Abbott Laboratories - Q2 2023

Transcript

Operator (participant)

Good morning, thank you for standing by. Welcome to Abbott's second quarter 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 phone. 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. Mike Comella, Vice President, Investor Relations.

Mike Comilla (VP of Investor Relations)

Good morning, and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer, and Robert Funck, Executive Vice President, Finance and Chief Financial Officer. Robert and Robert 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 risks and uncertainties that may cause actual results to differ materially from those indicated in the forward statements. Economic, competitive, governmental, technological, and other factors that may affect Abbott's operations are discussed in Item 1A, 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 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, Mike. Good morning, everyone, and thank you for joining us. Today, we reported second-quarter adjusted earnings per share of $1.08, which reflects an acceleration in the contribution from the underlying base business. Organic sales, excluded COVID testing, increased low double digits for the second quarter in a row and was led by mid-teens growth in medical devices, along with double-digit growth in established pharmaceuticals and nutrition. On our last couple of earnings calls, I've highlighted improving underlying demand trends across our businesses. These strengthening trends continued in both our institutional and consumer-facing businesses this past quarter. Within the institutional businesses, healthcare systems around the world have continued to improve their ability to expand the supply of healthcare services through ongoing efforts to adjust protocols, manage labor challenges, and increase the overall available capacity to treat patients.

In our more consumer-facing businesses, we're seeing consumers prioritize spending for healthcare products, which is driving increased demand for our products in the U.S. and internationally. I'll now summarize our second quarter results in more detail before turning the call over to Robert. I'll start with nutrition, where sales increased 10% in the quarter. In the U.S., growth was led by pediatric nutrition growth of more than 20%. We continue to make good progress in increasing manufacturing production and have now recovered approximately 75% of the market share in the infant formula business that was lost last year as a result of the voluntary recall. Internationally, total nutrition sales grew 6%, led by growth in both pediatric and adult nutrition businesses. Turning to established pharmaceuticals, sales increased 12.5% in the quarter.

This strong performance was led by growth across several markets, including India and China, and therapeutic areas, including gastroenterology, women's health, and CNS pain management. This business continues to execute at a high level and capitalize on the favorable demographic and socioeconomic trends in emerging markets. Moving to diagnostics, excluding COVID testing, organic sales grew 7%, led by core lab diagnostics, where sales grew 10%, driven by performance in the U.S., Europe, and China. This broad-based, strong performance reflects the increased demand for routine diagnostic testing globally. In the U.S., our blood transfusion testing business continues to make good progress recovering from the impact of lower plasma donations that occurred during the COVID-19 pandemic. I'll wrap up with medical devices, where sales grew more than 14% on an organic basis, including double-digit growth in both U.S. and internationally.

In diabetes care, FreeStyle Libre sales exceeded $1.3 billion in the quarter and grew 25% on an organic basis. During the quarter, Libre became the first and only continuous glucose monitoring system to be nationally reimbursed in France for all people with diabetes who use insulin. This achievement was a direct result of the unique value proposition that Libre offers, a fully featured continuous glucose monitor made available at an accessible price. Abbott has led the way in expanding reimbursement coverage for continuous glucose monitors in order to bring the benefits of this life-changing technology to more people around the world. In cardiovascular devices, sales grew more than 10% overall in the quarter, led by double-digit growth in electrophysiology and structural heart.

In electrophysiology, performance was led by international growth of more than 20%, which included high teens growth in Europe and strong growth in China. During the quarter, we received US FDA approval for our TactiFlex ablation catheter, the world's first ablation catheter with a flexible tip and contact force sensing technology, which helps to deliver improved procedure outcomes and faster procedure times. In structural heart, performance was driven by MitraClip growth of approximately 10%, along with growth from several recently launched new products. Earlier this year, we submitted for FDA approval for TriClip, our minimally invasive tricuspid valve repair device that helps treat a condition known as tricuspid regurgitation, the leaky heart valve disease. The clinical trial data supporting our submission showed that TriClip is a highly effective and safe treatment that provides a significant improvement in the quality of life for patients.

TriClip is currently being reviewed by the FDA, and we look forward to bringing this first-of-its-kind technology to patients here in the U.S. In rhythm management, growth of 8% was led by AVEIR, our recently launched leadless pacemaker. During the quarter, we received FDA approval for our AVEIR dual-chamber leadless pacemaker, a first-of-its-kind technology that allows for two pacemaker devices to communicate with one another inside the body to provide minimally invasive treatment for those with abnormal heart rhythms. AVEIR was specifically designed to be upgradable and retrievable in order to evolve with patient changes in therapy needs over time. This unique technology offers the potential to revolutionize care for millions of people who require a pacemaker.

