Q4 2020 Abbott Laboratories Earnings Call

January 27, 2021

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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 fourth quarter, 'twenty, and 'twenty earnings Conference call.

All participants will be able to listen only until the question and answer portion of this call.

During the question and answer session, you'll be able to ask your question by pressing the star one Keith on your Touchtone phone.

Should you become disconnected throughout this conference call. Please redial the number provided to you and referenced the Abbott earnings call.

This call is being recorded by Abbott.

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 cannot be recorded or rebroadcast without abbott's expressed written permission I would now like to introduce Mr. Scott Leinweber, Vice President Investor Relations licensing and.

And.

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

Robert and Bob will provide opening remarks following their comments, we'll take your questions before we get started some statements made today maybe forward looking for purposes of the private Securities Litigation Reform Act of $19 95, including the expected financial results.

For 2021 Abbott cautions that these forward looking statements are subject to risks and uncertainties.

Putting the impact of COVID-19 pandemic on <unk>.

And its operations and financial results that may cause actual results to differ materially from those indicated and 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 31, 2019, and and item one a risk factors and our quarterly report on form 10.

Q for the quarter ended March 31 2020.

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

Please note that financial information provided on the call today for sales EPS and line items on the P&L will be for continuing operations only.

On today's conference call as in the past non-GAAP financial measures will be used to help investors understand abbott's ongoing business performance. These.

These non-GAAP financial measures are reconciled with the comparable GAAP financial measures and our earnings news release and regulatory filings from today, which are available on our website at Abbott Dot com.

Unless otherwise noted our commentary on sales growth 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 thank you for joining us.

Today, we reported another highly successful year for Abbott.

And what's been the single most disruptive health care event in our lifetimes.

For the full year, we reported organic sales growth of nearly 10% and ongoing earnings per share of $3 65.

Which reflects double digit growth and is at the upper end of our guidance range. We set last January when we were expecting and normal economy.

Performance like this after the pandemic struck there is a real achievement and demonstrates the strength of our diversified business model.

The normal times and maximizes our growth opportunities and.

And during the pandemic, it's been tested by a global crisis and proven to be highly resilient.

It should come as no surprise that our performance was led by our diagnostics business and co.

COVID-19 dominated the year for us and the World and our primary response came in the form of diagnostic tests to identify the virus.

In total we delivered more than 400 million Covid test since the start of the pandemic.

<unk> more than 300 million tests and the fourth quarter alone.

But as we've discussed before the year was not all diagnostics and Covid.

Our more consumer facing businesses nutrition diabetes care and established pharmaceuticals, all contribute growth for the year.

And we continue to launch and impressive stream of innovations across our businesses.

And I'll touch on some of these new products and more detail and just a moment.

We exited 2020 with tremendous momentum, including total sales growth of more than 28% and ongoing earnings per share growth of more than 50% and the fourth quarter.

Turning to 2021, we're forecasting another year of top tier performance.

As we announced this morning, we forecast ongoing earnings per share of at least $5 and 2021, reflecting growth of more than 35% compared to last year.

And because we are building on top of our strong 2020 performance. Our forecasted 2021 earnings per share is more than 50% higher than our pre pandemic EPS in 2019, which is highly unique and differentiated in this environment.

I will now provide more details on our 2020 results before turning over the call to Bob.

And I'll start with nutrition.

Where sales increased around four 5% for both the fourth quarter and full year.

Strong growth of and shore, our market, leading complete and balanced nutrition brand and Blue sirna are leading diabetes nutrition brand led to double digit growth and adult nutrition for both the quarter and full year.

And pediatric nutrition U S sales growth of more than 5% last year was led by increased market share of Similac, our market, leading infant formula brand.

International pediatric nutrition sales continued to be impacted by challenging market conditions and greater China.

During the past year, we continued to expand our nutrition portfolio with several new products and line extensions, including the continued rollout of infant formula products across our similar Brian family that contain human oligosaccharide, or HMO, which supports a healthy immune system.

Global expansion of our <unk> sure, both Cerner and <unk> brands, including the continued rollout of ensure high protein products.

And the launch of four new PD like rehydration products.

<unk> zero sugar.

Sport organic and immune support.

For 2021 were forecasting similar sales growth for our global nutrition business and a continued strong cadence of new product introductions.

Turning to medical devices, where sales were relatively flat and the fourth quarter.

Strong double digit growth and diabetes care was offset by lower sales and our cardiovascular and neuromodulation businesses due to challenging conditions as COVID-19 case rates surge and certain geographies towards the end of the quarter.

As we saw throughout last summer and fall, we expect procedure volumes to improve and these businesses as COVID-19 case rates subside.

And diabetes care sales grew nearly 30% for the fourth quarter and full year led by freestyle Libre.

Our market, leading continuous glucose monitoring system.

And the U S Libre sales grew 50% last year and outside the U S. <unk> sales grew 40%, surpassing $2 billion of international sales for the full year 2020.

This past year was pop was possibly our most productive ever in terms of new product approvals and launches across our medical device portfolio, Let me touch on a handful.

First the.

And the approval of Mitraclip Gen for the latest generation of our market leading system to repair a leaky mitral heart valve.

Just last week and the U S. Medicare expanded reimbursement coverage for Mitraclip, which significantly expands the eligible patient population that can benefit from this life changing technology.

CE Mark on <unk>, a first of its kind minimally invasive device to replace a faulty mitral valve and.

On the CE Mark of <unk>, our minimally invasive clip technology to repair a leaky tricuspid heart valve.

