Abbott Laboratories - Q2 2024
July 18, 2024
Transcript
Operator (participant)
Good morning, and thank you for standing by. Welcome to Abbott's Second Quarter 2024 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 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 Comilla, 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 Phil Boudreau, Executive Vice President, Finance and Chief Financial Officer. Robert and Phil 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 2024. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological, and other factors that may affect Abbott's operations are discussed in Item 1A, Risk Factors, to our annual report on Form 10-K for the year ended December 31st, 2023.
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 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 organic sales growth of more than 9%, excluding COVID testing sales. We also reported adjusted earnings per share of $1.14, which exceeded analyst consensus estimates and represents a 16% sequential increase from the first quarter. Based on our performance in the quarter and confidence in our outlook for the remainder of the year, we raised our guidance and now forecast full-year organic sales growth, excluding COVID testing sales, to be 9.5%-10% and adjusted earnings per share in a range of $4.61-$4.71. Our performance continues to be driven by broad-based growth across the portfolio, with growth this quarter led by double-digit growth in medical devices and high single-digit growth in established pharmaceuticals and nutrition.
In addition to benefiting from outperforming expectations on the top line, we are also seeing positive contribution from gross margin expansion coming from continued execution from our supply chain teams, lower commodity costs, and favorable sales mix. I'll now summarize our second quarter results in more detail before turning the call over to Phil. I'll start with nutrition, where sales increased 7.5% in the quarter. Strong growth in the quarter was led by double-digit growth in international adult nutrition and U.S. pediatric nutrition. International adult nutrition continues to perform at a very high level. The five year compound annual growth rate of this business is more than 10%, which, in addition to our market-leading position and commercial execution, reflects the impact from positive demographic trends that drive increasing demand for our Ensure and Glucerna brands.
Through the investments we've made to expand capacity, we are well positioned to continue to capitalize on these secular demand trends. On the topic of litigation regarding pre-term infant formula and human milk fortifier, Abbott stands by our products and the information provided to the neonatologist specialists who have used them for decades. Necrotizing enterocolitis, or NEC, is a terrible gastrointestinal disease that primarily affects premature infants, and it is devastating to families. However, plaintiff lawyers are advancing a theory that is without merit or scientific support. These products, which are sold for hospital use, are incorporated into a feeding regimen, along with human milk, by experienced specialists and are an important part of the standard of care for the majority of pre-term infants. Their use is supported by medical associations in the United States and other countries around the world.
The products and their ingredients have been reviewed and are deemed safe for use by regulators, who have also reviewed their labels. There has been no increase in the rates of NEC, meaning these cases have not emerged in response to a trend or any new information. Yet we're seeing plaintiffs' lawyers investing millions of dollars in misleading TV advertising in an attempt to move physician decisions from the hospital to the courtroom. Total revenues for these products are about $9 million annually and have remained at that level for the past several years. If these products were no longer available, physicians would be deprived of the vital food that is needed in the NICU. This would create a public health crisis affecting every state across this country.
We believe it's important for all who have an interest in health of preterm infants to recognize the need for these products and to take action accordingly. Moving to diagnostics, where sales increased 6%, excluding COVID testing sales. Growth in the quarter was driven by high single-digit growth in core laboratory diagnostics and double-digit growth in point-of-care diagnostics. In core lab diagnostics, we continue to drive growth through increased adoption and utilization of our market-leading systems and global demand for our extensive testing menus across the areas of immunoassay, clinical chemistry, hematology, and blood screening.
While our Alinity family of diagnostic systems first launched more than six years ago, given the long contract cycles common in the diagnostics industry, we continue to see a benefit in our contract renewal and competitive win rates, with several recent large account wins expected to increasingly contribute to growth in the second half of the year. Turning to EPD, where sales increased 8% in the quarter. EPD continues to deliver at a high level as this business executes its unique branded generic strategy in emerging markets, where growth is supported by favorable demographic trends, including increasing populations, growing middle classes, and an increasing focus on expanding access to healthcare. As you recall, we identified biosimilars as a new strategic growth pillar for this business.
With our extensive presence in emerging markets, we have a unique opportunity to scale a licensing model that is capital efficient and can bring access to these life-changing medicines to millions of people in emerging markets. We began implementing this strategy last year when we announced an agreement to commercialize several biosimilars in the areas of oncology and women's health, with the first of these expected to launch in 2025. We recently completed additional agreements that provide Abbott access to biosimilar versions of market-leading autoimmune disease and GLP-1 medications. Biosimilars represents the highest growth segment in the branded generic pharmaceutical market, and we look forward to continue to build one of the most complete portfolios in the industry. And I'll wrap up with medical devices, where sales grew 12%. In diabetes care, FreeStyle Libre sales were $1.6 billion in the quarter and grew 20%.
