Q1 2020 Earnings Call

Ladies and gentlemen, please standby your conference call will begin momentarily. Thank you for your patience and please standby.

[music].

Welcome to habit first quarter 2020, <unk> earnings conference call.

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I like to introduce Mr., Scott line of whatever Vice President Investor Relations licensing and acquisition.

Good morning, and thank you for joining us with me today, or Robert Ford, President and Chief Executive Officer, and Bob <unk> Executive Vice President Finance and Chief Financial Officer.

Robert and Bob will provide opening remarks following their comments, we'll take your questions.

Before we get started some statements made today maybe forward looking for purposes of the private Securities Litigation Reform Act of 1995, including the expected financial results for 2020.

Abbott cautions that these forward looking statements are subject to risks and uncertainties, including the impact of the cobot 19 pandemic on habits operations results and financial results.

This may cause actual results to differ materially from those indicated in the forward looking statements.

Economic competitive governmental and technological and other factors that may affect habits operations are discussed in item one eight risk factors to our annual report on Securities and Exchange Commission form 10-K for the year ended December 31st 2019.

Abbott undertakes no obligation to release publicly any revisions to forward looking statements as a result of subsequent events or developments, except as required by law.

Please note that financial information provided on the call today for sales S. M line items or 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 and regulatory filings from today, which are available on our website at <unk> Dot com.

Unless otherwise noted our commentary on sales growth in the first two organic sales growth, which is defined in our earnings news release issued earlier today.

With that I'll now turn the call over to Robert Thanks, Scott Good morning, everyone and thanks for joining us.

Hello, everyone here knows we haven't seen a quarter, where any time quite like this before.

The school environment this unprecedented in our lifetimes.

Before we get into the details of the quarter I want to take a moment the thank our employees our customers and our suppliers all of whom are making extraordinary efforts to keep systems working and to maintain supply of are critically important products the people who need them.

This moment I strongly underscore two fundamental things to me.

The first is the biggest and most important.

And that's the essential nature of health and health care.

Times like these make very clear what truly matters the most.

The second to bring a closer to home has to do with the nature of Abbott.

We've been in the business of improving People's health for medical innovation for more than 130 years.

And it's an moments like these but the importance of our mission becomes even more critical delivering for the people that depend on us.

I've been extremely impressed though not a whole surprised by the way my colleagues around the world have stepped up to this moment as you know we quickly developed and launched three diagnostic test for Cobot 19.

Two for the laboratory setting and one for rapid point of care testing.

At the same time, our teams in every business and around the world had been making extraordinary efforts to keep our operations running and our supply chains moving.

To undertake the thousands of processes to make our vital products and get them to the people who need them.

And we're also donating both funding and products to support frontline healthcare workers families and communities to meet the challenges of this pandemic.

I think this speaks to a well known attribute of Abbott's culture.

Execution oriented.

And we could be relied on to deliver when it matters. The most.

Because we know how important are work is likes depend on us and we take that very seriously.

Our diversified business model is a true strength in times like these.

It's a model that are served our shareholders and the company very well.

Under normal circumstances, it provides more opportunities for growth.

And then situations like this it helps dampened the impact by ensuring we're not overly reliant on a given business products were geography.

Overall, our sales grew nearly 4.5% on an organic basis in the first quarter.

Looking across our portfolio some parts of the business faced challenges.

Others have been relatively stable and still others are performing at high levels to meet new demands.

Beginning in February.

As trying to implemented centene restrictions and non emergency health care activities were postponed.

We saw sharp declines in both cardiovascular device procedures and routine core laboratory diagnostic testing volumes in that country.

Encouragingly.

Over the course of March and the first two weeks of April we've seen a steady improvement in procedures and testing volumes in China from the lows we saw in February.

As the virus spread geographically.

The impact initially expanded to pockets of Asia and Europe, beginning in late February and more broadly across Europe and the U.S. during the last few weeks of March.

As the healthcare industry shifted its focus defining the virus, we saw similar impacts to our business as those we had seen in China.

Based on our most recent data points, while we haven't seen a rebound we're starting to see some signs of stabilization.

Importantly, while we're navigating the demands of the current environment, we've continued to advance our pipeline and strengthen our long term growth platforms.

Over the last few months, we've announced CE mark approvals of new products in important cardiovascular device areas, including try clip.

The world's first minimally invasive device for repairing a leaky tricuspid heart valve.

Tendyne a first of its kind device for mitral heart valve replacement and Golan, Our next generation implantable cardiac deferred to later.

And MPD and nutrition.

Underlying market growth and shared dynamics remain in line with historical trends driven during the quarter.

With the exception of increased demand during late March in advance of shelter in place restrictions in certain markets, most notably in us pediatric nutrition.

In diabetes care freestyle Libre continue to add new users at a strong and steady rate throughout the quarter as reflected by sales growth of more than 60%.

We also continue to expand reimbursement coverage for library around the world, including recently, becoming the only continuous glucose monitoring system to obtain reimbursement in Japan for people with type two diabetes.

