[noise] good morning, I think you're taking the question just wanted to start initially Tom with if you go back historically and look at the Baxter colleague you know recall that sure lost Bill Tom over a series of years. So you mean early comments on and what can be done to support customers incentivize and then to wait for resolution or how customers are going to evaluate this.
By from another provider or wait to decision during this interim a ship whole period.
Hi, David So what I would say is of course, we've customers have been increasingly selecting the alaris product as you know for for many years, we've seen that in and continued share against than the category I would say you know going into F.Y.
Money. This year, we've had really <unk> that that momentum is continuing to be very very strong. So.
High level of customer engagement an interest.
Going right up to this point in continuing to convert to the platform. So I think people's conviction in terms of they see the value of the the product obviously not only the power of of having one integrated system, but the interoperability ability, which we have so you know we'd expect nearly 90% of all in or opera <unk> pumps in the U.S. you know R.P.D.
Pumps.
Today, it's capability that we have it we things had another level than the others are able to offer and we also of course have the integrated medication management solution that connects more broadly and so you know feedback early on is is that customers still see that value and we'll be working to to help people yeah.
Possible to wait for that of course that there's a large we have a very very large install base and that normally takes.
We see people upgrade every say 10 years in general we see people begin to refresh their their fleet. So we also recognize people have flexibility in terms of do they do that right now or do they wait until we get her updated 510 k. in place.
Of course, we have a better sense of of how fast we'll be able to reengage with customers as we continue our dialogue with the F.D.A. and as we get that 510, k. updated and submitted and that that's our number one focus right. Now is is getting that that filing done which will reflect now I'm only the the upgrades that we that were.
Making right now, but it's going to reflect the changes to the software that have also been made historically, we'll all be included in this this updated 510 k. that will be submitted.
Mm.
Our next question.
It's coming from the line and Brian Weinstein with play William Blair.
You guys. Thanks for taking the question.
Yeah, I can you do a it'd be a little bit more specific here on the steps that are required with respect to submission of the the 510 K. These software upgrades.
The that that you're doing <unk> can you tell us kind of where you are there why that would take so long maybe submit some time in the fourth quarter seems like a a somebody software upgrades, we're kind of already done and you got to kind of repackage them and then I'm I'm I'm just <unk>.
It took into <unk>, what specifically to the F.T.A. come in and say that they didn't like about your quality system's me what what what changes do you think you need to make more broadly on the quality system side. Thanks.
Yeah, Hey, Brian Tom So let me start with your last question and then work work our way forward.
So as I mentioned, you know based on the quality system in our infusion business. We've made software upgrades over time to the Alair system and over that period of time and we're talking not this year, we're talking a number of years or quality process determined that those upgrades that that we've been making in that business did not require a 510.
Okay clearance.
Most recently on the most recent changes in updates that we made we followed that same process.
And our team decided that determined based on that process that those recent updates in November also did not require a new 510, k. clearance and so we released that software improvement in December and we resume shipping as we had shared with you last month.
You know since what we've learned in as I mentioned, we had a a key meeting with the F.D.A. is recently asked this Monday through our ongoing dialogue with the F.D.A., we learn that the F.D.A. disagreed with that determination about the need for and do 510 k. clearance for the updated software and that applies not just to the.
Created software that we're talking about in November but that decision process that had occurred over time.
And so as I said, we're collaborating with the F.D.A. on their request to combine all deal ever software enhancements and remediation upgrades with this additional with the additional changes made to the Alaris system overtime right over years into a more comprehensive regulatory filings, which is going to be submitted this summer so while you're.
Right.
We we are ready to we have the information ready for the recent software upgrades. We are the work that has to take place between now and the submission date is more reference to the historical changes that have been made over multiple years going back end. The some additional testing that we need to do on those historic change.
As to reflect the the testing requirements today. So so that's the work that has to be dot.
I don't know question is coming from Bob Hopkins with Bank of America.
Hi, Thanks for taking the question in the morning <unk>. So on the morning on <unk> I I guess Christian have is a little bit bigger picture.