Long considered the forgotten valve <unk> brings an important new solution to patients that have previously had very few treatment options.

Abbott now offers minimally invasive device therapies for three valves and the heart, the aortic and mitral and tricuspid valves.

We also launched two cardiac rhythm defibrillation products under our gallant brand.

That include Bluetooth capabilities to align with our strategy and remote monitoring and digitally connected care.

Also saw the approval of and site X. Our next generation <unk> cardiac mapping technology.

And U S approval of freestyle Libre, two and CE Mark for Libre three the latest generations of our market, leading continuous glucose monitoring systems.

And CE Mark of Libre sense glucose sport, the first product and our strategy to expand use of our wearable biosensor technology and to mass market opportunities beyond diabetes.

As you can see.

A highly productive year for our pipeline and quite frankly, that's even more I could highlight.

And 2021, we're forecasting continued strong double digit growth and our diabetes care business led by freestyle Libre and.

And steady improvements and our cardiovascular and Neuromodulation businesses fueled by the continued business recovery. The society works its way through COVID-19, and on the strength of our recent and upcoming new product launches.

Moving to established pharmaceuticals, or <unk>, where sales increased three 5% and the fourth quarter, reflecting sequential improvement versus the prior quarter.

Despite COVID-19 <unk> sales increased 2% overall in 2020, demonstrating the resilience of our business model even in this challenging environment.

Growth. This past year was led by sales and India, Russia, China and Brazil.

During the year EPS continued to strengthen its portfolio with more than 50, new product launches across our key emerging markets.

As we've discussed before new product introductions, and Apd on more incremental in nature and the steady cadence of portfolio expansion and refreshment, we're achieving as an important element of our sustainable growth strategy.

We forecast demand and growth rate improvements in EPS during 2021 as well as a continued steady cadence of new product introductions that will contribute to growth.

And I'll wrap up with our diagnostic business, where sales grew nearly 110% and the quarter driven by $2 $4 billion of Covid testing related sales.

We realized very early very early but a variety of different testing solutions would be required to tackle the pandemic.

With that understanding starting last March we developed and launch and entire portfolio of tests to target the virus.

The biggest contribution and the fourth quarter came from our rapid lateral flow test to detect the virus, which includes buy and X now and the U S and <unk> internationally.

These are highly portable reliable and affordable test and and just 50 minutes.

And detective somewhat as infectious without the use of and instrument.

Which means the tests can be performed and virtually any setting such as physician office pharmacies urgent care centers workplace settings, and even at home.

As part of our pandemic response efforts, we also developed and launched a digital solution that pairs with these test called <unk>, which allows people to receive and display test results on their mobile devices.

But our efforts and stop at developing these tests.

We also ramped up manufacturing capacity on a massive scale and now producing more than $100 million of these two tests combined per month.

While our Covid testing efforts have clearly received a lot of attention. We've also remained focused on the launch and rollout of validity our suite of innovative diagnostic instruments, we continue to retain existing businesses and capture share at strong rates.

And we've continued to build on our test menus for these instruments.

Last year, we initiated the U S launch of <unk> for molecular testing.

This launch included a COVID-19 test, which help jumpstart demand for this innovative highly automated and differentiated and molecular testing platform.

And earlier this month, we announced U S. FDA clearance for the first rapid handheld blood test for concussions.

This test measures certain biomarkers found in blood after a head trauma event and produce and result within 15 minutes. After a plasma sample is inserted in our <unk> handheld device.

Building on this initial clearance. We're also working on a whole blood point of care test under FDA breakthrough designation and our vision is to develop a 15 minute portable test that can be used and any settings, where people might experience head injuries that require quick evaluation.

So in summary, despite the challenging environment, we achieved the upper end of the EPS range. We set last January before anyone knew the extent of the Covid pandemic.

Demonstrating the strength and resilience of our diversified business model and our superior execution.

Our new product pipeline continues to be incredibly productive delivering groundbreaking innovations and a steady cadence of important new products with more on the horizon.

We continue to lead and the area of diagnostic testing for Covid, which is helping to fight the virus and accelerating our long term decentralized testing strategy.

And we're forecasting more than 35% adjusted EPS growth and 2021, which is truly unique in this environment.

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 are on an organic basis.

Turning to our results sales for the fourth quarter increased 28, 4%, which was led by strong performance and nutrition and diabetes care and.

Along with global Covid testing related sales of $2 4 billion and the quarter.

Foreign exchange had a favorable impact of <unk>, 3% on sales.

Which was somewhat favorable compared to expectations had.

Had exchange rates held steady since the time of our earnings call in October.

Reported sales increased 28, 7% in the quarter.

Regarding other aspects of the P&L.

The adjusted gross margin ratio was 58 five percentage of sales.

R&D investment was 6% of sales.

And SG&A expense was 23 five percentage of sales.

Our fourth quarter adjusted tax rate of 14, 1%.

And it reflects the adjustment required to align our tax expense with our revised full year effective tax rate of 15%.

This is somewhat lower than the estimate we provided in October due to a shift and the mix of our geographic and business income.

Turning to our outlook for the full year 2021.

Today, we issued guidance for full year adjusted earnings per share of at least $5.

Based on current rates, we would expect exchange to have a favorable impact of.

Of approximately three 5% on a reported sales.

Which includes an expected favorable impact of approximately 3% on our first quarter reported sales.

We forecast full year net interest expense of around $515 million.

Non operating income of around $230 million.

And our full year adjusted tax rate of 15%.

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

Thank you ladies and gentlemen, if you have a question and at this time. Please press the star and the number one key on your Touchtone telephone.

