Q3 2022 Abbott Laboratories Earnings Call

October 19, 2022

[music].

Okay.

Good morning, and thank you for standing by welcome to Abbott's third quarter 2022 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 one Keith on your Touchtone phone.

This call is being recorded by Abbott with.

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'd now like to introduce Mr. Scott, Lyne, and Weber, Vice President Investor Relations licensing and acquisitions.

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

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

Before we get started some statements made today maybe forward looking for purposes of the private Securities Litigation Reform Act of $19 95 <unk>.

Including the expected financial results for 2022.

Abbott cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward looking statements.

Economic competitive governmental technological and other factors that may affect abbott's operations are discussed in item one a risk factors to our annual report on Form 10-K for the year ended December 31 2021.

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.

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 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.

Note that Abbott has not provided the GAAP financial measure for organic sales growth on a forward looking basis, because the company is unable to predict future changes in foreign exchange rates, which could impact reported sales growth.

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.

Morning, everyone and thank you for joining us.

Today, we reported results of another strong quarter.

<unk> ongoing earnings per share of $1 15.

Based on our performance through the first nine months of the year, we increased our full year adjusted earnings per share guidance to $5 17 to $5 23.

Which is more than 10% higher than the initial guidance, Florida provided back in January .

As you know the macroeconomic conditions remain challenging.

Inflation continues to be a stubborn and force globally.

But we started to see some moderating impacts in certain areas of our businesses compared to earlier in the year.

At the same time.

U S. Dollar has continued to strengthen including throughout the most recent quarter.

Covid remains as unpredictable as ever with intermittent surges continuing throughout the world.

And lastly, global supply chain dynamics staffing shortages continued impact our health care markets, though we are seeing steady signs of improvements.

Yeah.

Over the last few months.

We've made progress in several important areas following the temporary shutdown of our infant formula manufacturing plant in Sturgis, Michigan earlier this year.

We restarted production at Sturgis in July with a focus on our Ela care and other specialty infant formulas.

And in September we began production of several similac products, which we expect will begin to reach retail store shelves over the coming weeks.

We also boosted production and our global network to increase infant formula supply to the U S.

In fact, we delivered roughly the same volume of Formula to our U S customers. This past quarter as we did during the three months prior to the recall.

Our number one supply priority was to the wig women infant and children Federal food assistance program.

To ensure that underserved participants would have access to infant formula.

During the quarter. We also made leadership changes both at our surge of site and in our quality organization.

And we concluded a month long investigation into the accusations that were made by a former employee.

The investigation, which included extensive document reviews and interviews concluded that the allegations about quality were unfounded and during the quarter. The same former employee dropped the federal Osha complaint.

And lastly.

We conducted an analysis of the U S infant formula market and have concluded that this country would benefit from more manufacturing capacity and redundancy.

As such we're moving forward with plans for a half billion dollar investment in a new U S nutrition facility for specialty and metabolic infant formulas.

We're currently in the final stages of determining the site location.

And we will work with regulators and other experts to ensure this facility is state of the art and sets a new standard for infant formula production.

We recognize there is more to do but feel confident in the progress, we're making and I want to thank all of the Abbott employees that have been working around the clock on this matter.

I will now summarize our third quarter results for our remaining businesses in more detail before turning the call over to Paul.

And I'll start with established pharmaceuticals.

Or <unk>.

Where sales increased more than 12% in the quarter.

Strong performance was led by double digit growth across several countries, including India, China, Brazil and Vietnam.

Along with broad based strength across several therapeutic areas.

<unk> has now achieved double digit organic sales growth since the beginning of last year.

Fueled by a steady cadence of new product launches and strong commercial execution.

And <unk> has also expanded its profitability profile over the same time period, which is quite unique given the current macroeconomic headwinds.

Moving to diagnostics.

Where COVID-19 test sales of $1 $7 billion were significantly higher than expectations, but lower compared to last year, which resulted in a modest decline in sales growth overall.

The decline in Covid test sales compared to last year was driven by lower demand for laboratory based tests.

Whereas demand for our rapid tests, which include buying X now <unk> bio and <unk> now continues to be strong with sales this past quarter at a similar amount to the third quarter of last year.

Rapid tests have proven to be very important and highly practical tools. They provide a quick and affordable way to test COVID-19 almost anywhere and at any time, whether youre experiencing symptoms were just want to know your status before attending events or gatherings.