It is in your view is this 100%.
Backed in specific issue with the F.D.A. Where's the F.D.A. changing their requirements for pumps broadly and the reason asked the question is I'm struggling to understand you know kind of how you got caught off guard and how this went from sort of a software upgrade to something much more significant.
Yeah I, Bob This is Tom I can't comment on another organizations, but what I can say is is that it's it's not unprecedented where there are situations where over time, a product evolves and then the F.D.A. looks and says wait a minute.
Your current 510 k. needs to be updated to reflect those series of changes over time and in this case you know we had there's a process in the business and there's a specific quality process with it with it's within the infusion business within the consent decree that the team was was following that said you know each of those individual changes didn't require 510 k. process.
Again, when the F.D.A. looks back at it over you know 510 year period, they say wait a minute.
You you actually need to put in a 510 k. given that series of changes that have been made and that's the exact work that we're doing.
[noise] Hi next question is coming from my mind, I'm, Kristen Stewart with Barclays.
Hi, Thanks for taking the question I guess just to not to be that that <unk> I guess once you do some met the software upgrade platform I guess in the summer what would be the timeline that you would expect for this package she'd be approved by the F.D.A.
And then what would be your expectation for it to be rolled out to customers I'm just trying to gauge again going back to the impact for you know F.Y. 21, and and I guess, how should we just think about this in terms of customer yeah reading on the sidelines and just the degree with medical necessity how have debt.
Called is that for customers to qualify for thanks.
Yeah. Thanks, Thanks Christian for the question. So maybe a answer your last question first when it comes to medical necessity. We are working collaboratively with the F.D.A. to put in place a process for customers to continue to get access to new layers pumps under medical necessity and that's again as required for.
City, and and that process. You know is getting finalize now will be reviewing that process with the S.D.A. and then providing that to customers of course. It is a life sustaining product in many cases and there will be needs you know needs for medical necessity pumps, we expect and we have request for those now.
Certainly in house and when it comes to to clearance sent and timing for that I'd say of course, we're very focus right now on getting that 510 K. submitted clearance timing, we're working again with the F.D.A. I think it's probably not prudent to speculate until we get a get feet feedback from the F.D.A.
In parallel, though I I would say right that the work on to catch up 510, K. that I've described we've we've started that work <unk> and have momentum you know well underway and a good that's why we have a good sense of and confidence in the timing of submission.
Mm.
Thanks Christian.
My next question, it's coming from the line of V.J. Komine with <unk>.
Hey, guys. Thanks for taking the question <unk> did just that one on I'm just trying to go for the map.
Cut to pump revenues is that is <unk> no placements at all pumped placements you know if the market. It as 2 billion I'm just trying to make the math work here on the impact for the <unk> back half your or if it's this is just this offer given you guys are so deep in you know in the <unk> connectivity part.
<unk> still park you know this is connected to pyxis you can't customers you know purchase their older version of the pump and then upgrade the software one inside the F.B. I guess approves than you have 510 k. in in related to that that you think this has any impact on not picks us at all now because I know you have someone.
Sales going on thank you.
<unk> Tom Thanks to the question. So we don't expect any impact on Pyxis. We continued have strong momentum there and and again no. We're in we have late stage ongoing discussions with customers, who we think many of them. We'll we'll wait for the <unk> product to be able to resume shipping in order to I.T.
Either convert or to upgrade their fleet.
Again, we we stand by the safety of the product and so this is a delay in terms of when we can ship new pumps is what we're focused on so I think that we will not be by the way when we ship on her medical necessity, we will be shipping we expect the the prior version of the software to your question and we we can ship.
They do it alluded to can we just go back and ship. The prior version of the the pump more broadly and know the answer is no. We can't do that what we're limiting shipments of pumps exclusively to that under medical necessity as we work with the F.D.A. and and again will keep you updated as as we progress and once we get past the 510 K. submission.
And I would just say in response to your first part of your question just again for clarity that the low end of our range the 2.5% would assume that they're essentially no pumps sold.