If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

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And our first question comes from Bob Hopkins from Bank of America. Your line is open.

Great and thank you and good morning, and congrats on on all the success and progress you guys are having.

So.

Robert So much that I could ask you about here.

I'll go high level with my question and ask if you wouldn't mind.

Putting that $5 earnings are at least $5 and earnings for 2021 guidance number and perspective for us given that that $5 is above even what the street was modeling for 2022, and specifically I guess the way I'd ask the question is I'm sure.

Vessels would love some perspective on how COVID-19 testing and packs that guidance.

And how youre thinking about the base business and and maybe most importantly, giving them and how much higher $5 is compared to expectations and I'm sure investors would love to hear your early thoughts on whether or not Abbott can grow.

And it's sort of traditional rate off of that $5 number next year.

So sorry for the long winded question, but would love any perspective. Thank you.

Sure Bob you hit on all the points there I guess, we've been looking at 2021 for.

And for several months right now I think one on one of the things as we're going into it is that we knew.

Lot of companies, we're going to be forecasting double digit growth going into 2021, a lot of that probably based on on comps, where we saw a decrease and in EPS and.

And that wasn't that wasn't that's not the case for Abbott, we're not we're not coming out of a hole and as I said in my and my remarks.

On the $5 a day at least $5 target for 2021 is about 50% higher than where we were in 2019 and what I can say is that we are Bob and myself is we as we manage the business, especially over these last couple of months and going into this year, we've been looking at two year CAGR across our.

Businesses and I think that's the right way to look at it is to kind of look at what happened in 2020.

And it's easy for some of the businesses to come up and post double digit kind of growth for us and we're looking at on on a two year on a two year CAGR basis.

The point that you touched on.

And are all of the points that we've looked at and we've been modeling.

And with different scenarios, so I'll touch on those because they are all elements of how how we build to our tour at least $5 first of all obviously COVID-19 testing.

It's been a big driver for us and it will continue to be.

To be a big driver I expect testing demand is still going to remain high even as even as the vaccines rollout.

I don't think we've even seen testing.

Testing demand peak yet so.

So we built a lot of capacity and we've talked about that over over last year the capacity that we built.

But we didn't put it all and we didn't put it all and into that into that $5. So.

But we don't see it going away either but there's enough capacity there are testing capacity sufficient testing capacity for us to be able to meet.

It's kind of growing demand right now.

The other part.

And our forecast here without a doubt is looking at our base business and the recovery of our base business specifically the ones that were hit probably more heavily.

By the Covid, which was some of our device businesses and our and our routine testing and routine lab testing.

These are important procedures and life sales and procedures. They are important routine test to do so you can't just keep pushing them out and definitely and what we saw in Q3 of last year as those rates and hospitalization rates start to come down and we're starting to see the pickup of our procedures and off our core testing and we actually saw grow.

<unk>.

And several months in Q3 and going into Q4, and obviously that got impacted probably around around Thanksgiving. So we've seen that these can.

Recover and we do have that modeled and into that fiber, which is a recovery of these businesses and at a similar rate of what we saw in Q3 and <unk>.

Somewhere in the fall.

I would say the third key element and there is our consumer businesses.

And that probably werent as impacted and did pretty well during the pandemic. We expect those businesses to either continue their trajectory or get better I mean, I think nutrition had a really great year last year and I expect them to have a very similar year. This year with a lot of new product launches ETD should get sequentially better we saw that and <unk>.

Q4, early indications and January show that recovery continuing and.

And quite frankly, and Libre I expect to do better.

And with all the with all the innovation and investment were making there. So so those businesses will do well and then the fourth element that we've modeled a lot is spending and ability to reinvest and the businesses and areas that we thought that we could we could do with more investment whether it's SG&A.

And more specifically and R&D.

And accelerate some of our programs I think you saw some of that and our Q4 results, where we beat consensus while at the same time investing more in R&D and SG&A. So so we've looked at these four these four elements here, Bob and we modeled it.

Variety of different ways.

And just feel really good that this was a a good floor and good starting point.

And at $5 and quite frankly, if anything we could have significant upside over here and it's just really going to depend a little bit on on <unk>.

How we think about COVID-19 testing going forward. So I kind of saw the five dollar share is okay. It's a 37% increase versus 2020, which grew 13% and we've got probably upside to that while at the same time on opportunity to invest.

And the business invest in SG&A more specifically in R&D and we've got a leading COVID-19 test portfolio with a variety of different tests and and capacity that we havent Dialled all day and quite frankly, if I if I put all of that capacity and I think maybe you would add a little bit time.

Believing that but it's there.

And I think we've got and exciting base business like.

And you talk like you mentioned here that is poised for recovery I mean, we've got great portfolios.

Real strong brands.

Rich pipelines and strong leadership positions, so I think the $5 here.

Was definitely a good starting point.

<unk> all those elements in here and we will be able to kind of build from there as the year progresses.

Thank you for that thorough overview and then just the one follow up would be obviously at the beginning of 2021, but.

Is that high level of earnings for this year.

Does that mean, you might not be able to grow off of that in 2022, because theres. So much testing in 2021 or just give us some thoughts on abbott's ability to continue on a double digit growth trajectory off of that $5 number.

Okay.

Sure.

It's a little premature to skip across all the way to 2022.

But we have but listen when we didn't do 2021 and isolation. So we looked at 2022 and.

And looked at all those different scenarios that I talked about so I can I can probably give you. Some general comments over here I mean, I think we're forecasting a lot of growth this year and we're going to be looking to build on it.