We announced in June that we received FDA approval for two new over-the-counter continuous glucose monitoring systems called Lingo and Libre Rio, which are based on Libre's glucose technology that is now used by more than 6 million people around the world. While over-the-counter availability is a new option in the United States, we've been selling over the counter in international markets since Libre launched 10 years ago. Given our clear leadership position in these markets, we have demonstrated our ability to tailor solutions, approach, and communication to the various types of users who compose the CGM customer base. Lingo is designed for consumers who are willing to improve their overall health and wellness. The Lingo wearable sensor and app will track glucose, provide personalized data, insights, and coaching to help create and maintain healthy habits.
Libre Rio is designed for adults with type 2 diabetes who do not use insulin and typically manage their diabetes through lifestyle modifications. In electrophysiology, growth of 17% was driven by double-digit growth in all major geographic regions, including 17% growth in the U.S., which represents an acceleration compared to the growth in the first quarter. Growth was broad-based across the portfolio and included 20% growth in ablation catheters. In structural heart, growth of more than 15% reflects an acceleration in growth compared to the first quarter and was led by several recently launched products that are driving new adoption and share capture in attractive high-growth areas, including TAVR, LAA, and tricuspid repair. This quarter, we launched our tricuspid repair device, TriClip, in the United States and continued our trend of capturing market share in the global TAVR market.
In rhythm management, growth of 6% was led by AVEIR, our highly innovative leadless pacemaker. In June, we announced that we received CE mark in Europe for AVEIR to be used in dual chamber pacing procedures, which is the largest segment of the pacing market. In heart failure, growth of 9% was driven by our market-leading portfolio of heart assist devices that offer treatment for both chronic and temporary conditions. In neuromodulation, growth of 8% was driven by strong demand in international markets for our Eterna rechargeable spinal cord stimulation device, which obtained CE mark in Europe last year. In vascular, we received FDA approval in late April for our Esprit dissolvable stent, a breakthrough innovation for people who suffer from blocked arteries located below the knee.
Esprit is designed to keep the arteries open, deliver a drug to support vessel healing prior to completely dissolving over time. New products like Esprit, combined with the investments that we made in our vascular business, both organically and inorganically, have expanded our presence in faster-growing areas and increased the future growth outlook for this business. So in summary, we exceeded expectations on both the top and bottom lines, and as a result, we raised our financial outlook for the year. We continue to make good progress on our gross margin initiatives, and more importantly, our pipeline continues to be highly productive, and thus we're well positioned to deliver strong results for the remainder of the year. I'll now turn over the call to Phil.
Philip Boudreau (EVP and CFO)
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 increased 7.4% on an organic basis and increased 9.3% when excluding COVID testing sales. Foreign exchange had an unfavorable year-over-year impact of 3.5% on second quarter sales. During the quarter, we saw the U.S. dollar strengthen versus several currencies, which resulted in 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 56% of sales. Adjusted R&D was 6.3% of sales, and adjusted SG&A was 27.7% of sales in the second quarter. Lastly, our second quarter adjusted tax rate was 15%.
Turning to our outlook for the full year, we now forecast full-year adjusted earnings per share of $4.61-$4.71, which represents an increase compared to the guidance range we provided in April. We also raised the midpoint of our guidance for organic sales growth. We now forecast organic sales growth, excluding COVID testing sales, to be in the range of 9.5%-10%. Based on current rates, we expect exchange to have an unfavorable impact of more than 2.5% on full-year reported sales, which includes an expected unfavorable impact of approximately 3% on third quarter reported sales. Lastly, for the third quarter, we forecast adjusted earnings per share of $1.18-$1.22. With that, we'll now open the call for questions.
Operator (participant)
Thank you. At this time, we will conduct a 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. And again, that's star one one to ask a question. Please stand by while we compile the Q&A roster. And our first question will come from Larry Biegelsen from Wells Fargo. Your line is now open.
Larry Biegelsen (Analyst)
Good morning. Thanks for taking the question. Robert, congratulations on a nice quarter, and thanks for your comments on the NEC litigation. I'm wondering if you have anything to add on that, Robert. I had one follow-up question.
Robert Ford (Chairman and CEO)
No, Larry, I think I said everything I said during my prepared comments. I guess the only add here is I think this is way overblown in terms of its impact. And we are working to obviously defend our position and you know, working with all the different stakeholders so that they are aware of the situation, the gravity of the situation as it progresses. But I've said all I have to say right now in my prepared comments, and you know, if there's a need to kind of give further updates, we will.
Larry Biegelsen (Analyst)
All right. Thanks. Separately, Robert, your EP business grew nicely in the second quarter, 17% in both the U.S. and international. What drove that? You know, what are you seeing with PFA in the different geographies, and how are you thinking about the sustainability of that growth before Volt launches? Thank you.
Robert Ford (Chairman and CEO)
Sure. Well, I'm seeing what I thought I was going to see. It might be a little different from what some of you thought you were going to see. But what we've been seeing is obviously an increase in the market. So, you know, right now, the market has accelerated, seems to be growing, you know, above 20%. So when you look at our 17%, it's lower than the market, but it's actually growing faster than what it was growing pre-pandemic, or just after we had done the acquisition. So, we'll see if we'll see. I mean, that growth is obviously in value. We'll see if the growth in procedures actually translates.
