美國雅培 (ABT) 2017 Q2 法說會逐字稿

Good morning and thank you for standing by.

Welcome to Abbott's second-quarter 2017 earnings conference call.

(Operator Instructions).

This call is being recorded by Abbott.

With the exception of any participants' questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott.

It cannot be recorded or rebroadcast without Abbott's expressed written permission.

I would now like to introduce Mr. Scott Leinenweber, Vice President Investor Relations.

Good morning and thank you for joining us.

With me today are Miles White, Chairman of the Board and Chief Executive Officer, and Brian Yoor, Executive Vice President Finance and Chief Financial Officer.

Miles will provide opening remarks and Brian will discuss our performance and outlook in more detail.

Following their comments Miles, Brian and I will 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 2017.

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 Securities and Exchange Commission Form 10-K for the year ended December 31, 2016.

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.

Please note that second-quarter financial results and guidance provided on the call today for sales, EPS and line items of the P&L will be for continuing operations only.

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

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

Unless otherwise noted, our commentary on sales growth refers to comparable operational sales growth, which adjusts the 2016 basis of comparison to include results for St.

Jude Medical and to exclude the impact of exchange, as well as current year and historical results for Abbott's medical optics and St.

Jude's vascular closure businesses which were divested during the first quarter of 2017.

Comparable growth also reflects a reduction to St.

Jude's historical sales related to administrative fees paid to group purchasing organizations in order to confirm with Abbott's presentation.

With that, I will now turn the call over to Miles.

Okay, thanks, Scott.

Good morning.

Today we reported ongoing earnings per share of $0.62, which exceeds our previous guidance range and reflects double-digit growth.

Sales increased 3% on a comparable basis in the quarter and we continue to expect accelerated sales growth in the second half of the year.

We started the year targeting double-digit EPS growth and we are adding to it today by raising the midpoint of our full-year adjusted EPS guidance from $2.45 to $2.48, which represents 13% growth over last year.

Halfway through the year we are on track with all of our key priorities.

The integration of St.

Jude's continues to go well and we are right on track with our deal model and projected synergy targets.

We are also right on track in terms of our new product launch expectations, which includes bringing our MRI compatible rhythm management devices to the US.

During the first half of the year we received FDA approval for our MRI compatible pacemaker and we've completed regulatory submissions for our MRI compatible defibrillator devices, including submission of our CRT-D device in June.

We've also seen significant growth contributions from several recently launched products across our portfolio which I will highlight as I summarize our second-quarter results in more detail before turning the call over to Brian.

I will start with diagnostics where we achieved sales growth of 5.5% in the quarter.

Growth was led by strong performance in Core Laboratory and Point of Care Diagnostics.

This business, which is already a global leader and growing faster than its market, is in the early innings of significantly enhancing its competitive position with the launch of Alinity, a highly differentiated and innovative suite of new systems across all areas where we compete.

During the quarter we achieved CE Mark approval for Alinity hq, our new hematology system, which quantifies different types of blood cells to help diagnose blood-related diseases.

This represents the 5th new Alinity system we've launched in Europe since November of last year and we will continue this launch cadence next year by bringing these systems into the US market.

In nutrition, sales grew modestly in the quarter.

Internationally, as you know, market conditions are expected to remain challenging in China over the near-term in advance of pending regulatory changes in that country.

Outside of China, we have seen some softening in a few international markets.

While volume continues to grow at levels consistent with historical trends, pricing power, which had previously contributed to overall market growth, has moderated.

As a result we lowered our full-year nutrition growth guidance earlier this year and we now expect the global nutrition market to grow in the low- to mid-single-digits over the longer term, which is still a healthy growth rate for a market this size.

We remain focused on outperforming the market with our well-balanced portfolio of leading brands, which we are achieving in US pediatric nutrition, where sales grew 8% in the quarter as we continue to capture share with recently launched infant formula products as well as strong growth of our PediaSure toddler brand.

In Established Pharmaceuticals, or EPD, growth in the quarter was led by double-digit growth in China, Russia and several markets in Latin America including Brazil.

During the quarter sales were impacted by channel dynamics associated with the implementation of a new Goods and Services Tax system in India.

Excluding us impact EPD sales would have current high-single-digits overall, in line with our previous guidance.

This business is fulfilling the vision we had when we created it.

There is no other business like it in the world.

We are in the right countries and the right therapeutic areas and our unique model is driving consistent above market performance in the fastest growing pharmaceutical markets in the world.

And in Medical Devices sales growth was led by continue double-digit growth in Electrophysiology, Neuromodulation and Diabetes Care, as well as high-single-digit growth in Structural Heart.

In Neuromodulation, sales growth of nearly 50% further strengthened our leadership position in the fast-growing market for treating chronic pain through spinal stimulation.