Prior to the pandemic the street consensus for 2023 EPS was was just under $5. So.

We're targeting that EPS. This.

Level this year so in essence we've.

We've pulled forward at least two full years of EPS growth and and our mindset here Bob is going to be that we're going to maintain that pull forward and definitely we always start our process.

With a double digit target every year thats been our identity and I have no intention.

Of changing that identity of course, there is a couple of factors here that we need to contemplate, but even looking at those factors. We feel good that we've got the different elements here to be able to deliver on that on that double digit.

One of those is obviously COVID-19 and COVID-19 testing and and even if COVID-19 testing starts to mature a little bit and 2022, we believe there's a significant portion.

Still a very sustainable.

Can we predict that perfectly today and I can't.

Not to the level that you are accustomed to get from us.

But I also think that the the ability to do testing and a decentralized manner.

People talk a lot about how the pandemic has accelerated digital transformation and businesses.

And on accelerated transformation and the business models and the pandemic has accelerated our decentralized testing strategy and I think the I.

And I think I've talked about this and the last and the last call I think a lot of the testing channels that we're building here and.

Net of emerge I don't see them going away.

On top of that we as I said, we've got.

Investment and investment spending and into SG&A, but more specifically into R&D and we believe R&D is the more sustainable spend it's the it's the spend that allows us to sustain our top line growth rate.

So I would expect that these investments that we've made in Q4 and and definitely into 2021 that that would have an impact on our base business growth rate, we've always talked about our base business being sustainable at 7% to eight.

And I would expect these investments to be able to accelerate on that and I guess the third part on to that question of yours about confidence on delivering double digits and 2022 is we've got a great balance sheet.

And we've got <unk>.

<unk> financial health and a lot of strategic flexibility there. So I lay all of these elements out here sustained COVID-19 testing and the investment and the business and the strong balance sheet. Just gives me confidence that even with all of these different models here that we will be able to kind of continue to deliver that identity of double digit growth.

Thank you very much.

Thank you. Our next question comes from Matt Taylor from UBS. Your line is open.

Alright, Thanks, a lot and theyre, taking the question. So maybe I'll just ask you to drill down a little bit on.

Testing and the assumptions that you have for testing and the year and he came in really strong here.

In Q4 with a big step up sequentially, what are you assuming and the $5 four testing throughout the year. If you could discuss some of the different product lines and then maybe if you could provide some high level thoughts on how much of a tail of testing and we might see into 'twenty two and beyond.

Sure.

Let me talk about kind of numbers and ranges here, then and then I'll I'll spend time talking to them about sustainability of the testing.

As I said I don't Adam.

Don't see.

The demand is kind of dropping off even with the vaccine rollout, we achieved $2 4 billion.

In Q4, so if you annualize that.

It'll go Atlanta, right around $10 billion so.

I can expect probably Q1 is going to be at that range of about two five years or so.

And if you'd say, okay. What is our full year range look like probably cant go beyond Q1 in terms of exactly how it's going to look like but you can be and that six 5% to 7% range I would think.

But we've got as I said plenty of capacity to go to go above that so that's probably what's incorporated here.

Matt and the $5, but I think the big the Big point here is the sustainability of this.

And to your question there I think a good portion is sustainable I think substantial portion is sustainable which is why we were a first mover and and a leader here, we started with with our lab based systems.

Those where they're probably the obvious part and the strategy. Since we knew we had a lot of capital equipment out and the lapse. We started with that strategy to take advantage of the systems out there and you saw that rollout happened, but we also knew then and a pandemic.

You were going to need to add on top of that testing and infrastructure.

I have to add faster testing and testing that can be done at a much significant scale and that was that was more affordable which is why we developed.

Those two lateral flow tests.

There's been a lot of visibility to to buy and ask here and the U S.

We haven't talked a lot about <unk> bio.

But <unk> uses the same the same technology the same same kind of antibodies.

And we've got a whole supply chain thats been built outside of the United States that supplies all of the markets that we're supporting with <unk> bio.

And so both of those products.

<unk> been the bulk of our sales we saw that in Q4. There is a lot of capacity that we built around them and that we continue to build around them and the clinical utility of them is really strong I mean, they have been a lot of studies are showing their reliability here at finding people that are infectious and I think that's a key.

And here is your ability to use these tests and a way for.

Being able to find those people that are infectious and not necessarily those that were infectious and that might have some remnants of.

DNA of the virus in their system. So I think it is sustainable.

And I think you need to take to kind of use here.

On that at least this is how we're looking at it first of all we need to think globally about this sometimes we get very focused on on.

On the U S and what's going on and here in the U S. But you've got 8 billion plus people around the world you've got a variety of different countries that are experiencing different cycles, and the disease different cycles and their vaccination strategies. So once you really take a bigger a bigger view here.

And is not going to be something that will just be done and the next couple of quarters here. If you take a real global perspective, and the second thing that I think is just reframing the testing.

We think about the sustainability of testing when we think about Q2 and Q3 of last year.

Long lines.

Not enough volume.

Long turnaround times 150 to $200 tests.

And that might be not sustainable not as sustainable, but if you position yourself and two of 2021 and 2022 World, where you now have fast easier and much more scalable test digital test that are priced for.

We're more accessibility and affordability I.

I think thats the thats the sustained kind of business here that we see so so when you think about that maturing of the COVID-19 testing market, we kind of see PCR kind of maturing first and then we see the rapid part of the business.

And b being sustained and listen we built a lot of capacity as I said probably.