Lastly, in neuromodulation, sales grew 16%, driven by the recent launch of Eterna, our first rechargeable neurostimulation device for pain management, which targets a large segment of the market where we previously did not compete. During the first half of this year, we introduced several new innovations, including the launch of Eterna and label indication expansions for treating painful diabetic neuropathy and chronic back pain for those who have not had or are not eligible for back surgery. In summary, we exceeded expectations on both top and the bottom lines. Growth in the underlying base business accelerated, driven by improving market conditions and contributions from both new products and legacy growth platforms. Our pipeline continues to be highly productive, which will sustain our strong growth profile in the future. I'll now turn over the call to Robert. Robert?

Robert Funck (EVP of Finance)

Thanks, Robert. As Mike mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis. Turning to our second quarter results, sales decreased 9.2% 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 11.5% in the quarter. Foreign exchange had an unfavorable year-over-year impact of 2.5% on second quarter 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 April.

Regarding other aspects of the P&L, the Adjusted Gross Margin ratio was 55.4% of sales, which reflects continued 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, Adjusted SG&A was 27.2% of sales in the second quarter. Lastly, our second quarter adjusted tax rate was 14%.

Robert Ford (Chairman and CEO)

Turning to our outlook for the full year, we now forecast total underlying base business organic sales growth, excluding COVID testing sales, to be in the low double digits. We're now forecasting COVID testing-related sales of around $1.3 billion, which is below our full year forecast of around $1.5 billion that we provided in April, due to current testing dynamics, including lower demand for testing following the end of the public health emergency in May. For the third quarter, we forecast COVID testing sales of around $100 million. Based on current rates, we expect exchange to have an unfavorable impact of a little more than 1.5% on full year reported sales.

Our full year Adjusted EPS guidance of $4.30-$4.50 remains unchanged, but reflects a lower earnings contribution from COVID testing sales compared to expectations in April, offset by raising our underlying base business earnings forecast by approximately $0.05 based on our strong performance and outlook. Compared to the initial guidance we provided back in January, we have now raised our underlying base business earnings forecast by more than $0.15, offsetting the lower contribution from COVID testing versus our initial forecast. Turning to our outlook for the third quarter, we forecast adjusted EPS to be approximately $1.10, which reflects strong growth on the underlying base business.

We forecast total underlying base business organic sales growth, excluding COVID testing sales, to be in the low double digits and exchange to have an unfavorable impact of a little more than 1% on our third quarter reported sales. 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 we compile the Q&A roster. Our first question will come from Joshua Jennings from TD Cowen. Your line is open.

Joshua Jennings (Managing Director and Senior Research Analyst)

Hi, good morning, and congratulations on another strong quarter. The core business is generating nice momentum, organic sales growth accelerating, earnings power increasing. Robert, it'd be great to hear your views first on the drivers of the back half momentum, assuming an updated low double-digit organic revenue growth forecast for 2023. Then second, it'd be great also to get your thoughts on the sustainability of this building momentum in 2024 as the business is creating some more challenging comps for next year. Thanks for taking the questions.

Robert Ford (Chairman and CEO)

Sure, Joshua. Yeah, it was a very strong quarter, broad-based growth. Listen, I, you know, I still think that we could do better, and I know my team feels that also. If you go back a little bit in terms of, you know, a couple of years when COVID was happening, we always said that there was a great head share for us, right? And when COVID would subside, we would have a strong base business and making the investments in that. I think that's what you're seeing right now play out in these last couple of quarters and what we think is going to continue to play out throughout the rest of the year and going into 2024.

We saw very strong growth across all four sectors, excluding the COVID testing piece of it. As I said in my opening remarks, the institutional business, the consumer business, there was an acceleration from Q1 to Q2, growth versus Q2 of last year. All the right indicators here, trending positive and with great momentum. Devices and diagnostics, there was a nice step up. I attribute that, you know, really good improving market conditions, whether it's the hospital systems, you know, addressing, you know, some of the bottlenecks that they had in care, but also markets that are reopening, you know, and that trend continuing, but also new products.

Market conditions is part of it, but new product launches also contributed quite a bit there. EPD has sustained, I'd say, high single-digit, low double-digit growth the last two years, and I think that continues. I think we're probably one of the best-positioned large healthcare companies in emerging markets. We've got a unique strategy there, a lot of regionalization and a lot of local for local, and the team does a really good job at executing that. The double-digit growth in nutrition was as expected. We're seeing the recovery in the pediatric business, recovering our market share. You know, my comment there of the three quarters of recovery is more general and broad-based.

