Q3 2020 Abbott Laboratories Earnings Call

October 21, 2020

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

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Good morning, and thank you for standing by welcome to Abbott's third quarter 2020, <unk> earnings Conference call.

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I would now like to introduce Mr., Scott liner Weber, Vice President Investor Relations licensing and acquisitions.

Good morning, and thank you for joining US with me today are Robert Ford, President and Chief Executive Officer and.

And Bob <unk>, Executive Vice President Finance, and Chief Financial Officer.

Robert and Bob will provide opening remarks following their comments, we will 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.

Putting the expected financial results for 2020.

Abbott cautions that these forward looking statements are subject to risks and uncertainties, including the impact of the COVID-19 pandemic on Abbott's operations and financial results 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 form 10-K for the year ended December 30, Onest 2019, and an item one a risk factors in our quarterly report.

On form 10-Q for the quarter ended March 30, Onest 2020.

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 EPS and line items of the piano 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 habits ongoing business performance. These.

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 Abbott Dot com unless.

Unless otherwise noted our commentary on sales refers to organic sales growth, which excludes the impact of foreign exchange.

With that I will now turn the call over to Robert.

Thanks, Scott Good morning, everyone and thanks for joining us.

Today, we reported organic sales growth of 10.5% an ongoing earnings per share of 98 cents, which reflects high teens growth versus the prior year.

Based on our performance and momentum through the first nine months, along with our expectations for the remainder of the year, we increased our earnings per share guidance to at least $3.55 for the full year.

This speaks to the strength and resilience of our diversified business model as well as our ability to innovate and deliver in this challenging environment.

While the pandemic has created many new business dynamics, we've continued to invest in our growth platforms and our pipeline continues to be highly productive, resulting in several new product launches and approvals this past quarter, including U.S.F.D.A. emergency use authorization for our buying X now rapid antigen test.

Can detect COVID-19 infection in just 15 minutes with no instrument required.

US launch of freestyle leveraged to which sets a new standard of accuracy and performance in the market.

CE Mark of LIBOR, three which automatically delivers real time glucose readings every minute in the world's smallest and fitness wearable sensor.

CE Mark of LIBOR, a sense glucose sport biosensor or initial step to expand use of the libra platform beyond diabetes, and finally CE Mark of Mitraclip G. for the latest generation of our market, leading minimally invasive mitral heart valve repair device.

I'll now summarize our third quarter results in more detail before turning the call over to Bob.

And I'll start with nutrition, where sales increased 4% in the quarter.

Growth was led by ensure our market, leading adult nutrition brand, which contains several ingredients to support a healthy immune system.

We're seeing strong demand in both us and internationally, which led to global adult nutrition growth of 12.5% in the third quarter.

In pediatric nutrition sales growth in the US was led by our market, leading PD light rehydration brand, which was driven by market conditions and portfolio expansion.

Internationally growth in South East Asia was offset by continued challenging conditions in greater China.

Moving to slide this pharmaceuticals, or EPG, where sales declined 3%.

During the quarter, we saw a challenging market conditions in several countries due to the cobot pandemic.

Whereas the virus had its biggest impact in developed countries. During the second quarter, we saw it hit emerging markets more significantly this past quarter, which lowered market demand.

Encouragingly as we exited the quarter, we started to see signs of market recovery and several of those countries and we expect we'll see a continued recovery curve going forward.

I'll turn now to medical devices, which grew 2.5% in the quarter we.

We continue to see steady improvements in demand and procedure trends across our portfolio, which resulted in five of our seven businesses within medical devices, achieving positive sales growth in the quarter, including electrophysiology heart failure structural heart Neuromodulation and diabetes care.

Growth in the quarter was led by diabetes care sales grew 25%, including more than 35% growth of freestyle LIBOR rate, our market, leading continuous glucose monitoring system.

As I mentioned earlier during the third quarter, we launched Lee breakthrough in the us which sets a new standard in the market with best in class accuracy in alarm performance as well as 40% longer where time compared to competitors.

Although still early in the launch customer feedback has been overwhelmingly positive.

We also obtained CE mark for LIBOR, three which integrates libraries, leading accuracy and performance into the world's smallest thinness disposable sensor the size of just to stack pennies at the same affordable price as currently available versions of Libra.

And in Europe, We also launched LIBOR, a sense glucose sport, which is which is our initial step in a very intentional approach to pursue mass market biosensor opportunities beyond diabetes. We've.

We break sense that allows athletes to monitor their glucose levels in order to learn how and when to best fuel with food and supplements to avoid fatigue and achieve peak performance.

I'll wrap up with our diagnostics business, where sales grew nearly 40% in the quarter.

As I mentioned during our last earnings call. Our teams have worked tirelessly since the beginning of the pandemic to bring to market multiple COVID-19 tests across our diagnostic testing platforms during.

During the third quarter, we launched a new rapid antigen test called by next now which is a disposable test about the size of the credit card that can determine if someone has infected with the virus within 15 minutes without the use of an instrument.

Given the mass market need for testing, we knew that developing and launching this test was only half the equation, which is.

Which is why we simultaneously built two new manufacturing facilities in the us to help meet the public health need of testing as many people as possible as often as possible to help reduce the risk in the environment and slow the spread of the virus.

To date, we have sold more than 100 million cobot tests across our diagnostic platforms and we continue to pursue opportunities to further increase our manufacturing capacity to help meet the significant demand for testing around the world.

So in summary, despite the challenging environment, we achieved double digit organic sales growth and high teens EPS growth in the quarter.

Our pipeline continues to be highly productive, resulting in several important new product launches and approvals during the quarter.

We continue to lead in the area of diagnostic testing for COVID-19.

Which is which has added a significant new layer of growth for our business and accelerated our distributed testing strategy.

And we have increased our full year, EPS guidance, which highlights the strength and resilience of our diversified business model.

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.

Or on an organic basis.

Turning to our results.

Sales for the third quarter increased 10.6%, which.

Which was led by strong performance in nutrition and diabetes care. So.

Six sequential growth improvements in cardiovascular and Neuromodulation devices, along with global Cobot testing related sales of approximately $880 million in the quarter.

Foreign exchange had an unfavorable impact of 1% on sales.

Which was somewhat favorable compared to expectations had exchange rates held steady since the time of our earnings call in July.

Reported sales increased 9.6% in the quarter.

Regarding other aspects of the piano via.

The adjusted gross margin ratio was 57.4% of sales.

R&D investment was 6.3% of sales.

And SGN a expense was 26.7% of sales.

Now turning to our outlook for the full year as.

As Robert mentioned, we're increasing our guidance for full year adjusted earnings per share to at least $3.55.

Which includes our expectation for strong double digit sales and earnings growth in the fourth quarter.

Based on current rates, we would expect exchange to have a negative impact of approximately 1.5% on our reported sales.

We forecast full year net interest expense of around $500 million and continue to forecast a full year adjusted tax rate of 15.6%.

With that we'll now open the call for questions.

Thank you Leo.

Ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your Touchtone telephone. If your question has been answered or you will sort of move yourself from the queue. Please press the pound team for optimal sound quality, we kindly ask that you. Please use your hands.

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And our first question comes from David Lewis from Morgan Stanley. Your line is open.

Good morning, just a couple of related questions. Robert I wanted to maybe think about next year, a little bit given we're closing out this year and obviously investors are in the process of trying to figure out 21 estimates for a whole bunch of companies and whether they are achievable in your case release for us. They clearly look beautiful, but I wonder if on a high level you could share with us how youre thinking about growth earnings and.

Frankly, the opportunities for reinvestment for Abbott in 21, and then a quick follow up.

Sure well I think it's we had a very strong quarter, which gave us confidence here to be able to raise the bottom end of our of our forecast this year and obviously that that momentum that strong momentum is going to.

Well, we will carry into 2021, it's a little premature here David at kind of start talking specific about guidance, but I give some general comments here I mean, I expect a lot.

A lot of companies on we'll forecast double digit growth rates.

Going into next year, so as you think about.

A lot of you looking at 2021.

But I think most of that is because there's a lot of them are going to be coming out of a hole right, they're going to have certain might have easy comps, especially if you look at Q2 and Q3 this year. So there isnt.

So they are essentially there since.

They're essentially kind of making up for fourq for last year and getting back to 20 getting back to 2019, where we're in a very very different position.

Then that we're forecasting.

Double digit earnings growth. This year. So so when we look at the trajectory that we have going into 2021, which is a trajectory of strong double digit top and bottom line growth rates I think thats pretty differentiated pretty unique here, because we're not coming out of that hole.

