Q2 2019 Earnings Call
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1618.
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Abbott laboratories.
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Tristan as Michael Spilt Am I see H.A.L. last name Mckell of Itch, Speltz and I see H.A. E. L. E V I C H.
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Thank you so much I will join you in your line will be on hold until the conference begins.
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Welcome have a good day.
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Good morning, and thank you for standing by welcome to Abbott's second quarter 2019 earnings Conference call.
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I would now like to introduce Mr., Scott Leinenweber, Vice President Investor Relations licensing and acquisitions.
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Good morning, and thank you for joining US with me today are miles white chairman of the board and Chief Executive Officer.
Robert Ford, President and Chief operating Officer, and Brian Youre, Executive Vice President Finance and Chief Financial Officer.
Miles will provide opening remarks, and Brian will discuss our performance and outlook in more detail.
Following their comments, we'll take your questions.
Before we get started some statements made today maybe forward looking for purposes of the private Securities Litigation Reform Act of 1995.
Including the expected financial results for 2019.
Abbott cautions that these forward looking statements are subject to the risks and uncertainties that may cause actual results to differ materially from those indicated in the forward looking statements.
Economic competitive governmental technological and other factors that may affect abbott's operations are discussed in item one a risk factors to our annual report on Securities and Exchange Commission Form 10-K for the year ended December 31 2018.
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 second quarter financial results and guidance provided on the call today for sales EPS and line items of the Pan out will be for continuing operations only.
On todays conference call as in the past non-GAAP financial measures will be used to help investors understand abbott's ongoing business.
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 web site and EBITDA account.
Unless otherwise noted our commentary on sales growth refers to organic sales growth, which is defined in our earnings news release issued earlier today.
With that I will now turn the call over to miles.
Thank you Scott good morning.
Today, we reported results of another strong quarter with ongoing earnings per share of 82 cents above our previous guidance range and reflecting double digit growth.
Sales increased 7.5% on an organic basis in the quarter with all four businesses exceeding expectations.
I'm, particularly pleased with our ability to consistently achieve these types of strong results over the past two years, our quarterly organic sales growth has averaged more than 7% and importantly, we are well positioned with our portfolio and new product pipeline for this type of strong growth going forward.
Based on our performance and momentum in the first half of the year, we're raising our full year outlook and we now forecast adjusted earnings per share of $3.21 to $3.27, reflecting nearly 13% growth at the midpoint on a reported basis and even faster growth when excluding the impact of foreign exchange.
While we achieved broad based growth across several areas of our portfolio I'd like to highlight just a few areas, where we continue to perform exceptionally well.
I'll start our medical devices business with freestyle Libre.
Where we achieved sales of $130 million and continue to add significantly to our global user base as reflected by our organic sales growth of more than 70% in the quarter.
We also continued to make excellent progress expanding reimbursement and access in the US where LIBOR is now reimbursed for approximately 75% of people with private pharmacy benefit insurance.
Libra offers a unique value proposition and that's by design. It provides great clinical benefits and we priced it to ensure affordability.
Theres recognize that value.
That recognize that value in our increasingly providing reimbursement coverage for libra, which helps lower out of pocket costs, even further for patients.
As I've mentioned before we've been investing significantly to expand our manufacturing capacity for Libra to meet demand. The first wave of that expansion will come online in the next couple of months followed by cadence of incremental capacity after that.
There is a massive population that needs help managing their diabetes and our intent is to make libra broadly accessible to all of them.
Turning to our structural heart business, where we achieved mid teens growth. This was led by Mitraclip, our market leading device for the treatment of mitral regurgitation, which had global sales growth of more than 30% in the quarter.
And Mitraclip grew more than 50% in the US where we recently received a new expanded indication.
Earlier this week, we announced us approval of our fourth generation Mitraclip device, which builds on this leading platform with enhanced features and new clip sizes, providing physicians further options when treating disease.
We've been building our position in structural heart for more than a decade and have a deep pipeline of technologies and development, including Tendyne and Cephea, which from minimally invasive devices to replace faulty mitral heart valves.
Try clip a first of its kind device for the repair of a leaky tricuspid heart valve and amplifier amulet are left atrial appendage device to reduce the risk of stroke in patients with atrial fibrillation.
With the rapid adoption of Mitraclip and a highly underpenetrated market as well as a pipeline of technologies targeting new growth areas that will launch over the next several years, our structural heart business is well positioned for strong steady growth for years to come.
Next diagnostics, where we remain focused on the global rollout of our Alinity suite of instruments for every area of diagnostics in which we compete.
We're making great progress with our systems for immuno assay and clinical chemistry testing in Europe , where the Launchable entity is helping to drive double digit growth in our international core Laboratory business. We're now also in the early stages of launching Alinity instruments for hematology and molecular testing in Europe .