Once you start looking at different segments of the infant formula market, different SKU sets and different types of formula, there are certain segments where we've already back to leadership positions. That's moving it all in the right trajectory, and adults doing very well in several countries. COVID declined, as we had forecasted. We decided to bring our COVID number down $200 million because we're seeing, you know, as the public health emergency ended, we saw a little bit of a decline in testing there. We'll see how that's going to play out in Q4. It's probably like the first quarter, we'll see, Joshua, of an endemic respiratory season, so we'll see how that's going to play out.

The base business is doing really well. I'd say from a geographic perspective, it was pretty broad-based also across all geographies, you know, U.S., Europe, Asia. Obviously, China reopening was really positive, too, but it wasn't like this over-indexing in our growth rate with China opening. I mean, if you look at our growth rate, excluding China, it only added about a point of growth, that 11%, 11.5%. It's pretty broad-based across the market. Pleased with the top line. Believe it's very sustainable, which is why we increased from at least high single to low double-digit growth rate. I think the pipeline and the productivity is another kind of key aspect in our quarter.

A lot of product approvals, and that's gonna drive it. It's probably a little bit early to kind of go through, you know, a specific guidance for 2024, but I think if you, if you look at this COVID decline, this anticipated COVID decline that we had this year, I think it's kind of overshadowed a little bit about the strong and the strength and the performance in the base business. You're starting to see as that number comes down in COVID, you're starting to see really the strength of the base business. If you look at the base business, it's contributing about $4.10 of earnings for the full year this year. That's about 15 cents higher to what we originally guided back in January.

I think that's pretty significant growth, even that $4.10 on the base business. That's really been driven by top line. You look at the leverage in the P&L, the investments we made during COVID, we're able to drive a lot of a lot of growth there. Pipeline's delivering pretty significantly, and I believe that that is the sustainability going into 2024, that top line. Of course, gross margin is a constant area of focus for us, you know, whether it was the impact of effects or the impact of inflation, but I'm already seeing three out of our four major businesses here, showing improved gross margin profiles versus the end of last year.

We're seeing good momentum over there. If I put this all into account, I think we're achieving a lot of growth, top and bottom line, the new product contributions, strong pipeline, and then the opportunity that we'll have for Gross Margin Expansion. I think we're well set up as we go into the second half of this year and as we go into 2024.

Joshua Jennings (Managing Director and Senior Research Analyst)

Excellent. Thanks so much.

Operator (participant)

Thank you. Our next question will come from Lawrence Biegelsen from Wells Fargo. Your line is open.

Lawrence Biegelsen (Managing Director and Senior Equity Research Analys)

Good morning. Thanks for taking the question, and congrats on the nice quarter here. Just one for me, Robert. You know, I'd love to hear your thoughts on the MedTech top five and the pipeline, specifically, how you're thinking about AVEIR and, you know, the dual chamber approval and TriClip you mentioned earlier, and just the sustainability of that 11%, you know, cardio neuromod growth we saw this quarter. Thanks so much.

Robert Ford (Chairman and CEO)

Sure. Well, that group of products, they did pretty well in the quarter. Combined those products, they grew about 40%, Lawrence. You know, if you take the Q2 run rate and annualize it's annualizing to about, you know, a little over $650 million. I expect to do better than that in a year as the next quarters progress. You know, regarding your question on these products, I can go through some of them here. I mean, on the AVEIR side, we saw a lot of positive developments this quarter for leadless. You know, if you remember, we received FDA approval for the single chamber last year.

If you look at some of the claims data, at least the claims data that we're looking at, showing that we'd be able to capture about a third of that market. That's doing really well. What's really exciting for us, and quite frankly, it's a lot of the KOLs that I've spoken to, especially at HRS this year, was the approval for the dual chamber, which is a much larger segment of that, you know, makes up, you know, at least 80% of that $3 billion worldwide pace market. It's the first-ever technology, right, where you got two implanted devices communicating with each other. It's a huge opportunity for us, I think, to really change, you know, the paradigm here.

It's a little bit of a different implant than what EPs have been accustomed to doing with, you know, with pacemakers that have leads. You know, our focus here in the beginning, I think, is really to look at the bigger part of the market and make sure that we do a really good job at, you know, creating a real-world, kind of strong clinical results, making sure that, you know, the implant technique gets well understood. We'll focus a lot on training and training physicians. We'll be opening new centers, of course, but we're gonna...

This falls in the bucket, Lawrence, of just making sure that, you know, we go at the right tempo out of the gate so that we've got a bigger eye on the larger market and the larger conversion, because I think that that's a huge opportunity for conversion over there. There, I'm very excited about, and the team's already starting their launch plan here. Amulet grew 25% this quarter, which is a great growth rate. Again, we're also focusing on generating great real-world clinical results there, being thoughtful about how we open the accounts, build a strong, sustainable position. This is a fast-growing market. It's a great opportunity for us. That's done well.