<unk> 12, 13, and $14 billion of capacity that we built and there.

We haven't put it all in but it's there.

And then the other part that I talked about was just the sustainability of Ahmet past 'twenty, two and into 2023 as we've accelerated our point of care testing strategy and everything we're doing and.

Fighting the virus has has not only a direct impact of helping reopen the economy et cetera, but it's also seeding the market and its building these new testing channels.

<unk> got testing going on and airports hotels urgent care retail universities et cetera, So we believe thats pretty sustainable.

Great. Thanks for that very detailed answer.

So thats a quick follow up on <unk> and <unk>.

The new piece of the story here I think you rightly pointed out may take longer and some countries and thanks to improved so maybe testing last longer there could you talk specifically about <unk> and what youre able to do capacity wise or any way to frame that opportunity.

Sure.

So.

From a technology perspective.

It's the it's using the same kind of lateral flow technology that.

By and X has its just and a different.

And a different.

Format and the cassette format.

Got capacity to do over 50 million tests per month.

And we've used our infectious disease and emerging market organization. So the manufacturing the regulatory <unk>.

R&D and more importantly, the commercial infrastructure to be able to look across the world and support.

Governments workplaces et cetera on.

On on Rolling out antigen testing internationally. So I think it's I think it's done very well.

We've been able to kind of leverage some of the some of the kind of joint development of buy and acts and and and and.

And bio.

But the demand that we're seeing.

Nationally I would characterize also as is.

Probably just starting it hasnt even peaked either.

So so I think we've got a lot of opportunity with <unk> bio and.

And internationally too and I think the teams have done a really good job there.

Alright, thank you so much.

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

Oh, great I'll add my congratulations on the quarter maybe.

And maybe I'll ask both my questions is one upfront.

This is a significant windfall of cash youre getting from the Covid testing in 2020, and 2021 and hopefully beyond.

So maybe you could just talk about.

And where youre going to put all of that cash to use and I know you've mentioned in the past some of it is going to fund new product launches. If you could just also as part of the answer highlight the key product launches in 2021 and beyond and to look for.

Sure.

Okay.

Let me say the following a lot of it is going towards R&D, Ravi and as I said I think that's the more sustainable spend.

It's the one that allows us to build more sustainability and our topline and building R&D programs, yes.

Yes, there is opportunity to accelerate SG&A and putting some of that cash to use and SG&A and there are some businesses that.

And could definitely benefit with more SG&A and there is and there is a pretty strong return as we put those in there whether it's libre or nutrition, but a lot of the focus of.

This reinvestment here is going into R&D and quite frankly, I think I think our pipeline has been highly productive and maybe maybe a little bit underappreciated I think theres a lot of focus that goes in and to kind of key three products that you guys like to write the right about them as the big three and and they get a lot of attention and.

And quite frankly, they should whether it's libre and mitraclip and the Liberty.

They're large multibillion dollar segments that are underpenetrated, and we've been making clear and.

And intentional investments and those businesses, so I'm not going to spend a lot of time going through those but you kind of know them right. So libre with libre three.

We've got Libre, four and development, we've been making investments and new <unk>.

New applications for the Libre platform outside of diabetes and Mitraclip. Obviously, we've got this opportunity with the CMS reimbursement, we have a fifth generation Mitraclip, that's also and development and we're investing in thinking.

And a amount of clinical trials here and expand.

And the market for us and we will continue to do that probably the one on more excited about here is the moderate risk for DMR that we've announced also and then and Liberty. You also another story I mean, we've got six new systems, where we're increasing the menu and expanding that geographically. So that that has a lot of attention continues to have a lot of it.

And we do resource those opportunities because they're that big but I think it's misleading here to think that thats. The sum of our innovation strategy. So much more than that on the PD and the nutrition side, we're going to continue to invest and and line extensions and portfolio refreshment and this is the model that we know drive through.

Returns, we need for these businesses and I think the team has now hit their stride in terms of how to do this.

And how to effectively roll this out with local portfolios <unk> rolled out over 50 products and I expect that to continue nutrition has done over 'twenty and I expect that to continue also and.

<unk> ignostic outside of <unk> outside of Covid, and we've been investing a lot in expanding our rapid testing portfolio I have been talking about this about the opportunity we have to take advantage of these new channels that we built and and increase the penetration.

And with different assays so.

Whether it's going beyond.

Covid or flu with RSV strep.

We've got a sexual transmitted disease platform for Friday, now, which we're excited about also which we think has got a great opportunity and then this rapid concussion test Ravi I think is a great opportunity for us.

Probably the biggest opportunity we have is once we once we work through to have a whole blood test.

I can envision here.

And opportunity across the 25000 high schools and the U S 5000 colleges or sporting leagues, and Thats going to take us another year and a half orbit or so to get there, but I think it's a great opportunity and.

And then the device portfolio.

Going to continue to get a lot of investment the way we have obviously turned on in Sofia, we want to be a leader and mitral.

We've launched <unk> and Europe, we're funding our cepheid programs that we can have a.

<unk> Trans septal program for the replacement of the mitral valve Im very pleased with the progress we've seen on <unk> try clip I talked about the opportunity with Tri clip.

Not going to be as large as mitral, but it will be 30%, 35% the size of the micro market and we're still in the early innings here.

Development of clinical evidence development, and we're going to be leading there we've made investments and increasing the competitiveness of our CRM portfolio. We've just started a rollout and now more global basis are new to our two new <unk> products under the gallant and we've been working hard at our <unk> Pro.

