Memorandum

Abbott 4Q19 – Record FreeStyle Libre Sales of $534 Million Rise 58% YOY; “Approximately Two Million” FreeStyle Libre Users; $2.5 Billion Glucose Monitoring in 2019; Libre 2 Remains Under FDA Review – January 22, 2020

Executive Highlights

  • FreeStyle Libre (FSL) revenue crossed the half-billion threshold in 4Q19, reaching $534 million, up 58% YOY and 3% sequentially. For the full year 2019, FreeStyle Libre revenue totaled just under $1.85 billion, up 65% from $1.1 billion in 2018 (our estimate). The device continues to drive all of the growth in Abbott’s Diabetes Care division, making up 77% of Diabetes Care revenue in 4Q19, up from 58% in 2018, 34% in 2017, and 18% in 2016. What incredible transformation of a business!

  • Abbott’s total glucose monitoring business (CGM plus BGM) closed 2018 at over $2.5 billion for the year, its highest result ever, and fifth straight year of growth. The business including CGM and BGM grew 31% from just under $2.0 billion in 2018, and driven by FSL.

    • The international business remains much larger than the US business. 2019 US glucose monitoring sales hit $678 million for all Abbott’s glucose monitors (CGM and BGM), up nearly 50%, while international glucose monitoring sales of $1.8 billion rose 25%. US sales in 2019 rose to about 27% of total sales, from about 24% in 2018.

    • Global BGM sales of $682 million fell 16% in 2019. The US traditional glucose monitoring is falling faster by revenue, though possibly not by volume. By geographic area, BGM sales fell 32% in the US in 2019, to $225 million and fell 6% internationally to $457 million. Although it used to be that US BGM sales had significantly higher profits compared to BGM sales outside the US, we doubt this is still the case.

    • Global CGM sales of $1.8 billion rose dramatically again in 2019, up 65% from $1.1 billion in 2018. As a reminder, this business has grown incredibly quickly; the business was just $61 million in 2015, $210 million in 2016, and $480 million in 2017. The potential for further penetration in the years ahead is vast, given global penetration even for type 1 remains fairly low and even penetration for type 1 in the US is likely still under 40% - and there is so much possibility for global standards of care to improve, as long as outcomes continue to improve. For type 2, CGM is just beginning to take hold, as is professional CGM and we believe there is significant potential to improve overall standard of care as therapeutic interventions emerge from increasingly careful analysis of CGM data.

    • Notably, for five of the last six years, Abbott’s BGM business has had falling sales of approximately $115-$135 million. The degree to which FreeStyle Libre strength has offset this each year is striking. Specifically, for each of the last five years, FreeStyle Libre has added huge incremental revenue to the glucose monitoring business. Against the lower BGM contribution virtually ever year since 2014 between $115 million to $135 million, Abbott has added incremental CGM FSL global sales of:

      • $20 million in 2014;

      • $41 million in 2015;

      • $149 million in 2016;

      • $271 million in 2017;

      • $636 million in 2018; and

      • $725 million in 2019.

  • From our view, the striking thing about the health of the business isn’t just the incremental sales coming from FSL – it is the enormous potential to improve care for patients based on this innovation. We believe momentum overseas along with greater focus in the US along with a boost from Libre 2 will continue to increase growth globally – but even without Libre 2 anytime in the US this year, we imagine growth will continue very strong. While this may not be among the most intensive type 1 users who are pursuing AID (automated insulin delivery), we believe AID is a trend to continue over many years.

  • FreeStyle Libre now has “approximately two million” users globally – a significant jump from “close to 1.6 million” at the end of 3Q19, depending on the level of “approximation” involved. CEO Miles White also said that FreeStyle Libre has the largest CGM user base in the US, something we had not heard before. This number is positioned to grow further in 2020: Abbott’s focus in 2019 in the US was on building infrastructure and specifically on distribution, payer coverage, and formulary positions. In 2020, focus appears to be shifting further toward increasing awareness of CGM and the benefits of FreeStyle Libre – said Mr. Robert Ford, Abbott’s incoming CEO, we will see “more TV advertising” and sales force expansion, both in the US and internationally.

  • Overall Diabetes Care sales rose 30% YOY to $691 million in 4Q19. Revenue for 2019 hit $2.5 billion (+31% YOY), driven completely by FreeStyle Libre as Abbott’s BGM business continues to slowly decline. Diabetes Care revenue increased for the tenth straight quarter – including eight straight quarters of >25% YOY growth. By geography in 4Q19, OUS sales rose 26% YOY to a record $498 million and US sales rose 43% YOY to a record $193 million.