In the us were making steady progress achieving regulatory approvals for our broad menu of core laboratory tests.
And just last week, we announced an FDA approval of Alinity S for blood and plasma screening.
Abbott screens, the majority of the world's blood supply and the system is designed to be faster and more efficient within a smaller amount of space, while maintaining the highest levels of accuracy.
The global rollout of Alinity is an ambitious undertaking that physicians, our diagnostics business for sustainable strong growth going forward.
So in summary, all four of our businesses exceeded expectations in the quarter.
Our growth is strong it's accelerating and it's sustainable.
Weve strategically positioned ourselves in some of the most attractive areas of healthcare and our key growth platforms are delivering impressive results.
And today, we are adding to what was already a strong growth forecasts by raising our outlook for the year.
I'll now turn the call over to Brian to discuss our results and outlook for the year in more detail Brian Okay. Thanks Myles.
As Scott mentioned earlier. Please note that all references to sales growth rates unless otherwise noted are on an organic basis, which is consistent with our previous guidance.
Turning to our results sales for the second quarter increased 7.5%.
Sales of medical devices grew 10.5% with double digit growth in electrophysiology heart failure structural heart and diabetes care.
In nutrition sales increased 5.1% led by strong growth in adult nutrition.
Sales in established Pharmaceuticals grew 6.1% with 8% growth in our key emerging markets.
And sales increased 6.2% in diagnostics led by high single digit growth in core laboratory diagnostics and sequential improvements and point of care and rapid diagnostics.
Exchange had an unfavorable impact on total AD sales of 4.6%.
Which was approximately half of a percent more on favorable to our expectations at the time of our earnings call in April .
Regarding other aspects of the PNM now the adjusted gross margin ratio was 59.4% of sales.
Adjusted R&D investment was 7.1% of sales and adjusted SGN expense was 29.9% of sales.
The second quarter adjusted tax rate was 13.7%.
Lower than our previous full year guidance of around 15%.
Due entirely to continued implementation of an adaptation to the U.S tax reform regulations.
Our second quarter tax rate reflects the aggregate adjustment to align our tax rate for the first half of 2019 with our revised full year effective tax rate forecast of 14.5%.
Turning to our outlook for the full year, we now forecast organic sales growth of 7% to 8%.
Based on current rates, we would expect exchange to have a negative impact of approximately 3% on our full year reported sales.
Which is in line with the expected impact we had at the beginning of the year.
We forecast an adjusted gross margin ratio of a little less than 59.5% of sales for the full year.
This is modestly lower than our prior forecast reflects the temporary effect of investments to support the unprecedented ramp up and market adoption of our alinity diagnostic systems as well as investments and leveraged capacity expansion.
We forecast adjusted R&D investment of somewhat less than 7.5% of sales and adjusted EPS Gina expense of around 29.5% of sales.
And as I mentioned previously we forecast an adjusted tax rate of around 14.5% for the full year 2019.
Turning to our outlook for the third quarter, we forecast adjusted EPS of 83 to 85 cents, which reflects strong double digit growth.
We forecast organic sales growth of 7% to 8% and at current rates, we would expect exchange to have a negative impact of around 1.5% on our third quarter reported sales.
We forecast an adjusted gross margin ratio of a little less than 59.5% of sales.
Adjusted R&D investment of around 7.5% of sales and adjusted EPS Gina expense of around 29% of sales.
Before we open the call for questions I'll now provide a quick overview of our third quarter organic sales growth outlook by business.
For established Pharmaceuticals, we forecast mid to high single digit growth.
In nutrition.
We forecast mid single digit growth.
In diagnostics, we forecast abbots legacy diagnostics businesses, which is comprised of core laboratory molecular and point of care to grow high single digits.
And in rapid diagnostics, we forecast low to mid single digit growth.
And finally in medical devices, we forecast high single digit growth, which reflects continued double digit growth in several areas of this business.
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 the star and the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
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And our first question comes from David Lewis from Morgan Stanley . Your line is open.
Good morning, and congrats on the quarter in the guidance.
Myles I had two questions for you the first on diabetes the second on the outlook for the year.
So just starting with diabetes 88 miles I should add some concerns around leverage to I. CGM designation should investors read anything into the lack of approval and.
What's your confidence level and I CGM approval and what does the trend in BGM. This particular quarter tell us about libra adoption.
No I'm going to give a couple of answers here one no we shouldn't have concern.
We're confident that we're going to have the approval, we expect and what we applied for.
So.
I know that there's there's always uncertainty until the day comes and questions from investors, but no we're confident.
And.
Actually let me ask our CFO COO to give you a little bit of more background detail on that.
Yeah, I mean, we.