Graham and making the investments and the <unk> program. So that not only can we come out with a with a single chamber product and then be able to upgrade it to a dual chamber product like the program I like what we've done with it I think we have a value proposition a differentiated value proposition vs versus the competition.

Cardiome Mems is another study that we've been funding and there is probably going to be required some buildout of the commercial infrastructure to be able to support the rollout of that product. If you think about the opportunity we have with cardio Mems.

Even at a.

10% to 15% penetration on that population youre looking at $1 billion opportunity for us. So that is obviously getting a lot of attention and then I'm very excited to come into the U S with the law and the Teva product.

Sometime this year I think these are great opportunities like the product that we have especially on the led side with amulet and.

It does very well and Europe.

And we'll be funding those programs too so.

So it's more than the big three Theres, a lot here and quite frankly, Bob and I are already going to the businesses and say, okay. What was below the line that you didn't show us and the planning process and and can we can we get going on those too.

So that's where that's where a lot of the investment goes into R&D.

That's really helpful. Thanks, so much.

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

Good morning, and thanks for taking the questions. Robert just wanted to follow back up on investment and I just.

And I'm, just sort of thinking about your balance sheet here relative to peers youre already more than a turn better than all your large cap peers and.

And frankly I could see a scenario by 2024. This is our net cash business and a $200 billion market cap company. So you have kind of unprecedented levels of financial leverage on the balance sheet and.

In recent weeks, we've actually seen some of your competitors get more aggressive on growth oriented M&A and we havent heard much of that conversation. This morning. So what are your thoughts on kind of growth oriented M&A. This year to supplement that pipeline and should investors be thinking about tuck in growth oriented M&A. Because you certainly have the capacity to do something more transformative than I had a quick follow up.

Sure on the M&A side listen we're always looking.

And as I've always said, we're always looking always studying so.

While we will not be announcing or doing something where we're still studying we're still looking at.

As I said and the previous question, though David and I think we've got a lot of organic opportunities to invest in and and I like those organic opportunities.

And so they obviously do get a lot of our attention right now, but if you think about M&A.

Yes, it's got to be a good fit strategically and it's got to align with our growth orientation here I mean, I'm not going to look at something that's going to dilute our topline growth rate and and.

And obviously.

And is able to generate a return for our shareholders. So.

There's a lot of activity, there's a lot of I'd say high valuations right now also.

But to the extent that we do something this year it would be more like tuck in and nature.

To be able to kind of augment some of these some of these portfolios.

So.

That's probably the better way to put it to you.

Okay very helpful. And then what a difference a year makes for deepened the call. We havent talked about libre, yet, but I'm kind of curious on two fronts on libre one what.

The full commercial rollout of Libre, Sri and Europe, we can be thinking about the right quarter to think about sort of stepping on the gas with libre and <unk> this quarter or is it next quarter and then just more broadly Robert I mean, given the investment spending this year on direct to consumer and where that platform and go over time, just maybe help us understand what investors may not be appreciating about where that platform can go over.

Multi year basis, so when does the push and Europe and work on that platform go with investment. Thanks, So much share.

Sure sure. So leave it gets pushed down to like fourth or fifth question.

But it's still it's still a top of our priorities here, because it's such a huge opportunity for us.

We had a real strong quarter.

Real strong quarter and Q4, we exited with a lot of momentum going into this year, especially in the U S. I think global sales were three quarters of $1 billion up 35% and.

And I expect I expect the absolute dollar amount to get bigger and usually when that happens, we think well Gee law of big numbers right.

<unk> are going to go down and I don't think so.

I think that we're going to see continuing growth rate.

Expansion on our <unk> business here, so I kind of look at Libre as a 2021 growth that should start at 40% and go from there.

A lot of focus on the U S on the rollout on Libre two rollout, we're seeing a lot of the trend shifts.

And there it's revenue whether its new users I think the superior accuracy messaging here is it's definitely coming through and it's got all the other advantages of our value proposition I think one of the good things about the pharmacy channel is that.

There's a lot of available data and theirs.

Lot of avail.

Available.

And third party audit and data and when I do the reviews with the team.

We spent a lot of time looking at them and I told me you can't hide behind these you can hide and the pharmacy like all of this data is available and I think it's big it's done really well and the U S and obviously I wanted to do better but I cant.

Look at it and not be objective that theres, obviously been a.

A trend shift here, whether it's and.

<unk> refill rates et cetera, one of them that I am extremely.

Happy to see is the Rx fulfillment rate so when.

A consumer goes to the pharmacy with a prescription swipe the card do they get that prescriptions filled right and Theres factors that drive somebody to not get it filled it's usually a co pay and <unk>.

What we've seen with the Libre.

Rx fulfillment rate is at about a nine out of 10 get filled and you compare that to our competitor at about six six out of 10 and I think the value proposition here is really strong meaning that we can invest and DTC.

Advertising, we can invest more on this platform and we're seeing the value proposition and come through as it relates to Rx fulfillment rates. So.

So I'd say the focus on on us at all to your question on L. Three.

We're already here, we've been we've been working through say the reimbursement.

Contracting process.

It probably got delayed a little bit and Q4 in terms of our expectations given some of the focus of a lot of the international countries.

Focusing on Covid, but.

We're already manufacturing is ready and fact between Libre.

Libre, two and Libre three we've got hundreds of millions of sensors here of capacity and I think that ties a little bit to the expectation that we have for this segment, which is you've got close to 80 million people that could benefit from this target, which is why we took a very different approach and our strategy and much mass market approach.

Net.

