Abbott Laboratories - Q1 2023

Transcript

Operator (participant)

Good morning, and thank you for standing by. Welcome to Abbott's Q1 2023 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 will be able to ask your question by pressing the star one keys on your touchtone telephone. This call is being recorded by Abbott. With the exception of any participant's 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 express written permission. I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations, Licensing, and Acquisitions.

Scott Leinenweber (VP, Investor Relations, Licensing and Acquisitions)

Good morning, thank you for joining us. With me today are Robert Ford, 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 may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2023. Abbott cautions that these forward-looking statements are subject to risk 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 31st, 2022.

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.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. Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which is defined in the quarterly results press release issued earlier today. With that, I will now turn the call over to Robert.

Robert Ford (Chairman and CEO)

Thanks, Scott. Good morning, everyone, and thank you for joining us. Today, we reported strong results to start the year. Q1 adjusted earnings per share were $1.03, which was above consensus estimates driven entirely by strong underlying base business performance excluding COVID testing. Organic sales growth excluded COVID testing increased 10% led by double-digit growth in medical devices, Established Pharmaceuticals, and nutrition. As you'll recall, back in January, I expressed some optimism that the headwinds Abbott and other companies faced over the last few years were starting to peak and, in some cases, ease a bit. As we move through the first part of the year, that's exactly what we continued to see. Most notably, the impact of COVID has rapidly and significantly lessened. As part of this transition, certain behavioral shifts have been evident across society.

One simple illustrative example has been the significant increase in travel and tourism we've all seen, heard about, or experienced firsthand. A much more relevant and important behavioral shift that we're seeing in healthcare globally has been the increased priority people are putting on getting healthy and staying healthy. For our businesses, the impacts have been increased routine diagnostic testing volumes, improved medical device procedure trends, and strong demand for consumer-based health products. The net result this past quarter was strong, broad-based growth across our portfolio. Importantly, this growing focus on health adds to and enhances other favorable demographic trends, such as a global population that's growing older and living longer and increasing access to healthcare around the world. The combination of these favorable market dynamics, along with the strength of our growth platforms and new product pipeline, provides a strong foundation for sustainable top-tier growth going forward.

I'll now summarize our Q1 results in more detail before turning the call over to Bob. I'll start with Established Pharmaceuticals or EPD, where sales increased 11% in the quarter. This continues EPD's impressive stretch of consistent strong performance, including double-digit growth each of the last two years. Growth this past quarter was led by strong performance in Brazil, China, and Southeast Asia, and across several therapeutic areas, including cardiometabolic, gastroenterology, CNS, and pain management. Turning to nutrition, where sales increased more than 10% in the quarter. In the US, pediatric nutrition growth of more than 35% included the impact of lower sales in the Q1 of last year due to a voluntary recall of certain infant formula products. We continue to make good progress, increasing manufacturing production and recovering market share in this business.

Internationally, total nutrition sales grew mid-single digits overall. Sales in global adult nutrition also grew mid-single digits, driven by strong performance of our market-leading Ensure brand. Moving to diagnostics, where as forecasted, sales growth was negatively impacted by a significant decrease in COVID testing sales compared to the Q1 of last year. Excluding COVID testing, organic sales growth was led by mid to high single-digit growth in core lab, rapid and point of care diagnostics. In core lab diagnostics, growth was led by strong performance in the US and Europe, which was partially offset by soft market conditions in China early in the year, though we're seeing improving market demand over the last several weeks. Excluding China, core laboratory diagnostic sales grew nearly 8% globally.

I'll wrap up with medical devices, where sales grew 12.5% globally on an organic basis, including mid-teens growth in the US and double-digit growth internationally. In diabetes care, sales of FreeStyle Libre grew more than 25% on an organic basis in the quarter, including approximately 50% growth in the US and mid-teens internationally. During the quarter, Libre received US FDA clearance for connectivity with automated insulin delivery systems. We're working with leading insulin pump manufacturers to integrate their systems with both Libre 2 and Libre 3 as soon as possible. In cardiovascular devices, sales grew more than 8% overall in the quarter. Impressively, organic sales growth rates improved sequentially compared to the prior quarter in every one of our cardiovascular device businesses. This broad-based strength was led by strong double-digit growth in heart failure and structural heart.

In heart failure, sales of CardioMEMS grew more than 30%, which represents the Q3 in a row that CardioMEMS sales have grown more than 25%. In electrophysiology, performance was led by high teens growth in Europe, including strong broad-based performance across big five European countries, which was driven by cardiac ablation catheters and mapping systems. In structural heart, growth was led by double-digit growth of MitraClip, along with strong contributions from three recently launched products, Amulet, Navitor, and TriClip, which combined to grow nearly 50% in the quarter. Lastly, in neuromodulation, sales grew 11%, driven by a recent launch of Eterna, our first rechargeable neurostimulation device for pain management, which targets a large segment of the market where we didn't previously compete. In summary, we're off to a very good start to the year, exceeding financial expectations on both top and bottom lines.