In TAVR, with Navitor, again, our quarterly sales, we're looking at this the other day, our quarterly sales have roughly doubled in the last 18 months now. Yeah, I, granted it's a, it's a smaller base, but, I'm just hearing really good feedback from the implanters now, once Navitor is out, regarding the implant technique, regarding the outcomes. I think we're building a really good position here, obviously, in the U.S., following the launch, but internationally, seeing real strong performance, whether it's market share gains or our ability now to open new accounts, with this new product. TriClip, is, we're seeing similar international performance.

Physician enthusiasm here continues to build, as now they've got this much better, I'd say, a real effective option here to treat patients that are suffering from TR. I think the publishing of the TRILUMINATE data earlier this year really gave a boost to those international markets. I mean, we had clinical data out there, but the TRILUMINATE data, I think, really, you can see this correlation in terms of what we're seeing in terms of implants there, post-publishing that data. I'm excited to bring it here to the U.S. I mean, we submitted it to the FDA earlier this year.

The clinical data that supported the submission, as I said in my opening comments, is really strong, great and great quality of life improvement. I'm enthusiastic about the opportunity here in the U.S. I mean, it's a PMA submission. We submitted it in January, so we didn't necessarily bake in any kind of significant sales this year. I think it's a great contributor for us, for us next year. On neuro, I mean, this market moves a lot with innovation and, you know, we introduced quite a bit of innovation, I would say, over the last six months in this market. There's great opportunity to execute on that. You know, there's more to come also in that business, too.

I look at the cardio neuro business, just with these products that we've mentioned here, these, the, this group of products that we recently launched, billion-dollar segments, and that we're in the early innings. I'm excited about it, and I think that it's got a lot of momentum and sustainability on our cardio neuro business, Lawrence.

Lawrence Biegelsen (Managing Director and Senior Equity Research Analys)

All right. Thanks so much.

Operator (participant)

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

Danielle Antalffy (Managing Director and Senior Equity Analyst)

Hey, good morning, everyone. Thanks so much for taking the question. Robert, I do have two product-specific questions, but you totally stole my thunder with that very thorough answer there. If I could follow up on specifically Libre and MitraClip. Did see US deceleration in the quarter for Libre. Just wondering what you're seeing out there. You know, you have a competitor launching a new product, but you guys are launching Libre 3, and you do have the basal coverage for Medicare now, how you see basal ramping? That's the first product question. The second question is on MitraClip, you know, another, the quarter was fine, but, you know, this is a market that had been growing double digits pre-COVID.

Just curious about where you think this market falls out on a normalized basis once we're through staffing constraints, once we get through what feels like an air pocket in the patient population, given the high mortality rates through COVID. Those are my two product questions. Thank you so much.

Robert Ford (Chairman and CEO)

Okay, thanks. On your Libre question, I think we had a really strong quarter there, Danielle. You know, we grew 25%, yeah, 30% in the U.S. I think it's pretty strong growth still. Internationally, we're up 22%. That's very positive. You know, now that we've kind of put behind us some of the upgrading activities that we were doing towards the second half of last year, so you're seeing the impact there. The basal is a great opportunity. In my comments, I referenced France. You know, this wasn't just like a tender award. You know, the French health authorities looked at claims data. They looked at data from, you know, basal users using the product.

We've got over about a 70 share of that market. They looked at it and say, "Wow, this is really having an impact." That's good. It provides this great momentum. Now you've got U.S., Japan, and France reimbursing for basal. I mean, those are three of the top five markets in the world, and we're well positioned there. US coverage began in April, so that's playing out nicely also. I think we got great momentum here. I'd say what's really exciting is a lot of the upcoming launch activity and pipeline activity that we'll have in the second half of this year.

If you look at our integration with pumps, it's my understanding here that sometime in this second half, we'll see Tandem integration with our CGM system here in the U.S., and that'll be exciting. One of the things that we've also got rolled out in planning is, as you might remember, we got L3 approved, full iCGM, but together with that approval, we also got a 15-day claim. We'll be launching our 15-day sensor here in the U.S. second half, well, in the second half of this year. That's exciting, too. The team is on target here to start and initiate our glucose ketone dual sensor trial sometime in Q4 here. A lot of pipeline activity in the second half.

Probably the one that I'm most excited about, Danielle, is actually Libre 2 streaming. I think this is an incredible opportunity, and what the team has been able to do. I think it's the most exciting launch that we have in this second half here, which is really our ability to convert our entire Libre 2 base, from scanning, to be able to have real-time streaming, through an app update. We ran our first conversion in the U.K., over the weekend. You know, there were some challenges there as we rolled it out.