Excluding COVID-19 testing revenues sales of routine diagnostic tests grew 6% in the quarter overall and even faster internationally fueled.

Fueled by the continued global rollout of our Liberty instrument for immunoassay clinical chemistry and molecular testing.

Lastly, I'll wrap up with medical devices.

Our sales grew six 5% in the quarter globally.

In the U S.

Sales growth of approximately 11, 5% was led by strong double digit growth in electrophysiology structural heart and diabetes care.

During the quarter in the U S. Cardiovascular procedure volumes were somewhat soft in July .

Before strengthening in August and September .

Internationally.

In addition to similar procedure volume trends.

<unk> were negatively impacted by intermittent COVID-19 lockdowns in China, as well as supply constraints in certain areas, most notably in electrophysiology.

In diabetes care sales of freestyle libre exceeded $1 billion in the quarter.

And our user base expanded to approximately $4 5 million users globally.

In the U S where sales grew more than 40% we initiated a full launch of libre, three which automatically delivers up to the minute glucose readings with unsurpassed accuracy and the world's smallest and finished wearable sensor.

Internationally organic sales growth was impacted by a couple of transitory items.

Including supply constraints on Libre, one in certain emerging markets, which we expect to improve over the next couple of months.

And secondly, a strategic choice we made in Germany.

To rapidly transition our large existing user base.

Our latest generation Libre three system.

Which temporarily reduced our focused on new user additions during the quarter in that country.

We already transitioned well over half of our users with the vast majority of the remaining users expected to move to libre three by year end.

This move strategically fortifies, our leadership position in the second largest continuous glucose monitoring market in the world.

And further enhances our already strong strategic position as we work to bring the benefits of libre to more and more people, including those with type two diabetes that are not reliant on insulin to manage their disease.

So in summary.

Despite the challenging environment, we achieved another strong quarter that significantly surpassed expectations.

Which reflects the strength of our diversified business model and execution.

And based on our strong performance for the first nine months of the year, we're once again, raising our EPS guidance for the year.

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, which excludes the impact of foreign exchange.

Turning to our results say.

Sales increased one 3% on an organic basis in the quarter.

Covid testing related sales were $1 7 billion.

Which while stronger than anticipated.

The year over year decline versus sales in the third quarter of last year.

Additionally, organic sales growth was negatively impacted.

By a temporary shutdown of manufacturing of our nutrition plan and Stuart just Michigan earlier this year.

Excluding COVID-19 testing related sales.

And the U S sales impacted by the temporary manufacturing shutdown.

Total average sales increased 6% on an organic basis in the third quarter.

Foreign exchange had an unfavorable year over year impact of 6% on third quarter sales.

During the quarter, we saw the U S. Dollar continued to strengthen versus several currencies, which resulted in a slightly more unfavorable impact on sales compared to exchange rates at the time of our earnings call in July .

Regarding other aspects of the P&L.

The adjusted gross margin ratio was 55, 9% of sales, which reflects the impacts of the nutrition manufacturing disruption and inflation, we've experienced on certain manufacturing and distribution cross costs across our businesses.

Adjusted R&D investment was six 1% of sales and.

And adjusted SG&A investment.

Was 25, 9% of sales in the third quarter.

Lastly, our third quarter adjusted tax rate was 18, 1%.

This reflects an adjustment to align our year to date tax rate with our revised full year effective tax rate forecast.

<unk>, 5%.

The revised full year forecast is modestly higher than the estimate we provided in July .

Due to a shift in the mix of our business and geographic income.

Turning to our 2020 to outlook for the full year, we now forecast ongoing earnings per share of $5 17.

To $5 23.

Which is comprised of our year to date results through September .

Plus ongoing earnings per share guidance of <unk> 86.

To 92.

For the fourth quarter.

We forecast total company organic sales growth, excluding the impact of Covid testing related sales to be in the mid single digits for the fourth quarter.

Excluding U S sales impacted by the temporary manufacturing disruption.

We forecast fourth quarter organic sales growth to be in the mid to high single digits for the remainder of our combined businesses, which includes medical devices established pharmaceuticals.

Diagnostics, excluding COVID-19 testing related sales.

Areas of nutrition not impacted by the disruption.

We forecast Covid testing related sales of approximately $500 million.