In the entire amount of revenue was taken out and we would have to assume that there would be.
Pump sold under medical <unk> necessity would be limited, but the rest of the range up from the low end of the range would account for some sales of of pumps under a medical necessity as well as the the normal range that we would happen and the guidance.
You can imagine we we want given the gonna situation, we want to be particularly prudent and make sure that again as we work collaboratively with the F.D.A. here I will know more as those discussions progress.
[noise] next question is coming from the line of <unk> with Raymond change.
Thanks, Good morning, just a two part.
Two part question here, So I I guess once you have this new software package cleared by the F.D.A. I'm curious as to where that puts you relative to just overarching F.D.A. desires within the palm space. It's it's my sense that.
He has been a little bit frustrated that that a lot of the pumps out there really are not up to the standards that they would like some kind of get offensive where this ultimately puts you. Once you kind of go through the the pain of getting this all done and I guess the second part of the question as in other areas of the business, where there have been software upgrades overtime such as.
<unk>.
Have you gone back and had ever you there might be neat 510, <unk> <unk> filings there as well thank you.
Hilarie. Thanks for the question so in in in terms of the question regarding the the the overall pumps. This is.
This catch up 510, K. is he's going to be extremely comprehensive and so to your point you know we feel that this this will put it's actually in a spot in terms of getting full compliance again, we're working with the F.D.A. So that at the end of the day once we get this 510 K. established the new one wolf.
Be fully meeting the expectations are the F.D.A. and we're having that active dialog obviously understanding their expectations. How our process may have let us to make some different decisions there, but we're getting all that reflected and put into an F.D.A. that will be.
Be a completely comprehensive with the latest expectations and requirements. So and that's the reason for that submission timeline, because we are being prudent fully comprehensive to the full expectations of the F.D.A. So you could say that should put us in a good position going forward on pyxis remember picks. This is is that not a.
510, K. approve product, it's not regulated in the same way as it's it's a dispensing system. So certainly on other products in the company, we are assessing that but it doesn't pertain to Texas.
Yeah.
Right.
Oh, and a question constant amount of <unk>.
Good morning, Tom Hi, Chris wouldn't it.
<unk> two questions from me and I'll, just asking my <unk> I was last night, we reading your comment that it'd be D. annual meeting at where you very clearly you know we stated empathized your goals for five or 6% durable top line growth I think was your language and low double digit.
Bottom line I, I guess I'm I'm wondering how you're thinking about both schools today.
To <unk> what impact to imagine this has on your goal of 50 to 100 basis points.
Annual improvement and operating margin and last part of this it's sort of all of apiece.
We're all going to have to contemplate what to do with our fiscal 21 and beyond numbers I'm sure you're not ready to give guidance but.
But.
Do we imagine that wherever we end up this year and obviously I hope it.
You know.
A little better than your shaping today, but will the longer term gardens should we imagine that you'll frame taking these long term goals frame the longer term outlook off this year or would we imagine no. There <unk> fiscal 21, if all goes well could be a year or.
Accelerated growth relative to these targets.
Thank you so let me take a shot at that rate. Thanks to the question I'd say that you know, we're only a quarter into this year. So clearly it's a little tough to talk about 21 at this point and you know this is very recent developments that occurred this week with the F.D.A., which are addressing besides the impact for F.Y. 20.
Keep in mind that you know big chunk of the revenue base is coming out this year, which.
It does create a bit of an easier compare a year over year, that's not our focus our focus is getting through this issue and and and working with the F.D.A. to to get the pumps a shipping again and I think you know there's nothing about this situation that change.
As our 5% to 6% double digit growth going forward the underlying businesses extremely strong and continues to be strong and will continue to be strong.
This is you know as I said, the only thing taking our guidance down is this issue will get passed this issue and be back to that same standard of delivering value going forward.
[noise] Oh next question is coming from Atlanta, Richard New litter.
<unk>.