Our strong growth in this market has been led by recently launched products that offer improved pain relief and fewer side effects.

In Structural Heart sales were led by continued double-digit growth of MitraClip, our market-leading device for the minimally invasive repair of mitral regurgitation.

In June we completed patient enrollment in our trial to evaluate the safety and effectiveness of MitraClip in patients with functional mitral regurgitation.

We expect the final results from this trial around this time next year, which could result in a significant expansion of the US market opportunity for MitraClip.

In Electrophysiology, which achieved another quarter of double-digit growth, we continue to anticipate US approval of our Confirm Insertable Cardiac Monitor during the second half of the year.

And in Heart Failure we continue to anticipate US approval of HeartMate III later this year.

I will wrap up Medical Devices with Diabetes Care where international sales growth of 25% was driven by FreeStyle Libre, our innovative glucose monitoring system that eliminates the need for routine finger sticks.

During the quarter Libre achieved regulatory approval in Canada and we've continued to achieve national reimbursement status in a number of countries, most recently France and Switzerland.

Today roughly half of our Libre sales come from patients with full or partial reimbursement.

And just last week we announced an agreement with Bigfoot Biomedical to develop and commercialize diabetes management systems.

This collaboration well help bring these best-in-class technologies to more patients with the goal of transforming the way diabetes is managed.

So in summary, we are on track with all of our key priorities including growth contributions from recently launched products and achievement of important regulatory milestones across our pipeline.

The integration of St.

Jude continues to go very well and we are on track to achieve our projected synergy targets.

And we are raising our full-year adjusted EPS guidance range which continues to reflect double-digit growth.

I will now turn the call over to Brian to discuss our results and outlook for the year in more detail.

Brian.

Okay, thanks, Miles.

As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on a comparable basis, which is consistent with the guidance we previously provided.

Turning to our results, sales for the second quarter increased 2.9% on an operational basis.

Excluding the transitory impact of the new Goods and Services Tax system implementation in India, which lowered our sales in our Established Pharmaceuticals, total operational sales would have grown 3.7% in the quarter, which is in line with previous guidance.

Exchange had an unfavorable impact of 1% on total sales resulting in reported sales growth of 2% in the quarter.

As you know, exchange headwinds have eased somewhat since the beginning of the year.

I note that the majority of the lower foreign-exchange impact on our sales has been driven by strengthening of the euro and other developed market currencies.

And when these particular currencies move the fall through impact on our results is relatively modest taking into account our European cost base and our hedging programs.

Regarding other aspects of the P&L, the adjusted gross margin ratio was 59.8% of sales, Adjusted R&D investment was 7.5% of sales, and adjusted SGA expense was 30% of sales.

Before I review our financial outlook I'd note that our sales and adjusted earnings per share forecast do not include any contribution associated with the Alere acquisition, which is expected to close by the end of the third quarter 2017 subject to certain closing conditions.

As previously communicated, we will provide an update regarding the expected financial impact of this transaction at a later date.

So turning to our outlook for the full-year 2017, we are raising our adjusted earnings per share guidance range to $2.43 to $2.53.

We continue to forecast full-year 2017 operational sales growth in the mid-single-digits and, based on current rates, exchange would have a negative impact of around 0.5% on our full-year reported sales, which is modestly lower than the negative exchange impact of around 1% back at April rates.

We forecast and adjusted gross margin ratio of somewhat above 59.5% of sales, adjusted R&D investment of approximately 7.5%, and SG&A expense of approximately 30% of sales.

Turning to our outlook for the third quarter of 2017, we forecast an adjusted EPS of $0.64 to $0.66.

We forecast operational sales growth in the mid-single-digits and at current rates expect exchange would have a negative year-over-year impact of around 0.5%.

We forecast an adjusted gross margin ratio approaching 59.5% of sales, adjusted R&D investment of approximately 7.5% of sales and adjusted SG&A expense around 29% of sales.

Finally, we project specified items of $0.35 in the quarter primarily reflecting intangible amortization and expenses associated with the St.

Jude acquisition.

Before we open the call for questions I will now provide a quick overview of our third-quarter comparable operational sales growth outlook by business.

For Established Pharmaceuticals we forecast double-digit sales growth.

In Nutrition we forecast low-single-digit sales growth.

In Diagnostics we forecast sales to increase mid- to high-single-digits.

And finally in Medical Devices, for Cardiovascular and Neuromodulation we forecast sales to increase double-digits across our combined high-growth areas of Electrophysiology, Structural Heart, Heart Failure and Neuromodulation, which will be partially offset by sales in our foundational areas of Rhythm Management and Vascular, which we forecast in combination to be down low- to mid-single-digits in the third quarter.

And in Diabetes Care we forecast double-digit sales growth.

With that we will now open the call for questions.

(Operator Instructions).

Mike Weinstein, JPMorgan.