  • FreeStyle Libre 2 remains under FDA review as an iCGM. In the 3Q19 call, COO Robert Ford noted that the review was taking “longer than [Abbott] had expected” and was “working through a handful of open items” with the FDA. Today, Mr. Ford characterized the handful of open items as “nothing that’s … terribly surprising,” and said that he was “very pleased” with the progress made with the FDA regarding those open items. Once again, Mr. Ford expressed that he was “very confident” in FreeStyle Libre 2 and its ability to meet the iCGM special controls.

  • In Mr. White’s final (“85th or 86th”) earnings call as the CEO of Abbott, both Mr. White and incoming CEO Mr. Ford took time to discuss the transition. Mr. White expressed “nothing but confidence in the pipeline, the management, the products, the strategies, and the new leader who is going to take over for me.” Mr. Ford spoke highly of Abbott’s culture of accountability and execution, while maintaining confidence in the company’s ability to maintain its impressive growth rates on an ever growing base. It was also the final call for CFO Brian Yoor, who will depart at the same time as Mr. White.

Abbott reported 4Q19 financial results this morning in a call led by CEO Mr. Miles White and headlined by $534 million in FreeStyle Libre revenue which has grown to a user base of “approximately two million.” Get the press release, listen to the call, and read our coverage below.

Today’s earnings call was, by his estimate, the “85th or 86th” earnings call for Mr. White, and it was also his last call as CEO of Abbott. While Mr. White will remain the Executive Chairman of the Board, he will be succeeded by President and COO, and Diabetes Care veteran, Mr. Robert Ford starting March 31, 2020. During the call, Mr. White and Mr. Ford took some time to talk about the transition and Mr. White looked back at the success of FreeStyle Libre, and we included the quotes alongside Diabetes-Related Q&A below.

 

FreeStyle Libre Sales and User Base

1. FreeStyle Libre Revenue of $534 Million, Rising 58% to New Record

FreeStyle Libre sales in 4Q19 crossed the half a billion mark ($534 million) for the first time, coming off 58% YOY growth (+62% operationally). Sequentially, revenue was up ~8% from the previous record of $496 million set in 3Q19. Through 2019, sales of FreeStyle Libre totaled $1.8 billion – up 65% from $1.1 billion (our estimate) last year. Abbott’s BGM revenue backs out to $157 million in 4Q19, declining ~19% YOY and 7% sequentially. Once again, it took CEO Miles White just a few minutes in prepared remarks to get to FreeStyle Libre, which he called a “revolutionary” device with “substantial growth opportunity to come.” Representing the high level of enthusiasm for FreeStyle Libre, a cartoon version of the device was chosen to represent Abbott’s overall Medical Devices business on its 4Q19 infographic – Diabetes Care is by far the fastest growing division in Abbott’s Medical Devices business.

2. Global FreeStyle Libre User Base at “Approximately Two Million,” “Well Over Half a Million” Users in US

In prepared remarks, Mr. White stated that FreeStyle Libre’s global user base was at “approximately two million.” Depending on the level of approximation involved in that two million figure, 4Q19 may have seen a major jump from the “close to 1.6 million” users at the end of 3Q19. We heard the same “two million” users number last week from COO Robert Ford at JPM, which we also assumed was rounded upwards. “Approximately two million” FreeStyle Libre users at the end of 4Q19 would also represent ~700,000 new users from “approximately 1.3 million” in 4Q18, a growth rate of ~54% and about even with the 58% YOY revenue growth rate seen by FreeStyle Libre in FY19. FreeStyle Libre has, by a considerable margin the largest user base in the world (Dexcom is next closest at ~550,000 by our estimate), but during Q&A, Mr. Ford emphasized how much runway there was left, stating the total market was “80 million to 100 million people.” While reaching 100 million people “might be a little bit too aspirational,” Mr. Ford called it “absolutely” possible to have a user base of more than “2, 3, 5, 10 million people.”

  • FreeStyle Libre exited the year with “well over half a million” users in the US. By our model, this would be about double the US user base FreeStyle Libre ended with in 2018 – not necessarily a surprise given the much smaller base and that US FreeStyle Libre revenue more than tripled in FY19. According to Mr. Ford, focus in 2019 in the US was on building infrastructure: distribution, payer coverage, and formulary positions. In 2020, we will see “more TV advertising” and sales force expansion, both in the US and internationally.