Just last week, we announced the availability of freestyle libre for hospitalized patients with cobot 19.

Delivery system allows frontline healthcare workers in hospitals to remotely monitor glucose levels in patients with diabetes in order to minimize exposure to cobot 19, and preserve the use of personal protective equipment.

In partnership with the American Diabetes Association, evidenced donate a 25000 freestyle libre sensors to us hospitals and medical centers and outbreak hot spots to help accelerate access to the technology.

Before I wrap up like to take a moment to discuss our ongoing efforts in the area of diagnostic testing for coated 19.

Avid has long been a global leader in infectious disease testing.

So leading in this area is a role we can and should play.

In late March we launched two molecular diagnostic tests to detect cobot 19.

One for I'd now rapid point of care platform and one for end 2000 laboratory platform.

Over the past few weeks, we've been actively working with government authorities and health systems to deploy these tests to places of greatest need.

And just yesterday, we announced the launch of a lab base Raleigh's you test for the detection of the antibody IBG.

While molecular testing the techs, whether someone currently has the virus.

Antibody test determine if someone was previously infected.

We are ready began shipping these antibody test and intend to shipped 4 million tests in April and wrapping up capacity, the 20 million test per month in June and beyond.

But our efforts don't stop there removing a fast as we can to develop additional tests, including a lab based raw energy test to detect another important antibody GM, which we expect to launch in the near future.

I'd like to thank our outstanding scientists as well as our manufacturing supply chain and business teams. They really stepped up to the challenge and are doing extraordinary work to increase availability of diagnostic testing as we fight this pandemic.

So in summary, this unprecedented situation underscores our purpose and the strength of our diversified business model.

The underlying fundamentals of our business remains strong and our manufacturing and supply chain had been highly resilient.

Weve long plan proud to maintain business continuity in the face of the global crisis, and our employees and suppliers have risen to the challenge.

And lastly, Abbott is contributing in a significant and meaningful way by providing new test solutions across our diagnostic platforms to help screen as many people as possible.

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

Thanks, Robert as Scott mentioned earlier. Please note that all references to sales growth rates unless otherwise noted our on organic basis, which is consistent with our previous guidance.

Turning to our results sales for the first quarter increased 4.3%.

Our adjusted gross margin ratio was 58% of sales.

R&D investment was 7.3% of sales and adjusted SGN expense was 32.2% of sales.

Exchange had an unfavorable year over year impact.

1.8% on first quarter sales.

During the quarter, we saw the U.S. dollar strengthened versus most currencies.

Which resulted in a larger unfavorable impact on sales.

Compared to expense compared to expectations and exchange rates held steady since the time of our earnings call in January.

Based on current rates, we would now expect exchange to have a negative impact of a little more than 3% on our full year sales.

As we announced this morning in our earnings news release.

Given the uncertainties regarding the duration and impact of the cobot 19 pandemic.

We're suspending our previously issued.

Annual guidance for sales and earnings per share.

We are actively monitoring the situation closely.

And we'll provide updates as appropriate.

Before we open the call for questions.

I'd like to briefly discuss habits overall financial condition.

As this situation has reminded all of us.

Unforeseen events can rapidly change the environment, we operate in.

And our philosophy of maintaining strong financial flexibility.

He is in place for just these types of moments.

Overall, I'd say, our financial health is strong.

We ended the first quarter with approximately $3.7 billion of cash and short term investments.

And we have existing agreements in place.

Provides additional access to $5 billion if needed.

As you know.

Over the last couple of years, we've put a heavy emphasis on strong cash flow generation and rapid debt paydown following a period of strategic shaping.

This focused effort has positioned us with healthy leverage ratios and only a modest amount of debt coming due over the next few years.

It has also resulted in strong investment grade credit ratings.

That said.

We are prudently planning to ensure we can withstand a variety of potential scenarios that may emerge over the coming months.

As Robert mentioned earlier our.

Our diversified business model is a true strength.

In times like these.

I would also add that our disciplined and thoughtful approach.

Financial decisions and capital allocation priorities are also strengths.

And that Abbott is well positioned to navigate this challenge.

With that.

We'll now open the call for questions.

Thank you.

Ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your touched on telephone.

If your question has been answered already what's your move yourself from the Q. Please press the pound key for optimal sound quality. We ask that you. Please use your handset instead of your speaker phone and asking your question and again, ladies and gentlemen that Star then one to ask a question.

And our first question comes from Robbie Marcus with JP Morgan Your line is open.

Thanks, and congrats on a good quarter all things considered.

Maybe I can start with that two positives in the portfolio here I'll ask them separately first on diagnostics abitz, leading the way you have three different tests.

I'd now like color test, the and 2000 salaries coded to cover 19 test and then the antibody test, which was just announced I know a lot of people are interested in the potential of all three of these tests here. So I was wondering if you could give us an overview of.