We are actually in more procedures than what we were in the past, given our mapping and our teams. But I think it's a little bit too early to say if the actual number of procedures is gonna significantly increase. So the market has accelerated, but it's predominantly, I think, price right now, with the introduction of this new product. It's predominantly being used in de novo procedures, atrial procedures, right? And we think that's about a third of all ablation procedures, Larry. The other two-thirds, we continue to see, you know, whether it's redos, VT, SVT, ablations. In that case, we continue to see RF really being viewed as the better option for those procedures.
We'll see how that's gonna translate over time. But, OUS, you know, the penetration is, you know, is around 10%-15%. It's been pretty stable. From the point of view of mapping, you know, I think, we haven't seen a real big change of what we saw, you know, during those first couple of months of launch in the last call. So, you know, over 90% of cases here in the U.S. are still being used as mapping. We've got a 50 share of those mapping cases. I don't try and, you know, look at different types of denominators to get to that market share, so I make sure my team just basically has the best access.
From what we're seeing, it's about 50%. RF catheters, similar to what we saw, you know, in the last call, still being used in about 20% of the PFA cases. So we continue to see that. So I think the net effect of all of this is the market's growing, it's accelerating. We've got a strong position. You know, everything that we've talked about in the past, about our opportunity with the mapping and all the other consumables is there. You know, RF still plays a role, it's still an important role. Our business is actually growing faster than what it was growing before. You know, if you look at 2019, we're about 12%; 2018 was about 14%.
We're actually doing better now. So I think that this is positive for the market, which is why we've invested heavily in our, in our PFA portfolio, which you'll start to see hit the market, in the, in the, you know, I'd say next year. I'm not gonna try and kind of time the quarter here, but definitely next year. So I think this is good, and the teams have done an incredible job at executing the strategy that we laid out, so kudos to them.
Larry Biegelsen (Analyst)
Thanks so much. Thanks for the comprehensive answer.
Operator (participant)
Thank you. Our next question will come from Travis Steed from BofA Securities. Your line is open.
Travis Steed (Managing Director)
Hey, congrats on the good quarter. I wanted to ask about structural heart really stood out this quarter, accelerated from last quarter. Just curious how much of that's on, on MitraClip recovery. You got TriClip approved early, how much you're seeing from the TriClip side and how much is coming in from some of the other newer products like Amulet and Navitor?
Robert Ford (Chairman and CEO)
Sure. Obviously, TriClip was an important launch, you know, and helped accelerate the growth rate, Travis. But I think it's pretty broad-based here. I mean, if you look at TriClip, we were ready to go because we had certain built-in advantages in this area, right? We had the scale, we had the sales force, the manufacturing capacity, so we were ready to go. I think from our estimates here, even though we launched a quarter after our competitor with their system, I think the repair device is already in twice as many accounts as the replacement system. So we had a natural kind of built-in advantage here as we went to the market. And the cases are doing very well.
The feedback's been very positive, but I think it's really broad-based here. Navitor has done very well, both in international markets and in the U.S. You know, the value proposition is starting to gain more traction, you know, great clinical profile, excellent, you know, hemodynamics, and that's driving a lot of opportunity for us in international and U.S. markets. We shared some data from our registry, from our Japan registry, and great safety also. So that's doing very well. Amulet, we saw really nice growth in the U.S. for Amulet. This quarter was about 45%.
So that product, you know, is doing very well, and, you know, we're focusing here on, you know, continued, you know, continued, what I would call, penetration in same-store sales. So we're about, you know, close to 20% in the accounts that we're, that we're in. We're in about half of the market here in the U.S., so our opportunity here is to continue to expand the sales force and, and go to newer accounts. So that's done very well, too. MitraClip, I think we continue to see, some, you know, some continued growth, internationally. In the U.S., with competitive activity, that's kind of slowed down a little bit of the growth.
But I think with TriClip now coming into the market and gaining traction, we'll be able to provide a value proposition across, you know, both repair systems and drive there. So structural heart, the growth rate has accelerated from Q1, doing very well, and I'd say it's really across a full portfolio approach versus just really trying to single out one product or one technology. There's work we have to do in MitraClip, that's clear in the U.S. Internationally, it's done very well. But all the other products that I've talked about are doing very well and gaining market share and gaining adoption.
That's why you saw Structural Heart's growth rate actually accelerate, and I continue to see that that's gonna be definitely for the rest of this year and going into next year.
Travis Steed (Managing Director)
That's super helpful. And then on your sensor business, you know, how are you thinking about segmenting the market with Lingo versus Rio? And how do you think those markets are gonna kind of develop over time? And when you look at your core Libre business, is anything to call out, any changes in kind of U.S. or versus international market dynamics?
Robert Ford (Chairman and CEO)
Well, you're trying to cover a lot of ground there, with that question. You could probably spend a whole call going through all of that. I think at its highest level, you know, Libre continues to do very well. There's still a lot of growth opportunity. Obviously, the basal opportunity is the biggest one, and we're doing having great progress over there. But even in the MDI segment, you know, there's still a lot of penetration to occur in the MDI segment. I think in the U.S., there's still about a third of multiple daily injectors that aren't using CGM, and international developed markets, it's around 50%. So there's plenty of growth in Libre.