They we filed as an IC jeremiad, we made that comment in our last earnings and we filed his seat as an ice CGM the standards and special controls for the CGM. They are very clear and theyre very transparent as it relates to accuracy thresholds alarms sensor shut off six sectors. So we wouldn't have filed in IC GM. If we felt that we were going to fall short of those of those special controls. In fact, we were encouraged by the agency to file D. Brady to is as an i. CGM. So.
I know, we want to speculate and kind of tied to the exact date, we're not we're not behind our timelines.
So we're not going to speculate on an exact date here, but we expect that relatively soon.
Okay very very helpful and then the.
Secondly miles future guidance for the year. So the the guidance range suggests you obviously see 2019 into year of acceleration over 18, I'm just sort of curious what gets better into the second half of the year and if you think about the middle part of the range versus the upper part of the range you. What are the key success factors into the back half and that gets you to that top end of the range. Thanks. So much.
Well I'd say a couple things first of all about the guidance we are seeing strength.
In our our growth drivers.
Yes, we've got a lot of launches going on in all segments across the board we're going to be.
Opening up the the capacity a new manufacturing and so forth the supplement LIBOR rate.
But the Alinity systems are obviously successfully rolling out.
Mitral clip is picking up momentum.
So a lot of the businesses.
That I've been sort of chronically dissatisfied with from time to time.
We've also in sequential improvement, which I'm happy to see I've never quite satisfied with that but.
You know the pharmaceutical business cardiac rhythm management business, the stent business Neuromodulation the point of care diagnostics business.
The rapid diagnostics business, which is primarily the dealer acquisition, they're all so all showing sequential sales growth improvement, which is what we planned what weve worked for et cetera. So based on the strength across the board of all of that.
We felt comfortable that frankly, our growth rate on the topline going forward, we sort of seeing that 7% to 8% range and I.
Challenge the team as it exists.
Temporary for the quarter or for the half year thing or do we feel fairly sustainable about this and we feel sustainable about it so.
I think thats all good and then with regard to earnings.
There is a step up in earnings here in the second half earnings growth rate and it's just an unusual quarter I mean, we always target as you know at the beginning of the year double digit growth, we always had kind of a.
Aggressive or at least ambitious target for ourselves going into the next year.
No that's no different now sold in the second half our earnings remained strong.
I don't know.
I'm kind of.
I feel pretty good if we do the numbers, we say and we never fall short so its 18% on the bottom line right now sorry, you're asking me about what do we do to get the high end of the range something and cheese isn't that good enough.
It's it's a pretty healthy growth rate so seven eight on the top and.
Hi, double digit teens on the on the bottom I think is.
It's probably best in class in the peer group that were compared to and several different peer groups that were compared to and.
You know quite frankly with the breadth of of up products launching and Rollouts. There. Obviously, there is always challenges somewhere in the world and.
In some way, but we seem to be doing pretty well.
Across the board here in in all areas and I think Thats Thats, a pretty good investment.
Great well said, thanks, so much congrats again.
Thank you. Our next question comes from Robbie Marcus from Jpmorgan. Your line is open.
Great and congrats on a good quarter.
I mean, maybe two product questions for you I want to hit on Mitraclip and Alinity.
Maybe you could comment on the status CMS reimbursement in Mitraclip. It doesnt seem to have hindered your growth at all in the quarter, but maybe just give us some update on the timelines and then may be some considerations for that trend line of uptake going forward. There once you do get approval.
Okay and would have Robert answer that question for them, we'll come back we'll entity for Rob. So you saw we had a great quarter and Mitraclip global sales over 30% really driven by us over 50%.
The majority of that growth and you asked really coming through increased productivity in the existing accounts. So we obviously, where we're constantly doing market development opening new accounts, but majority of that growth coming through increased utilization as we've continued to invest in clinical and field sales expansion and when you do this they had this direct impact in that an account utilization and productivity international.
Was was up also double digits in the quarter.
You've got Japan, where we believe is a significant opportunity for us long term there were building our capabilities in Japan, and Europe , and Europe saw a rebound in Q2 versus where we were in Q1 I think the teams there the clinical and medical teams have done a really good job that putting into context and framing some of those conflicting trials that came out in the second half of the year.
So we think there is a lot of sustainability here not only in the US I mean, our penetration rates here in terms of the opportunity or still kind of low single digits. So we got a lot of runway here regarding your question on now on CMS I mean, there's obviously a lot of coordination that's been going on between CMS and the physician societies, we expect the NCD to be opened up very soon.
As part of that coordination as I say I'm not going to forecast is exact timeline here, but but we anticipate getting through the process around year end early next year.
As you said the process year hasn't really kind of you know.
Impeded our growth we have seen a dozen or so.