Where you are with the testing the potential revenue implications and volumes that you'll have than any other tests that we should be on to look out for on the horizon here, thanks to our Roddick.

So yes, it was definitely an intense a first quarter here for our diagnostic business, even though it doesn't it doesn't look like that in the sales number right. We've got a core lab business that had some declines.

And it given the similar dynamics that we saw in our cardiovascular procedures as the hospitalization procedures I kind of came down and then on the other side of the business, we have our rapid and molecular business, where we did see positive growth in the quarter and we actually didnt have a lot of co vid test sales.

For those businesses in the quarter as you know, we got our approvals towards towards the end of the quarter last the last week or so in March so the potential here for the.

The cobot tests.

Our our more significant for us in the second quarter here, but.

Our biggest motivation on the testing aspect here. The other key driver areas is we want to help people want to help people get tested we want to help society move forward, we want to help.

Workers get back to work people get back to schools et cetera. So when you look at the diagnostic platform the suite of platforms and products that we have built over the last 20 years here, they've really been aimed at being able to do just that so in mid February when we saw that the virus.

For us was not going to mimic what we had seen and maybe previous viruses like a sars or a murderers for example, and we saw that this was going to be something much more significant much more widespread we assembled for different different and independent R&D teams to go about it and individual groups I mean, there was obviously.

Some collaboration between them, but we wanted them standalone going after four different types of test say, a molecular lab test.

Molecular point of care test.

Lab base, Raleigh test and a lateral flow serology test and we did that not because we thought that we needed.

For shots on goal here to try and get one or two of them to get it we understood given our experience here that all four of these tests all four of these different types of testing.

It would be needed all four of them had a different value proposition. So if you look at the lab based systems, they're more high throughput get a lot of tests done there's a little bit of a turnaround time, there 123 days et cetera, but we knew we needed.

That kind of testing volume, we also knew that we needed fast immediate more faster immediate results, maybe with the notion that having some portability, where you'd be able to take the past straight to testing people not having to restrict them to having to go to a lab or hospital.

And we also knew that there was going to be a need for mass volume screening. So when we look at the assembly of these four different tests that we've been working on.

Thats the that was the goal to understand that Theres, a viral progression that occurs where in the beginning in early stages, you need molecular testing to be able to diagnose somebody has the virus and as the degrees progresses and.

People start to build antibodies for that you're going to need a different type of test and in different formats of the test. So I would say every single one of our programs here either met or beat their target dates and it's probably two reasons for that one of them is.

I'd say I, just a very passionate and committed scientific and manufacturing team here that really went.

24, seven I mean, one of our teams split into so they could go 24 hours a day 10 days a week to be able to continue the work and doing the work.

So that's one key driver and I'd say the other one here and we've talked about this is a very collaborative science based approach of our work with the FDA throughout every step of our development process. We worked real time with the FDA sharing them our technology sharing how are we going to do the clinical sharing with them the reserve.

Cults, taking input and feedback from them on a real time basis, and I think the combination of those two factors really allowed us to to do this lease. These three test here and in record time, and I think what you're seeing.

What we see a lot is is the reward all of that it's very rewarding to see the the vision that we had about these different types of pass and different types of platforms being deployed to the way that we had thought and envision and to be and then to get the feedback back I mean, the amount of stories that I've received from.

Ceos from mayors from governors about our rapid test and how we envision that test rollout to be to start off with with frontline workers.

It's an IC universe and the yard Doctor.

So that they could be tested they had.

But they had symptoms.

I have to be self quarantine for four or five days until their lab tests would come back and now with a rapid test in 15 minutes. They would know whether they would need to get appropriate care or whether they could return to the frontline and thats been exactly how we envisioned that product to work at least in our initial rollout. We also yeah. We're shipping a lot of end.

2000, I mean, we have a lot of them to thousands in the country, but we also began shipping them to some pretty difficult areas, where the turnaround time that we had heard from mayors and governors was it was over two weeks. So now we can we can ship. These boxes. These lab boxes and they can do close to 500 test 470 test a day and get rid.

Salt in 24 hours. So the way we've developed these task the way we've put them out the market the way we've launched them the way we've worked with.

With that with the labs and hospitals exactly how we had envisioned this obviously, there's a lot of stories.

I believe has been seeing recently about the difficulty to find the tests et cetera, and what I would say there is we've we've done everything that we said we were going to do we have delivered everything that we said we were going to deliver obviously that is not enough, we still need to do more and there's a need here to manufacture more.

Test scaling is important.

And we have to get these tests out we use high precision high automated manufacturing process and and some of those we've been able to kind of utilize existing assets that we have to manufacture in other cases, it's not enough and we need to we need to buy more we need to set up more in and that obviously takes that obviously take some time here but.

You have a committed dedicated team here Thats really doing 24, seven type of work, but on the I'd now side I mean, we made comment we made commitments to manufacture start manufacturing 50000 tests per day, starting April 1st and where halfway through the month year already and we have delayed.