The strong performance we're achieving is broad-based and fueled by strong execution, new products, and improving market conditions. Our core foundational growth platforms have strong momentum and are achieving exceptional results, positioning us well for top-tier growth going forward. Now I'll turn over the call to Bob. Bob?

Bob Funck (EVP, Finance and CFO)

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 Q1 results, sales decreased 14.5% on an organic basis due to, as expected, a year-over-year decline in COVID testing-related sales. Excluding COVID testing-related sales, underlying base business organic sales growth was 10% in the quarter. Foreign exchange had an unfavorable year-over-year impact of 3.3% on Q1 sales. During the quarter, we saw the US dollar strengthen somewhat 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 January.

Regarding other aspects of the P&L, the adjusted gross margin ratio was 55.9% of sales, which reflects flow-through impacts from the elevated inflation we experienced last year on certain manufacturing and distribution costs, as well as an unfavorable impact from foreign exchange. Adjusted R&D was 6.4% of sales, and adjusted SG&A was 28.3% of sales in the first quarter. Lastly, our Q1 adjusted tax rate was 14%. Turning to our outlook for the full year. We now forecast total underlying base business organic sales growth, excluding COVID testing sales, to be at least high single digits. We're now forecasting COVID testing-related sales of around one and a half billion dollars, which is below the full year forecast of approximately $2 billion we provided in January due to current testing dynamics we're seeing in the market.

Robert Ford (Chairman and CEO)

For the second quarter, we forecast COVID testing sales of around $200 million. Based on current rates, we expect exchange to have an unfavorable impact of a little more than 1% on full-year reported sales, which includes an expected unfavorable impact of a little more than 2% on Q2 reported sales. Lastly, our full year adjusted earnings per share guidance of $4.30 to $4.50 remains unchanged, but now reflects a lower earnings contribution from COVID testing sales compared to expectations in January, offset by raising our underlying base business earnings forecast by a little more than $0.10 based on our strong performance and outlook. With that, we'll now open the call for questions.

Operator (participant)

Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star one one again. For optimal sound quality, we kindly ask that you please use your handset instead of your speakerphone when asking your question. Again, that's star one one to ask a question. Please stand by while we compile the Q&A roster. Our first question will come from Larry Biegelsen from Wells Fargo. Your line is open.

Larry Biegelsen (Managing Director and Senior Analyst, Medical Technology)

Good morning. Thanks for taking the question and congratulations on a nice start to the year. Robert, you raised the base business organic growth and held EPS flat, despite lower expected COVID testing sales. Can you please provide more color on the trends you're seeing across your businesses and geographies, that allowed you to maintain EPS? How does that feed into 2024? It sounds like you're thinking more about the base business, ex testing, going forward, and I had one follow-up.

Robert Ford (Chairman and CEO)

Sure, Larry. I mean, I think you summarized it pretty well there. We reduced our COVID forecast right now from $2 billion to about $1.5 billion, but maintained the, you know, the previous guidance. That was a result of a better performance that we're seeing in our base and underlying base business. I think that's actually a pretty great trade-off to have our base business, you know, have a raise of just over $0.10 here offsetting this decline in COVID testing. As I said in my comments in the beginning, Larry, you know, back in January, we were seeing already some signs of a better environment, right? Specifically in devices.

We were starting to see already, you know, the hospitals and the systems, you know, starting to get their handle on staffing shortages. From an inflation perspective, we talked about some of the commodities starting to turn a little bit, not all of them, but some of them starting to turn. That's really translated, I'd say, in improving top line on the base business, better diagnostic testing, more procedures. I'd say if you look at the procedure trends throughout the quarter, you know, if you look at cardio specifically of around 8%, you look at the way we exited February and specifically March, they were double digits in March. The real impact there was, I'd say, the reopening of China in January and the beginning of the quarter.

That created a little bit of friction, but it was pretty broad-based across the systems in diagnostics and devices, US, Europe, Asia. We saw good performance in Japan also. That gave us a lot of confidence that we're on the right trajectory here. I'd say we're forecasting at least these high single-digit growth for the base business. That's because of what we've been talking about over these last couple of years, which is reinvesting some of those COVID revenues and profits into the base business. We're able to drive accelerated growth here without having to provide extra funding, let's call it that way, to that growth. I think it was a real strong start to the year.

you know, to see double digits in devices, EPD, nutrition, we continue our recovery there. it's a real good strong start to the year. I think it's very sustainable. Of course, we're gonna keep pushing and wanting more, but I think it's a good starting point. Regarding your 2024 question, you know, I get it. These last couple of years, Larry, usually in our first calls, it's always about what's gonna happen the next year because of COVID. I get that question. I'd say right now, I'm not gonna give any specific guidance, but if you look at our underlying base business, you know, we're a little over, right now we're forecasting for this year a little over $4 of EPS.

