美國雅培 (ABT) 2017 Q3 法說會逐字稿

Good morning, and thank you for standing by.

Welcome to Abbott's Third Quarter 2017 Earnings Conference Call.

(Operator Instructions) 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 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 the 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 third 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 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 in St.

Jude's historic sales related to administrative fees paid to group purchasing organizations in order to conform with Abbott's presentations.

Earlier this month, Abbott completed its acquisition of Alere.

Given there are only 3 months remaining in the year, I'd note that comparable sales growth guidance for the fourth quarter and full year 2017 do not include Alere, which is consistent with the guidance methodology we've utilized since the beginning of the year.

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

Okay.

Thanks, Scott, and good morning.

Today, we reported ongoing earnings per share of $0.66, at the high end of our guidance range and reflecting double-digit growth.

We also raised the midpoint of our 2017 adjusted earnings per share guidance and narrowed the range to $2.48 to $2.50, which is at the upper end of the range we set at the beginning of the year.

Sales increased more than 5% in the quarter, led by strong performance in Established Pharmaceuticals and Medical Devices.

At the beginning of the year, I commented that we were entering a period where innovation and new product launches would enhance our competitiveness and fortify our leading market positions.

We're seeing this play out through the first 3 quarters of the year, with significant growth contributions from several recently launched products and important advancements across our innovative new product pipeline.

I'll highlight several examples as I summarize our third quarter results in more detail before turning the call over to Brian.

I'll start with Diagnostics, where we achieved sales growth of more than 5% in the quarter, which was led by strong international performance.

During the quarter, we continued the initial European launch of our new Alinity family of systems, which now includes 5 recently launched instruments in the areas of immunoassay, clinical chemistry, blood screening, hematology and point-of-care testing.

As we've stated previously, our primary focus during this initial launch period has been to convert a number of long-tenured Abbott customers to Alinity, and we continue to make progress on that front across all of the major European countries.

We continue to anticipate CE Mark for Alinity molecular diagnostic system in the coming months and expect to begin the launch of the Alinity instruments in the U.S. in 2018.

During the quarter, we also announced our acquisition of Alere, establishing Abbott as the global leader in point-of-care testing.

This combination creates the broadest point-of-care testing portfolio in the world with leading positions across cardio-metabolic, infectious disease and toxicology testing.

In Nutrition, sales grew very modestly in the quarter.

In Pediatric Nutrition, continued above-market performance in the U.S. was led by recently launched infant formula products and strong growth of our PediaSure toddler brand.

Internationally, we've seen some market stabilization in China, and we prepare for the pending new food safety regulations that are set to go into effect on January 1 of next year.

Outside of China, as expected, we continue to see soft market conditions across a few international markets.

And in Adult Nutrition, international growth of 5.5% was led by our market-leading Ensure and Glucerna brands.

In Established Pharmaceuticals, or EPD, double-digit sales growth was led by strong performance across our key emerging markets, including double-digit growth in Brazil, Russia, India and China.

As expected and contemplated in our third quarter guidance, we saw a modest level of channel restocking in India after the implementation of a new tax system in that country on July 1, which contributed approximately 2.5 percentage points of growth in the quarter.

Excluding this impact, total EPD sales would have grown around 12% in the quarter.

With our unique geographic footprint and business model as well as our scale and leading positions in several geographies, EPD is well positioned for sustained above-market performance.

And in Medical Devices, sales growth was led by double-digit growth in Heart Failure, Electrophysiology, Structural Heart, Neuromodulation and Diabetes Care.

In addition to strong growth, we achieved several important new product approvals and clinical trial milestones across our portfolio during the third quarter.

In Heart Failure, we received U.S. FDA approval and launched our HeartMate 3 pump, which provides crucial support for advanced heart failure patients as they await further treatment, including heart transplants.

HeartMate 3 offers a number of advantages compared to existing options and further strengthens our global leadership position in this area.

During the quarter, we also received U.S. FDA approval of our MRI-compatible ICD, or implantable defibrillator, which follows FDA approval of our MRI-compatible pacemaker earlier this year.

These approvals significantly enhance our competitive position in the U.S. cardiac rhythm management market.

In Structural Heart, double-digit growth was driven by continued global uptick of MitraClip.

During the quarter, we achieved several important clinical milestones, including completion of enrollment in our U.S. trial for Portico, our TAVR product.

And we began enrolling patients in a new tricuspid valve disease trial, which utilizes our market-leading transcatheter valve repair system.