Which does not assume a COVID-19 testing surge in the fourth quarter.

And lastly.

Based on current rates, we expect exchange to have an unfavorable impact of approximately 7% on our fourth quarter reported sales.

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

Thank you if you have a question at this time, please press star one on your Touchtone telephone.

For optimal sound quality, we kindly ask that you. Please use your handset instead of your speaker phone when asking your question and again Thats Star one one to ask a question.

Sure.

And our first question comes from Robbie Marcus from Jpmorgan. Your line is open.

Oh great.

Congrats on the quarter and thanks for taking the questions.

Robert maybe we could start.

We're already towards the end of 2022, and I think People's attention are really shifting to next year, just with so many moving pieces, both in revenues and down the P&L with currency and inflation in Covid testing assumptions and so on so I was hoping sometimes at this point in the year you might give us some early.

So next year anything you can provide to help us narrow the range of outcomes would be great. Thanks.

Sure.

With all of those topics, we could spend the whole call on it right. So I'll provide up.

As broad a framework that I can give you here.

Obviously, the macro conditions are going to remain challenging right Ravi I don't think that anybody right now as we're planning going into next year is forecasting that this is just going to ease ease up right. So specifically I would say probably inflation.

I don't expect to get better.

And.

And I'd say the currency headwinds are very much kind of in play here for next year. Those are probably two of the of the big kind of macro kind of impacts for us.

But I still see a lot of opportunity for growth.

As I have been talking about our business in our portfolio.

So there is a clear path in my mind here for topline topline growth of high single digits and you can get there with a variety of.

Looking at across our businesses so in medical devices.

We've got a lot of upcoming launches.

And products that we have launched so libre three ambulate aver cardio Mems NAV a tour, we expect to be launching next year here in the U S and <unk>, our mapping system launching a new.

Ablation catheter into the market.

Globally next year also.

Probably show, there's more that I could kind of rattle off here in terms of devices. So I think the device portfolio looks very strong as we go into next year I expect the same kind of growth rate that we're seeing in the PD.

I expect to see continued share capture that we're seeing in core diagnostics.

And then obviously strong recovery in U S infant infant nutrition, so like I say, you see that high single digit growth in the clear path just based on looking at.

How those businesses will perform and how they're performing and the launches that we got upcoming.

Then you mentioned Covid right and that's the that's the other piece of the business So high single digit growth excluding COVID-19.

Covid is an interesting one Ravi where I think over the last couple of years, we've been talking about the sustainability of Covid.

Many of you are writing.

Covid testing will probably go away.

And here, we are in the third quarter and in the summer months with a 151 6 billion.

Number here in the third quarter. So I think that as we look I wanted to see how the next few months look like.

I think Bob made a comment in terms of our forecast for Q4.

Havent really planned for a big win to search.

More of an endemic like.

Forecast for Q4, and I think thats the the kind of endemic forecast that we will see.

Going into 2023, but I think it's right now it's looking like Covid test sales are stickier than than most of most of assumed so so those those are the components on the topline.

Down the P&L.

As I've said, we're going to be taking a close look at our cost structure, we have been.

We've increased.

We've increased that over the last couple of years made the investments we've talked about those investments.

<unk>.

Im looking to be able to get a lot of leverage.

Out of those investments that we've made historically and.

And at the top line the way I've kind of laid out comes through.

And the leverage falls through you're going to see that sales growth falling through it it's a pretty healthy margins.

Rob This is going to invest in the in the areas that we know we've got good growth in high growth.

Those those get the investment dollars I think in the past a lot of a lot of you have written about the big three of Abbott, whether it was libre Liberty and Mitraclip and those are are still big contributors of drive drive our growth.

But we've got a new class of products I guess I'd call them the fab five.

Looking at try clip affair in Avatar, cardio mens and LAE.

These products combine our annual run rate of about half a billion dollars growing 50% and those will also receive the kind of investments to be able to kind of drive us.

Their growth since I think they are again in the early innings of growth for us. So so we will look at.

Managing the P&L on our investments in our structures and choosing areas, where we're going to continue to invest and then other areas. We'll see some of the leverage from the investments that we've made in the past.

So as we go into 2023 to say that everything is fundamentally nothing's changed I'd say true our markets are still very attractive.

We've got leading positions in these very large high growth markets.

I like the pipeline.

And we've got a lot of ongoing and upcoming launch activity.