We always start our planning process here as double digits. This year, we're forecasting really strong double-digit growth, because like we've talked about, making those investments, getting the leverage through the P&L, not having to invest to get that additional earnings growth. That's our starting point as we go into, as we go into next year, targeting that double-digit EPS growth. I think it starts with driving a strong top line. If we maintain the strong top line, which, you know, I'm sure we'll get into all the growth drivers here, I feel very good about them and the sustainability of them and the investment and the execution. We keep that strong top line.

There's obviously work that we got to continue to do on margin and margin expansion, and that's a big area of focus for us. Those are really the elements here. Strong top line on the base business going into 2024 and targeting that double digit growth with that top line and margin expansion.

Larry Biegelsen (Managing Director and Senior Analyst, Medical Technology)

That's super helpful. Just for my follow-up, Robert, you know, cardio neuro was strong this quarter at about 8.5% organic. You know, can you talk about the trends there and the sustainability of that? You know, there's still concerns in the investment community about, you know, your EP business with PFA competition coming. Thank you.

Robert Ford (Chairman and CEO)

Sure. Well, like I said, I think the trends in the quarter were very positive. I think, like I said, I think it's a combination of improving conditions. I think the hospital systems have done a really good job right now at managing, at managing through, you know, those staffing shortages, and we're starting to see the impact there. The combination of our product launches, and execution of those product launches. Like I said, I think it was pretty broad based across the geographies. And really the only challenge we had was in January in China. I think we're starting to see, again, a lot of growth in that market too. I think it's very sustainable.

Regarding your question on PFA, yeah, I mean, I think it's, I think it's an interesting technology. We've been working on it for several years now, Larry, and haven't been as public about what we're doing. That's probably driven by my direction to the team, but I think we'll share more about it at HRS this year in terms of everything we've done. As a backdrop to that, I guess I would say one of the benefits of having a very large installed open mapping system base on the market is we actually get to see, you know, these systems being used in real world. It's a great product development tool, to be quite honest with you.

A lot of our focus in the development of our program, Larry, is really looking at some of the gaps and some of the challenges we're seeing in these first generation catheter systems and really looking at, you know, addressing those. I think what the team has been working on is really unique and differentiated. I don't think that PFA will be, you know, the one tool to rule all tools. I think that it'll be a tool that will be important. We're obviously working on our system.

I think that the companies that are going to be winning in this space are going to be those that can, you know, can effectively work with PFA and at the same time work with RF. I think there are a couple questions that are going to still need to be answered over the next 12 to 18 months, Larry. I think, you know, safety and efficacy is one that still needs to be. We see, you know, certain signals in certain markets, so those I think need to kind of work their way through. The type of cases, type of patients that are going to be used with this product. I think one big question on the PFA is, can it actually improve real world procedure times?

You know, I think that's the big question I have in terms of what I've been seeing, what our team has been seeing. Given all the pressures that the health systems have, you know, is a 3 to 4x premium on RF, is that actually sustainable? Bottom line, I think our device cardio device portfolio is well developed across all the different areas of growth opportunities that we have. I think that PFA is going to be an important technology that we've been working and investing on to bring to market and looking more as a second-generation product.

Larry Biegelsen (Managing Director and Senior Analyst, Medical Technology)

Perfect. Thanks so much.

Operator (participant)

Thank you. Our next question comes from Joshua Jennings from Cowen. Your line is open.

Joshua Jennings (Managing Director and Senior Research Analyst)

Hi. Good morning. Congrats on the strong start to the year. Was hoping to ask one question and a related follow-up. Rob, just to help think through some of the core growth margin, operating margin, trajectories of the core business, you know, with the COVID testing volumes coming down and the historic margin contribution the last couple of years. Would love to just hear about drivers of growth and operating margin expansion. Like pre-COVID, you know, we were thinking 50 basis points or up to 50 basis points of operating margin expansion was plausible for your business.

Maybe just help us think through the trajectories, but also any leverage you can pull to support double-digit EPS growth trajectory in 2024, if there's some unpredictable headwinds that pop up. I just have one related follow-up.

Robert Ford (Chairman and CEO)

Sure. I mean, I think, like as I said to Larry, I mean, I think it starts with the top line, right? Being able to drive that top line and especially the top line coming from a med device portfolio, which obviously has margins that are accretive to the overall company. Looking at the growth drivers there, whether it's, you know, the structural heart portfolio, the EP portfolio, Libre and diabetes, a recovery in nutrition, I mean, I think these are all important areas of top line growth that will drive accretion to our margins.

You know, one of the challenges that we, you know, that we all faced has been, you know, the impact of inflation on, you know, on our input costs. As I said, I think some of those are normalizing a little bit. I think last year, a lot of the focus was just to ensure that we had access to all the raw materials, right? I think in those situations, you know, we, you know, we ultimately had to deal with elevated prices, and I think that some of these will unwind over time. You know, this is not a...