<unk> excuse me. Thank you for taking the question I I, just <unk> on the going back to that they're trying to volume based pricing pressure that you you kind of took that took that got a little bit more conservative.
Based on what you saw between the two quarters I guess, what gives a confidence that this is the right level of headwind to put in there for that issue and just just remind me again, sorry, <unk> what was contemplated in the in the full your outlook and and what could you comment is it just doesn't cut it become a movie Tara.
Good Thanks <unk>.
<unk> turned over to Chris certainly you know as we had shared it. It was just getting started when we gave guidance. It. It it hadn't started really rolling out across the province is it was in in discussion.
Very few of them had started their processes and others were beginning the dialogue and so the the pace of that happening and and the number of provinces was was still uncertain and we made that very clear I think when we shared that at that time. So we've had a another quarter you know to understand how that's that's evolving and it I would say it's evolved.
A bit faster than we had originally thought it would again we've seen this has happened in the generic drug industry industry. So we have surrogates to see the model.
The pace at which it goes and we've also seen some of the tenders now go through in the last quarter and we've been able to see exactly what pricing changes.
Are being finalized in those tenders and so now we we've been able to say, okay. Here's the exact pricing reductions that we're going to see and the number of provinces and we've built that in as we mentioned as Chris said to the 200 million dollar business today in China again, that's out of our 1.2 billion dollar total China business and you know we've.
What we've built in it it is a significant dropping that 200 million dollar business. We've built that in at the same time, you know, we our redirecting resources from that portfolio of businesses into some of the areas and opportunities we see in life Sciences, and interventional and we see some some opportunities for acceleration in China in those two it's not a level.
Offset fully as you heard from Chris, but it's certainly that combined with the increase level of flu testing D.C.B.'s and other areas of of you know areas that are doing better than expected it it.
It it offsets it for us across the company and US you know why Christmas comment that the complete change in in guidance here is 100 per cent associated with the <unk>.
The only thing I would add to that is the.
The other thing that we saw as the situation developed is the distributors, taking down there and Tory levels much quicker than we would have originally anticipated as they saw this this issue developed as well. So you know big chunk of that happened since the last time.
<unk> and we really see that mostly impacting the second quarter and so you know the bulk the biggest hit from that additional 60 million that we took trying to down we'll hit us in in the second quarter, and then moderate somewhat in the third and fourth quarter, but again, you know just to kind of go through the mat.
200 million dollar business last time, we spoke we took it down by 4200 being that's not point 19 number we took it down by 40 and we're now taking your down an additional 60. So the impact this year across that is 100 million just for that specific item taking that business down.
To 100 million going forward and there will be some school over into next year, but as you might expect to to somewhat lesser extent and Richard maybe just give you a little bit more color because it gives it can be a little tricky the the comment on the distributors. The the way that works and it has a little bit disproportionate impact in the first.
Year is of course, we're selling.
<unk> and other.
He's in in China, we sell our products to to distributors, who then sell them to the customers and sell if we've been selling them at a certain price to the distributors and they have a large inventory of those they see this process now happening and the ability to now they don't want to get stuck with a bunch of inventory at a higher price if the market prices going down and so.
They are.
Bringing down there are days inventory on hand, both so that they wait to see the pricing evolved because they don't want to have bought at high prices and selling at at low and the other thing if they're looking at who's Gonna Wendy's tenders becomes more uncertain in this environment and sell again, they don't want to get stuck with a large amount of inventory and you see the channel then taking down inventory.
Concurrent with the situation we've comprehend it that's all comprehend it in in the updated guidance that we've given but just want to give a little bit more color on why we made the comment on distributors have an impact.
That's really helpful color. Thank you.
Hi next question is coming from a line of Larry Big listened with Wales far though.
Good morning, Thanks for taking the question just one one on the pump in one on D.B., Tom So first it on the pump side is the consent decree knew I'm, sorry, if I missed that and what's the status of your next generation <unk> Alaris is obviously been very successful, but I think it's been in the market for awhile and I'll just ask my follow up now on on the.