So that I'd say hasnt really changed we're going to have to be mindful, obviously of the cost structure of some of the inflation pressures and FX challenges we have.

And then on top of that we have a strong balance sheet and we've talked about that and that provides provides us a lot of strategic and financial flexibility as we go into next year. So that's probably that's probably my best characterization here and the condensed version of 2023.

That's really helpful and maybe one for Bob.

The fourth quarter implied EPS guide came in a little bit lower than the street.

We also saw a much bigger FX headwind, so how should we be thinking about the impact to the bottom line in third quarter whats implied in fourth quarter and if we start thinking about our models for next year Robert gave us the topline considerations, how do we think about FX at current rates heading into next year. Thanks, a lot yes certainly.

No.

We've seen the dollar.

Significantly strengthened this year, including throughout the third quarter.

And the biggest moves have been really in developed market currencies, the euro the pound and the yen.

So this is something that most if not all multinationals are dealing with and certainly not unique to us.

And I think I think Robin maybe these headwinds are a little bit underappreciated in terms of the impact here we are.

Always are looking.

To mitigate as best we can but there is certainly going to be a limit here in terms of what can be done we try to match our costs hedging program and take price.

Where appropriate.

This year.

At current rates, our full year headwind is a little bit more than 15.

In terms of earnings, but about <unk> of that is happening just in the fourth quarter alone.

And so whether there are certainly other moving parts that fourth quarter impact should give you a pretty good feel for the magnitude of headwind.

That's flowing into next year, particularly in the first two to three quarters of the year.

We will provide our earnings guidance in January as we always do.

And we'll contemplate currency rates at.

At that time.

Thanks, a lot.

Thank you one moment for our next question.

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

Good morning, Thanks for taking the question two product related questions for me first I wanted to start with Libre.

A lot going on there Robert.

Obviously, the exciting news this quarter was the type two basal.

CD from CMS, So I'd love to hear your thoughts on that opportunity or back of the envelope math suggests that could be a $1 billion opportunity for Abbott in five years and love to hear if you agree.

And just lastly on the vitamin C timing of that resolution.

And any color any additional color you want to provide on Libre I did catch it in your prepared remarks, you talked about non insulin.

Patients that was interesting and I did have one follow up.

Sure.

All Libre question, let me take let me take the CMS one so it is very exciting.

<unk>.

If I think about your model.

Probably more aligned maybe to my team, but I think my team is cutting it short in terms of what we could actually do with the syndication and I'll tell you why in a second but.

It is pretty significant I mean, you've got 4 million basal patients in the U S about a third of them are.

Covered by CMS.

So this is probably going to be in terms of the timing of it.

Public comments and amount of time, it's going to take for CMS to make the decision and then the implementation date et cetera. So this is probably more of a of a second half 2023 item I would say, but it's pretty significant.

It's going to expand it is going to expand CGM coverage by about by about $1 5 million patients on CMS and as you probably know Larry once CMS. Scott makes that determination. Then there is a natural flow that will then move into the private commercial market.

So I'm looking at the opportunity of ultimately 4 million patients that will have potential.

Get some sort of coverage and benefit from the technology.

Listen I think that we've it's not surprising from the perspective of.

Of this coming out because we have been leading.

And the generation of data and evidence to support this proposal I think if you do a search on all studies have been done on on CGM, and then segment that between pump studies and basal studies in type two studies in type two with non insulin studies youre going to see that Libre is at.

At the head of all of those tied to type two study. So I think this is part of the investments that we've been making clinically to be able to show the evidence and how this benefits.

<unk>.

A broader a broader population.

And then with the value proposition that Libre has.

It provides us I think.

I think I know what your model is saying I just think that we will have a disproportionate share of that this is a market where whether it's in the U S or in Europe .

It predominantly drives around primary care primary care call point primary care scale.

Specifically in the U S <unk>.

And this isn't this is a segment, where we do very well.

If you do an audit of prescriptions by physician class Libre has taken about 80% market share of the primary care.

Primary care or access so the team has been working on that so I think it's a great opportunity and.

And I think thats kind of fuels into.

This notion of this is a much larger market than.

<unk> has historically been contemplated as part of CGM and that's what our strategy for the moment, we entered the market has been thinking about it right.

We're not looking at sprint and quarter to quarter. We're looking at this over the long term and making the investments to be able to sustain this kind of growth rate.