Develop a product that is consumer friendly intuitive make sure that it can that it can provide measurable benefits and price it for mass adoption and that's working out very well. So we will we should see.

Breakthrough launch international.

In Q1.

And then and the U S. We will.

We will issue a release when we get approval.

Thank you so much.

Thank you.

Our next question comes from Larry <unk> from Wells Fargo. Your line is now open.

Good morning, Thanks for taking the question and.

Congrats on a really nice year.

So two for me one just on kind of how you see.

The recovery playing out in 2021 and one on the P&L. So Robert how do you see the year playing out for devices ex Libre and diagnostics ex Covid testing testing in terms of the recovery Q1 starts to be an easier comp because we started to see the COVID-19 impact last year and the first quarter.

And do you see the second half of this year is more normalized and I.

And one follow up.

Yeah sure. So on the device side as I said and the earlier commentary Larry I think we're going to we're looking at what we saw on Q3 and.

Correlating those that that drop in rates not an absolute drop so not trying to mirror the absolute number of hospitalizations, but at least the rate of decline of hospitalizations and tying it into the increase and the procedures a lot of these procedures are our life saving some of them are elective similar on the lifesaving and.

We're hearing a lot of a lot of our accounts and the U S and international.

Wanting to kind of push stronger and.

And our sense here that with the vaccine.

Feel more confident to be able to build it so I think youll see.

Probably the biggest comp issue I would say, it's probably Q2 I mean I think that's when we saw the big drop Q1 was probably more towards the end of the core of the last two weeks of March.

And I kind of see the more normalization growth rates, so that those kind of growth rates that you saw from our device business excluding <unk>.

Diabetes.

Look more like that in.

Starting in Q3, but we will have a nice build I think two there.

As the year progresses.

And then on the P&L.

Bob You gave some helpful color on some of the below the line items, but the testing revenue as it comes at a pretty high margin I believe how should we be thinking about gross margin and operating margin in 'twenty, one relative to 2020, thanks for taking the questions. Yes, certainly.

So on.

Our gross margin on our testing business is pretty similar to kind of the base business, maybe maybe a touch touch higher than that.

We saw steady improvement in the fourth quarter on gross margin from the prior quarter. It was up about 100 basis points and we saw that kind of steady improvement coming out of the second quarter, where we saw the impact on.

The decline and kind of the medical device area and.

Third quarter fourth quarter steady improvement and we would expect that to continue.

To go steadily up as we see recovery and those base businesses, we see more normalization kind of coming through our manufacturing plants as well as that volume kind of normalizes and the fourth quarter. You did also see the impact of some of the investments that we're making in that capacity that Robert talked about and so that was a bit of and offset that.

And I'll kind of come through and the fourth quarter.

Thank you very much.

Thank you. Our next question comes from Joanne Wuensch from Citi. Your line is open.

Good morning, everybody and thank you for taking the question I Wonder if I could on two things on <unk>.

And so a really nice recovery and the fourth quarter, but not as strong as it's been the last couple of years. How do you think about that recovery over time and then the second question is a bit of a big picture question.

And we're talking a lot with investors about sort of a whole new world and how health care is being delivered and I would think you would be one of the closest to seeing how the pandemic has change delivery.

And.

Sure So on <unk>, yes, we do.

See a nice recovery I mean, when we looked at how.

How the impact of Covid progressed geographically we saw it.

Some reason kind of trail a little bit kind of the developed markets, whether it was Europe and and the U S and we really started to feel the impact.

On our <unk> business, which is as you know most of the emerging market is starting to see it coming out of Q2, and then big and Q3 as a lot of those countries kind of shut down and.

And the way the model works is you still need a prescription and you need your physician or you need to go to a hospital to get that prescription. So so when we looked at Q4, we were actually.

Not surprised but it was good to see that it came in a little bit higher than what we had expected.

Because we were trying to model it very similar to what we saw and some of the other businesses and it came back and it came back faster.

At the same time.

It's not a nice kind of linear forecast and these markets.

And it does tend to buy.

Bounce up around I mean, we had a 9% nine and 10% growth.

In Q1, there was some stocking effect, there and kind of February and March and somewhat and some of the markets. So you'll have a comp over there, but what I. What we look at is we're looking at the IMS.

Demand.

Market progression and all of these markets that we're competing and and we're seeing a nice a nice recovery. So I expect that just to sequentially kind of get better and and I guess similar to the comment on devices get back to that.

High single digit growth rate towards the second half.

Oh and then you also had a question on on change of change of care.

I think a lot a lot has happened right and.

We've tried to focus on the areas that we feel that we can contribute and benefit one of them I've talked about is is.

And this decentralization of testing.

And how the pandemic has accelerated that decentralization and for US we believed and it we believed that we could drive it and create a whole new testing channel. When we did the Alere acquisition and this is kind of brought it forward about about.

About two years in terms of where we where we are today versus where we thought we're going to be so so that's an important part for us.

And being able to have access to fast affordable and digitally connected testing is something that I think is going to be here and here to stay whether it's a COVID-19 test or other tests I think that is a change a little bit in the delivery at least on the diagnostics side.

And then the other side that I would say is one that we've been working on for quite some bit is the connectivity of our devices and the <unk>.

Intersection of digital and health care and how those devices are being connected you've seen what we've done across all of our portfolio on devices and we will continue to position our products.

And such a way, where we can develop them and take advantage of that.

For Neuromodulation, we've just.

Announced here, a very interesting platform, which I think is going to have a significant impact on how that business and business and model works with a much more connected care platform, where patients get to report their outcomes and eventually get to remote programming, which is a huge change and that business model. So I would say.