Our strategy here with Lingo and Libre Rio is just really to, like, have a full portfolio and look at this as a platform where we can expand the use of the sensor technology across, you know, different types of diabetes populations, but also, you know, the what is probably the larger market, which is people that don't have diabetes, right? And I think if you I mean, even if you take right now, I would say, you know, we're gonna launch it here in the U.S., and we're gonna start expanding globally, and we'll see how it how it looks like and, you know, what it what it takes to, you know, win there.
But I, what I do know, based on the U.K. experience, is that, you know, it takes some time to educate and communicate with, you know, a patient population that while excited about, you know, having new tools to drive healthier habits, they do need some time to understand, you know, its use. But I think it's a pretty big opportunity for us and one that, you know, we've disproportionately invested to be able to get into this position. I think if you take Lingo and you look at U.S. and Western Europe, the adult population there, you got about 400 million people in those markets. If you take a single-digit penetration rate, a few sensors a year, and you're looking at a multi-billion opportunity there.
You know, we're not there yet. I think once we've got better understanding of how this is gonna work, we'll be better at forecasting it. But just at a high level, and looking at it from a total adult population and, you know, relatively, I'd say, modest penetration rate, it's a pretty big opportunity. So... And like I said in my comments, we've done this for a while since we've launched internationally, and, you know, we've learned a lot, and we're gonna bring that learning and experience here to the U.S. So it's an exciting opportunity for us.
Travis Steed (Managing Director)
Great. Thanks, Robert.
Operator (participant)
Thank you. Our next question will come from Robbie Marcus from JPMorgan. Your line is open.
Robbie Marcus (Analyst)
Oh, great. Thanks. I'll add my congratulations on a good quarter. Two for me, two product questions. Maybe just to follow up on the diabetes Libre question. Robert, how are you thinking about sort of a holistic drive of advertising and word of mouth for these new products, especially as we move into the OTC versus generating data, and how much will be necessary? Because I just, I think back five years ago and, you know, where we are today was probably not in most people's forecasts and with the amount of data we have showing in non-diabetics, how beneficial CGM is. So how are you thinking about, you know, data versus not data, insurance coverage versus not insurance coverage, and how do the markets look one way or the other?
Robert Ford (Chairman and CEO)
Yeah, I don't think so from an insurance coverage perspective, I mean, if you're referring to Lingo specifically for non-diabetes, you know, I think it's gonna be, you know, I don't think that's gonna be something that we're building a forecast assuming reimbursement coverage over it. Even though I agree with you, you know, there's nice data that shows that people that don't have diabetes can benefit from this, Robbie. And it helps sustain behavior modification, right? I mean, ultimately, that this is what it is, right? It's using data to be able to kind of, you know, help people that wanna stay healthy, give them more information, and Ensure that they can refine their habits or, you know, or change habits.
So I think that that is, you know, at the core there. It's really communicating directly with consumers. If you think about the diabetes space and how CGM, you know, uptake, you needed, you know, both a communication with the patient and you needed, obviously, a communication, you know, with the physician. I think that that's still important for the non-diabetics. I think that some people will want, you know, to, you know, to have some sort of, you know, recognition from the healthcare professional that this, this might be a good investment to do in, right? And the key thing here is just the utilization, right? I don't think you're gonna see, you know, people that don't have diabetes use this, you know, a sensor 365 days a year.
But like I said, if they're using it, you know, a couple times a year, there's still a benefit. And we'll be generating data on this over time. I think it's gonna be important to generate data, even if it's not to communicate to payers to get reimbursement, but even if it's to communicate to the physicians, you know, the primary care and the direct consumers, that there's a value here of doing that. I think the key thing here is personalization, and how do you personalize information and the data and the coaching.
So, the strategy here is, yeah, you're gonna have to use TV to be able to communicate, but I don't think it's—I, I don't think, given our experience here, that you can just go on TV and, you know, blast TV advertising and, and you'll get this, you know, big uptake and. You know, you're gonna have to do some on the ground, kind of guerrilla marketing, let's call it like that, together with TV advertising, to really be able to, you know, open up the market and then sustain it, right? And sustain its use. So, that's how we're thinking about it, and that's why, you know, we have a separate team, completely removed from the Libre and the diabetes team, that they're focusing on how, you know, how to execute this strategy.
I think it's more of a kind of S curve growth versus kind of an out of the gates. I know that everybody's focused on what the sales are in the second half and, you know, whether it's me or the competitor. I think the bigger picture here is like, hey, there's a really big opportunity here, and if we do it right, it's an opportunity that will be more than a flash in the frying pan. It'll just sustain itself, and it could become standard, so.
Robbie Marcus (Analyst)
Great, color. One more for me. AVEIR and the leadless pacing, particularly the dual chamber now with coverage, I think is an underappreciated opportunity. Maybe, if you don't mind, spend a minute there, how you see this market evolving and what's the early feedback on the launch so far? Thanks.