We announced manufacturing capacity expansion is also in the quarter for diabetes care.

Because we believe that this is a we believe this is a $10 billion franchise by 2028.

We believe that we've got pathway between 15 to 20 million users on this product. So we're resourcing our manufacturing our scale, our commercial infrastructure our service our clinical investments to be able to support what I believe is a significant growth opportunity and we intend to lead that.

I think your other question was on on Vitamin C.

Yes, we have completed the clinical work on the vitamin C.

I'll provide updates.

At the appropriate time.

I do recognize that this is an important I would call short term medium term kind of growth driver for us. If you think about our franchise thats going to be about basal tied to and pump integration. So think of that the next kind of two to three years, a key core growth drivers.

And then I would say more longer term to get to those numbers.

I made an announcement beginning of this year regarding.

Looking at this outside of diabetes on our lingo franchise and that will then sustain our growth going forward. So.

We have made.

We've made the study feel good about the results.

I'll be updating I'll be updating.

Once we have something to update there.

We are working on pumped integrations outside the United States, and we will have a pump integration.

Launch.

By end of this year beginning of next year into Europe with one of our pump partners.

And I think theyre going to benefit a lot from our user base that we have in those countries.

Robert that was Super helpful. Just for my follow up I'd Love to get your reaction to the Pascal data at TCT in the launch in the U S.

Specifically your thoughts on the greater durability effect. They showed with Pascal I know, we haven't seen that in the Mitraclip registries and just any update on the locking issue.

We heard about this quarter. Thanks, so much.

Yes, so it wasn't unexpected.

Every time at TCT Theres always unexpected <unk> of a landmark study or an approval so that wasn't it wasn't unexpected.

They got approval for DMR.

Thats one of the smaller indications about a third of the market. We've competed with Pascal.

Internationally are ready for a couple of years.

I expect to see some trialing in the U S and the question is going to be how much of it is going to stick.

Internationally Mitraclip has done very well.

And.

And we've held onto a good portion of our share I think in Europe , we're kind of at that 80 20 split.

So I think.

I expect some of those dynamics to play out here in the West and I think mitraclip is going to do.

Is going to do very well.

Regarding the data set.

It was I think it was 117 or 120 patients I think it was maybe.

Versus 63 of Mitraclip I mean, we've done over 150000 implants Larry.

And we've got great data.

On our product.

You have over 1000 patients in the registry.

I think the data is the datasets pretty small right now.

So we're working on our side, we're doing our investments in our clinical trials investments.

Advancements in Mitraclip.

I think right now I think the biggest opportunity is market expansion.

And we're going to be driving a lot of that with the FMR indication I think I've said this in the last call I think that one of the biggest impacts we have for me.

I looked at our portfolio was regarding COVID-19 was not being able to benefit the FMR indication and the NCD. So I think thats the biggest opportunity we have is market expansion.

And working to get those referral referrals network setup.

And driving that demand.

Further expansion.

So I think the locking mechanism I think we had.

We took a field action I think thats.

So far going going okay, I haven't had any kind of issues supplies back to normal.

Thanks, so much.

Thank you.

And our next question will come from Joanne Wuensch from Citibank. Your line is now open.

Good morning, and thank you for taking my question.

I'd like to jump off a little bit from the Mitraclip conversation and then try and Peel apart the double digit growth in structural heart this quarter.

Im a little bit stronger than we were looking for how much of that is mitraclip versus demand for product versus maybe something else and how do you think about developing that segment a little bit further.

Sure well I mean I.

We've talked about how important the structural heart portfolio was for us.

Even when we go all the way back to the acquisition of St. Jude and really building. This franchise. So we've been intentional about doing that.

Mitraclip.

Had a good had a good quarter, we had a growth of about 6% that was impact a little bit in the U S.

But we had double digit almost double digit growth internationally. So if you kind of back into that you could see that some of the other parts of the portfolio are now starting to kind of.

There as they are gaining in and scale July and they are starting to have a stronger impact on the portfolio. So amulet.

And <unk> internationally.

I know you mentioned portico, but I'd say, it's probably more <unk>.

In Europe that did very well for us and it continues to do continues to do pretty well.

We've.

As I say, we acknowledge that we're behind two market leaders here, but we're making the investments and.

<unk> done pretty well.

In Europe , I'd say, we've got about eight.