I don't think this is a quick fix, but it's definitely an area that we're gonna see steady improvement over the next two years here in terms of improvement. We've been able to take price where we can to offset some of those inputs, those cost input increases. I think it's really the focus on the top line with our device portfolio that drives the accretion and then combined with, you know, focusing on our gross margin improvement programs, which we have across all of the businesses, and that, you know, get the attention and the focus, you know, every month in our operating meetings. The combination of those two factors are what gives us confidence for that margin expansion.

Operator (participant)

Mr. Jennings, please make sure your line is not on mute.

Joshua Jennings (Managing Director and Senior Research Analyst)

Thank you very much. I was on mute. Apologize. Thanks for that answer. Wanted to just related follow-up, you already touched on taking price, Rob, and would love to hear mostly on the device business, how pricing is shaping up in 2023. Also if you could touch on any other businesses where price is turning into a tailwind for your business, that'd be great to hear. Thanks for taking the questions.

Robert Ford (Chairman and CEO)

I think on price, we've historically as a company, our, you know, high single digit growth is really driven by volume, whether it's expanding markets or taking market share. I'd say on the device side, pricing historically has been a headwind for us. I'd say over the last 12 to 18 months, it hasn't been one. We've been able to at least kind of hold pricing. I wouldn't say gone out and did big price increases, at least being able to hold pricing. I'd say more on the consumer side of the business, Josh, is where we've been able to kinda take price.

If you can look at our nutrition business, we haven't been able to offset 100% of the commodity increase, but we've been able to apply some price increases globally across the portfolio. In our Established Pharmaceuticals business, there are segments of the market where it is more kinda cash pay, and we've been able to implement pricing increasing there. I think the team in EPD has done a pretty good job at how to implement those and still, you know, still have good share positions across our therapeutic areas. Those are probably the areas that we've been able to implement pricing increases.

You know, to your point on tailwinds, if we start to see the commodities and some of the input costs come down, especially in these, more consumer-based businesses, I think the strength of our brands, whether it's in nutrition or in EPD, there's an opportunity there to have that kinda tailwind.

Joshua Jennings (Managing Director and Senior Research Analyst)

Great. Thanks again.

Operator (participant)

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

Robbie Marcus (Analyst, Medical Devices)

Great. Congrats on a nice quarter here. Maybe to start, Robert, we just saw you get approval earlier this week for Medicare reimbursement for Type two patients that use basal insulin for Libre 3. Clearly a really big opportunity, but would love to get your thoughts on, you know, first, how this impacts Abbott and then broader, how you see improving reimbursement both in the US and around the world evolving over the next few years and the benefit it could add to the Libre business.

Robert Ford (Chairman and CEO)

Sure, Robbie. I've talked about how this is an important part of the growth strategy and an important part of the market opportunity for CGMs as a whole. We've been investing and, you know, generating the clinical data to be able to kinda support this. This is a great opportunity for us. I'd say, I've talked about there's about 4 million Type two basal insulin users here in the US. About a third of them are on Medicare, so it'll start there. I think we built a robust kind of position in this patient segment, and that includes not only the clinical data that we've produced, but building a sales force that's focused more on the primary care side.

I think the product lends itself very well to this patient population also. So I think we're excited about the opportunity. I think I've sized it at about $1 billion-plus in terms of opportunity in the short term here. And as the CMS reimbursement starts to play out, we know that there'll be, you know, eventually a spill on onto private payers here in the US. It's difficult to forecast that 'cause each plan will, you know, will look at its own population and make its own determinations. I think that provides a nice tailwind of growth here over the next couple of years for this franchise. And it's I don't think it's just a US, you know, a US situation.

We're seeing other countries around the world also start to expand the reimbursement. It is a combination of both the clinical data that supports the use of CGMs on this patient group and also specifically, I'd say for FreeStyle Libre, the value proposition in terms of being able to support a larger group of patients, have the benefits without necessarily having to have a significant premium, I guess, call it over that. We've seen markets outside the US already kind of do that, and we're seeing good results in terms of its implementation. I think that's a great opportunity for the category and more specifically for Libre.

Robbie Marcus (Analyst, Medical Devices)

Great. Maybe a quick follow-up here. Structural heart had been challenged throughout the pandemic, and here we are with a nice double-digit growth quarter from you. Can you speak to, is this the start of a strong recovery here? Anything in the quarter that feels durable to you? Also, you had some, in my opinion, good TriClip data at ACC earlier this year, your thoughts on how that might evolve over the year as well. Thanks.

Robert Ford (Chairman and CEO)

Yeah, I mean, I think we've always looked at our structural heart portfolio over the, over at least the last three, four years and made all the investments in terms of building product pipeline, building commercial infrastructure globally in the market. This is definitely an area of growth. I think the entire portfolio that looks really strong and really durable and really sustainable, Robbie, whether it's our position in mitral, our building of our position in the tricuspid area. We're entering the aortic area with Navitor, seeing good momentum over there also. you know, Amulet, the launch of Amulet also. I think we've really built a strong pipeline of products and commercial footprint here.