Robert Ford (Chairman and CEO)
Yeah, I mean, ultimately, I think this whole leadless is gonna change the growth trajectory of our CRM business, right? If you look at CRM, it grew 7%. Last year, it's grown 7%. The first half of this year, it was previously a flat business, right? And we've been doing that, you know, I would say with good success on dual, but I wouldn't say that it's, you know, at full cycle yet, because one of the things that we're working on is ensuring that, you know, we're doing the training and we're getting physicians comfortable with the procedure, right? It's a completely different procedure versus what, you know, the entire industry's been accustomed to. You know, we're using mapping, we're going into the groin versus doing pockets above the chest.
So, it is a little different, and we're focusing on that. But that being said, you know, we've been able to accelerate the growth rate just with a single chamber. I think right now, after two years, we've probably captured about 50 share. But to your point, the bigger opportunity is in dual, and the procedures are going great. And once physicians get, you know, several under their, you know, experience with several of them, you know, they're talking about, "Okay, how do we accelerate this?" And an opportunity to drive more patients into it, you know. But we wanna make sure we've got a pretty large base of well-trained and great outcomes physicians across the United States.
Listen, this is a $3 billion global segment, and there really hasn't been much innovation in it. And here you have something that's truly unique and differentiated. And I'd say once we feel that we've gotten to a point where we feel good about the capabilities and the training and the amount of physician coverage that exists, you know, this is definitely a product that I can see going a little bit more mainstream, having a more direct consumer communications because of the value proposition it affords them. So I think this is a great opportunity for us. It might be underappreciated, you know, with the market, but it is definitely appreciated amongst me and the device team and the CRM team.
You know, we're working hard to get to that point where we can really let it go strong, so.
Robbie Marcus (Analyst)
Great. Thank you very much.
Operator (participant)
Thank you. Our next question will come from Josh Jennings from TD Cowen. Your line is now open.
Joshua Jennings (Analyst)
Hi, good morning. Thanks for taking the questions. Robert, I wanted to just start asking about just kind of this multi-year trajectory for Abbott. You've been delivering top-tier organic revenue growth performances over the last two years and potentially have a two-year double-digit stack comp next year. But I think the team has been publicly stating that potentially the business could outpace pre-pandemic levels, which in that 7%-8% range. I think during this call, you've put forward a lot that supports that type of trajectory.
But maybe just to reiterate your confidence level there, and is this kind of outpacing of pre-pandemic levels over the medium term dependent on M&A, or is this the core business with internal development programs that that's really gonna drive this top-tier growth out over the next couple of years?
Robert Ford (Chairman and CEO)
Is that the attempt to get to the 2025 kind of question? I, I'd say... Listen, we've been, we've been saying that made investments during COVID to accelerate the company, make it stronger, build our portfolio so we could accelerate the growth, right? If you look at the last six quarters, we've been delivering, you know, top tier, you know, high single digit, double digit growth, and this is on a company that's doing, you know, $40+ billion of revenue. So I think that's pretty impressive. If you look at our medtech portfolio, it, it was the fastest growing medtech portfolio last year, fastest growing in the first quarter of this year. We'll see what happens, this second quarter. But we've positioned the company to be able to deliver this.
Do I think that you know, we can continue to deliver this top tier performance, you know, throughout this year and into next year? Yeah, I absolutely do, because of, one, what we've built, and then just the evidence and the proof points that we've been able to, you know, reliably and sustainably deliver that. So yeah, we feel good about our ability. The markets that we're participating in are attractive, so there are markets that we lead, and when those markets grow, like, our leadership benefits, there are markets that are attractive that we're entering.
You know, there's plenty of opportunity for market share gain, and there are markets that are attractive that you know, we're building, and there's no real clinical opportunity, or there's a clinical opportunity for our products that we're developing to come in there. So as we build those markets that you know, they become attractive and our position gets solidified. And I think that framework applies to all four of our business units have opportunities across those three frameworks. On the M&A front, yeah, if we're able to you know, find an asset that you know, makes sense strategically to us, makes sense financially, that could add even further to that growth, then yeah, we've got the balance sheet to be able to do that.
But it's not dependent, you know, as I've told you. It's really focused on the organic side to be able to deliver this top tier growth.
Joshua Jennings (Analyst)
Understood. And thanks for that answer. And another kind of high-level question you probably receive regularly, but just wanted... It's our understanding as well that when your team, the board, every year, at least once a year, maybe multiple times a year, is just considering the strategic fit of the four major business units for Abbott, and maybe just to get an update on your thoughts on the business combinations and the potential for spins down the line. Thanks a lot.
Robert Ford (Chairman and CEO)
Well, we, you know, we look at our portfolio on an ongoing basis. I don't think there's, like, this one moment in the year that we do it. We're doing it on an ongoing basis, and the company has a history of ensuring that, you know, the portfolio that is assembled is not only delivering value to patients and governments and healthcare systems, but it's also delivering value to our shareholders. And we historically have, you know, haven't shied away from, you know, from asking ourselves the questions and answering those questions. And if there's an opportunity to create value through addition or through subtraction, then the company has shown that it's ready to do that.