<unk>.

Eight 9% market share in Europe and in the accounts that we actually have an avatar in <unk>.

We're close to kind of mid teens, so that product is very competitive and we're looking forward to bringing that here to the U S.

We followed it with the FDA.

And we expect to bring this to the market here in the first half of next year.

Scott, maybe you could talk about kind of amulet.

And what we're seeing there also.

Yes, I'd say Joanne.

Robert mentioned it is kind of the remaining basket of that structural heart business, that's driving a lot of the growth there.

Opponent of that launch in the U S continues to go very well nice traction in particular I would say in the early adopter accounts as it started late last year.

Our share in those accounts is around 40% now at this point just shows you kind of once you get in there and get experience and have an opportunity to drive some deeper penetration that you can really achieve a strong share position and we're doing that in those in those early adopter accounts. So as we've added accounts over the first portion of.

This year, we will look to do the same thing with them.

We go forward, so great opportunity to build seen nice growth there and like I said like Robert said kind of a handful of the other items along with <unk>.

<unk> <unk> and amulet here that are driving growth in addition to what youre seeing.

And no it's the long term opportunity for Mitraclip.

As my follow up question in nutrition, one of the things we talk with investors about is how do you think about the recovery in that segment. Once your supply is back up do you see yourself just returning to growth.

Right are taking a good percentage of the share back or any guidance you could give us any model forward would be helpful. Thank you.

Sure.

I would say we've gone.

We've had a situation like this back in 2010, and we've seen other competitors have situations like this joanne.

In terms of the share recovery process.

I would say there is there is a couple of key things in terms of consideration and when you think about doing those modeling its looking at.

Your share of the WIC program.

Your ability to continue to call on pediatricians.

And your share in the hospitals.

And I would say we've.

Disproportionately focused.

In this quarter with our global supply network to focus on those channels.

And one of the challenges with that is the <unk> channel is.

As a lower price channel than the what I'll call the non <unk> channels. So so.

So that's probably where we made a decision to.

Take our take the volume that we had like I said in my opening comments, we actually supplied.

To the market this quarter, what we supplied in the three months prior to the recall, it's just the mix of that supply was overly gated towards towards the week towards the weak states in the with contracts that we had we made a commitment.

Two to those states that they would not have backwater supply shortages. So.

So we focused on that and I think by focusing on that we not only.

Lift to our commitments and the contracts that we put in place, but that's going to obviously be a base for us as we as we go into this quarter.

And into next quarter so.

If you look at the Nielsen data.

You do see share recovery I would say, we probably lost about 20 share points.

From the recall and I think the last read that I saw in September was we got half of it back.

And that is a mix. This will go to the mixed piece where on the <unk> side.

We've recovered all of our share and now we're going to take our capacity and start moving into the non WIC not.

Onto the non with channel with the non WIC configuration. So so.

So like I said.

We've intentionally made these these decisions in terms of how we're supplying the market.

And I think by doing that just naturally with the work that our teams are doing will start to see the share recovery.

<unk>.

Month over month.

That's probably how to think about it.

Thank you very much.

Thank you one moment for our next question.

And our next question comes from Josh Jennings from Cowen Your line is open.

Hi, good morning, Thanks for taking the questions, but I wanted to ask about the Covid testing franchise and just the strength in 2022 and thinking about the comp for 2023 is there anything you can share.

In terms of contracts that are in place for 2023, and what that could look like where whether contracts in 2022 could roll over into 2023.

It's impossible to forecast.

Utilization uptake because of Covid testing next year, but theres any based commentary you can provide there would be helpful. I just have one follow up.

Yes, I think thats.

Looking at the market between government contracts and nongovernment contract is something that we spent a lot of time this year doing.

Obviously, those government contracts, they're high volume.

And.

They ultimately skew a little bit of kind of the run rate as we are trying to kind of run rate. This so if you look at our Q4 number.

Our Q4 number that we're forecasting.

Really what I would call an endemic staked right. So about a half a billion dollars across the world across all of our platforms.

And in a winter season without necessarily forecasting the kind of surge that we saw last year in that number we do not have any significant.

Government contracts now what governments have realized.

Is that.

They do need to make some investments.

And they do need to hold some level of testing inventory in their countries. So we have active conversations with a lot of governments and they recognize and realize in abbott's ability.

<unk> to scale up.