Clearly covert testing is going to be a driver is going to be a big boost for us and I don't expect that testing to to go away, but another key component of it is our core businesses continue to improve their trending in the right direction.

And I think a key aspect of that of that trending in the right direction is our pipeline. Our pipeline has been highly productive we've got over 100 new products.

In pipeline across all of our four businesses that we have planned to launch over the next couple of years. So.

Other opportunities to to accelerate what is already going to be.

Double digit top and bottom line growth rates, yes, there will be opportunities to to be able to invest in this pipeline and the and accelerate the growth. There. So I think we're very well positioned.

To go from what what is a very strong year for us in 2000 2020 of our stronger year in 2021.

Okay. Thanks for this type of thoughts Robin just maybe following up on uncovered testing here I mean, obviously you are.

Testing revenues are going to be a very sharply in the fourth quarter on the strength of buying access it sounds like just looking at the earnings.

It could be thinking about it cobot testing number this year, that's certainly an excess of kind of $2.7 billion. Just wanted to get your commentary on that and as you think about next year and you think about new test capacity Pan bio how should we thinking or how are you thinking about sort of duration of testing relative to kind of a $2.7 billion base here.

In in 2020, thanks, so much.

Sure. So we had so we had just under $900 million of covert testing. This quarter I think it was just just under $100 million favorable to some of the forecast there a lot of that was driven by our manufacturing ramp up our scale up.

And the new products, we launched.

So we actually exited the quarter at a higher run rate than that that run rate into Q4 would be around.

Around 1.31 for $1.4 billion of sales at that run rate, but.

If I if I talk about cobot sustainability I know this is a key topic here I'd say when we talked about testing back in July earnings I talked about the testing demand.

Over four different phases of pandemic phase of recovery phase.

Vaccine phase in a post vaccine phase and I.

I shared that my view here was that a lot of the volume was still going to be in this kind of pandemic recovery phase that even with the vaccine.

You'd still get kind of more of a steady state, but a lot of the volume was going to be coming during this pandemic and recovery phase I still think were in this in this in this phase right now David depending on what country, you are or state you're in a pandemic or in a recovery and I expect that to last definitely all next year with the vaccine and you might see a.

A trend.

Off a little bit of a decrease on the PCR testing I think it's just.

And then maybe an increase in an antibody testing, but I think the rapid testing.

Is not is not going to go away like that I think it's going to be around for a while just because it's easier to do it's an easier sample that to faster result, so there's a lot of complexity here in trying to forecast whether co goodwill.

Will ramp down and cobot testing will ramp down and when will it reach a steady state.

So I read some reports its two years, it's three years I actually think it for thinking long term strategically long term that might not be the right question.

Yes, I think it misses the point on what Abbott is actually doing right now.

Yes, we've developed a lot of cobot test, we've invested in manufacturing and selling them at affordable prices.

That obviously helps the economy at home at helps contain the virus, but what we're actually doing here. If you take a step back at a bigger picture is were actually executing on the vision that we had when we bought a year, where we wanted to build a premier point of care business. So that we could decentralized test so that we could democratize test.

And so that we can digitize test and if you look at what we've done with buybacks now I'd now Pam by I think those are perfect embodiment of that execution. So so if the cobot assay itself when will that ramp down two years three years, okay. It'll eventually ramp down to more of like a flu state kind of business.

But the installed base that we've built during this period the consumer behavior. That's been created the new channels that we've opened up with rapid testing whether its airports retail stores more physicians offices. The app ecosystem that we're building all that is going to remain and and it will remain for all.

All the other assets that we currently have and that will be rolling out so I think that.

As we look at 2021 into 2022, it's going to be coded testing, but it's more importantly to look with the where we're looking at it is that the execution of that earlier strategy, which is to build a whole new testing platform outside outside of outside of the walls of the lab and hospital.

And the cobot has actually given us an opportunity to accelerate that strategy.

Very helpful. A lot to orbit there. Thank you Robert.

Thank you our next.

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

Hey, guys. Congrats on a solid print here and thanks for taking my question, So Rob Rob Robert maybe maybe back on the fiscal 21 question I guess, maybe if I push it slightly differently.

Street numbers are Epicel for 25 based on the updated guidance for core 20 feet 55, that's still close to a 20% earnings growth and I think implicit in those assumptions would be.

Maintech was heaters normalize and obviously that has a dropdown on margins I'm just curious how should we be thinking about device procedures into Q4 because.

You said that the comp is an easy fee base rate I mean, you guys.

You will be doing high single organic in fiscal 20 versus declines are flattish for other some of your peers.

So maybe.

If you could just.

Unpack that a little bit and then put that in context would be helpful.

Sure.

So, yes, I mean as I said looking into 2021, the trajectory of the growth trajectory is those high strong double digit top and bottom line VJ and again I think thats going to be predicated on on two factors just like we spoke about it in July and the earnings call, it's going to be the continued recovery of.

All of our base business.

And then obviously our ability to ramp up coven and covert testing. If you look at the businesses that were most hit by by co vid device.

Devices and core lab.

So laboratory testing outside of out of Cove it.

Those have shown a really really nice recovery starting in June into July.

And then into the third quarter September was actually our highest month of absolute sales in the quarter for both medical devices.

Especially in the cardiovascular area across all areas, we saw a little bit of a of a july kind of pent up growth.

As the lockdown start to get.

Reduced a little bit we saw that the growth rate in July a lot of that was some pent up demand. So if you look at the third quarter I'd like to look at it the the trajectory from August to September and when you look at it that in our cardiovascular devices those growth rates in September were much better than the growth rates in August and and the growth.

If rates in September were better than the third quarter overall, and that's and that's true for both us and internationally for both devices.

Four devices in core lab, we actually saw a nice growth in the month of September in the us in years.

In Europe and in China also so I like the I like the rate of recovery that we're seeing in our in our in our base business.

If you look at Electrophysiologist that was an interesting one where it was when you.

When you when you look at the sales we were hurt a little bit by the capital cycle, which is why we're only at about two 3%, but if you look at the consumable part of our business. So we probably will reflect better the return or procedures. So looking at the mapping catheters and therapeutic catheters, we saw a high single digit growth rate there. So.

So our plan here is to is to continue to see that that recovery.

And it's not just about recovery of coated and easing. Its also the pipeline and we've got a very rich pipeline in our cardiovascular area too and and in our core lab business. The continued rollout of Alinity.

Improving our menu expanding our menu thats, all thats all helping us.

I have become more competitive in this recovery process.

That's helpful commentary Robert can maybe one.

One big picture question on the balance sheet.

You guys are really in an enviable position here.

Turning the corner zero interest rate environment, maybe thoughts on optimal balance sheet structure here and what opportunities do you see.

Perhaps on the inorganic side.

Yeah listen our financial strong here is very healthy we are generating nice nice cash.

Allocating to our needs, we don't see any changes VJ to our allocation strategy.

We focus on paying strong and growing dividend as part of our identity. It's different from a lot of med tech peers that don't have that dividend. So we're going to continue to support that growth of the dividend.

We haven't done a lot of share repurchasing mostly to offset our dilution a lot of our a lot of our investment here has been to drive organic.

Organic growth, so taken our balance sheet and applying that cash to invest in areas, where we see opportunities for growth, that's where we've been focused on and I think that's the that's the that's the best return we've got right now for our shareholders. If you look at what we've done with cobot and into.

And the investments we've made there the speed at which we've been able to make those investments and executed because of that strategic flexibility that we have in in the balance sheet talked about manufacturing expansions with LIBOR rate at which we're definitely going to need.

As we expand the portfolio and build the portfolio and other parts of our medical devices to.

Okay. Thank you guys ill step back in the line.

Thank you. Our next question comes from Robbie Marcus from JP Morgan Your line is open.

Great. Thanks for taking the question and congrats on a good quarter.

Robert maybe if we could spend a minute on diabetes here you've had a lot of approvals over the past few months with Libra three in Europe leap rate too for a while.

For a while now in the US and then also the Libra sense starting to move into the consumer area outside of diabetes. I was hoping you could talk about your expectations just spread to LIBOR a growth both us and outside the us maybe when we could see a leap rate three in the us.

Which would really help close the gap versus Dexcom and your thoughts on the non diabetes component.

Sure Robbie outlets I think Libra continues to perform really well and as you saw our pipeline continues to be highly highly productive we had a good growth rate this quarter over 35%, but as a real nice sequential improvement versus Q2 in Q2, our sales were just under $600 million and.

Q3 sales were just under 700, so I think we had a nice.

Sequential Q2 to Q3 kind of growth rate, we continue to focus on on our strategy of kind of mass market opportunity mass market potential and not see this as a niche play we now have.