Team worked over the weekend, but as of, I think it was as of end of day Monday, 90% of the user base was converted, and the social media posts that I've been seeing are just incredibly positive. Just think about our ability here to convert our entire L2 base into a slightly smaller version of L3 across the world with all the manufacturing capacity we have. I'm really excited about that. I think Libre is on a great trajectory, great momentum, and I think that's gonna continue. Regarding your question on MitraClip, yeah, I think the performance was, you know, I think it was pretty strong. 10% growth. International was up 20%, U.S. was more modest.

I think you pointed to some of the challenges that we are seeing. I not sure it's so much the staffing portion now than I think it was probably in the second half of last year. We're not seeing that in the other parts of the business. I think the US piece here is really, you know, our ability here to reignite and restart that referral funnel here in the U.S., which was impacted by the pandemic.

I think this is gonna take a little bit of time, but it's a key area of focus of the US commercial team here, is to really look the commercial and the clinical team, to really start to restart those, you know, that referral process, you know, from the cardiologists into the hospitals. This continues to be an attractive growth area. You can see that, where we don't have some of these issues here in the U.S., we're looking internationally to accelerate, as a way to kind of balance it out. We're seeing great growth internationally here. The market is still very attractive. We're having a lot of success internationally.

In the U.S., we're gonna focus on this patient referral funnel here, and I think we'll start to see kind of improvements in the numbers.

Danielle Antalffy (Managing Director and Senior Equity Analyst)

Thank you so much.

Operator (participant)

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

Vijay Kumar (Senior Managing Director)

Hey, guys. Thanks for taking my question, and congrats on a solid print here. Robert, I had a two-part question. One, you know, you did mention double-digit organic for the base. Is that, like, should we worry about the, you know, comp issue for fiscal 2024? Because I'm thinking about Lingo, which I, which I think is just launching. Is that enough to, you know, sort of maintain some of the strength we're seeing? So any comment on Lingo launch, update on Lingo would be helpful. My second part is on gross margins down sequentially. You know, if I'm looking at that 56% overall for the year, it looks like we're probably looking at bottom half of the EPS guidance.

You know, I know you had mentioned $1 billion of inflation impact. How should we think of that benefit and margin expansion in back half in the 2024? Thank you.

Robert Ford (Chairman and CEO)

Yeah, I'll take the Lingo question, and then I'll ask Robert Funck to fill in on the gross margin. On the Lingo piece, listen, this has been part of our strategy, Vijay. It was an afterthought as we were building Lingo platform. We knew we'd be in this situation where, can we expand beyond diabetes? We've been very thoughtful about it, and very intentional about it. The opportunity during COVID to invest heavily in this was our opportunity. As I've said in the past, to be thoughtful about this, we had to create a separate group, a fully dedicated group. I was with them a few months ago.

If you look at the team, the scientists, the engineers, the data experts, the marketing team, et cetera, they're just focused on this. It's interesting, their backgrounds here aren't necessarily with diabetes, right? They're more digital health, they're more consumer health. They've got this target, which is to do something that not a lot of well-established companies, healthcare companies do, which is to create a product that's really targeting a healthy population, and a healthy population that wants to stay healthy. The product was launched yesterday in the U.K. Kudos to Lise and the team for getting that through. The value proposition is pretty simple, and I think that's how we needed to think about it for this patient segment here, for this consumer segment, sorry.

And it's really to deliver personalized, like, metabolic improvement and metabolic health. The way it does that, Vijay, it's teaching you about glucose spikes. It's teaching the consumer about how your body reacts to food, how it reacts to sleep, how it reacts to exercise. The goal is to minimize those spikes throughout the day. The Lingo Coach, it first learns about your metabolism, right? After it learns about your metabolism by wearing the sensor, it then assigns you a daily target, and we're going to call this the Lingo Count. This is basically a number that is the amount of spikes that you're, you know, allotted to or assigned to during the day.

We're going to track that daily progress and track to that target. We believe that that's a great kind of behavior modification tool for those that don't have diabetes. You know, they're charged, there's data, there's all that that you have in the app, but we believe that the simplicity of this Lingo Count is really key to modifying behavior. It's a subscription-based model. It's direct-to-consumer. We are looking at opportunities for partnership, but it's direct-to-consumer. The website, the webshop is open. The pricing is pretty much in line with our cash pay price for Libre. I think the key aspect here is for this app is that we have to constantly provide content to the app, constantly new information, new data.