And scale up pretty fast so we've got plenty of capacity and they know that they know the value of our product they work very well with it.

In terms of determining COVID-19.

And the new variants et cetera. So so we don't have any significant number in 2020 in Q4 of this year, we think that thats, the kind of right kind of run rate from an endemic standpoint.

And.

If there is a surge if and if and if governments.

Realize that they do need to procure more testing.

We've got the product we've got the reliability of the product and we've got the reliability to supply and they know that.

So we're in a good position there.

Just one follow up on Libre you mentioned.

The path to achieving <unk> status.

Understand.

<unk> segment of the CGM market that will open up for per Libre, but was wondering if you could just share your thoughts on the potential impact to clinicians sentiment towards accuracy the platform.

Hey, your sentiment in terms of whether there could be any.

Formulary prioritization decisions.

Considering the price and then on the other side of that how long do you any new thoughts on pricing for Libre II.

Particularly in this inflationary environment, thanks for taking all the questions.

Sure well listen this is an important segment right.

Obviously, the vast majority of CGM users and the vast majority of future potential users or people that are either injecting insulin with pens or syringes.

Or not even using insulin right, but we recognize that this is an important segment. So we're doing like I said, we completed the work.

On Libre two regarding the vitamin C will be.

We'll be updating.

We will be updating the market and our partners.

As as we as we go through that process with the agency.

But we also believe that.

We also believe that there is potential to innovate even further in that pump integration right and we've talked about this last call. We announced this at the Ada in June which is the creation of a dual analyte sensor glucose ketones sensor.

Everybody all the all the capabilities that I've spoken to that you're I guess, you're referring to I believe that.

This would be the go to sensor for pump integration because the key functionality provides the added safety feature.

That would be required right. So if there is some sort of interruption in insulin delivery from the pump what is understood clinically is that the ketone levels will rise earlier.

Then the glucose levels and to be able to have that ketone level that continuous key tone level measurement as an added safety feature for that pump environment and I think it does.

Provide.

A step.

Our head in terms of innovation in terms of pump integration regarding the accuracy I mean, I think it is commonly understood and the data is very clear in terms of <unk>.

Freestyle Libre, three I mean, even freestyle libre, two but freestyle libre three being a definitive.

First in class accurate sensor, it's the only it's the only CGM sub eight.

<unk> eight <unk>, so I don't I don't think we have that.

That issue.

So.

It's an important segment and we're going to be investing in it and we're going to our goal is to actually provide something that's even more advanced and more beneficial.

So.

Sorry did you have another question on on <unk> pricing.

Yes Libre three pricing Libre, two pricing Libre one pricing.

It's practically all the same.

And the more volume we can get onto Libre three the more we can kind of lower those cogs.

But we have a parity pricing right now.

And we think that that pricing strategy.

As I said last year as the international markets or even in the U S.

People have challenges either with co pays and the U S.

Or with formularies and reimbursement decisions internationally.

I think that our value proposition is very strong and it's going to prove itself out very clearly.

As.

Single payer systems start to look at how to fine tune their budgets.

And get more done.

Either with last year with the same amount.

So I think that our value proposition.

Consumer friendly product with best in class accuracy feature set.

No real gaps.

And our pricing strategy I think it's a complete it is a complete value prop.

I appreciate it thanks Robert.

Thank you.

Our next question.

And our next question comes from Vijay Kumar from Evercore ISI. Your line is open.

Hey, guys. Thanks for taking my question Robert maybe my first one for you.

The headline organic.

Cowen and <unk>.

3% ish low singles.

When you back out some of these.

The supply chain impact you mentioned, Germany.

Nutrition.

It was the underlying organic growth and when can we get back to an environment, where there is no mismatch in the headline organic underlying rate. It's a clean number so maybe just talk about that cadence to them.

Normality.

It was high single mid to high single.

Once you do all those exclusions I don't like doing that.

But it's important to be able to isolate what the challenges are and what the issues are and are they are they more transitory or are they more kind of sustained issues in the business I would say.

The issues that we've had.

The challenges we've had in this quarter regarding supply chain.

<unk>.

They are fairly.

I'd say from a med device perspective there.

Pretty significant and they kind of had the impact that we saw in our med device business I think if you it.

Look at the kind of back orders that we had weather was libre one.

And some of the backwards, we had in EEP would be would be high single digits, but.