Private commercial insurance companies already reflect updates to their decision to their coverage to include the new indication obviously the larger segment. There is the Medicare segment, but it's good to kind of see that traction in the private segment. So very good quarter. We continue to see this expansion in the second in the second half of the year and towards the end of the year.
Looking at.
Achieving the CMS reimbursement.
Great and then following up on Alinity.
This is why and you know it hits all of your different product lines and diagnostics. So it's hard to really pick out, but maybe you could just give us a status update on the progress of the launch in Europe and the Jeff starting launch in the US in mid may be any competitive data points you could give us we see some of your competitors struggling both on the top line and the margin side as it relates to competitive systems anything you're seeing out in the market that could be useful I appreciate it.
Sure.
Well. So first you made the comment that it touches every part of diagnostics. That's true and these are six different systems. The immunoassay system. The clinical chemistry system, obviously, a smaller point of care system for that market Theres, a dedicated blood and plasma screening system, and then of course hematology and molecular.
And they're all at various stages rollout is the one that.
Is the furthest along would be the rollout of our immuno assay and clinical camrys chemistry systems in the core laboratories of Europe .
We're also in the process of expanding menu approvals in the United States, and China, and Southeast Asia, where customers want to have a certain critical mass of of menu as they make the conversion from whatever theyre using.
So these new Alinity systems, so I'd say.
We're running as fast as we can I think at this point in Europe , and and that's going pretty well as over 3000 systems placed now running test generating revenue et cetera, we do measure not just the deal the close of the deal et cetera. We can we measure what what is called test a record women the count is up and running generating results.
Generating tests et cetera.
And so I'd say that process is going well that's going to begin to pick up momentum in the United States is we're getting more and more menu breadth same with China. We're tracking all of that pretty closely as we build those menus, we're talking hundreds of tests.
We did recently get approval for the Alinity asked the blood and plasma screening system.
Today, we screen about 80% of the world's blood supply as it is this is up it's an important transition product that lapse I think we'll find more efficient more economic et cetera, but that's a plus we we closed and started up the Japanese Red Cross, which is the largest Japanese.
Blood screening organization, and we took that from a longstanding Japanese competitor. So that was that was a big win for us.
So there's just a lot of success that way hematology is in the very early stages of rolling out the molecular system in the earliest stage of rolling out and.
Which is why this will be I guess, a slower moving launch that Scott is sort of years of growth and momentum in it.
As we look over the next call it five to seven years to completely replace an existing.
Install base and add a lot of new share a new volume and to that end.
I think we've quoted you before and it remains true in accounts, where we already have the business, we're winning about 95% of the time and in accounts, where we do not have the business and there is an entrenched competitor of ours, we're winning about 60% of the time and those win rates and penetration rates and share gains and so forth in our experience. So far over now what I said is over 3000 instruments.
Tell us that we've got a very competitive system.
We do run into R&D occasional accounts.
Heavy duty price cutting.
We've got a very disciplined system of our.
Pricing and contracting in accounts, we have not had to do that.
I think that speaks to the superiority of the instrument and assay offering. So we're feeling like our offering is uniquely competitive it's borne out by the win rates no matter what type of account.
It's unprecedented the launch this many systems across the board in all areas. So I think this only picks up momentum gets better as the as the assay menu expands and as there are some experience in the field with the analyzers.
Thanks, a lot.
Thank you. Our next question comes from Bob Hopkins from Bank of America. Your line is open.
Great. Thank you and good morning, just two quick questions one for miles on a big picture and then one quick financial question if okay.
Myles if okay I wanted to ask a question on the management team additions that you announced recently.
Congrats on hiring Lee said around devices and I guess my question is when when Robert was promoted as COO back in October of last year average said that.
Robert would keep devices. So just wondering if you could comment on kind of the reasons for the change.
What what Robert will do with all his newfound free time and investors are always curious about your long term plans. So it's a question on the recent higher.
Okay, well I can tell you is not playing golf.
You know we.
I'd say couple of things first of all we anticipated that for the time being.
We wanted him to stay.
Directly on top of.
The medical device business, because it's been responsible for the bringing on board.
Saint Jude.
As we acquired that he was integral to that entire integration. We went through with we say judicial reorganization.
The business to align with the way, we like to run a business at Abbott and I guess I would describe that as.
We like to have a fully integrated business, meaning the general manager of that business President of that business has responsibility for commercial.
The commercial people commercial sales at the customers et cetera, but also manufacturing R&D technical support service et cetera, we like all those functions reporting into one GM.
So we realigned Saint Jude we did the same with Alere quite frankly, when we took them over and so each of the business has full integrated.
General management responsibility and that was a transition.
And Robert led that it's all in place that meant that we.
Added a number of experienced general managers, we replaced some who had left us as part of the Saint Jude earlier acquisitions, and so forth. So we went through a management transition and at the same time, there's been a little bit of a generational change happening here.