If I think about, you know, everything that's going on in the world of AI, and I think about how I think about AI for Abbott, we have a lot of opportunities. I would put this one here, together with Libre as our biggest opportunity to capitalize on AI, and what it can do for personalization. It's out in the U.K. It's launched yesterday. We'll study, we'll learn from the U.K., and then we'll roll it out to other markets. I'll preempt your question, which is always like, "Is it going to come to the U.S.?" Yes, it will. We intend to file in the U.S. at the end of the year. I don't expect big contribution right now from a financial perspective early on.

Maybe my team will surprise me, but I absolutely expect this to be a significant contributor over time for us. That, that third part of the growth stool here for that platform is out of the gates, and we're excited to see what we can do.

Robert Funck (EVP of Finance)

Vijay, on the Gross Margin question. Back in January, we guided a gross margin profile of 56% of sales for the full year. Through the first half of the year, the base business, so excluding COVID testing, is right in line with that.

We are, however, seeing lower gross margins on our COVID tests, due, you know, really due to the significant decline in volumes that we've seen compared to our assumptions at the beginning of the year. That's really what's being reflected in a little bit lower gross margin that you've seen. I think for the balance of the year, you know, we would expect to see gross margins roughly in the range of 56%. Then, you know, we would look for steady improvement after that. As Robert talked about, it's a key focus area for us. Each of our businesses have gross margin improvement programs in place with teams that are dedicated to that effort. You know, as...

As we work in, you know, into 2024, we would expect to see some improvement overall in our gross margins.

Vijay Kumar (Senior Managing Director)

Thanks, guys.

Operator (participant)

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

Joanne Wuensch (Managing Director)

Good morning, thank you for taking the questions. Briefly, can you sort of tear apart the electrophysiology growth rate of 17%? How much of that is in the U.S.? How much of that is OUS, and what do you think is driving that? I'll just jump in with my second question, which is: if you've reclaimed about 75% of the pediatric nutritional business, do you get to 100%, or do you think you're more or less where you can get to? Thank you.

Robert Ford (Chairman and CEO)

Sure. Really good growth on EP. We were up about 17% total. U.S. was high single digits, around 9%. International was about 24%. In that 24%, Joanne, there's probably about eight or nine points of kind of China recovery. If you look at the growth rate internationally outside of China, that was about 15%. Real strong growth. Again, if you look at Europe specifically, it was up, you know, just under 20%. It's pretty broad base. Even if you look at the Big 5 countries in Europe, did really well there. TactiFlex in those countries, that's been out there for a couple of quarters right now.

We only got approval in the U.S. towards the end of the quarter. That's doing really well, and it's really helping. We got really good feedback on the catheter. Growth is doing very well. The U.S. is probably a little bit impacted by kind of the capital cycle. If you remember last year, we launched EnSite X, and it was like a very large bolus of kind of upgrading and capital placements that we were making. We get a lot of good feedback on the system, both from the users and from the administration, especially the fact that it's an open system. That's done very well. If you look at the consumable part of the US growth, it was up in the mid-teens.

I guess, the term used was tear apart, the EP growth rate. Again, it's a great market. We've got a great position and a good recovery, and I expect to see this continuing throughout this year. Sorry, what was your other question?

Joanne Wuensch (Managing Director)

... The other question had to do with the 75% recovery in Nutrition. Is that sort of, your best case, or is there more to go?

Robert Ford (Chairman and CEO)

No, I kind of made, I kind of made my team, and I also kind of said publicly that, you know, our target here is to get back to 100% of our market share by the end of the year. You know, a big driver of that is the manufacturing and the manufacturing kind of ramp up. You know, we started, we started the reopening the manufacturing process in July for specialty of last year, in August and September for non-specialty. That manufacturing is, has provided us the, you know, the supply we need to fulfill the demand. We've got a very strong brand, in Similac, and you're seeing that.

As I said, I think in, I think maybe the Joshua's question in the beginning, if you, if you look at the different segments, first of all, if you start with WIC, and non-WIC, in the WIC segment, we're back to leadership position or back to our position we had before the recall, and that was because we focused a lot on that Q3, Q4 time, in that segment. I guess, long-winded to say, yeah, I mean, we're still on target for that, to be able to get to the end of the year with our, you know, with our pre-recall, market share. Like I said, if you pull up...

If you break out some of the different formulas, because there's a lot of, there's a lot of different SKU sets and different types of formulas, you know, and some of them we've already, we're already back to where we were, before recall. Team's got it, team's working really hard at this, and I'm not, I'm not changing that, I'm not changing that target.

Joanne Wuensch (Managing Director)

Excellent. Thank you.

Operator (participant)

Thank you. Our next question comes from Marie Thibault from BTIG. Your line is open.