Over more than two and a half million users that significantly more than than our next competitor.

Regarding lead break too in the us.

We were able to get the product on shelf in there.

In the retail shelf in mid August. So so we had about a partial quarter over here, but at the customer response has been has been really really positive.

We've heard.

Just you talking about closing the gap here.

With LIBOR athree listened to elaborate too.

In mice in my view is already done and that's what we're hearing from from from our customers here. It's by far the smallest eases sensor to use got the best accuracy low range high range mid range adults children.

The readings every minute, which is unique to LIBOR rate allows us to get a better alarm performance.

And we can continue to mass produce it in some of the fraction that I, so that you're not you're not really overburdening. The health care system. So so I think thats worked very well led by sales in the us they actually grew 20% sequentially.

Q3 versus Q2.

About 45% year over year, and Thats with just about 40 days worth of.

Of of sales of Libra, two in the quarter. So I've seen positive momentum on some of the prescriptions, we because our strategy is focused more in the retail environment.

We get to see that prescription data.

Data.

Every every week so we're seeing nice trend from high prescribers were also.

We're also seeing a nice pickup here for the pediatric endocrinologist segment. So we see a nice pickup in prescriptions over there too. So I think it's it's it's it's obviously.

Fairly early in the launch, but but I think we're off to a great start and I like what I've seen in the first 45 days regarding Libra three and we always said that leave rate was going to be a platform and we're going to be building on this platform and.

Are we funding R&D programs to continue to innovate. Yes. We are we will heavily bray for will I believe rate five but we get so then we get so caught up on on every every version over here, we might Miss the bigger picture.

And the bigger picture here is that you know.

To be able to sustain an ability to penetrate the mass market you do need to have a variety of different platforms and continue continuously innovate.

About bringing about timing of LIBOR three in the USA, Robbie I'm going to I'm not going to provide details to you on on that timing here. Obviously, the U.S. team is having a good time launching library to right now what I would say is it's very it's a very different segment than the cardiovascular device segments as it relates to as it relates to a clinical trials in.

The sense that we haven't seen the impact of kind of Corona virus slowed down.

Our trials here for within this space so.

You'll hear about Libra three approval when when we get it and we issued a press release, just like we did with with LIBOR three in Europe.

On LIBOR a sense.

With that we've always talked about we could expand beyond diabetes and this is this is this is our first step over here the goal the goal with this product space.

Specifically as to help kind of athletes.

Achieve kind of better performance by.

By using data so they can kind of better fuel themselves to avoid fatigue.

It's a different business model, Rob it will be a different business model different channels, it'll probably be a different usage pattern in frequency in this segment, but obviously if you look at the athletic training and sports population. It's a significantly large population here. So we've actually built a team.

Let's see.

Separated from the diabetes group, it's just focus on on developing this opportunity. We've done an initial collaboration here, which I think is going to provide us a great.

Great visibility on how this kind of very large mass segment needs to be addressed and and the different strategies will be able to kind of deployed.

Great that was really helpful and maybe just a quick follow up Robert you talked about how the testing business and diagnostics is more than just scope. It. It's the whole platform Alinity is just getting going now in the us.

How should we think about Abbott share gains over the past few months Youve, obviously made huge strides in Coca testing, it's a leading platform has that driven share shifts over to win it and some of your other platforms. During this time that sets you up better going forward.

Yes, I mean, I think we already had a real strong momentum to for coated with the rollout of the Alinity system, we are having great share gains.

Both in immune assay and then the clean Chem business also so that.

So that.

That obviously with Covidien Q2, a lot of the hospitals were in the last weren't focused so much on on migrating of systems.

But before that we were we were renewing our existing contracts and in the in the 90, 90% range and new tenders that were coming up for bid we were in that kind of 45% to 50% kind of win rate. So you put that together and you look at our look at our sales growth. We were definitely taking share that the placements of instruments took a little bit.

A pause in Q2 and as I said in the opening comments, we started to see a little bit of a pickup.

In September.

In terms of positive growth for all these geographies and thats, coupled with again, a new cycle here of a reopening of the tenders I think that is it's also allowed us Ravi with our with our position in KOVA testing to you know to be viewed as a as a more holistic partner to a large large systems whether.

They are in the us or internationally.

And that's ultimately helped US I think I think one of the things that's definitely helped us.

And our diagnostic business has been our molecular platform with the Alinity M. launch.

Thats, obviously had a kind of little bit catapult effect with that launch and.

And but.

But in that platform, we have more than just covert testing. So I think it's a good opportunity for us overall for diagnostics.

Appreciate the thoughts.

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

Good morning, Thanks for taking the question.

A couple of product questions and then one big picture question Robert.

Just on LPD, just the outlook there it sounds like you started to see some recovery and in adult nutrition.

The strength there can you talk about.

While you're seeing that strength and how sustainable that is and I have one follow up.

Sure Hey, Larry.

Yeah, NPD, we definitely saw some some some more challenging market conditions.

In this quarter than than we than what we had in Q1 and in Q2.

If you look at how covance kind of progressed a little bit.

It hit the developed markets I think harder in Q2, and then the emerging markets. It hit us more in Q3 specialty markets like India, Russia, Some markets in Latin America also but it wouldnt.

We look at a lot of the data and we start to see a similar trend in September than what we saw.

In in June in the developed markets right. So so you have that kind of drop and then.

And then it starts to kind of recover so I kind of look at EPG is following the same trend that we saw in in devices and core lab in Q2, but just a quarter later, so I think we'll see some some of the recovery there its a good business a lot of the portfolio.

It's still very resilient, 50% of our of our portfolios tight the chronic diseases. So so that's the piece that they kind of got impacted the acute part of the portfolio has actually done is done pretty well so.

We expect to see that.

That recovery curve continue into into Q4.

On the nutrition side on your question. It was on adult right. It was it was very strong growth in adult.

And one of the things that the team did really well starting in Q2 is they started to look at our messaging regarding the immunity benefits off or adult nutrition.

And they came out with a strong campaign has strong messaging on the benefits on the immunity side and that helped fuel.

The demand there I think we saw.

Probably at the end of Q1, there was little bit of pantry loading Larry we saw that in the U.S. saw little bit of that internationally too, but what what we did what we are able to do that is we actually picked up new users and we picked up market share. So the combination of new users and market share and then the immunity messaging resonating with consumers and physicians.

It's really kind of strengthened that portfolio and I think it's it's definitely sticks out a little bit in terms of our growth rate but.

A lot of that what we're seeing is share gain and market expansion based on the data that we're seeing.

That's helpful. And then just one big picture question. It sounds like Cobot testing should continue to be strong next year, but if you have a gear at some point where cobot testing.

Declines because we have a safe and effective vaccine how are you thinking about reinvestment and managing potentially smoothing out earnings is there any any thoughts kind of if we did see a decline in infill the testing at some point, how you would manage that thanks for taking the questions I don't think were going to see the.

That kind of declining covert testing I think even with the vaccine youre going to see kind of more of a steady state and we've talked about that and we plan for that the other part of your question regarding kind of reinvesting in the business, while we're going to be able to do that next year and still deliver pretty differentiated unique kind of.

Earnings growth and earnings power as I said, we've got over 100, new products in our pipeline that we're going to invest and we can either accelerate their development and they're coming to market, we've got opportunities to expand market development.

The opportunities that we have in mitraclip to be able to invest in that strengthening of that market strengthen our competitiveness. So so I think we've got we've got a great opportunity here with cobot testing to deliver differentiated earnings power in growth while at the same time investing in.

In this pipeline that that Abbott has built over these years to sustain that growth rate I will just go back to the notion here that the co lead assay might.

Might go down to a steady state, but if you think about the installed base that we're building because of co, but especially on the rapid side I think thats going to be a strong growth driver for us going forward.

Ill give an example of that when we started the year.

In the West we had over 20000 I'd now it's placed in the.

Placed in the us and the U.S. alone in four months, we've already doubled that placement rate by more physician offices retail channels.

And a variety of universities in different channels. So so what we're building here with the Cobot test is an installed base that will then be able to run.

Different kind of assays and different tasks and if it's if their digital if they're affordable then.

Then the consumer behavior. That's now today in in KOVA test and we believe is going to be there for all the other assays that were building on.

Thank you very much.

Thank you. Our next question comes from Bob Hopkins from Bank of America. Your line is open.

Hi, Thanks, and good morning, and congrats on all the good results. This quarter I just had two quick follow ups first is just on uncoated testing does that 1.3 1.4 billion dollar run rate that you highlighted include contribution from the U. S antigen test or is that more upside to come is that fully launches in the fourth quarter.