I think it's doing what this quarter what we've always envisioned it to do, which is to be a top-tier growth contributor to Abbott. Regarding your question on TriClip, yeah, I agree with you too. I was pleased with the results. I was pleased with the outcome. As I said in the past, I don't think it's a one study and that's it. I think you have to continue to invest in generating clinical data. It's what we did with MitraClip. The trial enrolled really fast, and I think that's always a good sign in terms of the speed of enrollment, in terms of its acceptance, and excitement from the physicians. That's because there's not a lot of good treatment options for these patients.

You know, as you know, traditional surgery over here has got a high mortality rate, and the diuretics don't really work well. I think the measures we saw in terms of the TR reduction, the quality of life improvement scores, I think they're probably some of the best that we've ever seen in a heart failure trial. The bottom line, I think these patients are in rough shape, and I think the physicians know this. We feel good about the data. We've already submitted it to the FDA, so that's been submitted. I know the CMS will probably review this in parallel. I believe that, you know, clip-based devices here are gonna be the first option.

They've got strong efficacy data and a, you know, very good safety data also. I think you think it's good data, I think it's good data too, and I'm cautiously optimistic here of bringing this product. We're seeing great momentum in Europe. That's a proof point here that I can tell you is a lot of great growth that we're seeing in Europe.

Robbie Marcus (Analyst, Medical Devices)

Thanks a lot.

Operator (participant)

Thank you. Our next question will come from Rick Wise from Stifel. Your line is open.

Rick Wise (Managing Director, Medical Technology and Supplies)

Good morning, Robert. Good to hear your voice. Sorry for my scratchy voice a little bit. I was hoping we could talk about diagnostic, broadly, ex-COVID, your thinking about what's next, broadly for the franchise as COVID wanes. More specifically, we haven't had an Alinity update in a while. I know this is a multi-platform, multi-year rollout process. Where are we in that process? How much more do we have to go? Any other diagnostic perspectives you'd wanna share. Thanks, Robert.

Robert Ford (Chairman and CEO)

Thanks, Rick. I mean, I think. The way we were thinking about Alinity and Alinity rollout, it was a multi-platform, multi-year rollout, right? If you look at these contracts that you enter in, they're, you know, between seven to 10 years. You're really looking at, you know, 12%, 15% of the market that's up for renewal every year. We always looked at this as multi-year. It did take a back seat a little bit, I would say, during COVID, as a lot of hospital systems weren't necessarily focused on, you know, on RFP-ing their, you know, their diagnostic, really just focusing on treating patients and doing the tests related to COVID.

What we began to see, I'd say probably middle of last year, definitely into Q4 of last year and going into this quarter is those RFPs and that process restarting back up again. I think we saw this a little bit on our growth rate here, again, excluding COVID. You look at our core lab business, which is the predominant base of our diagnostic business, you know, growing, you know, 7%, if you take out China, which started off a little bit rough in the 8%, which is the range that we tend to target here, Rick. I think we're restarting the process and re-accelerating it, and I think it's going well.

I think we saw good growth in the US and good growth in Europe, and that's good. One of the areas that got impacted during COVID also was transfusion. We saw a drop in donations during COVID. I'm glad there was inventory in the blood banks to be able to deal with that. Now we're starting to see donations start to ramp up again and the rebuilding of inventories and the picking up of donations. I think that's also another positive sign. Specifically on the blood bank side, you know, our system, the Alinity s system is it really requires a lot less manual labor.

There's a lot of automation in there, and I think that's something that we're seeing a lot from the blood banks as donations are ramping up again, the ability to take advantage of that increased demand with our system. I would say that we could probably grow faster than that, but I think it would come at some margin erosion, because you're gonna have to place a lot of boxes to be able to get to the, you know, double-digit growth. I think that, you know, this growth rate that we've established here, 7%, 8%, you know, 8.5%, is the right growth rate where we can actually drive top-line growth and at the same time drive bottom line profitability.

I think our margin profile in this business is probably one of the highest amongst the industry. I think the team has done a really good job at finding that right balance. All in all, I think, you know, it took a little bit of break during COVID, but it's restarted right now, and I like the systems we have, the position we have, and the commercial execution that's in place.

Rick Wise (Managing Director, Medical Technology and Supplies)

Okay. That's very thorough. Thank you. As a follow-up, I wanted to focus on nutritional, but I'm gonna also sneak in a quick CardioMEMS as well. Nutritionals, it's great to see the 10% performance, the strong US recovery. Sounds like you're making solid progress. You know, what's next? When do we get back to normal in your, you know, normal in your view? What is the new normal growth? Just to sneak in the CardioMEMS, geez, I've been watching the CardioMEMS story, Robert, for over a decade, back to St. Jude days. I always thought it was great technology. What's Abbott's special sauce that you're driving such superb performance, and where do we go from here with CardioMEMS? Why is what's happening? Thank you.