What exactly that and everyday I get to see the manufacturing and a shipment output and we haven't fallen behind that and several several days weve beaten that number and it will to get more tests out.

And we've worked collaboratively with federal government with state government with governors with mayors, we provide everybody daily reports on what we've made and where we've shipped a product. It's a collaborative process to be able to allocate the test to the areas that are needed. The most as I said on I'd now our first phase was to roll this out too.

To ensure the frontline healthcare workers were tested and we're protected and as we start to ramp up manufacturing for I'd now as we'll start to implement those those actions in the month of May into into June we will start to roll. This out into a second phase, where we'll start to be able to test more of the general population.

We started to work on some pilots here with with Cvs and other retailers here to say, okay. How can we get.

This system out of the hospital into more decentralized testing. So we can test the general population, whether it's in urgent care clinics nursing homes retail settings et cetera. So so thats on target on plan also.

On the end 2000, we made a commitment when we got approval to ship out a million test during the month of during the month of margin and we did exactly that on the G.. We we just announced yesterday, we talked about shipping 4 million test put a stake in the ground. There I got an update from my team yesterday are they already have orders.

As for about a quarter of that as off as of yesterday. So so we're moving fast here.

And we know that.

We need to we need to play our role here at and manufacturing and getting as most tests out as possible to this platform that we've developed we've also been very clear about how we're selling the product we saw the product from our warehouse right into our customers, we try to limit as much as we can to use of wholesalers and distributors so that.

That's worked very well, we're making weekly shipments so there's no hoarding and we can get to as many people as many customers as we can and resetting all of these tests at the same selling price that we were previously selling all of our other assays for these for these instruments. So the idea now covert tests were selling at the same price that we sell.

Our I'd now flu test and the same full of our other for other or other assays.

The other boxes. So we're working on our last platform here, which is our lateral flow Surajit test. This will allow us to scale up to numbers much more significant than some of these that I've that I've talked about this falls into our ability to kind of look at mass testing for the general population there.

Our on time, right now and and we're almost there. So I would say we've got a promising Q2 ahead of us as it relates to testing I'm not going to try here and forecast exactly how this is going to look like in Q2, right now, but it's clear that the demand for testing is big it's not going to go away and I think that the team here as.

Lined a portfolio of testing solutions that have a wide variety of different uses and will play a key role in in wrapping up testing.

Appreciate the response very helpful and maybe just one another bright spot in the portfolio is the lead Brad. This is a non procedure base recurring revenue product you had great international numbers. The U.S. number looked a little later this quarter kind of flat quarter over quarter.

Maybe just help us understand the trends in that business and how sustainable that is as people are away from their endocrinologists. Thanks.

Sure.

But as I said, if you look at our script data fuel if you want to look at the US data we had a very good quarter as it relates to kind of script and beginning of year I talked about how we were deploying a lot of demand generation strategies here, whether it was salesforce.

Expansions direct to consumer advertising et cetera, and you can see that those that follow the the weekly Rx data you can see that inflection point starting in the first couple of weeks of January here versus where we where we exited so our scripts between Q1 of two.

2020 in Q4 of 19, the scripts actually grew 35% sequentially, obviously over 100%. If you look at it over a year over year. So the the sequential growth rate there that may be referring to as really focused here on I'm, just kind of timing of sales and sales shipments.

In the quarter I expect to see that shipment selling mimic what we've been seeing in our Rx generation in the US that you saw in the first quarter and I think that speaks a lot to the the value proposition of freestyle Libre. It as it is not only is it assessable affordable.

But it's easy to use it's easy to start patients on the product. So I think that we've seen that.

Play out here, even within the situation that we saw with cobot in the us and you're right in international business has done very very well.

Growing at very high rates and Thats off a very very large base. So I'm very pleased with the international business I think theres more work to be done there for sure were starting to roll out the leave rate to product in Europe and in the international markets a little bit more.

Or.

Intentionally.

With that expansion I.

I think we showed some of our accuracy data on LIBOR rate too in the European Conference beginning of this month and I think thats going to help fuel lot of our growth also in international markets too.

Appreciate it thank you.

Thank you. Our next question comes from David Lewis from Morgan Stanley. Your line is open.

Good morning, Robert just a couple of quick questions for me I guess.

The first thing is just sort of thinking about recovery some comments on China, but I Wonder where is China right now as a kind of a percent of prior normal in the U.S. have you seen week over week divisions gets softer as the us sort of read some stabilization at a trough and then you just more broadly how are you thinking about sort of recovery kind of across the quarters. This.

You are any qualitative commentary would be would be helpful. Banana quick follow up.

Sure.

So just on your question on China, I mean, it's an important market for us, but we're not overly reliant on China, but let me let me put the let me put your general demand question here, I think a little bit into context, and ill kind of walk through what we saw in the quarter geographically and across the businesses and and then talk a bit about how we.

We see.

The rest of the year going but if you look at our business.