It's got some of it in there Bob obviously, when you're doing this kind of ramp up the way we're doing it cross continents vardy different platforms. There we want to make sure that we can deliver so in that number you've got you've got some of that international antigen there.

But obviously, we're working that we could we could probably do a little bit better than that in that international antigen also so.

Okay and then.

Just one follow up on the on the device side ex diabetes I was wondering if you could talk a little bit about vascular in Q3 is that was down I think 10% which is a.

Which is a little worse than some of the other businesses and then more importantly, Robert I'd Love to get your view just like based on everything Youre seeing right now what are your directional thoughts on the outlook for 2021 for medical devices ex diabetes is there.

Should we be thinking about that as potentially close to normal.

In terms of the business or you know just how.

Just how much uncertainty you think there is.

As we think about devices for next year based on what you're seeing now.

Sure on the.

On the outlook there of devices I would say listen I think that we had a really big impact in Q2 across the world.

Yes, and internationally because I think a lot of this was a new thing. This was a new virus and the shutdown was was pretty dramatic was pretty significant.

Yes, as I think about our device portfolio, there are still cardiovascular needs people still.

I need to get a pacemaker, there's still a need for mitral repair there is still a need for ablation.

For a fit I mean, those are all conditions that the reason we're in them is because there were there were medically scientific needs for us to be in them. So.

I see the market is still on.

Opportunity for growth and I think that the hospitals and hospital systems have learned now how to how to deal with that and how to deal with that pandemic, you've seen certain systems kind of focus on on on treating cove, it and keeping other hospitals more focus for electives. So I think that's.

I believe the device portfolio that we've built is relevant is important and even in a co bid kind of world those are medically necessary procedures, and we're working with hospitals to assist them in opening and then we'll see it continue to growth we've seen a nice progression from Q from Q2 to Q.

Three I expect that progression to continue into Q4, yeah, there could be some lumpiness here and there, but I think I think the progression is going to be positive and I expect.

My expectation is that we'll see kind of devices get back to that that growth rate that we previously had in those high single digits next year.

And then on vascular sorry, Oh on the vascular question, yes, we add to it.

It's interesting if you look at the device portfolios that were a little bit.

Didn't recover as fast really was vascular and CRM.

I think some of those are affected by by by some of the pricing dynamics that still exist in that channel.

Vascular you've got an average price erosion there of 5% to 6%. So once you exclude that it would probably be a little bit better but.

But theres theres, a little bit of a slower kind of recovery. We did see you know vascular is right now at about 95% of their kind of pre cobot levels. So there has been a rebound, but I think there has been a little bit of a price impact there also.

Thank you very much.

Thank you.

Next question comes from Joanne Weiss from Citibank Your line is open.

Good morning, and thank you for taking my question.

Actually there Q them and put them upfront.

Can you give us an update on your structural heart platform and what we might be looking forward to in the next 12 to 18 months and then my second question is yes.

It sounds as if you are more lean.

Leaning toward reinvesting some of that 'cause it 19 revenue versus sort of tuck in M&A can you just give us an idea of how we should think about how much of the upside actually flowed through to EPS versus how much of that kept invested thank you.

Sure I think on your on your structural heart sorry on your structural heart question here I think we've got a leading kind of portfolio of products here. We've launched a couple novel products. This year.

Try clip for.

For the tricuspid valve repair and then Tandigm, which is the first product for mitral valve replacement those have actually gone very.

Very well, especially when you're going to launch novel products like this.

You want to kind of build evidence you want to kind of build your way into it. So everything that we had planned for those two product launches really didn't get much impacted by coded because we we didnt have kind of significant sales attached to them more about kind of developing the clinical evidence. So so thats gone very well if you. Your question. The next kind of 12 to 18 months I think we've got a really rich.

Platte pipeline, you're obviously the biggest.

Opportunity, we have is to expand the mitral valve repair at with the NCD for.

For the secondary EMR indication that that will be a big driver for us.

We've seen already patient referral network starting to be built around.

Around waiting for that indication.

That is that right.

Reimbursement approval, but we.

But we've got several other products in the pipeline I think amulet are let April tenders device is going to be a great opportunity. It does very well from a share perspective internet.

Internationally.

The larger part of the market is here in the U.S. So we're looking forward to to enter that market here in the U.S. we've.

We've got a next gen TAVR device called an advocate for that we've been working on this will be our third iteration, we've launched our flex NAV product.

In Europe this year with an improved delivery catheter and gotten good good feedback from Implanters over there and then I think that try clip and tendyne or our multi billion dollar opportunities here for us that are as I described very very early in the innings. So.

So I'm very excited about that structural heart portfolio in the next 12 18 months, it's probably one of our richest portfolios in our in our device portfolio.

There was a second question Joanne.

Meaning revenue can you can you repeat.

Of course, the second question was is there.

You are one of the few companies and Mantech land, that's going to have the benefit from kind of at 19 diagnostic testing and the revenue associated with that I'm trying to think about how as we look forward that revenue either is reinvest it or flow through or maybe you re directed towards targeted M&A.

Yes, so I guess, we're trying to triangulate here as much as we can but.

We're not going to put out a specific number but what I can read.

Re emphasize here is that cobot is definitely going to be a big boost for us continue to be a big driver for us into 2021.

We're in a unique position, we're not we're not coming out of a hole, we're going to be delivering what I would say very high strong double digit top and bottom line and in doing that and in delivering those very high double digit top and bottom line after double digit earnings this year.

We're still going to have plenty of opportunity to put investment into R&D and into sales and marketing to continue to drive not only the pipeline, but all the opportunities that we've had that we've talked a bit about here, whether its LIBOR rate, whether it's structural heart.

Whether it's in nutrition, we've got plenty of opportunities. So I guess, the I leave you there too and with.

We've got tremendous momentum strong 2020, when have a stronger 2021, and we realize that we've got a unique opportunity here with over 100 products in our pipeline to be able to kind of fund and drive on top off of our double digits earnings and topline growth next year.

Thank you very much.

We'll take one more question.

Thank you our last question comes from Josh Jennings from Cowen Your line is open.

Hi, great. Thanks for taking the questions. Robert I was hoping you could talk a little bit about the medical device franchise and.

Going up on Bob's question, just on the outlook, but just thinking.

Thinking about how you are sitting internal targets for your med device sales team. We're just internally how youre going to judge success I think there's.

I'm confused about how we should be thinking about it our team independently for the whole the whole sector, but I mean are you thinking about sequential improvement as we go into the Q4 Q1 Q2 next year is kind of a solid target to think about a kind of a performance level.

Those are the type of targets you're setting for your sales force are you looking back at 2019 over the next three quarters and think about that being the base in terms of hydrogen sizing. So we're looking we're looking for steady improvement quarter.

Quarter over quarter, and that's how we've kind of set our targets I mean, I think the ultimate measure here off success in a winning is market share market share gains.

For those products, where we're competing more head to head and then for other products, where we are unique in the space whether it's.

Mitral or tricuspid et cetera, then we're looking at market development and market expansion, but to your question here. It's.

It's all about kind of steady sequential quarter over quarter improvement.

Do I think so I think we're going to be doing so I think we're going to be at 10% med device growth by the end of this quarter no I don't but I think Q4 is going to be better than Q3, yes I do.

That's helpful. Thank you and then just wanted to ask on coated testing spoken seeing on the Surajit segment can you give us a student affairs for the demand level for Carbonite antibody testing in the U.S. internationally currently and then how you see the demand evolving we consented maybe in the last earnings call that affects vaccine.

Success with the vaccine programs could you could drive some incremental demand on the serology side, but.

Thanks for taking the questions.

Sure Yes.

Yes, I mean, when when it first happened we were fast to take advantage of the installed base that we had with our Alinity an architect systems here to develop.

A blot antibody test and we also developed.

Lateral flow rapid antibody test and.

Yeah, I would say, we haven't seen the kind of demand that we thought we would see when we're putting those programs together so in our numbers here I think we've.

We've kind of excluded them, but do I think that there is an opportunity for.

Four antibody testing as as the vaccine gets rolled out.

Yes, I do and I see the opportunity for lab based and a rapid.

Lateral flow testing also.

We've seen some governments already.

Mandate.

Yeah.

On every blood draw.

Our other tests to check for for for antibodies I think thats, just going to get more intense when.

When the vaccines get rolled out so I think there is there will be an opportunity there.

And as it will be in a in a unique position there to be able to capitalize on that.

So.

Ill, just kind of wrap up here.

We've had a a nice growth step up here in the third quarter, we but we've achieved double digit top and bottom line growth.