Maybe a couple quick ones to start with.

So first, the FX delta since the start of the year, Brian, what does that mean to EPS?

I know you moved your guidance $0.03.

Is that the full impact of the EPS swing from FX or is there a greater impact?

Are you giving yourself some more cushion?

And then second, Miles, could you spend a minute on the adult Nutritional business?

We focus on much time on pediatric, but the US adult business has been disappointing so far this year.

Hoping you could spend just a few minutes talking about why that is and what drives the turnaround.

Thanks.

Okay, Brian, you want to talk about FX first and then --?

Yes, Mike, I would say that [the streak] -- and we acknowledged in the first half maybe $0.02 to $0.03.

And could there be a little more?

Yes, if the rates continue to hold (inaudible).

It depends on the mix of currencies.

But right now we are not factoring that and because that's getting down to a level of precision that for a penny or two we are just not ready to project that yet as we don't want to necessarily forecast the mix of currency changes the rest of the year.

Okay, then US adult Nutrition, I agree with you, Mike, we are disappointed too.

And I would say what we are seeing here -- first of all, I commented at my remarks that we are seeing softening markets worldwide here, at least in a lot of markets.

And as I've looked at a lot of the data first, the volume rates are all still there; it's mostly loss of pricing power in some of these markets and we see the same phenomenon in both ped and adult Nutrition.

In the US it's a little different version than other markets.

In the US we are seeing a fair amount of intensity around private-label competition.

And every few years this will happen.

We've got a competitor in the US in Nestle that is also feeling the same pinch as we look at our market data.

We know that the competition right now is private-label and there's been changes in the way private-label is being marketed I guess on the shelf and so forth in terms of its positioning, proximity to our brands and so on.

So we are seeing some of the impact to that.

It's something we are addressing.

Every few years we see private-label crank up and then it softens or it subsides again.

Right now we are having one of those years when we see a lot of intense pressure on that particular segment and that's taken some of the growth off that.

Last year and the year before both we and Nestle invested in the category and when any of us invest in the category all of us benefit.

And as soon as that larger investment subsided the private-label cranked up and went right back at it.

So it's kind of an ebb and flow thing, but it's definitely taken an edge off the growth that we've seen historically.

We are aware of it, we know it.

We are taking the actions we think we can and should to mitigate it, deal with it, try and correct it and so forth.

But that's where the intensity of that is coming from.

Okay.

And then just one quick follow up on Libre.

You didn't give us much of an update on the US.

I know intra-quarter, Miles, and we had talked about this; you had started a couple of trials to confirm the accuracy of Libre for the FDA.

Does that mean that approval is likely more like year-end or early next year?

And do you have any sense of whether the FDA has gotten comfortable with the idea of a factory calibrated device?

Well, there's been a lot of conversation back and forth with the FDA.

We've explained to the FDA how our factory calibration is done and I think that conversation has gone well.

I never want to predict the FDA.

I think we have what we consider to be a fairly proprietary process for this factory calibration so it's not something we are anxious to share widely and it's unique.

So I guess I'm not surprised that it needed further discussion, but I think that's gone well.

I don't know that I can predict at all, Mike, when the FDA will come to a conclusion of its process.

It was submitted almost a year ago, so we are coming up on a date here, an annualized date.

But I don't have any evidence that says, gee, it's going to be year-end or longer.

So I don't know that I can -- I certainly wouldn't say that because that may not be true.

So I don't have that kind of an indication.

And I'd say, look, there's good, active, ongoing dialogue back and forth, that's always a good sign.

It's the right kind of dialogue.

I just wouldn't forecast it.

I don't know.

Okay, understood.

I will let some others jump in.

Thank you, Miles.

Matthew Taylor, Barclays.

The first thing I wanted to explore was you mentioned in your opening remarks thinking about your MRI safe device approvals in the US as being on track.

And I was hoping you could talk about not the submission, but what's going on with Sylmar, any progress you have made there and confidence that you can get timely approvals just given what we've seen with the warning letter.

Yes, no problem.

Thanks for the question, Matt.

First of all with regard to Sylmar, we're making good progress, and I don't mean that just in a generalization.

We had a very detailed plan that we shared with the FDA of course after we received the warning letter.

The good news is, as I've mentioned in a previous call, we've been in Sylmar with the St.

Jude management since August of last year.

And St.

Jude was very open to us and allowed our quality operations GMP people and so forth in to participate with them.

So we've been working with them on a lot of issues, questions processes, and so forth in Sylmar for a year now.

And that is a huge positive because it gave us a real running head start on things the FDA observed when it did its inspection early in the year.

So that gave us a big leap.

So we had the ability to put before the FDA a very comprehensive plan of corrective actions, remediations, etc., at the site.

And that plan is nearly complete.

So we are coming up on -- we all have put all the things in place, changed processes and so forth that we needed to change.