Quite quite certainly there has been an awful lot of people that have been part of my management team for a long time and.
So a lot of our managers are long term Abbott groomed and grown.
Management team, but we've also been thinking about making sure that with all the growth we've got the new products. The new organization infrastructure that organization that we're always looking at the the talent and the experience of our management team as we look forward now toward.
Let's just call it a decade on foot, what I think is going to be pretty robust growth.
So in that.
We needed to replace the VP role that Robert it held previous to it as Chief operating officer role. We did that we went outside for that and of course sourced Lisa, but we think as.
Terrific background and experience for that we're very pleased to have brought.
You know fresh perspective, and and great experience.
And great energy level up into the company. So we're very pleased with that we went through a little further.
I'd say organization change to kind of break up what had gotten big and perhaps on really in some cases into slightly smaller units because we are managing some pretty aggressive growth capital improvement plant building et cetera in a number of these businesses, including diagnostics and.
To give us more focus around it we have done some of that adjusting I feel like that's gone very smoothly and very well.
Obviously.
We read into Robert.
We've seen as mid Fortys moving up into the COO role that we expect him to be in a key leadership role at the company for a long time read between the lines.
And so there is some preparation process going on and.
I think one of the most important things I can do after leading the company for so long is to make sure that when a transition comes.
Nobody notices and the best thus legacy to leave is that the momentum of this company its growth and.
Its prospects are every bit as good going forward as we think they are now and from my perspective.
A smooth leadership transition, which is not just me, it's literally right down through the upper range of all management is key and important and I feel like couple of all the sort of.
Track record or legacies that I can give this company I think of a transition that way is probably the most important of all so you can read into it that we're preparing for continuity of leadership.
What I would call it with no speed bumps and I think that actually is going exceptionally well, we'll I give you a timeframe no.
Do I think we should be nervous about it no I think that this company is so poised to perform well across the board for years to come that I've got great confidence in that continuity and the management team because we've got a nice mix here very experienced and.
Trained.
Abbott people and.
People, we brought from other companies in the outside like Lisa and I think the mix. We've gotten that team is exceptional Roberts been with the company over 20 years I've known him every bit of those 20 plus years and.
I think he brings to his job right now.
Tremendous experience perspective.
Everything you would look for.
In a leader of the COO of the company so.
From my perspective, I think this is nothing but good and just keeps getting better.
Very very helpful. Thank you so much milder thats great perspective.
And.
Just seems like an odd transition, but I do have a question on the tax rate just quickly for Brian .
You guys have been doing a great job over the last couple of years of kind of slowly and steadily bringing that tax rate down and I know you made comments on the year, but maybe you could just talk bigger picture is where are you in that process and are the current rates that we're seeing here today sustainable down here in the kind of low ish teens. Thank you.
Yes, Bob we always set the tax rate or where we think it's sustainable we don't like it may bounce around we want to be steady and we assess the rigs as they come out we had a series of rigs come out just recently and digested those were always adapting to that and adapted to the situation to be as efficient as we can hear 14, and a half is where I call. The sustainable rate right now as we look forward.
I will say and.
Predict the future, but there is another series of clarity around rigs that will come out in Q3, and when that happens we will we will digest that and adapt accordingly, as well, but as we sit here today, we are happy with the efficiency of our tax rate and continue to manage it for sustainability and we just don't want to see bumping around on you for us.
Thank you.
Thank you. Our next question comes from Kristen Stewart from Barclays. Your line is open.
Hi, Congrats on a great quarter and thanks for the question.
My oldest if you could just talk through how youre thinking on just the level of investment.
In the company and just how you think about how much of the really impressive topline you let flow through and then also just from a capital allocation perspective, how you're just thinking about going forward with the company just given the growth dynamics that you have and or opportunities you can see to maybe strengthen some of the other business lines that maybe offer a little bit more lackluster growth within medical devices. Thanks.
Okay.
Well I give you a couple of perspectives.
First of all.
Great thing is we've got a lot of things to invest in.
From a capital standpoint, obviously was important for us to pay down debt. We did we pay down a significant amount of going on 10 billion at this point and as we've said before we're in a comfortable position of strategic flexibility, but that doesn't mean, we're dying to go use it. So the next need was.
Obviously, we've got some capital to put into plant and expansion and we put a fair amount into both diagnostics and Libra at this point.
We're investing in expansion of plant manufacturing for Mitraclip and other products. So.
Given that we've got an awful lot of growth.
Happening and the potential for more.
Obviously, we've got to support that growth from a plant and capital standpoint in a timely fashion at appropriate quality and so forth and we're doing that and and so there's capital use et cetera. There will we continue to pay down debt. We will we will be prudent and careful about making sure. It makes sense. It's the right debt right time, and all that good stuff.