The businesses. We've spent some time talking about the businesses that were hardest hit by code that we can see that they're all trending in the right direction and showing sequential steady improvement our pipeline continues to be highly productive. We've got a lot of ongoing launch activity across all the businesses in the markets here and Weve expand.

At our cobot testing platforms at.

Adding more testing platforms, adding adding more capacity I don't think that co. The testing is going to go any any time soon and I think it's big and I think that abbott's in a in a unique position with not only the platforms that we have developed but the manufacturing and supply chain that we've assembled weve increased our full year guidance, which.

Which now reflects double digit EPS growth and I think thats pretty unique and differentiated in this environment and I think it's a testament.

A testament to our ability to execute and deliver.

Across our diversified portfolio and.

I think we're well positioned to go from what is a very good strong year for us to get to an even better one and 2021 and again I think we're pretty uniquely insulated here against kind of any kind of Kuwait reemergence scenario, so with that I. Thank you.

Thank you operator, and thank you for all of your questions. This now.

This now concludes Abbott's conference call a webcast replay of this call will be available. After 11 am central time today on Abbott's Investor Relations website and have an investor Dot com. Thank you for joining us today.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you may now disconnect everyone have a wonderful day.

[music].

Good morning, and thank you for standing by welcome to Abbott's third quarter 2020, <unk> earnings Conference call, all participants will be able to listen only until the question and answer portion of this call.

The question and answer session, you will be able to ask your question.

One key on your Touchtone phone.

Did you become disconnected throughout this conference call. Please read all the number provided to you in reference to Abbott earnings call. This.

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With the exception of any participants questions asked during the question and answer session. The entire call, including the question and answer session is material copyrighted by Abbott it.

It cannot be recorded or rebroadcast without abbott's expressed written permission I would not.

I would now like to introduce Mr., Scott liner Weber, Vice President Investor Relations licensing and acquisitions.

Good morning, and thank you for joining US with me today are Robert Ford, President and Chief Executive Officer and.

And Bob <unk>, Executive Vice President Finance, and Chief Financial Officer.

Robert and Bob will provide opening remarks following their comments, we will 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.

Putting the expected financial results for 2020.

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 form 10-K for the year ended December 31st 2019 and in item one a risk factors in our quarterly report.

On form 10-Q for the quarter ended March 30, Onest 2020.

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 EPS and line items of the piano 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 habits ongoing business performance. These.

Unless otherwise noted our commentary on sales refers to organic sales growth, which excludes the impact of foreign exchange.

With that I will now turn the call over to Robert.

Thanks, Scott Good morning, everyone and thanks for joining us.

Today, we reported organic sales growth of 10.5% an ongoing earnings per share of 98 cents, which reflects high teens growth versus the prior year.

This speaks to the strength and resilience of our diversified business model as well as our ability to innovate and deliver in this challenging environment.

While the pandemic has created many new business dynamics, we've continued to invest in our growth platforms and our pipeline continues to be highly productive, resulting in several new product launches and approvals this past quarter, including us FDIC emergency use authorization for our client X now rapid antigen test.

Can detect COVID-19 infection in just 15 minutes with no instrument required.

US launch of freestyle leeway to which sets a new standard of accuracy and performance in the market.

CE Mark of LIBOR, three which automatically delivers real time glucose readings every minute in the world's smallest and CNS wearable sensor.

CE Mark I believe rates sends glucose sport biosensor, our initial step to expand use of the Libra platform beyond diabetes, and finally CE Mark of Mitraclip G. for the latest generation of our market, leading minimally invasive mitral heart valve repair device.

I'll now summarize our third quarter results in more detail before turning the call over to Bob.

And I'll start with nutrition, where sales increased 4% in the quarter.

Growth was led by ensuring our market, leading adult nutrition brand, which contains several ingredients to support a healthy immune system.

We're seeing strong demand in both us and internationally, which led to global adult nutrition growth of 12.5% in the third quarter.

In pediatric nutrition sales growth in the US was led by our market, leading PD light rehydration brand, which was driven by market conditions and portfolio expansion.

Internationally growth in South East Asia was offset by continued challenging conditions in greater China.

Moving to slabs pharmaceuticals, or PD, where sales declined 3%.

During the quarter, we saw challenging market conditions in several countries due to the cobot pandemic.

Whereas the virus had its biggest impact in developed countries. During the second quarter, we saw in emerging markets more significantly this past quarter, which lowered market demand.

Encouragingly as we exited the quarter, we started to see signs of market recovery and several of those countries and we expect we'll see a continued recovery curve going forward.

I'll turn now to medical devices, which grew 2.5% in the quarter Rick.

Growth in the quarter was led by diabetes care, where sales grew 25%, including more than 35% growth of freestyle LIBOR rate, our market, leading continuous glucose monitoring system.

Although still early in the launch customer feedback has been overwhelmingly positive.

We also obtained CE, mark the LIBOR, three which integrates libraries, leading accuracy and performance into the world's smallest thinness disposable sensor the size of just to stack pennies at the same affordable price as currently available versions of Libra.

And in Europe, We also launched LIBOR, a sense glucose sport, which is which is our initial step in a very intentional approach to pursue mass market biosensor opportunities beyond diabetes.

Great sense allows athletes to monitor their glucose levels in order to learn how and when to best fuel with food and supplements to avoid fatigue and achieve peak performance.

I'll wrap up with our diagnostics business, where sales grew nearly 40% in the quarter.

As I mentioned during our last earnings call. Our teams have worked tirelessly since the beginning of the pandemic to bring to market multiple cope with 19 tests across our diagnostic testing platforms.

During the third quarter, we launched a new rapid antigen test coal by next now which is a disposable test about the size of the credit card that can determine if someone has infected with the virus within 15 minutes without the use of an instrument.

Given the mass market need for testing, we knew that developing and launching this test was only half the equation, which is why we simultaneously built two new manufacturing facilities in the us to help meet the public health need of testing as many people as possible as often as possible to help reduce the risk and the environment.

And slow the spread of the virus.

To date, we have sold more than 100 million cobot tests across our diagnostic platforms and.

And we continue to pursue opportunities to further increase our manufacturing capacity to help meet the significant demand for testing around the world.

So in summary, despite the challenging environment, we achieved double digit organic sales growth and high teens EPS growth in the quarter.

Our pipeline continues to be highly productive, resulting in several important new product launches and approvals during the quarter.

We continue to lead in the area of diagnostic testing for COVID-19.

Which is which has added a significant new layer of growth for our business and accelerated our distributed testing strategy.

And we've increased our full year, EPS guidance, which highlights the strength and resilience of our diversified business model.

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.

We are on an organic basis.

Turning to our results.

Sales for the third quarter increased 10.6%, which.

Which was led by strong performance in nutrition and diabetes care.

Sequential growth improvements in cardiovascular and Neuromodulation devices.

Along with global Cobot testing related sales of approximately $880 million in the quarter.

Foreign exchange had an unfavorable impact of 1% on sales.

Each was somewhat favorable compared to expectations had exchange rates held steady since the time of our earnings call in July.

Reported sales increased 9.6% in the quarter.

Regarding other aspects of the piano the Ajay.

The adjusted gross margin ratio was 57.4% of sales.

R&D investment was 6.3% of sales.

SGT expense was 26.7% of sales.

Now turning to our outlook for the full year as.

As Robert mentioned, we're increasing our guidance for full year adjusted earnings per share to at least $3.55.

Which includes our expectation for strong double digit sales and earnings growth in the fourth quarter.

Based on current rates, we would expect exchange to have a negative impact of approximately 1.5% on our reported sales.

We forecast full year net interest expense of around $500 million and continue to forecast a full year adjusted tax rate for.

15.6%.

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 then the number one key on your with Touchtone telephone. If your question has been answered or you will sort of move your thoughts on Mchale. Please press the pound team for optimal sound quality, we kindly ask that you. Please use your hands.

Speaker phone when asking your question and again, ladies and gentlemen at Star and then one to ask a question.

And our first question comes from David Lewis from Morgan Stanley. Your line is open.

Hi, Good morning, just a couple of related questions. Robert I wanted to maybe think about next year, a little bit given we're closing out this year and obviously investors are in the process of trying to figure out 21 estimates for a whole bunch of companies and whether they are achievable in your case at least for us. They clearly look beautiful, but I wonder if on a high level you could share with us how you're thinking about gross earnings.

Frankly, the opportunities for reinvestment for Abbott in 21, and then a quick follow up.

We will carry into 2021, it's a little premature here, David I kind of start talking specific about guidance, but I give some general comments here I mean I expect.

A lot of companies.

We'll forecast double digit growth rates.

Going into next year, so as you think about.

A lot of you looking at 2021.