In Neuromodulation, we achieved growth of approximately 50% for the third consecutive quarter, driven by recently launched products that offer improved relief for chronic pain patients and help for those suffering from movement disorders.

With our broad portfolio of innovative solutions, we continued to advance our leadership position in this fast-growing market.

I'll wrap up with Diabetes Care, where an international sales growth of nearly 35% was driven by FreeStyle Libre, our innovative glucose monitoring system, that eliminates the need for routine finger sticks.

Libre now has more than 400,000 users internationally; and during the quarter, we obtained national reimbursement status in Japan and the United Kingdom, which represent 2 of the largest diabetes markets in the world.

In the U.S. during the quarter, Libre received U.S. FDA approval as a replacement for blood glucose monitoring.

This revolutionary technology is the only system available that comes factory-calibrated, thus eliminating the need for daily finger sticks that are required to calibrate other systems currently available.

So in summary, we exceeded expectations for the quarter and raised the midpoint of our full year EPS guidance, which is now at the upper end of the range we set at the beginning of the year.

Our sales growth increased sequentially, and recently launched products are contributing significant growth across our portfolio.

And we're particularly pleased with the productivity we're seeing across our new product pipeline, which is delivering a steady cadence of approvals and launches of innovative technologies.

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

Brian?

Thanks, Miles.

As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on a comparable basis and do not include Alere, which is consistent with the guidance methodology we've utilized since the beginning of the year.

Turning to our results.

Sales for the third quarter increased 5.6% on an operational basis.

Exchange had a positive impact on sales of 0.6%, resulting in reported sales growth of 6.2% in the quarter.

The favorable impact of exchange rates on our sales this quarter was driven primarily by strengthening of the euro and other developed market currencies, which, considering our European cost base and hedging program, have a relatively modest fall-through impact on our earnings.

Regarding other aspects of the P&L, the adjusted gross margin ratio was 59.3% of sales, adjusted R&D investment was 6.9% of sales and adjusted SG&A expense was 29.4% of sales.

Turning to our outlook for the full year 2017.

Today, we narrowed and raised at the midpoint our adjusted earnings per share guidance range to $2.48 to $2.50.

Before reviewing our outlook in more detail, I'd note that Alere, which we acquired earlier this month, is expected to contribute around $475 million to our reported sales, and we forecast a neutral impact on adjusted earnings per share this year.

We continue to forecast full year 2017 comparable operational sales growth in the mid-single digits, and based on current exchange rates, would expect exchange to have a positive impact of nearly 0.5% on our full year reported sales.

We forecast an adjusted gross margin ratio of around 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 fourth quarter of 2017.

We forecast an adjusted earnings per share of $0.72 to $0.74.

We forecast comparable operational sales growth in the mid- to high single digits and at current rates, we expect exchange to have a positive impact of somewhat above 2% on our fourth quarter reported sales.

Before I open the call for questions, I'll now provide a quick overview of our fourth quarter 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-single digits.

And in Medical Devices, we forecast sales to increase mid- to high single digits, which reflects continued double-digit growth in Diabetes Care as well as several areas in our cardiovascular and Neuromodulation business.

With that, we will now open the call for questions.

(Operator Instructions) Our first question comes from Mike Weinstein from JPMorgan.

Miles, I was hoping we could touch on 2 topics: First is Alere, now that it's closed; and second is Libre, now that you have an FDA approval.

First, Alere.

Can you talk now about how we should think about the outlook for Alere, both top line growth and then accretion?

Obviously, everybody's familiar with what you initially were expecting from accretion, the $0.12 to $0.13, year 1; and [more than] $0.20, year 2. But a lot happened, too, in your business over that time.

You renegotiated the terms.

You divested some assets.

So I think everybody would appreciate an update on how we're viewing that business, and then we'll circle back on Libre.

Yes.

I think it's premature, Mike, to get real specific about Alere.

We closed the deal a couple of weeks ago literally, and our new management team is taking over the business.

But obviously, very rapidly getting up to speed, meeting all their employees, going through all the things you do to start integration and so forth.

And I'd say, first of all, that's gone very well.

The management team we've put in place has moved very quickly and, I'd say, very deliberately to get their hands around everything.

But that takes some time.

So we've -- as we've said to people, given the timing of when we closed it, we expect no accretion this year.

So I wouldn't look for any particular impact on the bottom line in 2017.