Robert Ford (Chairman and CEO)

I guess on the nutrition side, I think the team has made a lot of progress. They work incredibly hard at this. You know, our manufacturing and our market recovery are in line with our expectations. You know, we've talked about this business being, you know, between 4%-6% in terms of the target growth range, maybe towards the upper end of that range. Ultimately that's, you know, when everything kind of normalizes and you don't have some of these comps, that's what I expect this business to be in. Regarding CardioMEMS, you know, this has been, you know, this has been a little bit of a journey for us.

I think we've found the right combination here of what I would call making the investments that we needed to make on generating the clinical data and the clinical trial. We've obviously had an expansion in our label that happened last year. I think that the biggest and most important part here is commercial execution on the ground and thinking about workflow in the hospital systems, right? Managing that and addressing that and working with the hospitals to address this workflow has been probably the biggest impact that the team has had. We're gonna continue to invest in more clinical data and product upgrades. I feel great about this product.

Rick Wise (Managing Director, Medical Technology and Supplies)

Great. Thank you so much.

Operator (participant)

Thank you. Our next question comes from Vijay Kumar from Evercore ISI. Your line is open.

Vijay Kumar (Senior Managing Director, Head of Medical Supplies and Devices and Life Science Tools)

Hey, guys. Congrats on the print this morning. I had one back, Robert, on this base EPS question. I think based on some of the numbers you disclosed, it looks like the base earnings EPS is about $4.10 in fiscal 2023, excluding COVID testing. Assuming base EPS grows double digits, you know, historical Abbott algorithm, we're looking at something like $4.50-ish for fiscal 2024. The variables here are endemic COVID testing run rate, what is inflation coming down and cap deployment assumptions, right? If you could just parse out, is $250 million-$300 million like a right number for endemic COVID testing? What is your current inflation, total gross inflation that Abbott has taken a hit on versus pre-pandemic?

What part of that inflation is coming down? Could there be some pricing offsets in cap deployment?

Robert Ford (Chairman and CEO)

Sure. I think you've got the numbers kind of in the right direction there, Vijay, if I followed all of that. You know, I would say, as I said, that the primary driver of that is gonna be the base business performance, you know, driving, you know, driving that growth. Regarding COVID, for 2024, listen, I'm gonna need to see a little bit how the testing environment evolves. You know, we brought down the forecast of this year based on what we're seeing. I'd say there's very little public investment, I would say, in testing, it's mostly now a private market.

I think we do very well in that segment, you know, with the brand that we've built, not just here in the US, but overseas also. But as I said, it might be a little bit early to try and forecast what COVID is gonna be next year. I think the number you threw out there of a few hundred million dollars is maybe a good starting point. Again, we're gonna have to see how we're gonna have to see how that evolves during the year. Regarding your inflation question, I'm gonna ask Bob to address it.

Bob Funck (EVP, Finance and CFO)

Vijay, you know, we saw a lot of inflation, which we talked about, you know, on the last few calls, really hitting us last year, and it was probably, you know, to and around $1 billion. We saw some carryover inflation there into this year, but we've essentially been able to offset that through some of the gross margin programs we have across our businesses, which Robert talked on. As well as taking some price in some of the areas of the business, again, with the more consumer-facing businesses. We've really been able to kind of mute that carryover inflation this year.

We still have probably about $1 billion, call it 240, 250 basis points, worth of, where the headwind currently sitting in our, in our gross margin.

Vijay Kumar (Senior Managing Director, Head of Medical Supplies and Devices and Life Science Tools)

Understood. Sorry, Robert, on capital deployment, I think CSI acquisition, people thought it was on the smaller side. How are you thinking about capital deployment? One, on product side, the LibreUS number 50% was a big number. Is there anything from a comparative perspective that's going on? Is Abbott gaining share, or is this the underlying market growth?

Robert Ford (Chairman and CEO)

I'll talk about us. I mean, I think, I think the 50% growth there is, you know, pretty strong. We've been at this rate for a couple quarters now. I think it's a combination of our product launch and our execution and expansion of the market. I think the 50% here is, you know, like I said, I don't know what, I don't know what the other manufacturers are seeing, but, you know, that 50% I'd say is that's our growth rate. I think it's doing very well. Sorry, what was your first question? It got mixed in there.

Vijay Kumar (Senior Managing Director, Head of Medical Supplies and Devices and Life Science Tools)

On the capital deployment.

Robert Ford (Chairman and CEO)

Yeah. I think you guys almost feel like you wanna have some sort of model from us in terms of how we do this. I guess the best model, the only model that we're looking at is what's the best return for our shareholders here. What we found is having this kind of balanced approach where we're committed to a strong and growing dividend. We make the investments in our organic opportunities to drive organic growth. And we've been doing those in med device, in diagnostics, in nutrition. And if there's an opportunity for M&A to be able to add to the portfolio, we'll do that.