And break them out into two groups I would say more hospital based demand generation businesses and and then the second part more consumer based demand businesses that are about 50 50, roughly 50 50 in size and we don't tend to look at our businesses that way, David but I think.

As we looked at Corona virus and start to look at our models. We start to look at this approach here by looking at hospital and consumer based on the consumer based side businesses. So you look at our our PD business, our nutrition business, our diabetes care business all of them performed in the quarter very very well they all.

Performed in line with with our trends with our with our targets with our aspirations with the execution of of our growth strategy is obviously the exception to that was new some parts of our nutrition business, where we did see pantry loading.

As a result of some of the.

Towards the end of.

Marks there we saw a lot of consumers try to stock up and get ready, but excluding that all of them kind of performed well and on target and obviously there was increased demand for some of these products in our supply chain was resilient was able to was able to fulfill them. So I see those businesses kind of going for performing at the same kind of.

Trend at the same rate that that we have been seeing obviously, we might see a little bit of nutrition.

In the in the second quarter adjusted little bit, but overall I see these businesses performing at the same kind of trend.

If we look at the hospital based businesses, so think about that as kind of the more core lab testing, our cardiovascular portfolio, even even to some extent our neural our neuromodulation business, even though it's not hospital, it's more assay.

We definitely saw a decrease in in those procedures and those elective procedures and in that routine testing and even within those you see some differentiation. So we didn't see our our heart failure business get impacted that much because those are lifesaving devices versus.

Any p. ablation procedures that was more elective and could be pushed out so but in general I would say testing and procedures, we saw that drop.

We collect daily device implant in data and we collect daily hospital diagnostic testing data and we collected on a global basis. So I think we've got a pretty robust set of information that we can look at here as we start to observe kind of the trends that we saw in the quarter and as we shared we were.

Turning to see an improving tranche trend here in trying to it's not to the level that we saw feed our normal levels pre co bid say December January kind of rates, but there definitely not as low as where they were in February and we're starting to kind of see them every week.

Get better and better in getting closer to those levels that we saw pre cobot.

We've seen other markets around the world, whether its Asia or some of the other European smaller markets, there, where we've seen the beginning of the same kind of recovery trend that we saw in China. So starting to see some of the beginning of that recovery and then in other markets were seeing.

Kind of just as flattening out stable and then a stabilization here. That's that's suggesting here that the speed of the virus is a little bit more controlled.

So if I look at this data and we've looked at it various different ways. We run a lot of different forecast models and sensitivities here. There's couple of things that I can see.

Ahead of US here right. The first one is Q2 will likely be our toughest quarter in the year, especially I would say for coal core lab business, and our cardio and Europe businesses.

This will probably be our toughest quarter for those.

I think our consumer businesses will continue to perform at the trends.

And dynamics that I just explained the second thing that we can see here based on based on our modeling based on the data that we're seeing from that we're collecting on a daily basis is that we can see a recovery into Q3 and into Q4, especially for these more elective procedures.

You know.

There are some that you can push out but they are important they are lifesaving. They are solving some significant problems, whether it's a stent.

Pacemaker.

Repairing.

Mitral valve, we will see those start to come back the same way that we started to see in some of it and some of the earlier markets that have kind of that there are further along in the recovery I don't believe that they're going to come back at the at the same speed that they came down but like I said these are important procedures and I do.

I see them coming back talking to a lot of.

A lot of health systems, a lot of Ceos from health systems and.

They are they already talking about how they are planning.

To start to work with some of those elective procedures.

It will be a V shaped I don't think it will be.

I think the right hand side of that V shaped will be definitely a little less steeper than the then the left hand side of that the shape, but I think we're going to see that recovery.

In in Q3 in Q4 of these thats, what our data is suggesting.

Clearly, it's quite possible that other industries might take longer to recover but I think for healthcare.

The data our modeling here suggest the kind of recovery that I've just described.

And the third thing we can see here clearly as that testing is going to play a major role here at getting back to work getting back to school getting people back to factories back to distribution centers et cetera, and we know that this is.

24, seven type of work that our teams need to do to be able to kind of scale up and I think that the.

Sales ramp of potential et cetera is really going to be guided by our manufacturing ramp up in our ability to kind of deliver on on that manufacturing ramp up and I think that we've been.

You know batting at a very high average share based on on the commitments that we've made so so when you look at all of that you put all of this into context here. We have we have decided here to suspend our guidance.

We are usually right here to the penny.

Every quarter and it's going to be right now, it's going to be very difficult to be able to get that right to the penny going forward, but I believe that will be in a position to give let's say some more qualitative update sometime in the quarter.

And depending on how that goes we might be able to be able to give guidance in the second half year. So I've looked at the consensus that's been put out there I mean, we beat the revised consensus across our business I leave the consensus where it is right now given that it has a pretty fluid situation, but I think we could do better.

But there's just too much there's just too much depends on right now for us. So we're going to keep on focusing on what we're doing and some time throughout the quarter here. If we feel that we're in a better positioned to be able to give some more qualitative.

Assessment and guidance I will do that.