And with regard to '18, since our initial estimates of accretion that were quite some time ago, as you know, when we first announced this deal because it's taken a very long time to close, there have been a number of changes, including divestitures and so forth.

So I don't want to give you a specific number.

I'd say it's fair to think that the accretion will be much more modest than what we initially indicated for the first year.

We will get a full year.

We'll get a quarter's head start.

And obviously, our intent is be accretive to our company and our business.

And we believe that with the acquisition, we've positioned ourselves as the leader in point-of-care testing worldwide.

And all of that has the intent of good, solid growth and profit growth for our investors.

But I'm going to be cautious about what I communicate for '18 at this point until we've really had a chance to assess it more thoroughly.

And do you think the business, as it -- as you own it and you call it the pro forma Alere under Abbott, does that business grow in 2018?

And is low single digits an appropriate expectation?

I think it's a good target.

I don't know that we know yet.

But that's certainly, I think, an expectation we, Abbott, ought to have.

And the question is how rapidly we can do that.

So yes -- look, I think it's a fair expectation.

And if I was, and I am, totally honest with you, I wouldn't have a lesser expectation.

Okay.

Let me switch to Libre, if I can, and maybe try and ask -- get a couple of questions in.

So one, obviously, everybody's excited, not only based on all your success outside the U.S. with Libre, but now that you have this opportunity in the U.S. What would you view as a successful launch for Libre in 2018?

Is there something you could [characterize] from a revenue number?

Is it $50 million?

Is it $100 million, if you want to take a stab at that?

And then second, what is your expectation from commercial payers?

Can you tell us about the conversations you've had and the willingness and the timing of, you think, commercial payers getting on board?

Well, I'd say a couple things.

Your estimate is -- let's just say your estimate, I'll take.

And you gave me a nice range there, so thank you.

And I think that you can assume that we'll be looking at this from a lot of perspectives, because we've got a lot of data, having had a run rate in Europe.

We launched in Europe, and it basically went country-by-country.

We started as full patient pay, and we had really terrific uptake and consumer interest, and that was the first introduction of Libre to the market.

The fact that there was no reimbursement early on was an unknown to us.

And it was a new concept and a new way for diabetics to test.

And we experienced tremendous demand.

Our first year, we were capacity-limited, and yet we had a fair bit of demand.

And second year, obviously, has gone exceptionally well.

And so as I indicated, we've got over 400,000 customers.

It was remarkably well embraced for reimbursement by government bodies in Europe and regions in Germany, et cetera.

That's extremely gratifying, that the value proposition that we see with Libre is strong, and it's intended to be.

And consequently, we believe that part of the appeal is not just what Libre can do and the information that it provides to a diabetic, who's a very informed patient and a very self-managing patient.

It provides them tremendous information, tremendous guidance in the management of diabetes.

And I know that firsthand.

I wear one.

And I got to tell you, it's just a phenomenal device.

It's a super product.

I can see why consumers like it as much as they do, and that's true for both type 1s and type 2s.

And we're seeing that universally across the board.

They use it in different ways or, at least, the information means something to them in different ways, whether they're managing insulin or whether they're managing diet and exercise and other things.

So I'd say, first of all, I expect demand to be pretty strong.

Secondly, the U.S. market knows about Libre.

It knows a lot about Libre because of all the experience that we've had in the last year in Europe.

So I do expect a more educated, ready, prepared, anticipating, demanding market in the U.S. As it relates to payers, which I would call the second dimension of this, I think our value proposition is quite strong.

The product is priced at a very economic and affordable level.

The intention there is as much and broad access as possible and as rapidly as possible.

And I think that value proposition is stunning compared to competitive offerings, and I think that's going to make it strong.

We are in discussions with payers.

And we are in discussion with payers about that value proposition, and I believe that will all go very well.

I know that's not as much detail as you'd like to have, but it's as much as I'm willing to share at this point.

Because right now, I would tell you, we expect a good, strong, out of the blocks performance, like you described.

And beyond that -- I mean, right now, Mike, we're adding about 50,000 patients a quarter, and that's across a continent that we had to go at one country at a time, one reimbursement system at a time.

Of course, the U.S. is quite large, and Japan and the U.K., as additions to this, are also quite large.

So I mean, we have a fair amount of optimism and trying not to get too far ahead of ourselves.

Our next question comes from Matt Taylor from Barclays.

The first thing I wanted to ask about was, certainly it was encouraging that you got MRI conditional labeling for your ICD in the quarter.