Marie Thibault (Managing Director and Medical Technology and Digital Health Analyst)

Hi, good morning, and thanks for taking the questions. Wanted to ask a fairly high-level one here on the Diagnostics business now that COVID testing is sort of behind us. You know, Core Lab was really strong this quarter. I just want to kind of get an update on the areas of investment and growth in diagnostics testing today. You know, the Alinity rollout, how that's progressing, and whatever else in terms of tests or trends we should be paying attention to now in Diagnostics.

Robert Ford (Chairman and CEO)

Sure. You know, I think we had a really good recovery here. As the health systems are opening up, you're seeing that routine testing come back. Like I said, it was pretty broad-based, U.S., Europe, Asia without China. I mean, it was pretty broad-based, Latin America. That's working well. I've said the Alinity is, it's a multiyear kind of cycle. If you look at these contracts, they're 7-10 years, so every year you got 15% that's coming up for renewal. I've also said we're trying to strike the balance between top line growth and gross margin and Gross Margin Expansion. I think this is the range that, you know, we feel is the right range.

We could probably accelerate that more with more placements of instruments and more capital, but, you know, you have some friction on your gross margin as you do that. We're being thoughtful about how we make these placements and how we expand. One of the areas that, you know, recovered really nicely, and I, and I talked about in the opening comments, was on blood banks. As you know, we're a market leader over here. As the blood bank business and as people come back to doing blood donations and plasma donations, we just proportionally benefit from that, not only here in the U.S. and around the world.

Our big focus here is really to look at the assays and the tests that, you know, are missing on the menus and focus the R&D spend to be able to, you know, to close those gaps. That was one of the areas that we did during COVID, was, you know, while one portion of the diagnostic business was working on the COVID testing, the other group was receiving investment to be able to develop new assays, to be able to layer on. That Marie, is extremely, it's a very important strategic driver for us because you've got the capital that's been placed out in the instrument. We could add more assays to that. That comes with a much higher margin profile.

That's our key area of focus. Molecular is an area of focus. We've been working on expanding the menu in molecular also. Point of care. You know, one of the most exciting assays that the team has developed for point of care is a rapid test for traumatic brain injury, so for concussion testing. You know, we've got it approved on a plasma sample. We're doing all the work to be able to get it on a whole blood sample, which can then, you know, go through a CLIA waiver test.

Ultimately, you've got now a handheld 15-minute test, blood test, to be able to rule out a concussion that could be, you know, you can imagine the applications of that kind of test around the world, but specifically, a lot in terms of this country. That's a lot of our focus in diagnostics.

Marie Thibault (Managing Director and Medical Technology and Digital Health Analyst)

That's great. Congrats on a great quarter.

Robert Ford (Chairman and CEO)

Thanks.

Operator (participant)

Thank you. Our next question comes from Matt Miksic from Barclays. Your line is open.

Matt Miksic (Managing Director and Senior Equity Research Analyst)

Hey, thanks so much for taking the question. Just have one clarification on some of the topics that came up earlier and then just hopefully one kind of pipeline question. On a lot of things going on in CGM and wearables, as you talked about, Robert, and just to kind of, you know, separate these out so we can understand exactly, you know, how this will play together maybe over the next, you know, 18, 24 months, Libre 3, Lingo and Ketone. Lingo, you mentioned filing into the year. You know, wondering if that's still ketones and lactates for that product, and then if there's a path forward that includes ketones, for kind of the core CGM Libre 3. I have one just quick pipeline question, if I could.

Robert Ford (Chairman and CEO)

Sure. Yeah, the Lingo product that was launched yesterday was really starting off with a glucose-only component to it. You know, we had a lot of debate about this, and we wanted to start off simple. The opportunity to add ketones to that is definitely in the mix, Matt. There's gonna be a lot of learning here for us, as we, like I say, market a product to a healthy population. There's gonna be a lot of learnings about that. The idea as I've laid out at CES a couple years ago, is that we'll have a pipeline of different analytes that will come into this. Lactate is on the menu also.

The team has figured that out. There's an interesting application for lactate, both in the consumer market, but also in the institutional market, for continuous lactate monitoring. Bottom line, you know, Lingo, it starts with glucose, and then we'll be adding on different analytes as we go learning through that. All of those opportunities are all there. I actually think that there's gonna be an opportunity, you know, as I've said, with ketones, in the diabetes space for sure. You know, that dual sensor with ketones, glucose, is very strong for a specific diabetes population, but I also think it could be strong for, you know, a non-diabetes population also.

Matt Miksic (Managing Director and Senior Equity Research Analyst)

Great. Great, thanks so much. Then the just on the pipeline, we hadn't heard much about what was happening with CSI post the acquisition, and obviously, you know, important, you know, strategic fit and add around peripheral, and their platforms there. They did have this IVL program that was kind of in process, and just wondering, you know, if you're ready to comment on where that is, or when we might start to hear more about the progress there or your expectations for that? Thanks.