But I think most of that is because there's a lot of them are going to be coming out of a hole right you're going to have some amount of easy comps, especially if you look at Q2 and Q3 this year. So there isnt.

So they're essentially they're essentially kind of may.

They are essentially kind of making up for for for last year and getting back to 2008 getting back to 2019, we're in a very very different position.

Then that we're forecasting.

And I think a key aspect of that of that trending in the right direction is our pipeline. Our pipeline has been highly productive we've got over 100, new products in pipeline across all of our four businesses that we have planned to launch over the next couple of years. So.

Other opportunities to to accelerate what is already going to be.

Double digit top and bottom line growth rates, yes, there will be opportunities to to be able to invest in this pipeline annex and accelerate the.

And accelerate the growth there. So I think we're very well positioned to go.

To go from what what is a very strong year for us in 2022, an ever stronger year in 2021.

Okay. Thanks for that type of thoughts Robin just maybe following up on uncovered testing here I mean, obviously, you're testing revenues are going to be a very sharply in the fourth quarter on the strength of buybacks. It sounds like we're thinking about the earnings.

Should we thinking about cobot testing number this year, that's certainly an excess of kind of 2.7 billion just wanted to get your commentary on that and as you think about next year and you think about new test capacity Pan bio.

How should we be thinking or how are you thinking about sort of duration of testing relative to kind of a $2.7 billion base year in in 2020. Thanks so much.

Sure. So we had so we had just under $900 million of covert testing this quarter I think it was just under.

Just under $100 million favorable to some of the forecast there a lot of that was driven by our manufacturing ramp up our scale up.

And the new products, we launched.

So we actually exited the quarter at a at a higher run rate than that that run rate into Q4 would be around.

Around 1.31 for $1.4 billion of sales at that run rate, but.

If I if I talk about Covance sustainability I know this is a key topic here I'd say when we talked about testing back in July earnings I talked about the testing demand over.

Over four different phases of pandemic phase of recovery phase.

Vaccine phase in a post vaccine phase and I.

I shared that my view here was that a lot of the volume was still going to be in this kind of pandemic recovery phase that even with the vaccine.

Depending on what country, you are or state you're in a pandemic or in a recovery and I expect that to last definitely all next year with a vaccine you might see a trend.

Off a little bit of a decrease on the PCR testing I think it's just.

And then maybe an increase in an antibody testing, but I think the rapid testing.

Is not is not going to go away like that I think it's going to be around for a while just because it's easier to do that's an easier sample at a faster result, so there's a lot of complexity here in trying to forecast whether co goodwill.

Will ramp down and Cobra testing will ramp down and when will it reach a steady state.

Some side read some reports it's two years three years I actually think it for thinking long term strategically long term that might not be the right question.

Yes, I think it misses the point on what Abbott is actually doing right now.

Yes, we've developed a lot of covert test, we've invested in manufacturing and selling them at affordable prices.

That obviously helps the economy at home at helps contain the virus, but what we're actually doing here. If you take a step back at a bigger picture is were actually executing on the vision that we had when we bought a year, where we wanted to build a premier point of care business. So that we could de centralized test so that we could democratize test.

And so that we can digitize test and if you look at what we've done with buybacks now I'd now can buy I think those are perfect embodiment of that execution. So so if the cobot assay itself when will that ramp down two years three years, okay. It'll eventually ramp down to more of like a flu state kind of business.

But the installed base that weve built during this period the consumer behavior. That's been created the new channels that we've opened up with rapid testing, whether it's our airports retail stores more physicians offices. The app ecosystem that we're building all of that is going to remain and and it will remain for all.

All the other assays that we currently have and that will be rolling out so I think that.

As we look at 2021 into 2022, it's going to be coded testing, but more importantly to look we said where we're looking at it is that the execution of that earlier strategy, which is to build a whole new testing platform outside outside of outside of the walls of the lab and hospital.

And the cobot has actually given us an opportunity to accelerate that strategy.

Very helpful. A lot to orbit there. Thank you Robert.

Thank you our next.

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

Hey, guys. Congrats on a solid print here not at thanks for taking my questions. So Rob Rob Robert maybe maybe back on the fiscal 21 question I guess, maybe back to approach it slightly differently.

Street numbers our S 425 based on the updated guidance for core 20 feet 55, that's still close to a 20% earnings growth and it think implicit in those assumptions would be.

Hi Tech procedures normalized and obviously that has a dropdown on margins I'm just curious how should we be thinking about the waist procedures into Q4 this up.

You said that the comp is an easy fee base rates on new base.

You will be doing high single organic in fiscal $2000 versus declines are flattish for other some of your peers.

So maybe.

If you could just.

Unpack that a little bit and then put that in context will be helpful.

Sure.

So, yes, I mean.

As I said looking at the 2021 in the trajectory of the growth trajectory is those high strong double digit top and bottom line VJ and again I think thats going to be predicated on on two factors just like we spoke about it in in July on the earnings call, it's going to be the continued recovery.

Of all of our base business.

And then obviously our ability to ramp up coven and covert testing. If you look at the businesses that were most hit by by Cobot device.

Devices and core lab.

So laboratory testing outside of Cove it though.

Those have shown a really really nice recovery starting in June into July.

And then into the third quarter September was actually our highest month of absolute sales in the quarter for both medical devices.

Especially in the cardiovascular area across all areas, we saw a little bit of a of a july kind of pent up growth.

As the lockdown start to get.

Reduce a little bit we saw that growth rate in July a lot of.

A lot of that was some pent up demand. So if you look at the third quarter I'd like to look at it the the trajectory from August to September and when you look at it that in our cardiovascular devices those growth rates in September were much better than the growth rates in August and and the growth rates in September were better than the third quarter overall, and Thats and Thats true.

For both of us and internationally for both devices.

For for devices in core lab, we actually saw nice growth in the month of September in the us.

In Europe and in China also so I like the I like the rate of recovery that we're seeing in our in our in our base business.

If you look at Electrophysiologist that was an interesting one where.

When you look at the sales we were hurt a little bit by the capital cycle, which is why we're only at about two 3%, but if you look at the consumable part of our business. So we probably will reflect better the return or procedures. So looking at mapping catheters and therapeutic catheters, we saw a high single digit growth rate there. So.

So our plan here is to is to continue to see that that recovery.

It's not just about recovery of coated and easing. Its also the pipeline and we've got a very rich pipeline in our cardiovascular area too and and in our core lab business. The continued rollout of Alinity.

Improving our menu expanding our menu thats, all thats all helping us.

Become more competitive in this recovery process.

That's helpful commentary, Robert maybe one not one.

One big picture question on our balance sheet.

You guys have really in an enviable position here country.

Considering that we are in a zero interest rate environment, maybe thoughts on optimal balance sheet structure here and what opportunities do you see.

If perhaps on the inorganic side.

Yes, listen our financial strong here is very healthy we are generating nice nice cash and we're allocating to our needs or we don't see any changes VJ to our allocation strategy.

We haven't done a lot of share repurchasing mostly to offset our dilution a lot of our a lot of our investment here has been to drive organic.

Organic growth, so taken our balance sheet and applying that cash to invest in areas, where we see opportunities for growth, that's where we've been focused on.

That's the that's the that's the best return we've got right now for our shareholders. If you look at what we've done with Cobot and then.

And the investments we've made there the speed at which we've been able to make those investments and execute it's because of that strategic flexibility that we have and in the balance sheet talked about manufacturing expansions with LIBOR rate at which we're definitely going to need.

As we expand the portfolio and build the portfolio and other parts of our medical devices to.

Okay. Thank you guys ill step back in the line.

Thank you. Our next question comes from Robbie Marcus from JP Morgan Your line is open.

Great. Thanks for taking the question and congrats on a good quarter.

Robert maybe if we could spend a minute on diabetes here you've had a lot of approvals over the past few months with Libra three in Europe Libra to for a while.

For a while now in the US and then also the Libra sense starting to move into the consumer area outside of diabetes. I was hoping you could talk about your expectations just spread Lee Bray growth, both us and outside the US maybe when we could see a LIBOR three in the us.

Which would really help close the gap versus Dexcom and your thoughts on the non diabetes component.

Sure Robbie listen I think Lee brand continues to perform really well and as you saw our pipeline continues to be highly highly productive we had a good growth rate this quarter over 35% that was a real nice sequential improvement versus Q2 in Q2, our sales were just under $600 million and.

Q3 sales were just under 700, so I think we had a nice.

Sequential Q2 to Q3 kind of growth rate, we continue to focus on on our strategy of kind of mass market opportunity mass market potential and not see this as a niche play we now have.