Okay. Thanks, Ryan that's actually very specific probably more than I hope for and then in terms of the second question. Just you piven less active on growth oriented M&A. These last couple of years in some of your peers, but you're going to emerge from this pandemic crisis with probably the strongest balance sheet in large cap device. So how are we thinking about your interest in buybacks.

Most of your focus but your interest in opportunistic M&A here coming out of this crisis. Thanks, so much.

Sure.

Listen I'd say right now we've done a lot of work on.

On our balance sheet over the last couple of years, we've talked a lot about.

The work we've done to improve our leverage ratios. The word that organization has done to improve our cash conversion cycle. So yes, our financial strength here is very strong as Bob talked about we've got strong cash position here towards the end of quarter close to $4 billion, we have access to.

The credit facilities.

And when we've got businesses that are strong cash flow generators and.

And that's going to be important as we go forward, we don't have a lot of.

Of debt maturing or coming due here in the next couple of years. So.

I don't foresee are our capital allocation strategy here to just kind of really change at this point.

Where we have a strong dividend, we pay a strong dividend and we're going to continue to do that that's an important part of our identity.

We haven't done a lot of share repurchases historically, most the time when we do that it's really just to try and offset some of the dilution.

I think Bob.

And the finance team I would say is definitely looking at our Capex and our Capex spending I don't.

We'll probably see some slowdown a little bit in that and the team I know Bob's kind of working on that we'll see how that's going to look like but at that will just be a factor of.

Getting the work done and right now there are some of our projects that require people to be building sites et cetera. So we'll continue to focus on that we'll continue to build on our capacity expansions that we've talked about in the past, but we'll we'll probably see some phasing a little bit over there and on your question on M&A I mean I'm not.

I'm not really looking at anything Ida as we've talked about it there's theres an opportunistic side to it and then there is there's a there's a strategic side to it and.

On the strategic side I, just don't see anything right now that fits what we want to do and where we want to go and quite frankly.

Our our execution here again going back and maybe this sounds a little bit broken record here, but we've just got so many opportunities in our existing portfolio to keep on focusing on it and now you layer on top of that the opportunity we have on on our testing platforms. So our our big focus here is is on internal.

Execution.

Very good thanks, so much Robert.

Thank you.

Next question comes from Bob Hopkins from Bank of America. Your line is open.

Great. Thanks, good morning.

Just a couple of quick questions.

First I wanted to circle back to testing.

Specifically regarding the too.

19 tests that are being run on I'd now and in 2000 I just wanted to be Super clear on where you are today in terms of shipping capacity is it that 5 million per month, which you talked about and it also can you give us a sense as we look forward.

Given the critical importance of these kind of kind of where you will be see maybe mid year in terms of.

Testing in shipping capacity. Thank you.

Sure on the testing side I mean, we talked about achieving a manufacturing ramp up here as we come out of the gates with the I'd now platform at about 1.5 million test and we're on target to do that definitely throughout the middle of this month here.

And we're making improvements in the manufacturing process.

And adding more ships et cetera to be able to expand that too to get to 2 million test by by Jude and and that's what we've talked about and and right now we're on plan on target to be able to kind of deliver on on that expansion on that expansion obviously.

We need more than 2 million of the I'd now test. So we're looking at how we can ramp up as I explained in the beginning in the first question. These manufacturing processes are are highly precise highly automated so that we can get the performance in the riot reliability the product. So these.

Involve making.

Setting up manufacturing lines and you don't do those and you don't do those in a week or two week. So.

So there is there's a lot of work going on there, but we know we need to do we know that theres a need for more I'd now tests and on the on the M. 2000, we made we made the commitment here to ship a million tasks in the month of March which we did we talked about shipping 4 million tests in the month of April and we're on target.

To do that met its a manufacturer 4 million test and we're on target to do that.

We've we've we've moved the team along to to find ways that we can expand that and the teams are working on that also so I'd say right now that 5 million test Mark on those two tests is where we're at am and as we make progress with our with our manufacturing ramp ups, we will be will be clear about what.

What the markets can expect from.

Great. Thank you.

Follow up on the same sort of topic on congratulations.

On the new throughout.

So now I was wondering if you could talk a little bit about.

Sensitivity and specificity data relating to that.

And whether you think the high levels that have included are kind of sustainable when you think about general population testing.

Yes.

Answer your question on the on the accuracy right now the label. We have is if you do the task 14 days post symptoms. The sensitivity of the test is 100% and the specificity of that test is 99.5% and thats over that's over 1000 samples so I.

We've got a very very accurate reliable test here to be able to work on obviously, if you try and do this test five days after you've been exposed to the virus your body hasn't produce enough antibodies to be able to be detected at a reliable accurate level. So thats why when I talked about.

How we've set our test the forms the different form factors, but the use of the antibody test is more to look towards.

A couple of weeks after somebody has been exposed had they built enough antibodies that they defeated the virus. So so that's that's the that's the data.

Thanks.