Robert Ford (Chairman and CEO)

Listen, the CSI, it closed this quarter. Thank you for asking that. I think it's gonna really have a strong impact as we look at our vascular business and really focus on the growth in the peripheral. You can see that we've strategically been adding either organically with our, with our below-the-knee stent that we're working on, that's currently in trial, and then all the inorganic moves that we've been making. That's very clear, and we're super excited about having the CSI portfolio at Abbott. You highlighted, you know, one of the ones that, as we were looking at it, that we were, you know, super excited about.

The IVL product, you know, I'll put it this way, is, as we look and do a lot of the integration efforts, and, you know, we did a lot of that in St. Jude, and we learned a lot. I would say, from an R&D and portfolio perspective, as part of that integration exercise, that's one that gets probably a disproportionate amount of attention and share of mind from us as we're doing the integration and as we're looking at the program and thinking about, you know, would the program benefit with additional resources, et cetera.

I'm not prepared to comment on that right now, Matt, but rest assured that this one here is high on my priority list as we, you know, as we're going through these next kind of quarters here of integration.

Matt Miksic (Managing Director and Senior Equity Research Analyst)

Excellent.

Robert Ford (Chairman and CEO)

Operator, we'll take one more question, please.

Operator (participant)

Thank you. Our final question will come from Jayson Bedford, from Raymond James. Your line is open.

Jayson Bedford (Managing Director and Senior Research Analyst)

Good morning, and thanks for taking the question. Maybe just on margins. It looked like there was a nice lift to base business op margin, and I'm just wondering, is this all related to the improvement in infant nutrition, or are there other factors at work? Then maybe just as a bit of a related question, you talked about the inflationary impacts on gross margin, and I think we all understand that, but I'm wondering if you're seeing input costs actually start to come down now, and if so, when will we start to see that impact the P&L?

Robert Ford (Chairman and CEO)

Sure. Regarding the op margin profile, we're actually back to our pre-pandemic op margin profile. I think that's really positive. Obviously, the mix of how we get there is a little different. We got a little bit less gross margin from some of the points that Robert's raised here. You know, that op margin profile is really a combination of two things. I'd say we made a lot of investments during COVID. I talked about them. We outlined them over the last couple of years. As we go into this year, and you're seeing this accelerated top line, we're seeing a lot of leverage in the P&L because of those investments.

Haven't had to make the kind of SG&A or R&D investments to be able to drive this, you know, 11, you know, 11 and a half or low double-digit top-line growth rate. That's one of the big drivers there. Yeah, your question on infamil formula, that obviously contributes as the product as we're recovering the share and the manufacturing is ramping up again. It's really a combination of all the areas, right? As the device business grows and grows disproportionately, that has a higher gross margin profile too. I'd say it's really across the board on all the businesses. And this is an area of focus that we have.

You know, to your question on gross margin, this is our biggest opportunity, I would say, maintaining this kind of growth rate and then looking at areas where we can improve our gross margins. Your point on input costs are true. We are seeing, you know, certain input costs come down, certain commodities come down. You know, if we see that continue throughout, going into next year, I think we'll have a great opportunity there. One of the things that I wanted to make sure we focused on, going into this year, was that we had the inventory we needed to be able to capitalize on the opportunities we had from a top-line perspective.

If you remember, Jayson, you know, second half of last year, you know, supply chains were really challenged, and we had some challenges, right? Those supply chain challenges had an impact on our top line. Going into this year, you know, we told the team, I said, "Listen, let's make sure we've got all the inventory we need to capitalize on these opportunities." One of the ways you do that is you gotta lock in, you gotta lock in your supply, you gotta lock in your volume, you gotta lock in your price. As commodities come down and we start to look at our contracts for next year, I think that'll be a great opportunity for us as we go through it.

That being said, I'll just wrap up here with a few closing comments. We had a very strong start for the first half of the year. We achieved double-digit organic sales growth on the underlying business, and we've done it for two quarters in a row now. The growth is broad-based. It's not focused on one specific area or one geographic area. It's across the entire portfolio, and all of the areas have delivered great performance. The pipeline has been highly productive. I think that's the key for us and for our strategy, is to make sure that we're bringing new innovations to the market that can kind of sustain our top line and meet unmet needs for patients.

We've raised the organic sales growth and the EPS guidance on the base business. The EPS guidance on the base business is now forecast, as I said in the beginning, to be about $0.15 higher than our original guidance back in January. Momentum is building. We're well positioned for the second half of the year, and heading into next year. With that, thank you for joining us.

Mike Comilla (VP of Investor Relations)

Thank you, operator, and thank you all for 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 today.

Operator (participant)

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