So I was hoping we could get an update on how things are going in Sylmar and then when we might expect the approval for CRT-D and maybe the ICM as well?

Yes.

I'd say a couple of things, Matt.

First of all, let me back up and give a bigger context to this.

Over the course of the year, there was a lot of skepticism on the part of analysts and/or investors about all the things that we had to get accomplished that were back-end loaded, a lot of third quarter, fourth quarter things.

And depending on how you're looking at it, it looks pretty daunting.

And we all know everything doesn't go right.

And the Sylmar inspection puts some of that in doubt.

Now having said that, we stuck to our guns on what our estimates were and our projections were about when we would get product approvals and claim approvals, licensure approvals and so forth.

And the third quarter alone here has been pretty gratifying in that we basically got every approval we forecasted and within -- let's call it, within 30 days or so of what we forecasted.

And I think that's been pretty gratifying, that what we said is what happened.

And that includes Libre, that includes the high-voltage MRI claim, that includes HeartMate it includes the closure of Alere, it includes Libre, it includes a lot of things.

I don't generally like being back-end loaded because it feels like a lot of risk that everything has to go right, but everything did.

And our progress with Sylmar is no exception.

As I've indicated on prior calls, our team that has been working with the Sylmar team and so forth has done an exceptional job.

We've provided all information, taken all actions, done all remediation, everything basically done on time, delivered to FDA, discussed with FDA, et cetera.

And at this point, we're just experiencing those new systems, populating with new experience, new data, new decision-making, et cetera.

And all of that is going exactly as planned, exactly as forecasted, exactly as communicated with the FDA and thus far, without a hiccup.

And I think that's recognized by the FDA.

I think it's recognized.

They have discretion.

They don't have to license new products out of that facility, but they have.

And I think that, that is evidence of how we're progressing with Sylmar and the fact that the FDA is giving it all the scrutiny that they would and should.

And that what we've submitted to them for approvals has been given fair and objective consideration and we've gotten our approvals so far.

With that said, the remaining ones, I'm not going to change my estimates on.

I'm not going to change what we forecasted.

I have no reason to believe otherwise.

They clearly have the discretion not to, but that's not been our experience.

And so consequently, I remain optimistic that we're on a track that we'll deliver what we've said.

And I wanted to turn to another thing that you mentioned in the prepared remarks on China.

You said you're preparing for the regulations to change in Nutrition in the new year and did improve a little bit sequentially.

Could you talk about what kind of opportunity you could have in China if that comes to pass on time with regards to being able to maybe soak up some of the capacity that gets lost as local players have to shut down or change their operations?

Well, I'll tell you what.

I'm not sure.

I would tell you this.

First of all, we have the product approvals we need.

We're ready for the transition, building inventory for such, et cetera.

So as far as responding to the new law -- and I think this is true for, at least, the large multinational competitors.

I think most of us, if not all of us, have our product approvals.

We're ready for the transition, et cetera.

How we all manage that, who knows?

But I think -- at least we are and I think others are ready with new, approved replacement products, et cetera, as we've been required to do.

So I think we're all ready for the transition on January 1. What you can't know very well, at least about everybody else, is how much inventory everybody has in various channels, how long that transition will take for any given competitor and so forth.

We're comfortable with our inventory levels.

We're comfortable with our inventory levels, both on current product and post-Gen 1 product.

So we're comfortable with what we think we have to do with our own transition.

What's hard to project is not just the multinationals, but all the hundreds of other Chinese competitors that are faced with the same regulation.

So I'd say we've seen a stabilizing of China.

It hasn't been as choppy as it was in the last 2 years.

I'd say our estimates around market growth are hard to pin down.

We were more conservative on market growth than recent data we've seen.

The market growth is better than we indicated or better than we believe or better than we thought.

And we're looking pretty closely at all the sources of our market data because there are many, and they're not all perfectly comprehensive across all channels and all sources of products or even all geographies.

So it's a hard one.

China is a particularly difficult one to pin down because there are a number of channels, there are a lot of competitors, there a lot of data sources.

It's not like going to ACNielsen in the U.S. or something.

So I'm cautious about it.

I think we've seen the tough part, and I think we're going back into a phase where it's the same kind of hand-to-hand competition we've always had across multiple channels.

I like that.

I think that's better because at least then, whether we do well or don't do well is a function of our execution.

I haven't been particularly pleased with our execution.

And I don't exclude a number of other countries where we do see soft market conditions, but I also see less-than-great execution on our part.