That is all positive.

We will be updating the FDA on the coming weeks.

I won't give you a specific date because I don't want to create a trigger here, but I'd say, look, at this point we are absolutely on schedule with our own pace and it will seem as if we did it rapidly.

The fact is it will be about a year in all by the time we are done here.

But relative to the timing of the warning letter itself it will seem like a rapid turnaround.

But there was quite a lot of work before that inspection that took place.

So we are getting to the completion of that comprehensive plan we put in front of the FDA and we will have dialogue with them.

I'm very optimistic about what we are doing with Sylmar.

I'm very happy with the progress of our team there.

So I feel good about that.

And as I said in the last call, I have no reason to change in a meaningful way the expectations around a couple of key product licensures of products that come out of that facility.

And I know that there is a fair amount of question about, well, will they be impacted or not.

I think I would have to say, look, they might be impacted by a couple of months, but in a meaningful way I don't think so.

So I'm not willing to change those launch dates for the purposes of projecting or modeling or anything yet because, to be honest, we don't know.

We've not had a conversation with the FDA specifically about that.

I know that the review side in Medical Devices has continued to review all of our products that are in for licensure on the same pace anyway.

And I know what that pace is and I know where the standing of those products is and it's all very good.

So at the end of the day I think the agency's reaction to the remediation actions and so forth will obviously influence it.

It clearly has the ability to license those products if it chooses to and we'll wait and see.

Great, thanks for the feedback on that.

One other area I wanted to ask you about that has been very active is in diagnostics with the Alinity launches outside the US.

I guess the core of my question is I was wondering when do you think we might start to see a pickup in OUS growth from those launches.

I know it's kind of a slow battleship that's turning here through your installed base.

When could we actually see some pickup and how much might that be?

Well, okay let me just correct one thing that you might have inadvertently said.

You said when we see the growth in the US.

The US won't start launching it till next year.

But they've in effect been licensed and launched in Europe.

So let me respond to Europe.

And frankly the question you are asking is the same one I keep prodding our management with, and I do that just to keep the feet to the fire.

but the launch itself is going well and customer response has been very positive.

We are taking what I would call a fairly systematic and careful and methodical approach because, when you launch new systems you don't want your customer to have to debunk something in the field.

You want it to go to the field day one and the history of launches of instruments and diagnostics in general as an industry has not been that.

As you may know, I used to run that business years ago before I was the CEO of the Company and was responsible for R&D at one point.

When we launch systems you get so much data, so much use early on from your (technical difficulty) and clinicals that you tend to find all the little bugs you missed in development.

And so, when we launch products or systems in diagnostics you've got a big installation, a big changeover from the current systems and so forth so it does take time.

And because those early installations are where you do a little bit of your learning you want it to go well.

So I would say I give them that slack early on in the launch in terms of early, slow, methodical, careful, whatever.

And yet there's actually been really good order activity, really good uptake.

We are on track I'd say with numbers of closed accounts, instrument placements, etc.

We're getting some pretty nice size closes.

We're getting some pretty I'd say great reference accounts in all of this.

So while it starts a little slow I think we will see that order rate pick up.

We will see it in Europe -- in 2018 we will see clearly some impact there.

A lot of our early installations will have heavy cannibalization of existing systems and existing volume, but we are getting new accounts as well.

And I like the mix of what I'm seeing both in experienced Abbott customers and those where it's a competitive takeaway and so on.

So I think the launch is going well.

I think it is going to be hard to see for a little bit here at least in 2017.

We're trying to figure out how we show you investors the success of that launch and how it's going without giving away a lot of competitive information to our competitors and so forth.

That's a little bit of an issue -- or at least a challenge communication wise.

But I'd say that launch is going really well and I'm pleased with that.

It's one of those things where it's kind of a slow-motion launch.

It's not an instantaneous kaboom, but it's a rolling launch where you're going to see rolling impact that picks up more momentum over the next couple of years and you will see that.

Great thanks for the color, Miles.

Rick Wise, Stifel.

Good morning, Miles.

Let me start with Alere, which seems to be marching toward completion here.

A couple things.

We saw an asset sale announced.

Is that it?

Is there more to come?

And maybe -- I know it's early and I know you like to be conservative, but can you just help frame in the most general sense, is it fair to assume that Alere is neutral this year to EPS?

How do we think about it just directionally broadly in 2018?

Is it neutral, is it accretive, is it dilutive?

Just any color would be really helpful.

Thank you.

Okay, good, thanks, Rick, for the question.

I assumed somebody would ask that.

Well, a couple things.

First of all there is one more asset sale that has not been made public.

It was one that was required by the regulatory bodies for antitrust purposes and so forth and we've got a good buyer, a good price, etc.

The other party just hasn't said anything publicly, so we don't want to say it if they haven't said it.