Thank you.

Our next question comes from VJ Kumar from Evercore. Your line is open.

Thanks for taking my question congratulations guys.

Two questions Lisa one not maybe on on the near term.

The I guess when you think about the serology tests and applicability to opening up the economy.

There are some issues around the prevalence rates in cost positives and not business now paving the way Florida.

Secondly of infection so maybe.

Maybe address how these tests could be deployed perhaps in helping us open up the economy and one other up when you think about your employees getting back to work what signs are you looking for.

To completely open up.

Workforce in the in place back.

Sure.

As I said, we have to look at the suite of tests is not one is one test is not the panacea you need to look at the comprehensive suite of testing and deploy them in the right ways over here.

As I said I think this Raleigh test here is is very reliable as as we roll. This out for the antibodies were working on an eye Gigi on an eye GM antibody test also.

Obviously us as companies are thinking about coming back to work the way we're looking at this little bit is okay.

We know that theres going to be a little bit deferral work, a little bit differently. The way. We've historically been working so maybe not a lot of bake kind of meetings.

20 people 30 people in the meeting rooms will probably be a little bit different than that I think we'll see people wearing masks I think we'll see more cleaning of door knobs, and an elevator buttons and all of that and I think thats. That's ongoing right now I think the lot of companies that are doing this right now and that seems to that seems to be seems to be working so if.

Now add on to all of those protocols.

Kind of a lateral flow test here, that's got a very strong sensitivity reliability et cetera, and add that on and you can test.

At companies using occupational health team et cetera that will be an additional layer of.

Of security of.

Of testing that will be on top of like thermometers and everything I. Just described also so I think it's going to be an important tool and I think that we've talked about this a lot in terms of micro climates, we try to think about everybody coming back at once and then you use all this data that you just referenced prevalence and sensitivity and specificity.

Specificity any trying to look at that very large populations.

We need to think about it more in terms of.

A factory an office building.

A school and then running these tasks will allow you to on top of what you are doing provide another tool to be able to assist companies in schools et cetra get people back to work. So I think thats, how at least we're looking at it and I think how I've heard other other companies looking at how to how to reopen.

In how to get back.

That's helpful and then maybe a one.

Bigger picture question or maybe this is more Rob help us understand on how we should be thinking about the future because when I look at top 2021, then obviously I'm not asking for guidance.

We know when he was impacted what is the right base to be looking at procedure volumes right. When you looked at the underlying beta.

Incidence and prevalence pool for disease States those we havent changed.

So.

If we don't have.

Not for the second we have infection coming next year being impacted.

Should we be looking at procedure volumes and maintain at the base the right base to build off where should we be.

There are some issues on hospital capacity constraints and should we be looking at depressed twentytwenty procedure numbers as the rate base too.

Looking at how those numbers.

Next year. Thank you.

So I can appreciate you're trying to figure out 2021 already Jay but as I think it's pretty tough right now for us to figure out.

How exactly Q2 is going to look like let alone let alone next year, but I think you raise some of the unknowns here that there really make it difficult to predict.

How fast the economy recovers, how fast hospitals returned to normal normalcy, how does our our testing platform and how's the in the testing environment involved so as it were all we're all hoping for fast recovery here, but it takes longer will have strong demand for testing and that will continue to help.

Buffer buffer the impact I do think Theres, a lot of pent up demand here on cardiovascular devices and diagnostics and I think hospitals are are figuring out how they're going to get back to work I think theres a lot of patients that are in need of care.

And I.

I think that I can't I don't I don't know if we can predict exactly when it when it's going to come back, but I do think that when it does come back I think you'll see these these device procedures, which are which are extremely important.

You know as truly important in the care continuum et cetera that we will see them come back.

So that's probably my best answer for you is I believe that we'll see a recovery towards the.

The second half of this year in these elective procedures.

And kind of try and model out what kind of V shape as it is it does it look more like an l. does it look more like a V is it something in between et cetera.

I think thats, how that's how we're at least we're looking at at the rest of this year.

No. That's helpful. Thank you Robert.

Thank you Sir our next question comes from Matt Taylor with you, Yes. Your line is open.

Hey, good morning, Thanks for taking my question.

First question I, just wanted to follow up in the testing that's so important and certainly commend the team for their efforts and getting those out so quickly.

Two parter one is you mentioned in the early remarks that there's been a lot of commentary about.

Difficulty in the testing market not only due to kits that folks had mentioned swabs and.

Reagents and other things like that I, just wondering from your perspective I'm sure you're getting a lot of feedback on this what do you think is the biggest challenge out there in terms of getting access to the testing now and how do you see an improving over the next week and month.

And that on.

Yeah go ahead, sorry, no just on the question there of testing and testing supplies and shortages there I mean I think.

When you look at kind of what we've done I mean, we've we've made sure obviously that when we ship our test they have everything they need to test whether its controls calibrators, whether its swabs and I'd now those.

Those come those come together here so.