Below the knee Refiling <unk>, what's the status there and and how do you think you know the tall Monday that link in the new you know met analysis could impact the the the chances of approval. Thanks for taking the questions surely I'll take the first question I'll turn it over to Simon So I'm on the the the consent decree of course, that's been in place from Carefusion at the time.
Of acquisition that does put certainly a heightened you know regulatory oversight over that business, which also can influence certainly you know a dialogue with the F.D.A. as well and the expectations and so that that's always been in place that's not nothing new.
We're moving moving forward there as we think about a timing of our next generation pump <unk>. We do have a next generation pumping the pipeline I'd say, we we it's progressing well, we certainly don't want to talk about the timing of submission of of that today. The Alaris pump remains you know we believe it certainly is clearly the most.
Preferred product by by clinicians.
Across the U.S. and you can see that based on the trajectory. The last several years and we remain very confident that it will be in a position to continue not only because of the the benefits of the product itself, but how it's integrated across a broader medication management sweetest solutions that it. It is very well positioned to be have continued preference going forward.
We gotta get this 510 k. catch up submitted so the weekend return to to make that available to to our customers in for patients. So Simon on a D.C.B. the morning fun Oh, so with respect to the the submission on on B.T.K. I would say that we're we're well advancing on preparation of that Oh, that's the.
<unk> and and I would say, we'll we'll be going into F.D.A. sooner or later.
So that that's but the size of things on that and then we respect to the I think you're asking about the the more recent data that was published by.
<unk> you know if if you if you saw the information from link.
A couple of weeks ago, where where where we are published a three year safety data, we continue to to not see any safety signal with a with our data and indeed, if you. If you. Despite the limitations of of the <unk>. Two paper I think you you you will note.
Significance with respect to the harm signal that they were seeing.
Was not a good not exist when you use a low low dose D.C.B., which was which is what we have so is it going to maturity impact 58, I don't know, but we are well advance not preparation for that and the data that we continue to a really supports the safety of our products.
I next question is coming.
I don't align if Matt Taylor with U.P.S.
I think you for taking the question.
I just wanted to have two two little follow ups on this situation. The first is for the comprehensive five to care that you're probably have you got it to.
The other the here for that can you talk about any risks are upset if it'd be two to the timing you have that progressing is that a date, you're pretty confident about is there any risk that slips or put a get pulled forward.
Yeah. Thanks Man. So again, we we just had this the most recent discussion with the F.D.A. This Monday, so I I don't Wanna, Yeah, certainly, we're very focused on and we were already starting that work on the 510 K.. We had had some of that momentum going you know well well before then but we're going to be in a better position.
[noise] to give you an update on that once we get through at our goal right now is to submit in secret clearance as quick as possible and to meet the expectations of the F.D.A.. So I think it'd be premature to speculate on on any timing of the clearance process.
Thanks.
Assuming that you do file that.
Yeah.
Starting that were we we I think we lost you.
We go to next question.
Next question, it's been a line of questioning so with Carolyn.
Hi, Good morning, Thanks, I was hoping to just ask about the Internet venture no business you comment about the pack the pack so.
<unk> could've balloon headwind Oh, improving.
Details you can provide just real to that 50% decline stake you put in the crowd historically and then also any details just around the shifting up products from faster and surgery and the peripheral and what those products were and and any rationale for that thanks for taking the question <unk>, let us Simon answer that yes.
So <unk> I think we've we've seen a a sequential increase in in performance here with respect to as if they D.C.B.'s.
Well I won't I won't give you the specifics, but it's I would I would classify it as a as a material material to increase in the in our performance prior to or to what we saw and Q3 and a into four last year and then with respect to respect to sales force align alignment we transferred.
Of our flew wrecks business, which is or or during this concept of business from from the surgery business into the preferred interventions business and that simply so it just stick with the with the coal points that we have their you know we we we focused heavily heavily on on breast biopsy and input ports and delivery of chemotherapy. So so taking care of.