I think the two fundamental questions about that is, you know, is there an opportunity to create value for shareholders? And, you know, is there somebody that could do better with, you know, with our businesses? And right now, you look at what we're doing with our businesses, we're performing at the highest level across all of the four segments. You know, we'll see what happens during this earnings season here, but I feel very good about the team and what they're doing. Obviously, there are areas that we could always do better, and we focus on that.
But at the highest level, all four of our sectors have been delivering outstanding growth, market leading growth, and quite frankly, innovating, and fulfilling our purpose and our mission, which is to help people live healthier lives. So I like the diversity. The diversity provides, you know, both defense and offense capabilities. And as long as you're managing them within each one of their segments, allocating capital that is proportionate to, you know, their growth and their industry, and we spend a lot of time managing all four segments, then, you know, I think we're doing a good job at running them. So, yeah.
Joshua Jennings (Analyst)
Great. Thanks a lot.
Operator (participant)
Thank you. Our next question will come from David Roman from Goldman Sachs. Your line is open.
David Roman (Analyst)
Thank you, and good morning, everybody. I was hoping to ask one question on the P&L side and one on the capital allocation side. Maybe I'll start with the P&L here. Kind of look at the guidance here for the back half of the year. Our math implies it, it's something like 100 basis points plus a year-over-year operating margin expansion at about 9% EPS growth at the midpoint of the range. Can you maybe talk through some of the drivers that underpin that margin expansion on a year-over-year basis? Obviously, obviously, we saw a turn here in Q2 versus what we saw in Q1, but maybe walk us through some of the drivers that get to that improved margin and earnings growth performance in the back half of the year.
Robert Ford (Chairman and CEO)
Sure. I'll let Phil take that.
Philip Boudreau (EVP and CFO)
Yeah. Good morning, David. You know, Robert-
David Roman (Analyst)
Good morning, Phil.
Philip Boudreau (EVP and CFO)
Touched a little bit on the opening comments here on some of that expansion already this year. And you know, we're in a pretty unique position relative to some of our peers in terms of our op margin profile, that we're already back to pre-pandemic levels. And we did that strategically through managing spend through the ups and downs of COVID testing. And as we talked earlier this year, Q1 was really the last big comp on sort of COVID testing impacts on sales and profiles. With respect to margin expansion and gross margin in particular, you know, the guidance for the year is around 75 basis points as you highlight some progress here and more to go, but the trajectory is there.
We're focused on the things that we can control and execute on, and in particular, some of this great portfolio contribution from our sales top line performance, particularly in accretive businesses, is a contributor here and one that we anticipate will continue to expand here throughout the year. We have dedicated teams in each one of our businesses focused solely on gross margin improvement, productivity, yield improvements, cost reductions, innovation that brings accretion to the portfolio. All of those elements are contributors here, quarter in and quarter out, and continue to contribute through the rest of the year. And then we also have elements. We've talked about some of the cycles that we go through, be it in commodities markets and the like, some of the inflation in the last few years that are starting to sort of stabilize and normalize.
We're seeing freight and distribution profiles normalize and start to be more of tailwinds as opposed to headwinds. We've also seen in commodity markets as well, things not only stabilizing, but coming down and also contributing to tailwinds to gross margin and anticipate that to persist here as well. The combination of all of those contribute to the confidence here and continuing to drive the top tier sales performance, but also expand margins throughout the year.
David Roman (Analyst)
Super helpful. Thank you. And then maybe just on the capital allocation side, maybe thinking about the other side of Josh's question, if you look across the sector here, we've seen M&A pick up a little bit in the second quarter. I think there were two $1 billion-plus transactions announced, with sort of transaction multiples starting to trend toward the lower end of historical levels. But can you maybe give us your latest perspective on the M&A environment and how you're thinking about capital allocation as your cash balance continues to build nicely here?
Robert Ford (Chairman and CEO)
Well, on the capital allocation, more broadly, listen, I've been pretty clear every call about we have a balanced approach, right? I know you cover, you guys cover a lot of companies that, you know, have different approaches. Our approach is balanced, and we believe that that balanced approach, you know, benefits the long-term shareholder, right? You know, one of the metrics that I believe, David, is a good measure of evaluating capital deployment effectiveness is ROIC. And if you look at ROIC over the last three years, our we've averaged around, you know, high teens, and that's on the higher end of kind of the medtech peers that, you know, we often get compared to.
So we believe that, you know, ROIC is a good measure of how effectively we're deploying the capital, and we look at a balanced approach, right? So are there internal capital investments that drive future growth? And, you know, we've been talking about all these great opportunities we have, and we're funding them, and they're great returns. You know, debt paydown, you know, we don't have much this year, but, you know, we took care of some towers last year because we obviously didn't want to refinance them. Dividend and buybacks are, you know, the dividend is definitely core to our investment identity, and we intend to continue to grow our dividend. So that is a balanced approach.