So this business is getting a lot of attention from us and from all of us top to bottom.

And it will get some attention.

I think it's probably the one soft spot in our release.

I think a lot of things are going awfully well, as I just commented to you in the device area.

But this one is going to get a lot more attention.

I feel that China is, at least, reasonably stable or predictable.

We haven't been right about the market growth rates.

Those look better than we expected, so that's a plus.

And I guess I'd just leave it there.

Our next question comes from Bob Hopkins from Bank of America.

So first, I just wanted to clear -- clarify something, Miles, that you said on Alere.

Obviously, I heard you that the accretion for '18 will be lower than you originally thought.

That's not surprising.

But I just want to confirm, do you still think it will be accretive in 2018?

And is it roughly half the original accretion a reasonable placeholder?

Yes, I expect it to be accretive.

We've got a lot of work to do to identify our synergies and identify our growth opportunities.

We're going through a reorganization of the business right now, and I think that's actually going to be a plus.

The -- I don't want to describe how it was organized because I think that's kind of a waste of time and will take a long time, but we went through a restructuring of the org structure of St.

Jude, and we did it within 6 months.

And as you know, organized and integrated business units that -- I'd say, that organization is still kind of setting.

The glue is still kind of setting.

But we moved to it within 6 months.

That might have been aggressive, but the organization is very stable.

The restructuring activities that we had to go through and a lot of synergizing as far as people go, we've gone through; changes in management, we've gone through, et cetera.

That all got done at about the 6-month level at St.

Jude.

It all got done at Alere in 6 days.

So that's a running start.

And we've announced what we're moving to.

I think it's an organization like -- look, all organizations, all people want to do well.

They want to achieve.

They want to grow.

They want to be proud of the businesses they're running.

They do want to do well.

And I'd say our early days with the employees of Alere have been positive.

And we announced that we're going to go to that kind of a structure.

We've announced how we're going to do it, why we're going to do it, et cetera.

And I think that's well received at this point.

So as far as we look into 2018, I think your question about -- is half of that a good placeholder?

I'd say that's a good placeholder.

I can't tell you with any precision that that's what it'll be, but I think it's a good placeholder.

Okay.

That's very helpful.

And then, I'm sure there'll be a lot of other questions on Libre, but I want to focus on the rest of the pipeline for a second because there are a number of other things in addition to Libre that could help in 2018.

And you touched on the MRI-safe approvals.

But I just want to kind of ask specifically on some of the other things that you've got in the pipeline and just to make sure that the time lines and your thoughts on those haven't changed at all relative to what you've been saying previously.

And so that would include things like the new stents that you've talked about, SIERRA; the Confirm implantable cardiac monitor that's entering what is a very attractive market.

And so just curious on those couple of things.

Is the time line still the same as what you've been saying previously?

Well, a couple things.

First of all, with regard to SIERRA, the stent, yes, same schedule, no change.

That'll be first quarter of the year, we think.

And with regard to Confirm, it's partly approved already.

As you may understand, it gets approved in pieces, and so far so good.

There are some peripheral pieces we are waiting for approval on, but the first and very critical portion of that is approved.

So yes, I think that's -- so far, everything we've seen is very encouraging, and no change.

Okay.

So Confirm can be at full launch in 2018?

Well, right now, that's what I'd bet on.

And our next question comes from Rick Wise from Stifel.

Miles, just after a solid quarter, again, coming out in '17 to the upper end of the range, I know it's early on to put all these pieces together in '18, but as I reflect on it, in '18, with multiple large, new product opportunities launching, St.

Jude, Alere working, shouldn't we expect at least similar top line growth and potentially better, if not accelerating, top line growth against -- especially when you think about some of the headwinds you've faced and worked through in '17?

Is that the right way to think about it?

I'm trying to think about how to sound conservative to you.

Look, we got our acquisitions closed.

We're going to have a number of product approvals that happened in the third quarter and fourth quarter that, obviously, should hit their stride.

I mean, ideally, you look at '18 and you'd like to have your product approvals exactly where we got them going into the next year.

We've had a really good 2017.

We beat all expectations not just in the numbers, but in the approvals.

And you all have to admit, you had a lot of skepticism about some of this, and maybe rightly so after 2016.

But look, we hit every target we had for this year.

And with all those approvals, one ought to think that should bode positively for 2018.

That said, when we go through our budgeting every year, it's kind of a negotiating tussle with our managers around the world about what's possible in their given markets and so forth.