So from up from Abbott's perspective, we're trying to make sure that they have everything that they need I do think that you have some of the challenges you have is potentially workflow.

At least for US we've got RM two thousands there in regional hospitals regional labs, which is which is a good thing because you can you can have not on your big Central labs doing a lot of centralization, but then you can use the regional network to be able to get to test and I. Just think it's a it's a workflow process here how that how to get the samples.

I think a lot of hospitals might not want to be doing a lot of mass testing into the hospital. So how do you how do you collect the samples and then how do you bring them into the hospital and then how do you get them out. So I think thats, probably one of the bigger challenges and I think that the the team whether it's on the the federal government side and and also with a lot of governors are figuring this out.

And there and they're sharing how they're doing it and sharing best practices and at least on our side, we're starting to see a ramp up here on the end 2000, but there's obviously more that more than they can do.

Got it and then one follow up on that I think on Bob's question. You commented on the accuracy of the throughout widgets that puts in.

Could you comment on the accuracy of the other test your confidence in them with.

Smaller samples that you had to to get out quickly.

And the relative importance of the two so allergy.

Determining that we've had the virus and who has an easy.

Yes, sure so on the on the molecular test. This in molecular test is the gold standard for accuracy are in a testing.

You know testing viral load et cetera is is the gold standard.

And if you look at how we did the test obviously.

It's it was worth in conjunction with the FDA using a testing model that was provided by the FDA. The test are performed at 100% of the expected outcomes in the samples for both negative and positive results I think the the I'd now system is very is very reliable.

The other end 2000 views levels of detection.

And I mean, you can go through levels of detection labels and you can see the accuracy and reliability them 2000 versus the other systems that have been that had been approved also so and then as I said the use of the antibody test is just going to be an important tool.

In conjunction with kind of molecular testing to be able to screen test and manage the population. So.

We'll see how thats going to kind of roll out.

And it will follow kind of the division that we've kind of thought of having both a lab based system and a lateral flow based system.

Thank you very much.

Okay, we'll take one more question operator.

Thank you and our final question comes from Larry Biegelsen from Wells Fargo. Your line is open.

Good morning, Thanks for taking the question Robert Let me just got one multipart device question.

On a two milestones were waiting for.

The the Mitraclip FMR and CD.

Any update there and of course the library to.

Any update on the status there just lastly, any other timelines in devices that could be impacted by Corona virus.

I would be helpful. So thanks, so much for taking the question.

Sure Larry I was I was waiting for every question.

Let me let me let me let me answer your.

Your CMS question over here on on secondary EMR as soon as you'd expect under these circumstances here. The CMS is has delayed the issuance of the propose NCD, we were previous expecting that to be mid February, but but given the current circumstances. The delay here isn't that really having an impact on our business I'm confident in.

Process I'm confident.

We've been working with them and the different societies over here and this will move forward on the appropriate time.

On our leave rate too.

I guess I sound like a broken record here to Larry, but what I'll say is I'm very confident in the product the same way that I've been saying I'm confident I mean, I think some of you it might have seen the accuracy data that we published at the European Conference beginning of beginning of February. So so I'm very encouraged about resolving these as some of these kind of open.

Items here in the near future with the FDA, we're just working through some through some finishing items.

So, but like like I said, that's not that's not holding back libra or leave race growth here. So.

More to come.

Anything else that we should be aware of that could be impacted on the device side from a time when standpoint.

Yes, there's been some discussion on clinical trial in clinical trial regulatory timeline here, our near term forecast here wasn't really overly reliant on kind of any patient enrollment endpoints.

Has obviously been some delays and some of the enrollment and you know as as we've seen a kind of mandate you get a pause some of these some of these procedures here so.

But I think once this is over for the ongoing trials that have kind of longer or timelines here, we'll look at opportunities that will have to accelerate enrollment and make up make up for some time here. So let.

Let me just let me to say here then closing here I think we had a pretty unusual quarter here for US I think you saw.

The the strength of our diversified business model.

Come through here in truth in true and true strength up some of some parts of the business. We did have some challenges as I've described other parts of the business had been pretty stable and I think they'll continue to be pretty stable and then there are others that are performing at very high levels and I think we'll start to see.

On the testing side, how fast we can ramp up.

Team here has done an amazing job around the world not only to develop the tests.

But also the manufacturing the supply chain teams across the world across our network have done an incredible job I think our I said, our financial strength here is pretty strong I think we had that question here and we'll continue to look at a look at ways to improve.

To improve on that.

And as I said, we believe that Theres a recovery.

And.

I will start to see that I believe in the and the Q3 Q4 timeframe I.

I think healthcare is a little bit different than you might expect from maybe other industries.

So once we get better a better sense of how thats going to look like towards the second half the year, we'll definitely be updating and providing some more qualitative updates on that so okay.

Alright, well thank you operator.

Thank you for all of your questions. This now concludes habits conference call a webcast replay of this call will be available. After 11 am central time today on Abbott's Investor Relations website at Evan 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.

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