Even with all of that, we also, as you probably see, have opportunity from a balance sheet perspective to deploy that from an M&A perspective. And, you know, we've been spending time talking about our strong top line, and the pipeline that we've developed, and that allows us to be a little bit more selective. You know, you look at other transactions that happened, and you have to ask, "Okay, what's the strategy behind that?" And, you know, a lot of the times you can see, you're having to sustain your growth rate, right? If you're in the business of driving top line through acquisitions, then you gotta, you know, that's part of your model.
You're gonna have to keep doing that, whether the valuations are right or wrong, or not right. But we look at these strategic fit, can they generate an attractive return? You know, can we make the business better that we're acquiring? You know, we don't want to be just a holding. And I think that we've shown that when we do our acquisitions, that's the framework, you know, fits in strategically, generates a nice return, and we tend to operate them or add value to them than when they were standalone, so.
David Roman (Analyst)
Appreciate all the perspective, and thanks for taking the question.
Operator (participant)
Thank you. Our next question will come from Danielle Antalffy from UBS. Your line is open.
Danielle Antalffy (Analyst)
Hey, good morning, guys. Thanks so much for taking the question. Congrats on a really good quarter here. Robert, one of the things that struck me when we spoke, I have two product questions, product-specific questions. When we last spoke is how you're looking at the sustainability of historically slower growing businesses and, you know, areas exposed to historically slower growing markets. So obviously, I'm thinking CRM. Can you talk a little bit about the strategy there? Obviously, there is a big part of that and just leadless pacing in general, and how sustainable. I mean, it's like been multiple quarters now of organic growth in the mid plus single digit range. And then just one follow-up, another product question.
Robert Ford (Chairman and CEO)
Yeah, well, that was part of our strategy. As we looked at our medtech portfolio, you've obviously got high growth drivers there with EP, structural heart, diabetes care, neuro, heart failure, and we looked at CRM and vascular, and you know, those are more flat businesses. So the combination of that is you had a medtech portfolio that was growing, you know, 7%, 8%, maybe 9% a quarter. And to get to double digits, we needed those two businesses to get at least to mid-single digits, right? I'd say on the CRM side, our strategy there was to really focus on AVEIR leadless pacemaker, leadless pacemakers. And you know, there's a pipeline of products there.
I don't want to tilt my hand here, but, you know, we didn't do, you know, AVEIR DR and stop there. The team's, you know, gotten R&D programs to continue to advance those, and even to look at, you know, the ICD market also and what are the opportunities that we can do to innovate. There is space to innovate in that market, and that's, that for me, is important, is, you know, the diabetes market, you know, 15 years ago, you know, people would say, "Well, gee, that's a slow growth market." Well, now look at it, right? So if you focus on the innovation, on meeting needs, unmet needs, you can turn a market around. From a vascular perspective, you know, as I said in my comments, we're trying to...
We've been repositioning the portfolio to more higher growth areas, peripheral areas, endovascular areas. But we started that a little bit, a little bit later than what we did in, in CRM. So I, I expect to start to see our vascular business start to also contribute to a higher growth rate, the same way that CRM is. And, and that just kind of bolsters our entire medtech portfolio and gets us into that 12%-13% kind of growth rate. At least that's our target.
Danielle Antalffy (Analyst)
Okay, that's helpful. And then the follow-up question is on the structural heart side of things, and I know Amulet's been on the market for a little bit here, but my impression is that now it's kind of like Abbott's no longer fighting with one hand tied behind their back. Can you talk a little bit about that and, you know, you've 45% growth, I think you said, in the quarter. Where to from here for Amulet? And thanks so much for taking the question.
Robert Ford (Chairman and CEO)
Yeah, so it's a great quarter. I think the team's kind of hitting its stride right now. As I said, our focus here was really to kind of drive adoption in the centers that we were at versus, you know, expansion. You know, the competitor has expanded the market. There's probably about 800 centers that are doing these implants, and we're probably in about half of it. Now that's good, right? That provides, you know, a market expansion dynamic here in the U.S. But so I think. I mean, I'm really encouraged by some of the data that I'm seeing, and I think it starts with the data, right?
You know, we had a patient registry data come out, where it showed that 95% closure rates were achieved post-implant and sustained after 45 days. 90% of closure success rate using Amulet for patients that actually failed to achieve proper closure rate with a competitive product. So I think that, there's an opportunity here for our value proposition, and then we've got to continue to invest. You know, we are already investing on our, on our, you know, next generation Amulet, you know, focusing on ease of use, focusing, and we'll maintain our superiority here that we believe we have regarding the sealing of the LAA. We're investing in clinical trials.
Obviously, we've been public about Catalyst, which is a trial that will compare Amulet to NOAC, anticoagulation treatment. So, this is an exciting market for us, and we're going to continue to invest in it. Ultimately, it comes down to really looking at surrounding the electrophysiologist with the most comprehensive portfolio, whether it's on pacemakers and ICDs, structural heart interventions with, you know, stroke preventions, and then obviously, you know, ablations and AF treatment. So, you know, at its highest level, you know, that's the important side here, is Amulet fits an important role. Even though we reported a structural heart, it's really playing a role here to surround the physician, the EP with the tools that they need to advance care.