But I think yes, we ought to have pretty good momentum going into '18.

What can I say?

All the organic R&D projects and system projects and launches and approvals and so forth, they're all happening.

And the Alinity products, probably most miraculously, 5 of those have begun their launch process in Europe, and they'll start in the U.S. next year.

That's been a huge, huge undertaking.

We're extremely excited about Libre.

We're excited about all the Medical Device products.

Everything that St.

Jude represented to Abbott about its pipeline has come to fruition and is coming to fruition.

And so we're very, very bullish about all that.

And I think we're -- I think there's an awful lot of validation in this about that acquisition.

We don't know as much about Alere yet, but we will.

And whether it's a big impact for an '18 or if it's beyond '18, either way, I think we're pretty happy to have that business.

So Rick, I -- yes, I think your assessment is right.

I mean, it'd be kind of hard for me to say no, it's going to be a tough year.

Well, that's a great answer, and I'll take it.

Another big picture reflection.

One of the concerns, obviously, with 2 major acquisitions was balance sheet, cash flow.

But my sense is, in the first half at least, you ran ahead of your cash flow generation commitments and goals.

Maybe, if anything, can you give us any feeling about how the third quarter went?

Remind us where your targets are in terms of leverage and just, again, as we think about the next 6, 12 months -- or where do you think you can -- where do you think you'll be from a leverage and cash position?

Any color would be welcome.

Okay.

Well, first, I'd tell you that this got great leadership and attention from our CFO and our EVPs and SVPs from Day 1. And I'm going to let him answer that question because they've exceeded all of our targets, not just by a little, but a lot.

The cash flow is strong, and I'll let him tell you about it.

All right.

Thanks, Miles.

Yes, Rick, we continue to make great progress in our programs.

If you recall, I talked about operating cash flow being around $4.5 billion for the full year.

I won't quote you an exact number for Q3.

But I think you'll safely assume that when you see the quarter filed, that we are well on track to that and I would say, ahead of it.

And so we're going to continue to make that progress.

As you talk about some of the ratios, I think it's important to keep in mind both debt and net debt.

So at the end of the year, we projected a debt-to-EBITDA ratio of around 4. However, when you look at the cash flow programs and look at our net debt position, we'll be closer to 3 when you look at the net debt as a percent -- as a ratio to EBITDA.

So we're in great shape, and we want to keep the momentum going because this is the #1 priority, to build back strategic flexibility here.

I think, too, Rick, I would comment, because I just want to get a commercial out there.

This all gets even better if there's tax reforms.

So I'm hopeful.

I probably -- I wouldn't put odds on it any more than anybody else watching our government, but we are extremely hopeful of a territorial system that gives us access to our cash flows and earnings around the world at a reasonable rate and at a competitive rate.

And that does make a difference to us in addressing current debt and cash flows.

But cash flow itself, super good.

Our next question comes from Larry Biegelsen from Wells Fargo.

I just had 2. One, it was noteworthy that you didn't mention the impact from the weather.

You still had a strong quarter despite the weather.

I imagine it had to have some impact.

So is there any color you can provide?

And I had one follow-up.

Yes, it did.

I would comment a couple of things.

First of all, it was a strange quarter for us in that multiple hurricanes, whether in the Texas Gulf Coast or across Puerto Rico, impacted anybody who had operations there.

The earthquake in Mexico impacted us.

The brush fires and forest fires in California actually impacted us the day after we closed Alere at a key Alere facility there.

And to be honest, it was more impact on our employees than on our plant operations.

We had a little bit of roof damage and a little water leakage here and there.

But it would appear the hurricane affected different companies different ways, going across Puerto Rico, because I've noted that some competitors have indicated more damage or more impact than we've experienced.

It took a superhuman effort by a lot of our people to try to address some of that, which we did.

The biggest issue was access to power generation in Puerto Rico.

And our folks addressed that really rapidly, and we're very happy about that.

Our plants are, I guess, back up and running is the right way to say it.

There's one that we're starting this week.

And we're back up is what it amounts to.

And so there's, I would call it, some modest impact.

It's affected us, I'd say, at a modest level, not a material level.

It's -- our first priority was to find all of our people and aid them, which we've done.

And so in Puerto Rico, we have not experienced the kind of disruption that some others have.

I noted that another large health care company yesterday I think had similar comments, that they've been able to address it.

We're kind of large in Puerto Rico.

So it could have been worse, but it wasn't.