The COVID-19 testing accelerating decentralization of testing and connected care are probably the two pandemic driven changes that we're focusing on on.

On taking advantage of.

Thank you.

And we'll take one more question operator.

Thank you and our last question comes from Vijay Kumar from Evercore. Your line is open.

Hey, guys. Thanks for taking my question here and I'm, sorry to ask both of mine.

And one question I guess Robert.

PCR Atlas antigen test Scott can need to test these new areas.

<unk>, South Africa and value.

On a different one versus the other Pcr versus Madison and when you're on.

And when you look at the total revenue contribution my follow up was the six five to seven and eight 7 billion Nash.

Core revenues in fiscal 'twenty one.

What would be a reasonable baseline margin assumptions.

And I look at that fiscal 'twenty, two is that a 50% drop off 75% drop off.

And I'm curious how you guys are thinking about it. Thank you.

And I guess on the modeling and say listen you could say that could be a drop off but you could say there could be and increase Rick.

Rick Ste.

So I think the modeling piece here is a little bit difficult I think we're going to have a lot more understanding as we get towards the summer but.

But I think at least for the first half you've got we've got sufficient capacity here to kind of explore.

On the demand that exists both in the U S and globally.

And so.

So, yes, and I'm not I'm not sure right now that you can kind of easily kind of just put that model down like that but it's just too soon.

Regarding your question on on mutations and the impact there a lot of the mutations here.

I don't want to get too wonky.

Here, but we've been looking at this Vijay since the beginning we have a group of we call them the virus hunters, they're constantly looking and studying and getting their hands on samples to be able to kind of not only.

The test our existing products, but but even the development of new ones and then I'd say right now the mutations are happening the ones that you've referenced the south African one.

And the UK one those are happening on what we would call. The spike protein are what we call. The <unk> protein. The rapid antigen tests that we have are actually targeting the neoclassic protein, what we call the and protein so.

And Silicon analysis says no impact.

The U K NIH kind of did a study on Pam bio and found the U K variant to not influence the sensitivity of the <unk> buyout, but we're also collecting as many samples as we can from U K South Africa.

On Brazil, et cetera, and making sure that we're constantly studying that to ensure that that there is no. There's no change to the sensitivity of the test that we've developed on.

On the molecular side, whether its I'd now I'd now looks at a different gene.

And our PDP jeans, its completely different thing.

And similar thing also with the PCR.

So I think those are right now from everything we know wouldn't be impacted by by the mutations we're more focused on on the antigen with mutations on on.

And those protein sequences.

So I could see some so I feel good about I feel good about that right now, but obviously we are constantly vigilant here so.

So let me let me disclose here I'd say, we had a real strong 2020, very strong performance almost 10% topline growth 13% EPS.

We're forecasting 2021 here.

At least $5 and like I said I think we've got on.

Opportunity to to have upside to that but still already at $5. It's already at a 37% increase and in that $5. We're also making a lot of investments in R&D.

R&D to be able to sustain our growth going forward. So we.

We feel confident about maintaining our double digit and 2022.

Significant portion of our Covid testing, we believe is sustainable.

We've made investments or have a plan here to lay out investments and our base business that I think we will accelerate our growth rate and.

Some of the questions here, we've got a strong balance sheet here. So you combine those three elements here I think we've got a.

Not only a strong 'twenty, one forecast, but a pretty.

Pretty good line of sight here in terms of delivering double digit for 2022. So thanks.

Thank you operator, and thank you for all of your questions. This now concludes Abbott's conference call. A webcast replay of this call will be available. After 11 am central time today on Abbott's Investor Relations website, and have an investor and 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 and welcome to Abbott fourth quarter, 'twenty and 'twenty earnings Conference call.

All participants will be able to listen only until the question on and some portion of this call.

During the question and answer session, you'll be able to ask your question and my Star One Keith on your cash downtown.

Should you become disconnected throughout this conference call. Please redial the number provided to you and referenced the Abbott earnings call.

This call is being recorded by Abbott.

I'd like to introduce Mr. Scott line of 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 Bob <unk> Executive Vice President Finance and Chief Financial Officer.

The expected financial results for.

For 2021 Abbott cautions that these forward looking statements are subject to risks and uncertainties.

Putting the impact of COVID-19 pandemic on <unk>.

And its operations and financial results that may cause actual results to differ materially from those indicated and the forward looking statements.

Q for the quarter ended March 31 2020.

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

Please note that financial information provided on the call today for sales EPS and line items on the P&L will be for continuing operations only.

On today's conference call as in the past non-GAAP financial measures will be used to help investors understand abbott's ongoing business performance. These.

Unless otherwise noted our commentary on sales growth 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 thank you for joining us.

Today, we reported another highly successful year for Abbott.

During what's been the single most disruptive health care event and our lifetimes.

For the full year, we reported organic sales growth of nearly 10% and ongoing earnings per share of $3 65.

Which reflects double digit growth and is at the upper end of our guidance range. We set last January when we were expecting and normal economy.

Performance like this after the pandemic struck there is a real achievement and demonstrates the strength of our diversified business model.

And normal times, and maximizes our growth opportunities and.

And during the pandemic, it's been tested by a global crisis and proven to be highly resilient.

It should come as no surprise that our performance was led by our diagnostics business and co.

COVID-19 dominated the year for us and the World and our primary response came in the form of diagnostic tests to identify the virus.

In total we delivered more than $400 million Covid test since the start of the pandemic.

Clearly more than 300 million tests and the fourth quarter alone.