We will maintain a healthy strong dividend we increased it substantially in the last year will continue to grow our dividend.
Given where the PE is now I've been told by a nimble as the number of shareholders that trying to get that yield rate.
Upward dividend funds happy is difficult, but that's a nice problem to have we will continue to grow our dividend has been a hallmark of the company.
For decades, and it will continue to be and then up.
It's not always that prudent to buy back shares the timing matters the return matters.
Et cetera.
Is it is that an option, yes. It is probably won't get too carried away because frankly.
We're able to grow and.
Return cash to shareholders, a number of different ways and return a good return to our shareholders. So it's always an option as it is it.
Presents itself, we just got a lot we can do if you're asking them about M&A and other things we don't feel like right now that we need something nor do we think we see something that we can add.
Sufficient value to to make it worth it to invest in and we've got so many organic growth opportunities that while we continue to monitor and we're always tracking opportunities in all of our businesses I can't tell you that that's real front burner right now we don't ignore it we don't.
We try to maintain our currency on the things that we might be interested in.
We just did a small acquisition in Germany, that's a nice adjunctive thing to our.
Our diagnostics business in terms of automation, and so forth or things like that.
That I think are valuable for us, but we have so much growth.
Potential and opportunity.
In devices diagnostics, even nutrition and pharma.
That.
We're just not out hunting real hard on the M&A front right now nor do I foresee that being true for quite a while.
So thats the capital side on the expense side.
We're always trying to balance the voracious appetite of investors for growing earnings.
With investing in the growth of the business and I doubt that there is a general manager business at Abbott that wouldn't claim that if we get the more money they could spend it effectively and efficiently.
To to grow our products faster. So we're always we're always trying to find the right balance of how much.
Gas that from the fire the growth of the products with returning a healthy return to the expectations of our investors I think thats always.
A balance because theres always some industrial mixers, there must be an extra penny in the quarter and and also I was speaking to somebody this morning, who asked about that very issue another penny and as a general the issue here is much bigger than a penny we've got tremendous growth our topline we're accelerating it's strong it's sustainable this isn't about a penny in a given quarter. This is about a pretty healthy sales growth rate Ana and.
Commensurate healthy growth rate on the bottom line thats unusual in our sector and particularly unusual for companies of our size to be able to sustain.
Such a healthy growth rate with so much new product.
Richness for the coming years, and it's not a coming quarter. It's coming years. So you resurrect question is how do we keep investing in the spending in R&D and sales and marketing expenses to drive that growth and.
We're trying to find that right balance as well by putting enough.
Fuel to the fire here to to drive the growth rates even higher.
Okay. Then just one question on how do you view the medical device business growth with phenomenal this quarter, how do you just think about the.
Ability to sustain that level of growth. It seems that medical devices has a bit of a tale of two cities with several businesses reporting really nice strong double digit growth, but a couple of obvious businesses cost still lagging around that flattish growth. How do you kind of think about the longer term dynamic there. Thanks, so much for taking the question.
Yes, you've got a mix of businesses here, you've got some that are a little more mature than others. Some that have brand new products that are terrific innovations in general and medical devices.
Innovation is what drives the growth and.
Overtime Thats, the case and different businesses are in different stages of either maturity or or new innovation.
We believe there is still a lot of opportunity there I remember in my discussions with Dan starts when we were negotiating over the acquisition the Saint Jude dental pretty strongly that the pipeline at Saint Jude.
Was underappreciated and that their own internal models that the growth rate was out there in the high single digits.
You know the street Didnt agree with that at the time, because it didnt see it yet et cetera, but Dan was right and I think that.
We've seen that in the performance of the medical device business, we acquired from Saint Jude because it's been performing at sort of the 9% to 10% level as new products have gone to the market either replacing older products or or just simply brand new products altogether. So I'd say the first thing about medical devices as you got to keep innovating in new spaces, Mitraclip is new space heart failure and permanent and so forth. These are new spaces, new technologies et cetera, Libra is that Libra is unique.
It approaches a mass market not a niche market most medical devices address niches of therapy, but diabetes is something that affects more than 80 million people around the world and would benefit from a LIBOR rate and then buy in about a 50 50 split of type ones and type twos and that is massive it's unlike anything seen before in device or diagnostic businesses and so there's just an enormous enormous opportunity. There that you are beyond its traditional medical device companies aren't used to having to deal with at that kind of scale and and so we're addressing that by investing very heavily in manufacturing expansion.
So that we can go after the mass market not a niche and.
So I think the sustainability of the growth is driven not only by the innovation, but.
The ability to go after a much bigger markets at a much more affordable level more people will have access there will be more growth as we make technologies and products more and more affordable and then finally, you asked about some of the businesses that aren't aren't growing that fast and I'd say well.