You know, we announced our intention to acquire CSI. I think it fit exactly our criteria here, Vijay, which is a great strategic fit. Wanted to build more of a position in the peripheral side. You've been seeing what we've been doing. We acquired a thrombectomy company about a year and a half ago. Now looking at atherectomy with CSI. It's a good strategic fit. They have a strong position in a growth area that we like, and we believe that we can add value, and thought the deal made sense financially for the company. That kind of fits into our framework of how we look at M&A and how I've talked about it.

The allocation is balanced and, you know, we'll look at what's the best return for our shareholders as we allocate the capital.

Vijay Kumar (Senior Managing Director, Head of Medical Supplies and Devices and Life Science Tools)

Fantastic. Thanks, guys.

Operator (participant)

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

Joanne Wuensch (Managing Director)

Good morning, and nice quarter. A couple of catch-up questions. Can you update your guidance and thoughts on interest expense and where you are on share purchases in the quarter and plans for the year? I'll toss my real question in. EPD, another quarter of double-digit growth. What is driving that? In your view, how sustainable is that in a potentially recessionary environment? Thanks.

Robert Ford (Chairman and CEO)

Okay. I'll take the EPD question here. Listen, I think that this is a, you know, we've been doing this for many years here, I would say. I think we've carved out this, talked about this nice little space for us in the global pharma market, which is, I'd call fast-growing emerging markets with branded generic focus. There's a way of how to operate in this. It's not operating the way you would operate with proprietary pharma, and it's different from operating in pure generics. I think that what you're seeing now is really an organization that has kind of figured out what, you know, figured out the right sweet spot on how to execute on this strategy.

You're seeing the results over the last couple of years. We tend to really focus on local for local. We pick the right markets, we develop portfolios that are relevant for those specific markets, you know, having, you know, local R&D, local manufacturing. That's done very well for us. I think the team has done a really good job at driving profitability. Not just the top line, but also the bottom line. You know, one of the challenges here, Joanne, is obviously FX, but this group has actually driven absolute dollar profit growth in the business. I think they've figured out how to do this really well, not just with portfolios, but also channels, integrating that.

It is a very unique model. You know, I think the team have done a really good job at understanding it. From, from a geography perspective, I mean, in my opening comments, a lot of growth in Southeast Asia, a lot of growth in Latin America, for us, and great growth in India, too. As you know, we've got a large business, in India there, too. I think it's working very well. I think it's very sustainable, too, given the dynamics of these markets. Regarding your question on interest.

Bob Funck (EVP, Finance and CFO)

Yeah. Joanne, in terms of kind of net interest expense for the year, we're forecasting a few hundred million dollars there. Then you had a question on share buybacks. As you know, historically, we do buybacks to offset dilution. So, you know, we did some buybacks, you know, in the first quarter, again, you know, a few hundred million dollars worth of buybacks.

Joanne Wuensch (Managing Director)

Thank you very much.

Robert Ford (Chairman and CEO)

Operator, we'll take one. Go ahead.

Operator (participant)

Thank you. Our next question will come from Danielle Antalffy from UBS. Your line is open.

Danielle Antalffy (Senior Analyst)

Good morning, guys. Thanks so much for taking the question. Just a question on specifically, two components of the structural heart business. The first being MitraClip. Robert, just curious about what you're seeing in that market. You know, that was a market that was severely impacted by both COVID mortality and hospital staffing constraints. Just curious about where you think we are in the recovery, specifically in that market. You did seem to put up another decent growth quarter this quarter. I have one follow-up on Amulet.

Robert Ford (Chairman and CEO)

Sure. I think it was double-digit growth in the quarter. I think what we saw there was continued international momentum, and I think that's a great opportunity for us, is to be able to expand the technology internationally. We have a new manufacturing site that we invested in that's up and running, and I think that'll give us the opportunity to be able to expand this more internationally. I think that's a great growth driver for us. Then recovery in the US As I said, I think some of the systems have figured out how to manage the staffing shortage. You know, our teams play an important role in that also.

I think that, listen, I'm cautiously optimistic here that, you know, that this part of the ramping up of MitraClip is, has been addressed. you know, from our side, you know, we continue to focus on driving the patient referral funnel. I mean, that was probably one of the areas that got shut down that we were starting to build. I'm starting to see good momentum there on building those patient referral funnels.

Danielle Antalffy (Senior Analyst)

Okay, that's great. On Amulet, the question I have there is really about where you think you are in the launch. I mean, that's a product that very high growth market. But, you know, let's be honest, you launched, I think, that product during Omicron, right? Just curious about, you know, how you would characterize where you are in the launch of Amulet. Thanks so much.