But yes, there is one more and it's modest in size, so -- but it's on track and I don't see any hiccups with it or anything.

It just hasn't been made public and I expect that that will be soon.

And that's progressing really well.

I'd say we are very happy with the status of divestitures for antitrust purposes, where that stands.

We are happy with the buyers, we are happy with the price; we are happy with the transition plans and so forth.

That's all good.

We are in fact I'd say racing toward close.

I'm anxious to get it finished and I'm quite confident that it will.

At this point I'd love to have one of those surprises you didn't expect where all of a sudden regulatory bodies approved it and you weren't ready, but we are ready.

And we've named our transition team internally here at Abbott and how we're going to manage it, how we are going to integrate it and so forth.

Those plans are all very well underway and so we are prepared for that ready to go.

With regard to this year, I had indicated and I would continue to indicate neutral.

I wouldn't plan for any accretion.

I think because this particular deal has gone on so long I'm reluctant to make projections about accretion as we are into the second half of the year.

And if the deal doesn't close till September as is currently projected, that gives us all of about three months with the business in our hands.

And so, at that point I think, look, I don't know that I could project any accretion.

I'd like to get the business on the path to integration as rapidly as possible in anticipation of rolling into 2018.

And so, what I am communicating and the guys are communicating here is assume it's neutral, assume there's no accretion in 2017 and the question then rolls to 2018.

Originally I think we estimated -- this was probably well more than a year ago now when we first announced the acquisition of Alere.

We had estimated I think it was somewhere in the neighborhood of $0.11 to $0.13, something like that, of accretion for the first full year.

At this point I have no reason to change that.

However -- and no negatives that I would tell you cause me pause.

And I don't intend to be conservative for cuteness or sandbagging or anything else.

But I would say I want to get the business in our hands and evaluate that more directly than we've been able to over the last 1.5 years.

So before I reconfirm with any precision or any estimate accretion for 2018, I want to have a few months with the business in our hands so we can reconfirm for ourselves while managing the business synergies, sales rates, all that sort of stuff.

Because when we gave that first estimate of accretion we had not taken into account the divestiture of the triage business or the pieces we had to divest for antitrust.

And they had not at that point lost the Arriva business with CMS in the US.

So I'd like to see during the first few months when we have this business what we've really got before I give any kind of accretion estimate for 2018.

I do expect that it will be accretive.

I just don't know exactly where.

I don't mean that to be an indication of, gee, it's likely to be less or whatever.

I'm not even prepared to say that.

I'd just like to be able to evaluate it with it in our hands because we are well beyond deal model in terms of timeframe for close here.

So I think we've got to have it in our hands so we can make those estimates more directly.

With regard to Arriva, we're looking at whether or not we can restore that and at what level, restore that standing with CMS.

That makes a difference in our estimates.

There's a number of things that would make a difference in how we evaluate the ongoing performance of the business and the timing of that.

So, we've got a few moving parts on Alere before I can be -- even give you a range of accretion.

But I would tell you that I expect it to be accretive and at this point I'm not prepared to change what we already put out there as an estimate a little over a year ago.

Yes, that's really helpful.

And just On a separate topic, one of the compelling aspects of combining St.

Jude and Abbott on the device side does seem to be, or would obviously be that compellingly broad portfolio.

Can you talk, Miles, a little bit about the progress you've made on the contracting side dealing with large hospitals, large integrated delivery networks, GPOs, etc., sort of presenting the whole bundle?

Just progress you've made broadly since post merger end?

Do you see that contributing to growth in 2017 and 2018, that aspect of the story?

Thank you very much.

Well, I will tell you what, since we announced the acquisition, gosh, a year ago, St.

Jude had already started to make changes in the way it approached large national account type organizations in the United States and we, with them, took that further.

There were some promotions, management hires, new changes in the way we went to market at St.

Jude.

We contemplated the -- call it the full offering across our product lines.

And I'd say we've made terrific progress internally in our approach at St.

Jude.

We have had some success.

We got a lot of positive reaction from customers in general -- positive reaction to Abbott, positive reaction to the breadth of the product line, positive reaction to St.

Jude's pipeline and the products that are coming.

So I would say all in all I think all that's been really good.

I also would stress a lot of times when people refer to bundling with large national accounts, hospital groups and so forth, there is a presumption of one product line subsidizes another and there's leverage in that.

And while that is true and can be true, there's also a greater positive synergy of the full offering, the full-service level and the service and account debts across product lines.

And as you know, these large integrated health groups -- they don't want to deal necessarily with five or six suppliers in a given area.

They will generally deal with two or three.

And we are finding that in the mix and the breadth of our portfolio, one of the places it really benefits us and St.

Jude is that it's very easy for us to be one of the two.

And it's a lot easier when you've got the broad product line, when you've got innovation with those product lines, when you've got a good compelling medical and value proposition and it's not always about just subsidizing.