I'm always disappointed if they're not going as fast as we'd like them to.
I am pleased that weve seen sequential improvement quarter to quarter and almost all of them, we've seen that and CRM, we've seen it neuro mine.
We've seen it in.
Even EPG and instance, and so forth, we're seeing incremental improvement.
Some of these businesses is more mature businesses may not see.
Strong suit or high single digit or double digit growth.
But I think there's still capable of pretty strong growth.
In the low to mid single digit area and there's still a lot of upside if we take up a CRM business from what is flat slightly negative two three or 4%, that's a pretty big bump in growth.
We'd be if it was going from 10 to 14, we'd be.
All excited about it so the same incremental growth improvement I think as possible. It's just at a lower level. So I think that there is a lot here to sustain the kind of growth. We're seeing is always going to be new products like Libra, mitraclip or heartmate that singularly for a period of time Disproportionally drive the overall growth one of the benefits of having many businesses in the device arena is there's always going to be somewhere that's growing that way in other places where we're innovating for the future.
Yes.
Thank you.
And our next question comes from Joanne wants from BMO capital markets. Your line is open.
Good morning, everybody and thank you for taking the question I would like to spend a little bit of time on attrition, particularly international division and the adult piece of that really did well in the quarter or is there anything you can give us as an update on that particular franchise.
Yes, So we had as you as you've noticed a sequential improvement in our nutrition business. We're very pleased with the performance. We continue to see kind of full of market growth in several of the countries and we've made a lot of enhancements and changes in people and strategies to enhance our competitiveness over the years, new products execution, and we get to see that.
We do think it is sustainable we are executing well, we kind of see the market in that 3% to 4% range. So we're always striving for something above that and and you saw that again in this quarter with a 5% kind of growth and good execution in our adult business.
Specifically coming out of Asia.
You are the only us business to win was up little over 10% and in the adult.
Oh, U.S. adult business and a lot of that is new product innovation, new formats expansion in given markets like Vietnam and other places where we've got pretty good strongholds, but also a lot of opportunity for.
For further growth so we put a lot more attention on some of those I'd say historically in this business the U.S. and turning to always get all the attention, but there's a lot of a lot of opportunity in as Robert said Southeast Asian markets, and others, where there's still a lot of growth, India, and the like and particularly in the adult segment.
Thank you and as my second question one of the core problem children and medical devices in Neuromodulation can you walk us through a pathway to the recovery on that thanks.
Yes, sure. So we saw an improvement in Q2, obviously, that's not our that's not our landing spot, we robustly not where we want to be but an improvement there we.
We completed the sales force expansion that we've been talking about we increased the sales force by about 40% and when you go through something like that you are on there is there is some disruption that occurs in terms of cutting into territories in the trading et cetera. So we completed that and now obviously the focus is improving the productivity of that sales team and we saw that in the second in the second quarter. If you look at some of the case as we look at whether it's.
Trials or trial to permanent implant conversion rates, we saw definitely sequential improvement versus Q1, and we expect that to improve as we go into the second half of this year.
A big portion of it also is is I'd say product innovation lifecycle.
You've seen a couple of quarters, now where there really hasn't been.
Any kind of launch from competitors in this space.
Thats a key driver also so salesforce productivity and execution will start to see some of our innovation output. We've made doubled the investment in that R&D business over over the last couple of years and we'll start to see some output of that in that in the second half of this year beginning of next year in terms of new products that will will will provide I'd say more.
More for the sales team to kind of work with.
Thank you very much.
Thanks, Operator, we'll take one more question.
Thank you and our final question comes from Matthew Taylor from FBR. Your line is open.
Hi, Thank you for taking the question.
I wanted to circle back on on LIBOR around two points. So the first is the you mentioned that you're working on increasing the capacity. There was an article yesterday and Reuters said, so that you're expanding capacity by three to five times.
And so if we think about labor day. This year is approaching maybe $2 billion based on consensus.
Does that mean that ultimately you think it could be six.
Two.
10 billion dollar type product as you go mass market.
And can you talk about how you can step on the gas and the second half of the year, where that additional capacity in the approval of leeway to two more rapidly expand use.
Menu, our one aggressive guy.
[laughter] I remember I got this call. Our this question last quarter I can't recall, if it was you on whether we thought we could get the $5 billion and how soon.
And cost three months later, it's 10.
You know I've got the same ambitions to be honest I just wouldn't have expected of 90 days later.
But.
To answer your question I think that kind of potential.
Is there I think its awfully hard to speculate about a number that big but how will we do I think we'll get the 5 billion and do I think we'll do in a reasonable time $5 billion sales over yes, I do.
And I think it's I think the growth rate here.