Patients that the at the end of their their their life Oh in relation to the the their pre existing cancer flew x. is a perfect fit for that so that's elsewhere. So that's what we've done.
Thank you Josh.
[noise] kind of question, it's coming from the line of Matthew Shine with Keybank.
Great. Thank you for taking the questions.
<unk>.
Quick follow up and then a broader one this also expand to the syringe and the pain pump. In addition to the L.V. pump and then.
Think about backed down I think the broader value proposition in medication management you have in the hospital on the good side. It I think that probably allows customers to be could be patient as you kind of work through some of these issues, but on the other side of it would this not also affect the overall conversation or conversion of of of the broader <unk> from the broader poor.
<unk> with some of your customers would it not really doing some and maybe some delays and conversion in other areas.
Hey, Matthew Thanks, Thanks for the question. So Alaris as a system includes it's all one system right. So the Alaris system, which is one of the the reasons that customers do prefer it. So much is that it includes an L.V.P. the syringe and the P.C.A. They all snap on as as modules that you can choose from based on the patients the types of.
Medications at the patient requires the N.D. administration route. So those are are all fully in scope and comprehended within the guidance that we gave you an update on in terms of broader medication management strategy I think you're right you're exactly right that that customers deeply value. The full set of solutions, there and that that provides a an impetus that piece.
<unk>.
Want to move in that that full direction and not necessarily say I want to just move to having an isolated product that is not helping me manage medications, just really doing a pumping activity and I can't use the data to do things that I can like Howard using data from pumps and picks this and other things to do diversion analytics that you just can't do.
With other solutions. So I think you're right. There you know we don't see at this point impact or even as we are doing brought her medication management deals of course, there's multiple other products as part of that's sweet of solutions. There's pyxis, there's pyxis logistics, there's pyxis prep, there's health site, there's a number of other products and.
Products of course can still be used with the existing alaris base. So there's no nothing stopping people from from you know continuing to add those products on as they continue to use you know, they're alaris products and utilize the data coming off of hilarious to to be used as as part of that full solution. So.
Thanks for the question.
[noise] Oh final question, it's a follow up from the line of Kristen Stewart with Barclays.
Hi, things aren't getting the question just going back to I, I guess, China, what what's the rest that I know you're talking about the 200 million dollar business, but just that it continues l. into other product categories with in the broader China business for you maybe just talk about the number of.
Provinces that you are seeing and I guess, just rest at it spreads more broadly within medical products. Thanks. Thanks for the questions Christian I'll turn it over to Alberto to answer that.
Yes.
Personally that I'll say is that we just seeing no evidence of the other please procurement applicable to any other category at this moment.
The way we tend to think about it there's probably three big variable for your to consider whether they would consider and then you categories that were in the first one will be total expend Oh that cat, who is isn't that popped and over the top 20 spend in in hospitals.
And <unk> the two biggest parts of before they have left which is flush and banks do not fall into that category. The number of competitors and again the than the other categories within M.D.S., there's a significantly less amount of categories, we're talking about a handful.
Versus the peripheral catheters, where there are over a dozen approaching 20, plus small players and then the perception of comments Ization as well is another factor. We do not think these conditions are necessarily all that clickable today to the the the other cat.
<unk>.
Thank you <unk>. Thank you Chris.
There are no further questions at this time I will now tenafly back over to Tom Poland for closing remarks.
Okay. Thank you.
So as we close today I went to reiterate beady strong commitment to product quality regulatory compliance and patient safety you expected our customers deserve it and their patients depend on it.
I'm very disappointed that we had to lower our guidance today I'm also confident that we'll look back on this moment as a catalyst for driving a better B.D.
Sure you that we are taking accountability racking with their agencies and we're proceeding with an unwavering commitment to our purpose and the patients we serve.
I'm also confident that are brought portfolio or global reach and are passionate team of associates provided incredible opportunity to drive longterm growth and enable us to make a bigger impact on customers patients and shareholders around the world. Thank you.
[noise]. Thank you.
Today's teleconference. Please disconnect airlines at this time and have a wonderful day.
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