And so, I find that with the mix -- and this is one of the strategic reasons we wanted this acquisition.

I find that the breadth of our product line, the innovation across the product line, the depth of products, that full offering makes us extremely competitive and I think both from a medical and a value proposition standpoint.

So we definitely see that.

I think we will see that increasingly over the course of 2017, 2018 and beyond.

I think if you just look at the dynamics in the medical device business at large, the consolidation that's taken place across a lot of product lines has been well documented and talked about for several years.

I think this puts us in a really strong position in the field.

Now, as we look at our product line, of course we and other competitors think there are holes.

Well, we need this product or we need that product, but (technical difficulty) I'd say small holes that all of us, one way or another, are always looking to fill either through our own R&D or other M&A activity.

But I feel like we are very, very competitive in all regards now and that's a good positive.

Thank you.

Glenn Navarro, RBC Capital Markets.

My first question is on the Cardio and Neuromodulation line.

It came in better than expected and I've got to believe that's a function of St.

Jude.

So Miles, can you comment on how St.

Jude performed in the quarter?

What was the growth rate that the St.

Jude business in total delivered in the second quarter?

Thanks.

St.

Jude, if we carved them out as standalone, was up about 4%.

And if you recall, before we acquired St.

Jude, it's prior -- or before we announced the deal -- its prior four years had been flat.

And we discussed how we thought over that period of time they had make great investments in their product pipeline across their businesses, their internal organic R&D I thought had been very productive and very successful, so had they.

And it was a point of -- quite a bit of let's call it negotiation during the deal process.

They had rather robust forecasts for their sales going forward and, of course, that ultimately is part of the whole negotiation.

I would say this -- their representation about their pipeline I thought was valid and proves to be.

And as I've said before, both in the calls we've made about the deal itself or in our quarterly earnings calls, our forecast or our deal model was built on the expectation of sequential improvement in their sales going forward due to, first of all, correcting the MRI compatible issue, which is well underway.

And then the launch of a lot of new products, and we are seeing that.

And then frankly in our own deal model, we pretty much aligned it with what analysts collectively viewed as how St.

Jude would look going forward.

And so far the expansion of the growth rate and its sequential performance quarter to quarter has been on our deal model and is steadily growing.

And we estimated in our deal model they'd get up to 4.5%, 5%, something like that, and this quarter they were at 4% and each quarter is successively better than the last.

We are seeing improvement in CRM and we're seeing share recovery with the low-voltage pacemaker.

As I mentioned I guess it was at the end of the first quarter, St.

Jude we estimate had lost about I think it was 7 points of share in the low-voltage pacemaker business last year between April and December.

And in the first two months or three months here of launch with the MRI compatible claim they've regained 4 of those share points already.

So we are seeing quarter-to-quarter sequential improvement in share in CRM.

You can see it in the growth rate comps.

It's getting better and better quarter to quarter.

We expect that to continue.

New product launches are occurring according to expectation.

I think the whole thing is remarkably going according to our deal model, according to our forecast, and according to what we told analysts.

And right now I think a quarter of 4% out of St.

Jude is a pretty good thing.

Yes, I agree.

And then just -- I don't know if you or Brian have these numbers, but just as a follow-up, would you be able to give us your US and worldwide pacing growth and US and worldwide ICD and CRT growth?

Thanks.

I don't think I can do that right this minute.

You know, you prepare a lot of things for these calls, but that's one I don't have at my fingertips.

Okay, I don't know if Brian --.

We can probably follow up with you, Glenn.

Okay, great.

Thanks, guys.

Larry Biegelsen, Wells Fargo.

I wanted to ask one about how to think about Q3 given some of the one-time items in Q2.

And then I had one product-related question.

So I think it was 2.9% growth in Q2 on a comparable pro forma basis, but I think you had an 80 basis point hit from -- headwind from EPD.

And I think you had about a 50 basis point hit in Vascular from the royalty.

So, is the starting point really about 4.2%, 2.9% plus 1.3%?

And do we get back the 80 bps or about the $50 million lost in EPD from the General Services tax in Q3?

And I had one follow-up?

Yes, I would say couple things.

First of all what you describe there as the ins and outs going into the third quarter, you are right and that's a good assessment.

And your assessment of -- I think it was a little bit better than 4%; I think that's a good assessment too.

With regard to EPD, this Goods and Services Tax in India, as I think others have already noted, clearly impacted the second quarter.

I think it's been hard for everybody to forecast how it's going to come back in the third quarter.

In the first couple of days of the quarter we saw clear response to restocking by distributors.

And then it softened for a couple of days.

And then it came back again for a couple of days.

So we are seeing it restore.

Whether we will see it completely restore in the quarter, I don't know, but so far so good.

It's going according to what we projected.