If you back out these issues.

Mid to high overall for the company.

Your question of when do we when do we get into kind of a normal organic.

I think part of it part of the challenge here is as Covid that COVID-19 to play.

And as that base becomes smaller than what it is this year.

This year, we'll probably do very much.

Close the same amount of Covid test sales that we did.

Kind of last year, but as we move into next year and that becomes.

That becomes.

Smaller than this year, we'll see a little bit of an impact on on.

On that overall growth rate, but as I said I think in Robby's question I see high single digit growth once once once you once you back out of Covid.

So COVID-19 will be just the determining factor there, but base based non COVID-19 high single digits next year.

Yes.

Helpful and then maybe.

One on the financial side I think gross margins were down.

Q on Q.

I'm wondering what was the FX incremental inflationary impact.

Yes, I think.

Rob Robertson mentioned.

You mentioned Ken.

FX impact in Q4 should we annualize that to about 40.

FX impact for next year.

I'm not sure how to think about FX and inflation inflationary impact for next year, and we didn't talk about lingo.

Shouldnt that be an incremental driver community. Thank you.

Now, let me Vijay I'll take the exchange first EMEA I wouldn't necessarily.

Take that tension impacting the fourth quarter and extrapolate that for the full year.

Next year, but certainly through the first three quarters, you would expect to see that but then in the fourth quarter youre going to kind of.

Kind of be at those rates that we currently are at so but again. It is it is going to be a significant headwind for us next year on inflation.

<unk>, we're seeing the impacts there.

Like others, the biggest impacts we've seen it really around commodities.

Other manufacturing input cost in <unk>.

Logistics.

We've incorporated about another $100 million impacted gross margin in our current guidance.

So that's about $1 billion for the year, so call it maybe 240 or below.

240 basis points on the gross margin.

We as Robert said, we.

We've seen a little bit of.

Moderation in the rate of increase in the third quarter.

Sure.

For the year and we're.

And it takes some price to offset that.

It really more in our consumer facing businesses.

Kind of given the way that inflation has hit us over the course of this year.

Inventory that repurchase manufacturer this year at these higher costs will definitely negatively impact us.

Next year when that inventory gets sold.

Even if inflationary pressures start to come down kind of.

We.

Get into next year.

On your question on Lingo.

Vijay we have factored in a launch into next year.

We have not factored that launch here in the U S.

So it is an international launch.

It's a different business model is as I've talked about it.

More of a direct to consumer wellness subscription model and.

And we're on target here to come out of the gate to that in Q1, we are going to be launching in.

What I would call a little bit of a challenging environment. So we've taken that into consideration here, but I think that the long term growth opportunity.

Building this kind of business a wellness subscription like model.

With the with the platform that we built and the scale that we have I think is a great growth opportunity for us we do have it factored in into next year, probably launching in the beginning of the year.

And then building from there, but we will be launching.

I said in a challenging environment, but I still think it's the right thing to do from a long term perspective.

Thank you guys.

Operator, we'll take one more question.

Thank you.

And we will take our last question from Travis Steed from Bank of America. Your line is open.

Thanks for taking the question I did want to ask on China, how you've seen of a coverage shaping up there that's going to be another headwind next year and any new VP that you see coming coming up in China.

Yeah.

It is going to be a little bit of a headwind.

You can think about it as either currency.

N V BP.

We've gone through this in some other parts of our business. So we do expect.

This value based procurement of pricing here to play out I think the next day.

Next area that we're looking at we've gone through it with stents.

Last year or year, and a half ago.

And the next area that we're looking at is probably on the electrophysiology side Thats, probably the next the next category that's up.

It's interesting as we've been looking at this there is there is there is definitely interesting impacts in terms of ranges of these pricing.

Actually we've actually gone through some of it and pharmaceuticals also.

It will range from 30% to 80% in terms of pricing and really the magnitude year depends on whether it's a national or regional process.

Some of the categories have been more regional.

Tend to be.

A little bit lower.

And it also depends on the on the number of participants that exist in that category. So.

As I look at.

As I look at on the EP side.

We've also seen that.

There are more assistant like a system based approach Travis So think capital think about.

<unk> technical support and infrastructure associated support that.

Tend to be a little bit on the lower end of that range.

Versus to be on the higher end of that range. So that's probably what we've got contemplated.

For full GDP next year is more on the.

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