Over more than two and a half million users that significantly more than than our next competitor.

Regarding lead break too in the us.

We were able to get the product on shelf in there.

In the retail shelf in mid August. So so we had about a partial quarter over here, but at the customer response has been has been really really positive.

We've heard.

Just you are talking about closing the gap here.

With LIBOR athree listened to elaborate too.

In mice in my view is already done and that's what we're hearing from from from our customers here. It's by far the smallest eases sensor to use that the best accuracy low range high range mid range adults children.

The readings every minute, which is unique to libra allows us to get a better alarm performance.

And we can continue to mass produce it and sell it at a fraction of.

So that.

In our early Overburdening the health care system. So so I think thats worked very well.

Ray sales in the us they actually grew 20% sequentially.

Q3 versus Q2.

And about 45% year over year, and that's with just about 40 days worth of.

Of of sales of Libra, two in the quarter. So I've seen positive momentum in some of the prescriptions, we because our strategy is focused more in the retail environment.

We get to see that prescription data.

Data.

Every every week so we're seeing nice trend from high prescribers were also.

We're also seeing a nice pickup here for that pediatric endocrinologist segment. So we see a nice pickup in prescriptions over there too. So I think it's it's it's it's obviously.

Fairly early in the launch, but but I think we're off to a great start and I like what I've seen in the first 45 days regarding Lee break three lives and we always said that leave rate was going to be a platform and we're going to be building on this platform and.

Now.

Are we funding R&D programs to continue to innovate yet we are will heavily bray for will I believe rate five but we get so then we get so caught up on on every every version over here, we might Miss the bigger picture.

And the bigger picture here is that.

To be able to sustain an ability to penetrate the mass market you do need to have a variety of different platforms and continue continuously innovate.

About bringing about timing of LIBOR three in the US you Robbie I'm going to I'm not going to provide details to you on on that timing here. Obviously the us team is having a good time launching library to right now what I would say is it's very it's a very different segment than the cardiovascular device segments as it relates to as it relates to clinical trials.

The sense that we havent seen the impact of kind of Corona virus slow down.

Our trials here for within this space so.

You'll hear about Libra three approval when when we get it and we issued a press release, just like we did with with LIBOR three in Europe.

On LIBOR a sense.

As we've always talked about we could expand beyond diabetes and this is this is this is our first step over here the goal the goal with this product so.

Specifically as to help kind of athletes.

Achieve kind of better performance by.

By using data so they can kind of better fuel themselves to avoid fatigue.

It's a different business model, Rob it will be a different business model different channels, they'll probably be a different usage pattern in frequency in this segment, but obviously if you look at the athletic training and sports population. It's a significantly large population here. So we've actually built a team.

Matt.

Separated from the diabetes group, that's just focus on on developing this opportunity. We've done an initial collaboration here, which I think is going to provide us a great.

Great visibility on how this kind of very large mass segment needs to be addressed and the different strategies will be able to kind of deployed.

Great that was really helpful and maybe just a quick follow up Robert you talked about how the testing business and diagnostics as more than just scope. It. It's the whole platform Alinity is just getting going now in the us.

How should we think about Abbott share gains over the past few months Youve, obviously made huge strides in Coca testing, it's a leading platform has that driven share shifts over to a linearity in some of your other platforms. During this time that set you up better going forward.

Yes, I mean, I think we already had a real strong momentum before coated with the rollout of the Alinity system.

We are having great share gains.

Both in immune assay and then the clean Chem business also so thats.

So that.

That obviously with Covidien Q2, a lot of the hospitals were in the last weren't focused so much on on migrating of systems.

But before that we were we were renewing our existing contracts and in the in the 90, 90% range and new tenders that were coming up for bid we were in that kind of 45% to 50% kind of win rate. So you put that together and you look at our look at our sales growth we were definitely taking share that the placements of instruments took a little.

We have a pause in Q2 and as I said in the opening comments, we started to see a little bit of a pickup.

In September.

In terms of positive growth for all these geographies and thats, coupled with again, a new cycle here of a reopening of the tenders I think that is it's also allowed us Robbie with our with our position in cobot testing to you know to be viewed as as a more holistic partner to a large large systems whether.

They are in the us or internationally.

And that's ultimately helped US I think I think one of the things that's definitely helped us.

In our diagnostic business has been our mark on molecular platform with the Alinity M. launch.

Thats, obviously had a little bit of catapult effect with that launch.

And but.

But in that platform, we have more than just KOVA testing. So I think it's a good opportunity for us overall for diagnostics.

Appreciate the thoughts.

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

Good morning, Thanks for taking the question.

A couple of product questions and then one big picture question Robert.

Just on the BD just the outlook there it sounds like you started to see some recovery and in adult nutrition.

The strength there can you talk about.

While you are seeing that strength and how sustainable that is and I have one follow up.

Sure Hey, Larry.

Yeah, NPD, we definitely saw some some some more challenging market conditions.

In this quarter than than we than what we had in Q1 and in Q2.

If you look at how covance kind of progressed a little bit.

It hit the developed markets I think harder in Q2, and then the emerging markets. It hit us more in Q3 specialty markets like India, Russia, Some markets in Latin America also but it wouldnt.

We look at a lot of the data and we start to see a similar trend in September than what we saw.

In in June in the developed markets right. So so you have that kind of drop and the.

And then it starts to kind of recover so I kind of look at EPG is following the same trend that we saw in.

In devices and core lab in Q2, but just a quarter later, so I think we'll see some some of the recovery there its a good business a lot of the portfolio.

It's still very resilient, 50% of our of our portfolios tied to chronic diseases. So so thats the piece that kind of got impacted the acute part of the portfolio is actually done is done pretty well. So we are.

We expect to see that.

That recovery curve continue into into Q4.

On the nutrition side on your question. It was on adult right. It was very strong growth in adult.

And one of the things that the team did really well starting in Q2 is we started to look at our messaging regarding the immunity benefits off our adult nutrition.

And they came out with a strong campaign has strong messaging on the benefits on the immunity side and that helped fuel.

The demand there I think we saw pro.

Probably at the end of Q1, there was little bit of pantry loading Larry we saw that in the us saw little bit of that internationally too, but what what we did we are able to do that is we actually picked up new users and we picked up market share. So the combination of new users and market share and then the immunity messaging resonating with consumers and physicians.

It's really kind of strengthened that that portfolio and I think it's it's definitely sticks out a little bit in terms of our growth rate, but a lot of that what we're seeing is share gain and market expansion based on the data that we're seeing.

That's helpful. And then just one big picture question. It sounds like Cobot testing should continue to be strong next year, but if you have a year at some point where cobot testing.

Declines because we have a safe and effective vaccine how are you.

Thinking about re.

Reinvestment and managing potentially smoothing out earnings.

Is there any any thoughts kind of if we did see a decline in infill the testing at some point, how you would manage that thanks for taking the questions. I don't think were going to see that kind of declining covert testing I think even with the vaccine youre going to see kind of more of a steady state and we've talked about that and we plan for that the other part.

Of your question regarding kind of reinvesting in the business, while we're going to be able to do that.

Next year and still deliver pretty differentiated unique kind of earnings growth and earnings power as I said, we've got over 100, new products in our pipeline that we're going to invest and we can either accelerate their development and they're coming to market, we've got opportunities to expand market development.

Earnings power in growth while at the same time investing in you know in this pipeline that that Abbott has built over these years to sustain that growth rate.

I'll just go back to the notion here that the co lead assay might.

Mike go down to a steady state, but if you think about the installed base that we're building because of cold, but especially on the rapid side I think thats going to be a strong growth driver for us going forward.

Ill give an example of that when we started the year.

In the US we had over 20000 I'd now play.

Placed in the us and the U.S. alone in four months, we've already doubled that placement rate by more physician offices retail channels.

In a variety of universities in different channels. So so what we're building here with the covert test is an installed base that will then be able to run.

Different kind of assays and different tasks and if it's if their digital if they're affordable then.

Then the consumer behavior. That's now today in in Cove in test and we believe is going to be there for all the other assays that were building on.

Thank you very much.

Thank you. Our next question comes from Bob Hopkins from Bank of America. Your line is open.

It's got some of it in there Bob obviously, when you're doing this kind of ramp up the way we're doing it cross continents varda different platforms. There we want to make sure that we can deliver so in that number you've got you've got some of that international antigen there.

But obviously, we're working that we could we could probably do a little bit better than that in that international antigen also so.

Okay and then.

Just one follow up on the on the device side ex diabetes is wondering if you could talk a little bit about vascular in Q3 is that was down I think 10% which is a.