And the St.

Jude facilities that we inherited there with the acquisition of St.

Jude were not particularly impacted.

I mean, they were, but not to the degree we might have expected.

I mean, everything has been more about power generation than damage.

And unfortunately, that's not true for our employees, and it's not true for some other competitors, and I wouldn't wish that on anybody.

But we've been pretty fortunate to get everything back up and running.

So we don't have an impact to report for the fourth quarter that we haven't somehow managed or absorbed already in our estimates.

The facility that was threatened in California was not damaged.

We were able to move things out of that facility and prepare for damage, but there wasn't damage.

And so we'll be back up and running soon.

We did have employees who unfortunately lost homes and so forth, and we're dealing with that as a company.

But from the standpoint of the operation of the business, we are in good shape, relatively speaking.

And to the extent that there's any impact, we've already included it in our estimates for this quarter and absorbed it.

That's good to hear.

For my follow-up, I want to asked about [rhythm] management.

That's the one business where, if you improve that dramatically, it could really impact positively your growth.

So I'm just curious what your expectations are for that business going forward.

Could it be potentially flat in 2018?

And just if you could clarify if Confirm Rx is going to be booked in that line or not.

Okay.

I'm going to ask Scott to answer that one for you.

Yes.

As you know, on the MRI-safe side, we continue to see good progress on the pacemaker.

We received approval for the ICD very late in the quarter, so that certainly didn't have an impact this quarter here in the third quarter.

But we do expect it to have an impact -- a positive impact in the fourth quarter.

So yes, I do think you will see a nice step-up in growth starting, quite frankly, next quarter, and then as we move into 2018.

I mean, it's gratifying that our experience with the pacemaker has matched our experience in Japan and Europe with the MRI approvals in terms of share recovery and so forth, so I think that bodes well for the ICD as well.

Our next question comes from Glenn Novarro from RBC Capital Markets.

Miles, you guys are doing a great job in terms of cash flow generation.

You're going to get to your targets faster for 2018, but it sounds, from Brian's commentary, that 2018 is not going to be any type of deal year.

It's going to be more about paying down debt.

Is that a fair assumption?

Or do you actually have more flexibility that if something does pop up that's really interesting that you can do it next year?

I had just some housekeeping questions after that.

Well, let me answer it this way.

I don't really want the organization focused on M&A right now.

And I think I'd give you that answer regardless of what Brian said about debt and cash flow and so forth.

And secondly, I wouldn't forecast it even if I had it in my gun sights.

Most of the -- my experience with you guys over the past 19 years has been, you like to have some indication of what's coming, and usually I've surprised you with most of the acquisitions or other things that we've done.

That hasn't always been particularly well received, but they've always turned out pretty well.

But I generally don't like to forecast where we're going or what we're doing until we announce it, and so I probably wouldn't tell you anyway.

But is there some powder for next year?

Or is next year really let's focus on St.

Jude, let's focus on Alere before we think about anything else?

Well, honestly, I think there is a focus on St.

Jude and Alere.

And right now, that is paying off.

Look, the focus on St.

Jude, it's clearly paying off.

The focus on the -- Alere will pay off.

The focus on the internal product launches of Alinity and so forth, these things will pay off.

These are fundamental drivers of sustained growth.

I mean, if the hallmark of the identity of the company is sustained growth and we target double-digit earnings growth every single year, your organic performance, both in terms of R&D, pipeline, commercial performance, et cetera, has to be sustainable.

And that is where the focus is.

And we've acquired a couple of businesses that, initially, were criticized as not growth, and I beg to differ.

And I think that we're demonstrating so far with St.

Jude that there's a terrific pipeline and growth and share gain, et cetera, and I think you can see that.

And you can see that in the initial couple of quarters here.

So yes, I think there's going to be a lot of focus on not just St.

Jude and Alere, but the fundamental organic performance of all of our businesses.

It took a while for analysts and investors to appreciate the uniqueness of our strategy in Established Pharma.

And I think it sort of called out that there's a segment of pharma that's not commodity-generic, that's branded generic, that's higher margin, higher growth, et cetera, in pretty key markets around the world.

And right now, that's our fastest-growing business other than Neuromod, and Neuromod is hard to touch.

But we're growing that business at double digits.

The team is doing a terrific job.

Those markets represent the kind of opportunity we said they did.

And those kinds of growths, from an operating standpoint, growth rates out of the business, that's what you want.