So whether it will come back like full dollar per dollar, I don't know, but so far it looks that way.

And I'd say so far projections look good that way to truly be a quarter-to-quarter shift and that's kind of the experience we are seeing thus far.

Very helpful.

And then, Miles, XIENCE has been an amazing product, but given the issues with Absorb, what is the pipeline, the long-term strategy there?

Do you feel you need a drug eluting stent with a bioabsorbable polymer similar to Boston Scientific's SYNERGY which seems to have been successful?

Thanks for taking the questions.

Yes, thanks for the question.

Yes, I will tell you what, Absorb has become very much a niche product that's for sure.

And I would have wished for it to be a lot bigger than that.

But XIENCE remains best-in-class stent, that is still true.

Do we need a bioabsorbable coated stent?

I'll tell you I think the bigger issue is I think we need an even more deliverable stent.

The issue right now with physicians is deliverability and I think that's been one of the hallmarks of Boston's SYNERGY stent is the deliverability.

So I think the issue is more the deliverability than the coating.

And we will launch early next year Sierra, our next generation of XIENCE which will address that.

So that's what I think is our single most important focus right now.

Do I think long-term there's still improvements and performance improvements and so forth to make in stents, whether it's coating or material or deliverability, etc.?

I do.

I am not going to detail what that plan is from our standpoint.

But our next focus in stents is primarily that deliverability with Sierra.

Thanks for taking the questions.

Robert Hopkins, Bank of America Merrill Lynch.

I appreciate the opportunity to ask a question.

So just I will start with a product question.

I just want to be clear on MRIs, the outlook for MRIs say for ICDs.

What is the latest official guidance on when you expect that to come to market?

And do you have a sense for whether you'll need the warning letter to be lifted to get that through?

The warning letter doesn't have to be lifted; the FDA has the ability, if it chooses to, to license it if they are satisfied with remediation actions and so forth.

They always have that ability.

So it's not dependent on particular formal lifting of warning letter.

At the same time the FDA always has the right to decide what it wants to do.

And I'd say with regard to expectations at this point, we've said second half or year-end and I think that's probably -- for right now, at least as modeling and planning purposes go, probably a fine assumption.

I can't be more specific than that because I can't read their minds and don't want to forecast them and put them in a tough spot.

So I would say as far as modeling goes, model second half somewhere and year-end, but I don't know that I can give you anything more precise than that.

Okay, no, that's helpful.

That's 2017 obviously, right?

Yes.

And then one other, Miles, bigger picture question on the outlook for revenue growth for Abbott.

Because when you look through your results here this quarter one thing you notice is that if you look at your different businesses there is a very wide range of growth rates with some businesses like Neuromod just doing extremely well and others struggling a little bit.

And if we think about 2018 there are some strong incremental drivers of growth and there are some things like Neuromod that will probably slow a little bit.

So when we net all that out do you think as we look forward into next year that you can again start to talk about Abbott again as something better than a mid-single-digit revenue growth Company?

Well, I think that depends on a whole lot of things including the businesses.

I think it depends on what's happening with global markets, etc.

That's always our goal.

We are always -- our goal -- we always start every year with the notion that we are going to grow profits double-digits.

And to do that you've got to a fundamental revenue growth, as you know.

And as we look at the mix of the business I think the observation you make is correct.

I'd love it if everything grew like Neuromod but it doesn't.

And there's some of these businesses that I'd say are much more mature, like CRM and even the stent business, much more mature.

The good news about those businesses is they are extremely profitable and they generate high cash flow.

So, in the mix of our portfolio that's positive, that's a good thing.

On the other hand, if you are maintaining a growth profile you've got a have a lean toward growth in the mix.

And we've got a pretty good lean toward growth.

I'd say of late the one that's got my attention from a longer-term perspective is nutrition, particularly internationally, and what I've seen there as a slowing.

Now I think that business longer-term or at least on a stable basis for now looks like it's going to be a low- to mid-single-digit business, call that 3% to 5%, something like that, 3% to 5%.

But that's a mix.

There are some countries that are 1% or 2%.

There are some countries in geographies that are double-digits.

The global volume growth in that business for infant formula, for example, tends to be 3% to 3.5%.

And the biggest change in the growth has been price.

And not that the price has come down, it just isn't going to go up much.

And I think that that's perhaps indicative of some maturing in some of those markets.

We are looking at that pretty closely right now, so as I forecast it interestingly enough it's also very profitable and a high cash generator.

And as I've talked about Nutrition in the past, in the mix of Abbott Laboratories, it's been one of the biggest cash generators in the Company for a long time.

I used to refer to it as the bank as it funded a lot of M&A.

So it's a very healthy business that way.

I think our questions right now are assessing the shift of market tone.

China for example is actually much more stable than the last 12 to 18 months.

I like what I'm seeing in China right now.