Robert Ford (Chairman and CEO)

Yeah. Listen, it's going well. you know, we've got a nice kinda ramp. I guess I would say I wanted that ramp to be a little bit more vertical. I would say one of the challenges we face there is exactly like you said, it's difficult to launch a product, right into, you know, right into the pandemic. We saw that with a couple products also. I think that the team has done a really good job here of being thoughtful about how to build a strong and sustainable position in the market. you know, we're not in, we're not in the entire market. We haven't gone out and launched into all the accounts.

The accounts that we have launched into, Danielle Antalffy, we're actually seeing roughly about a 25% market share into those accounts. I think that's the right kinda base to work off from, ensuring that, you know, the accounts that we're in, we're starting to see repeat usage, continued usage, expanded usage. As we start to see more of that, then we start to ramp up and start to go to new accounts. I think this is an exciting area for us.

Yeah, I would want it to have been a little bit more vertical in terms of its launch. I'm very optimistic about the product, about the team, about the position that we built in, so. We're investing in it, right? We've got our Catalyst trial here, that's enrolling pretty well, too, comparing, you know, Amulet to NOACs. I think this is a great opportunity, a great area of investment and growth for us.

Danielle Antalffy (Senior Analyst)

Thank you.

Robert Ford (Chairman and CEO)

Operator, we'll take one more question.

Operator (participant)

Thank you. Our last question will come from Matt Miksic from Barclays. Your line is open.

Matt Miksic (Managing Director, Senior Equity Research Analyst)

Hey, thanks so much for squeezing me in. Covered a lot of ground, obviously, here. Maybe, you know, Robert, if I could just ask, just one follow-up on your comments this morning, which came across, I think, to most folks as, you know, noticeably more bullish and encouraged by what you saw in Q1. You know, maybe just recognizing that investor expectations have also risen a bit throughout Q1. You know, as checks and everything came in during the quarter, but, you know, would you describe, you know, what you're seeing in the environment, you know, as something like a volume recovery or, you know, some other companies have used this backlog concept or something that might, you know, is strong now and may ease whenever, like later in the year?

Is what you're seeing, maybe something more general in terms of lifting productivity and volumes that could be more sustainable? Thanks.

Robert Ford (Chairman and CEO)

I guess the way I'm seeing this, I've traveled quite a bit during this first quarter, and I made the statement in my opening remarks. I sense in talking to systems and talking to consumers, again, not just in the US but around the world, that, you know, there is this focus now of, okay, COVID is behind us, but I wanna stay healthy, I wanna get healthy, and I wanna stay there. As it relates to procedures, what I'm seeing is, you know, people say, "Listen, I've been putting this off not because of COVID, not because there's some sort of backlog, but I've been putting this off for two years.

I wanna go and address this. Or on the consumer side of our products, you know, whether it's EPD or nutrition, we're seeing, again, a lot more focus on, okay, I'm gonna spend some of my disposable income on these products, on these health products. I don't see this as like a backlog aspect here that, you know, we're gonna work our way through. You know, maybe there's some areas or geographies that you might have a little bit of that, but we tend to on the procedure side, we tend to work with the systems and we play a role in, you know, in pre-planning this procedure. We have a sense of what the funnel is, and I don't, I don't see, like, this oversized funnel over here because of a backlog.

What I do see is, you know, more funnel, just because people are wanting to invest in their health. On the flip side of that is I think the systems have figured out, whether it's in diagnostics or whether it's in cardio procedures, they've figured out how to, you know, how to deal with some of these staffing issues that I don't think are, you know, will ever be back to normal. I think that what you're seeing are systems, obviously addressing some of the, you know, some of the shortfalls, but not just by hiring, but also using technology, working with companies, to figure out how to, you know, how to offset some of that dealt in labor shortage. I think this is very sustainable.

I think you're seeing, I think you're seeing some of the companies that are reporting. Yesterday, I think, you know, we saw some companies report talk about, you know, growth and procedure trends, so I think it is sustainable. I don't think it's a, I don't think it's a bolus of backlog. At least that's how we're seeing it, at least on our products.

Matt Miksic (Managing Director, Senior Equity Research Analyst)

That's great. Thanks so much.

Robert Ford (Chairman and CEO)

I'll just wrap up here then. I think, like I said in my comments, I think we're off to, we're definitely off to a very strong start to the year here. Growth in our underlying base business has accelerated, and it's strong and it's across the board, whether it's the different product groups, platforms or geographies. We're now forecasting at least high single-digit growth in our underlying base business year. I think this is pretty unique and, a pretty unique and differentiated growth profile. Part of it is market conditions improving, but I also think part of it is our new product pipeline that continues to be highly productive.

We're really pleased, with how we started off the year and with that, we'll wrap up and thank you for joining us.

Scott Leinenweber (VP, Investor Relations, Licensing and Acquisitions)

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 11:00 A.M. Central Time today on Abbott's investor relations website at abbottinvestor.com. Thank you for joining us.

Operator (participant)

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.