Danielle Antalffy (Analyst)
Thank you.
Mike Comilla (VP of Investor Relations)
Operator, we'll take one more question, please.
Operator (participant)
Thank you. And our final question will come from Vijay Kumar from Evercore ISI. Your line is open.
Vijay Kumar (Managing Director)
Hi, Robert. Thanks for taking my question, and congrats on a nice sprint here. I wonder, touching on biosimilars, you know, you brought this up on the call. Can you, can you elaborate on your strategy there? Are you planning to manufacture these products? Is Abbott going to be a CDMO in that space, or do you plan to launch your own biosimilars, or, or is this more of Abbott being a distributor, and then taking advantage of your brand presence in emerging markets? What is Abbott's role in that space, and how do you size that market opportunity for Abbott? When should that start contributing to Abbott?
Robert Ford (Chairman and CEO)
Sure. You know, this is one where I'd say there's a couple phases to the strategy. You know, the core premise of this, Vijay, is if you look at the emerging markets and the disease prevalence that exists in these emerging markets, they're no different than the disease prevalence in the U.S. or Europe. I mean, you know, you could look at, you know, some of them are higher, et cetera. But in general, there's an opportunity to bring these biologics into the emerging markets, and for a variety of reasons, you know, those markets have not been a priority for the originators. Their main focus has obviously been in the international developed markets, U.S., Western Europe, Japan, Canada, Australia, et cetera.
So, this, you know, provides just a patient need opportunity that we want to size up, you know? And what we've seen from some of our—you know, we have done some more regional biosimilar deals that we've launched, and what we've seen is that the growth of the molecule grows significantly once, you know, once a biosimilar enters. In terms of penetration into a patient population, it's a different dynamic in developed markets, as we know, but in emerging markets, the category really expands.
So what we wanted to do is to say, "Okay, before we start to think about manufacturing, before we start to think about that, we want to be able to understand, what is the, you know, what is the uptake of these products once you go ahead and, you know, put a concerted effort to developing, you know, these types of products in emerging markets," right? And it fits right into our wheelhouse, where we've got relationships with governments, we have relationships with physicians, and we've got relationships with the distribution area. And the question is, how can you do it and how can you execute that, you know, that strategy with, you know, that's capital efficient and, you know, and doesn't erode kind of gross margin of that business?
And, you know, I give a lot of kudos to the team, because they've really been able to position, you know, our presence in these markets, as an advantage to these players that, you know, really aren't focusing on emerging markets. They're focusing more on the opportunities that exist in developed markets, and now they can partner with one single company, reputable company, to be able to, you know, use that capacity, in other markets. So, I'd say we're in the phase right now of, okay, is there sustainability to this? So the deals that we've done give us access. Our gross margin is not dilutive, and we're going to see how it goes.
As you think about the ramp-up of what we've got at the pipeline, we'll start launching in 2025, but you look at some of the big molecules that will come up, you know, for us, you know, 2026, 2027, that's what I think when some of these very large, like, oncology opportunities that we have, will play a huge role for us, and accelerate the growth there.
Vijay Kumar (Managing Director)
That's helpful.
Maybe one last one on capital deployment. I know, it's been asked. I'm curious on share repurchases. You know, you guys have done phenomenal growth. Street doesn't seem to be giving credit. Why not? You know, didn't see any share repurchase in the first half. Why is Abbott being conservative on share repurchases?
Robert Ford (Chairman and CEO)
Yeah, well, we've done a lot of share repurchases in over the last couple of years. Let's say catching up a little bit to maybe not doing as much repurchasing after the two, you know, the two acquisitions we did in 2017 and 2018. You know, if you look at our repurchases and dividends, it's been about $20 billion that we've returned over the last four years, Vijay. $20 billion in dividends and buybacks. And that accounts for, you know, a good amount of our, of our free cash flow over the last couple of years to our, to our shareholders. So, you know, we're not, you know. The year's not over. You know, and again, if we'll see opportunities.
We've got plenty of opportunities to be able to do that. So, I'd say we—I think we've done a pretty good job here at returning cash back to our shareholders over the last couple of years, and that commitment we'll maintain. So I'll just close here. This was a great quarter for us, and quite frankly, a great quarter in connection with you know, five you know, five quarters before that, where we delivered above-market growth. I'm really pleased with our continued strong performance. We've raised our sales outlook, our EPS ranges for the second time this year. The toughest COVID test comps are now behind us. So I look forward to not having to you know...
We'll obviously report our COVID testing sales, but you'll start to see those comps start to dwindle away now, which means then that our EPS is back to growth. And I think one of the questions there about showing our EPS exiting the year in high single digits, double digit kind of range, and getting back to our formula, that's what we're interested in. And we've got a lot of positive momentum here heading into the second half of the year. So with that, we'll wrap up, and 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 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.