We still have the government regulation kicking in and it's impacted competitors.

There's a lot of reaction to the shrinkage of the number of SKUs in the market and so forth, and we have talked about that.

But as far as what we are seeing in 2017 here, we are performing according to our expectations.

I think the comps obviously get better here in the second half.

We will see.

So as I look forward, yes, it is our goal to be a healthy grower, to be able to generate that double-digit bottom-line growth.

I think that we've got to continually look at the mix, as you suggest, how many growers we've got.

As you observe, the growth rate of something like Neuromod will come down simply because it gets bigger in the base.

But it's actual raw dollar growth I don't see changing for quite a while.

So I think that's a plus and I think we are seeing improved growth in other areas.

So, I know there's a lot of ins and outs there, but at the end of the day we are always looking to build our Company, grow the Company, expand the Company, gain market share for the Company.

And the acquisitions of St.

Jude and Alere were part of building that core leadership base in the businesses that we are in to continue to drive that growth and the goal hasn't changed.

Thanks very much for the response.

Appreciate it.

We'll take one more question, operator.

David Lewis, Morgan Stanley.

Good morning.

Brian, just a couple quick ones for you and then one strategic one for Miles.

So, just a couple incremental questions.

The incremental change to the gross margin in the guide, the 50 basis points, what was driving that?

And then as you just think about the pacing of the back half of the year, obviously you are guiding to improvement in the third quarter.

Is the right way to think about it the back half is going to be mid-single-digits and obviously better than the first half?

Or do you think the business gets a little (technical difficulty) fourth quarter from an organic growth perspective than the third?

And just a quick one for Miles after that.

I think, to your last question, you will see sequential improvement from Q3 to Q4.

There are a lot of items that Miles talked about in the acceleration including new products and just the momentum of our businesses.

So I think that's a fair assessment.

With respect to your question on gross margin.

Our operational improvements and gross margin underlying continue to be there that we've talked about before.

You do get a little noise around the mix of FX and what that does and that's just simply math there.

Nothing has changed about our aspirations to continue to expand our gross margins on an underlying basis probably 50 to 75 basis points on that, David.

Okay, thank you.

Then, Miles, just thinking about the strategic importance of the Bigfoot announcement, and I don't want to make too much of a single announcement, but is this just a natural extension of building the brand and the reach of Libre and CGMS?

Or does it suggest an interest in pumping?

And maybe said another way, do you think to win in diabetes going forward you need to have an integrated pump and sensor under one roof?

Thanks so much.

Okay, thanks.

No, I will tell you in the grand scheme of things with Diabetes Care, I don't think we need to have a pump.

But I think there's a strategic -- what would I call it -- change happening or that will happen over the next couple of years in the market, particularly for type 1 diabetics and for multiple daily injectors, which could be type 2s that are insulin-dependent.

What's interesting about Bigfoot is they are taking a different approach to the ease and the integration of what those multiple daily injectors have as solutions to manage their disease separate from pumping.

And it's a fairly clever service and approach that I think will create not just an alternative that makes the management of the disease or management of someone's insulin easier, but I think the value proposition of it is going to be pretty compelling.

And I think that will change the competitive dynamics in that realm that is pumping.

The penetration of pumps or pumping relative to the market size of multiple daily injectors is really quite small.

You'd say, wow, there's a lot of potential for further penetration.

The question is the value proposition.

A lot of times the reason it hasn't penetrated further is it might be too costly or viewed that way.

And I think what Bigfoot is doing, if I could comment on it from a distance, because I've never had a conversation with them myself, is they've come up with a pretty unique value proposition that not only is good from the standpoint of the patient or even the payer, but also just in general in the cost of managing the disease for a diabetic.

I think it's a pretty interesting use of technology to make it simpler, easier and affordable.

Now I probably sound like a brochure for them.

I just think their approach is interesting.

And in our case the technology that is Libre is a component of that and a fairly compelling piece of it that expands the use of Libre beyond what Libre can even do today.

And then beyond that there's other expansion and improvements to Libre that aren't just in that segment.

But I think the sensor technology and the nature of the way Libre works has a lot of applications beyond how it's used today.

And the Bigfoot approach is just one of those and I think it's a pretty unique, compelling idea that puts Libre as a part of the competition in that pumping or multiple daily injector world -- that it's a great opportunity for us and I think it further enhances the management of the disease for patients.

Thanks, Miles.

Thank you, operator, and thank you for all of your questions.

And that concludes Abbott's conference call.

A replay of this call will be available after 11 AM Central Time today on Abbott's Investor Relations website at AbbottIntestor.com.

And after 11 AM Central Time via telephone at 404-537-3406, pass code 41003454.

The audio replay will be available until 4 PM Central Time on August 2. Thank you for joining us today.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program and you may all disconnect.

Everyone have a wonderful day.