She is a little worse than some of the other businesses and then more importantly, Robert I'd Love to get your view just like based on everything Youre seeing right now what are your directional thoughts on the outlook for 2021 for medical devices ex diabetes is there.

Should we be thinking about that as potentially close to normal.

In terms of the business or just how.

Just how much uncertainty you think there is.

As we think about devices for next year based on what you're seeing now.

Sure on the.

On the outlook there of devices I would say listen I think that we had a really big impact in Q2 across the world.

Yes, and then internationally because I think a lot of this was a new thing. This was a new virus and the shutdown was was pretty dramatic was pretty significant.

Yes, as I think about our device portfolio, there are still cardiovascular needs people still.

I need to get a pacemaker, there's still a need for mitral repair there is still a need for ablation.

We're a fit I mean, those are all conditions that the reason we're in them is because there were there were medically scientific needs for us to be in them. So.

I see the market is still an opportunity for growth and I think that the hospitals and hospital systems have learned now how to how to deal with that and how to deal with that pandemic.

Seen certain systems kind of focus on on on treating cobot and keeping other hospitals more focus for electives. So I think that's.

I believe the device portfolio that we've built is relevant is important.

Even in a in a co bid kind of world those are medically necessary procedures, and we're working with hospitals to assist them in opening and then we'll see it continue to growth we've seen a nice progression from Q from Q2 to Q3, I expect that progression to continue into Q4, yes, there could be some lumpiness here and there, but I think I think the progressions.

Going to be positive and my expect.

My expectation is that we'll see kind of devices get back to that that growth rate that we previously had in those high single digits next year.

And then on vascular sorry, Oh on the vascular question, Yes, we add it's interesting if you look at the device portfolios that were a little bit.

Recover as fast really was vascular and CRM.

I think some of those are affected by by by some of the pricing dynamics that still exist in that channel.

Vascular you've got an average price erosion there of 5% to 6%. So once you exclude that it would probably be a little bit better but.

But theres theres, a little bit of a slower kind of recovery we did see.

Vascular is right now at about 95% of their kind of pre coded levels.

So there has been a rebound, but I think there has been a little bit of a price impact there also.

Thank you very much.

Thank you.

Next question comes from Joanne Weiss from Citibank Your line is open.

Good morning, and thank you for taking my question.

Actually there are two of them and put them upfront.

Can you give us an update on your structural heart platform and what we might be looking forward to in the next 12 to 18 months and then my second question is yes.

It sounds as if you are more lean.

Leaning toward reinvesting some of that kind of at 19 revenue versus sort of tuck in M&A can you just give us an idea of how we should think about how much of the upside actually flowed through to EPS versus how much of that gets invested thank you.

Sure Isaac honored on your structural heart sorry on your structural heart question here I think we've got a leading kind of portfolio of products here. We've launched a couple of novel products. This year.

Try clip.

Sure the tricuspid valve repair and then Tandigm, which is the first product for mitral valve replacement those have actually gone.

Very well, especially when youre going to launch novel products like this.

Platte pipeline, you're obviously the biggest.

Opportunity, we have is to expand the mitral valve repair at with the NCD for.

For the secondary EMR indication that that will be a big driver for us.

We've seen already patient referral network starting to be built around.

Around waiting for that indication.

That is that right.

Reimbursement approval, but we.

But we've got several other products in the pipeline I think amulet are let April tenders device is going to be a great opportunity. It does very well from a share perspective internet.

Internationally.

The larger part of the market is here in the U.S. So we're looking forward to to enter that market here in the us weve.

We've got a next gen TAVR device called an advocate for that we've been working on this will be our third generation, we've launched our flex NAV product.

In Europe this year with an improved delivery catheter and gotten good good feedback from Implanters over there and then I think that try clip and Tendyne are our multi billion dollar opportunities here for us that are as I described very very early in the innings. So.

So I'm very excited about that structural heart portfolio in the next 12 18 months, it's probably one of our richest portfolios in our in our device portfolio.

There was a second question Joanna meeting.

Operating revenue can you can you repeat it.

Of course, the second question was is there.

Or flow through or maybe you re directed towards targeted M&A.

Yes, so I guess, we're trying to triangulate here as much as we can.

But.

We're not going to put out a specific number but what I can read.

Reemphasize here is that cobot is definitely going to be a big boost for us continue to be a big driver for us into 2021.

We're in a unique position, we're not we're not coming out of a hole, we're going to be delivering what I would say.

Very high strong double digit top and bottom line and in doing that and in delivering those very high double digit top and bottom line after double digit earnings this year.

We're still going to have plenty of opportunity to put investment into R&D and into sales and marketing to continue to drive not only the pipeline, but all the opportunities that we've had and we've talked a bit about here, whether its LIBOR rate, whether it's structural heart whether.

Whether it's in nutrition, we've got plenty of opportunities. So I guess, the I'd leave you there too and with.

We've got tremendous momentum strong 2020, when have stronger 2021, and we realize that we've got a unique opportunity here with over 100 products in our pipeline to be able to kind of fund and drive on top off of our double digits earnings and topline growth next year.

Thank you very much.

We'll take one more question.

Thank you our last question comes from Josh Jennings from Cowen Your line is open.

Hi, great. Thanks for taking the questions. Robert I was hoping you could talk a little bit about the medical device franchise and hung up on Bob's question, just on the outlook, but just.

Thinking about how you are sitting internal targets for your med device sales team. We're just internally how youre going to judge success I think there's.

I'm confused about how we should be thinking about it our team in the penalty for the whole the whole sector, but I mean are you thinking about sequential improvement as we get into the Q4 Q1 Q2 next year is kind of a solid target to think about.

Have a performance level.

Those are the type of targets you're setting for your for your sales force are you looking back at 2019 over the next three quarters and thinking about that being the base in terms of hydrogen sizing. So we're looking we're looking for steady improvement quarter.

Quarter over quarter, and that's how we've kind of set our targets I mean, I think the ultimate measure here off success, and winning is market share and market share gains.

For those products, where we're competing more head to head and.

And then for other products, where we are unique in the space, whether it's Mike.

Mitral or tricuspid et cetera, then we're looking at market development and market expansion, but to your question here. It's.

It's all about kind of steady sequential quarter over quarter improvement.

Okay, I think I mentioned it before doing so I think we're going to be at 10% med device growth by the end of this quarter no I don't but I think Q4 is going to be better than Q3, yes I do.

Okay Thats helpful. Thank you and then just wanted to ask on coated testing spoken seeing on the Surajit segment can you give us a student affairs for the demand level for Carbonite antibody testing in the us and internationally. So currently and then how you see that demand evolving that you've said, it's maybe on the last earnings call that affects vaccine.

Success with the vaccine programs could you could drive some incremental demand on the serology side, but.

Thanks for taking the questions.

Sure Yes.

Yes, I mean, when when it first happened we were fast to take advantage of the installed base that we had with our Alinity an architect systems here to develop.

A blood antibody test and we also developed.

Lateral flow rapid antibody test and.

Yeah, I would say, we havent seen the kind of demand that we thought we would see when we're putting those programs together so in our numbers here I think we've.

We've kind of excluded them, but do I think that there's an opportunity for.

Four antibody testing as as the vaccine gets rolled out.

Yes, I do and I see the opportunity for lab based and a rapid.

Lateral flow testing also.

We've seen some governments already.

Mandate.

And on every blood draw for other tests to check for for for antibodies I think thats, just going to get more intense when.

When the vaccines get rolled out so I think theres, there will be an opportunity there.

And Abbott will be in a in a unique position there to be able to capitalize on that.

So.

Ill, just kind of wrap up here.

We've had a nice growth step up here in the third quarter, we but we've achieved double digit top and bottom line growth.

At our cobot testing platforms.

Adding more testing platforms, adding adding more capacity I don't think that coda testing is going to go any any time soon and I think it's big and I think that habits in a in a unique position with not only the platforms that we have developed but the manufacturing and supply chain that we've assembled weve increased our full year guidance.

Which now reflects double digit EPS growth and I think thats pretty unique and differentiated in this environment and I think its a.

A testament to our ability to execute and deliver.

Across our diversified portfolio and I'd.

I think we are well positioned to go from what is a very good strong year for us to get to an even better one and 2021 and again I think we're pretty uniquely insulated here against kind of any kind of code, which reemergence scenarios. So with that I. Thank you.

Thank you operator, and thank you for all of your questions. This now.

This now concludes Abbott's conference call a webcast replay of this call will be available. After 11 am central time today on Abbott's Investor Relations website at Evin Investor Dot Com. Thank you for joining us today.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you may now disconnect everyone have a wonderful day.

Q3 2020 Abbott Laboratories Earnings Call

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