So at some point, if we can add to our footprints and add to our strategies, we want to be in a flexible position to do that.

We obviously want to get to a position where we have the strategic flexibility that we've always felt we had.

So I don't think it's a bad idea for us to focus on the operations, keep pushing our cash flow, keep pushing that debt down.

So that's where the focus will be next year.

And I think we get ourselves back to a strategic flexibility quicker that way, which is a good thing.

Yes, okay.

And then, just -- I agree with all -- with everything you said.

Just some housekeeping, just maybe for Scott.

You said Portico, you finished enrolling, that's the U.S. trial.

Would that put you on pace for a 2019 U.S. launch?

And then, I think you talked about mitral, which is the Tendyne program.

And I think you said you started enrolling.

Is that enrolling in the European trial?

And then is there an update on the start of a U.S. trial?

I'm going to let Scott answer that.

Sure, Glenn.

On Portico, we would expect to file in the U.S. in the first quarter of 2019, to your question, so then you have the regulatory process after that.

With respect to the Tendyne in Europe, we expect to complete enrollment here in the first quarter.

It's a 1-year endpoint, so you can kind of do the math after that.

We're on the 2020 range or so on approval on the Tendyne product.

Really great opportunity, though.

Really -- the Structural Heart portfolio here in totality has really come together with what Abbott brought to bear and what St.

Jude brought to bear here.

So we're excited about it longer term.

Yes, it's a really good one to note.

I mean, that's one that came out of our own venture group from our own investments and so forth.

And we've been able to combine these things with St.

Jude in a way that I think is pretty synergistic, pretty favorable.

So we're pretty excited about that one.

Any update on when you start a U.S. trial for Tendyne?

Yes.

We could initiate a U.S. trial here in 2018.

And our final question comes from David Lewis from Morgan Stanley.

Miles, I thought I'd end on a couple questions on growth.

And I guess I'm a little surprised that Neuromodulation has not come up in this call, given it's been the biggest growth driver for St.

Jude this year, 50% growth through the first 3 quarters.

I think every single quarter, we expect that growth rate to come in a little bit.

It's been extremely durable across the 3 quarters.

Can you just give us a sense of factors that are driving that growth and sort of how you think about the sustainability of that growth into 2018?

And then, I had a follow-up for Scott.

Man, I think anybody that claimed a 50% growth rate was sustainable will be an idiot, but -- so I'm not going to be one.

Look, we're very pleased with the performance in Neuromod.

I think it's obviously driven by the fact we've got 3 great products there.

They're being exceptionally well received by the market.

They have an impact in real life on patients and their pain levels.

We're seeing great real-world results from Burst and DRG.

I think it's a really great group of products and a strong organization.

I think that the products hit a segment that's in crying need of improvements for patients and particularly at a time when pain drugs are and so forth are a national issue.

So I don't know.

I think the new products are driving the growth, and the execution has been strong.

The uptake has been strong.

We've had 3 quarters in a row of 50% or better growth.

How long will it be like that?

Look, we'll start to lap it, and the law of big numbers will start to diminish the growth rate, but the actual raw growth will still be pretty strong.

So I don't know.

I like what we see, but it's hard for me to hold it up as an example to all the other businesses and say, "You should do this."

Sure, very clear.

And then, maybe Brian or Scott, just to wrap up here.

Into the fourth quarter, because I think you could set the tone for investors as they think about next year's growth rate.

You're certainly guiding to sequential acceleration, sort of mid- to high.

Can you just kind of run through kind of sequentially what are those key components that get that acceleration because, as I said, I think it sets the tone for '18?

Yes, I'll take this.

I think it's just what Miles had talked about, the continued growth of our branded generics business.

It's been performing at the double-digit range.

I think you should expect more of the same there.

If we look at Diagnostics, just sustain what you're doing.

We do expect improvement at that business over time as we continue to roll out our Alinity platforms across the globe.

Diabetes Care, you know that story.

It's growing very strong, and we're excited to bring that here to the U.S. And most notably, and I mentioned this in my guidance on the Medical Device side, that's where the step-up is, where I talked about a mid- to high single digit.

And Scott kind of brought color to that by saying you should expect further sequential improvement on the CRM side of the business, because we've always said the magic formula is just bring that back to flat and the double-digit growth of all these high-growth areas will shine through and deliver 5% or 6% on our Medical Device business.

Those are really the key catalysts here.

So we're looking forward to a good fourth quarter here.

Very good.

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

And that concludes Abbott's conference call.

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