Is reflective of not only the size of the market, but the need and utility and affordability of the product and I think it's just as I've said many times, it's a very different market.
Where affordability and.
The utility the access all those things make this a mass market product not a niche and it's designed for that it's a price for that it's a very profitable product.
And.
We're going through the large scale scale up of.
Addressing that kind of growth, which is unprecedented for products in our space. So do I think it can grow.
To that sort of level.
You know I won't.
I won't.
Jinx anything by trying to make some prognostication about $10 billion, but but I would say that I think it's got enormous potential and it's got potential beyond glucose you know, it's got potential as a wearable and other analytes and other products over time.
We we have R&D programs underway not only for the.
Repeated enhancement improvement expansion of LIBOR rate.
But also into other categories beyond diabetes, and other analysts and so forth. So I think that there's just a lot of things that will evolve over the coming years here that.
Today people arent, even comparable contemplating with the product were were going as far as as we can at the glucose opportunity, which is enormous but there is so much more beyond that.
That I think at least your aspiration will consideration to be honest has validity I, just I'm not ready to put any numbers around it.
Thanks, and then maybe one last follow up that was a great answer, but just wanted to.
Get your feedback on what you think is misunderstood about libra today when you when you get feedback from investors that bubbles up to you.
Where do you think that the internal view of LIBOR really differs from the streets perception or peoples perception.
She is on a let me ask the COO who's been living with in a long time what.
Yes, I think when we went out when we went about this several years ago.
The challenge here, Matt wasn't to get an accurate reading of glucose from the interstitial fluid you know navigator. When we had launched back in 2008, we were able to do that it was very accurate and were able to get an accurate reading.
The challenge that we went about with LIBOR is how to do that in a way that is cost effective for the health systems and for consumers and for and for all of that so that was what we really went after is how can you get that accurate reading.
At a cost position at the core of of LIBOR rate.
Might remember at the time navigator.
At the time is considered the most accurate sensor in the core of Libra is that chemistry is that core technology navigator, which provide accurate reliable readings.
But we're able to do that a cost position that now makes sense for the insurance and for the payer community and the health systems to you know too.
To cover it wasn't a question of whether the outcomes were rights or whether the outcomes were enough. They were convinced that the outcomes were were there for sensor based glucose monitoring. It was just can I now do it in a way that makes sense for me to do it on a mass scale them miles has talked about this about mass scale. That's what we went after.
10 years ago, and that's at the core and I think maybe that's misunderstood because.
A lot of this discussion thats focused on well accuracy at this level and accuracy at that level and the reality is accuracy is obviously important.
But our goal here is to make this massively available without having to sacrifice accuracy and and the fact that we price it at a different price point.
I wouldn't say necessarily.
Implies that it's somehow missing something we just had a different strata and it just didn't view of what we could do.
The only product out there that the street has been able to compare it to is expensive and high cost and aimed at a niche in the United States ours is not expensive and it's not high cost. It does not lack for clinical performance accuracy or any of the like but because the manufacturing is so sophisticated automated we are able to achieve a pretty.
Low cost and what is a pretty sophisticated product.
It's it's a highly profitable products. So we haven't compromised that it's a product that.
It was successful in terms of profit that's not been compromised at all it has a completely different design and approach and cost structure. It relies on scale for that cost and we've actually seen improving gross margin. We told you before the gross margin is over 60% it is and rising.
And that's with a heavy capital investment so that we can produce the kind of volume that is broadly available.
So I think among the.
The misunderstandings out there I think people. So when she is how do you make money we make money we do just fine. Thank you.
And.
The product is designed to be affordable and accessible I guess there are some days when we think.
If the healthcare market community insurers peers Congress patients whatever.
You are always saying, it's got to be lower cost health care has got to be more affordable. Hoosier example, and it is it's massively so.
And so weve gone at it with that approach to make it.
Broadly available broadly in this case means 80 million people worldwide, that's unprecedented so I'm not sure that.
I'm not sure that the device community has totally understood that because its so different but we keep we keep saying so and I think now is as the new capacity comes online. We've also staged the capacity. So that literally every 90 days, we're adding another increment significant incremental capacity, we will not be capacity constrained and.
That kind of release is is.
A lot of freedom.
To to market and push the product forward and even open up markets. We havent opened yet so I think there's a lot of opportunity here.
And I think true I think opportunity there is opportunity for a number of things like this as I mentioned earlier in what's called the Wearables market the more affordable.
And accessible.
Technologies make.
Products like this then.
I think we're going to see a very different market expansion.
Great. Thank you very much for the time.
Thank you operator, and thank you for all of your questions. This now concludes Abbott's conference call a video a webcast replay of this call will be available after 11 am central time today.
On avid Investor Relations website at Evin 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 and you may all disconnect everyone have a wonderful day.