    • Mr. Ford also claimed that FreeStyle Libre has the “highest user base among CGMs in the US.” While FreeStyle Libre certainly has, by far, the most CGM users outside the US, it faces much stiffer competition from Dexcom’s G6 in the US. By our estimate, Dexcom’s US CGM business ($309 million) is more than double that of Abbott’s CGM-only business (~$145 million), but given the price difference between FreeStyle Libre and G6, it seems that Abbott has a slight lead in terms of user base.

  • We did not get an update on the composition of FreeStyle Libre users, but assuming levels are on par with “50/50” type 1 and type 2 given in 3Q19, FreeStyle Libre could be approaching ~one million people with type 2 diabetes on FreeStyle Libre. Of course, levels of utilization could be lower with FreeStyle Libre’s type 2 users, but it’s clear that Abbott is making strong headway into the type 2 market. As awareness around CGM continues to grow (partially driven by Abbott’s growing investments in marketing) and coverage for type 2s continues to improve, Abbott is in a strong position to test various models of wear (e.g., frequency of wear, blinded/unblinded, etc.), gather outcomes data, and further expand the entire CGM market.

  • With manufacturing capacity no longer constrained, Mr. Ford shared that there are now plans to roll out FreeStyle Libre into several markets they have not launched in yet. Once again, we heard about investments in manufacturing capacity for FreeStyle Libre, and on 3Q19’s call, we heard that manufacturing capacity was “completely unconstrained.” In July, Reuters/NYT reported that Abbott was investing in manufacturing expansion for FreeStyle Libre, increasing capacity “by three to five times” in the “next few years.”

Financial Highlights

1. Worldwide Diabetes Care Revenue of $691 Million, Rising 30% YOY; Full Year 2019 Revenue of $2.5 Billion, Rising 31% YOY


Abbott’s Diabetes Care division reported total worldwide revenue of $691 million in 4Q19, rising 30% YOY as reported (+34% operationally). This is the tenth straight quarter that Abbott’s Diabetes Care has set a new record revenue; the graph above is incredibly telling. Sequentially, sales rose 4% from 3Q19. The 30% YOY growth in 4Q19 comes on a tough comparison to 32% YOY growth in 4Q18. Abbott Diabetes Care has now seen YOY growth above 25% every quarter since 4Q17, driven by FreeStyle Libre as Abbott’s BGM business continues to decline. In 4Q19, FreeStyle Libre drove $534 million in revenue, making up 77% of Diabetes Care revenue – this number continues to rise from 75% in 3Q19 and ~64% (our estimate) one year ago. Driven by FreeStyle Libre, Diabetes Care continues to be far-and-away Abbott’s fastest growing division (Diabetes Care’s 30% YOY growth is doubled that of the next closest division, Vascular).

  • Full year Diabetes Care revenue crossed the $2 billion mark for the first time, totaling $2.5 billion, rising 31% as reported (+36% operationally) from FY18. Growth was driven completely by FreeStyle Libre, even as Abbott’s BGM business declined 16% YOY. For context, Diabetes Care made up 8% of total revenue across all of Abbott’s businesses this year, compared to 6% in FY18.

  • International Diabetes Care sales continue to supply ~two-thirds of overall Diabetes Care Growth; in 4Q19, OUS sales supplied 64% of the growth in the quarter, on par with 3Q19 and 2Q19. International markets still make up the lion’s share of Diabetes Care revenue (72%) and OUS revenue is continuing to grow at a rapid 26% YOY pace. US revenue growth continues to outpace OUS growth (43% vs. 26%, as reported), but the US base remains much smaller ($193 million vs. $498 million). Sequentially, US revenue grew at 10%, while OUS revenue grew at ~2%. As a reminder, FreeStyle Libre came to the US market three years after it first launched in Europe.

Table 1. Abbott Diabetes Care 4Q19 Financial Metrics

 

Quarterly Revenue

YOY Change

Sequential Change

US FreeStyle Libre*

$145 million

+297%

+18%

US BGM*

$48 million

-51%

-8%

OUS FreeStyle Libre*

$389 million

+29%

+4%

OUS BGM*

$109 million

+16%

-7%

Total FreeStyle Libre

$534 million

+58%

+8%

Total BGM

$157 million

-18%

-7%

Table 2. Abbott Diabetes Care FY19 Financial Metrics

 

Annual FY19 Revenue

YOY Change

US FreeStyle Libre*

$454 million

+251%

US BGM*

$224 million

-32%

OUS FreeStyle Libre*

$1.4 billion

+41%

OUS BGM*

$458 million

-6%

Total FreeStyle Libre

$1.8 billion

+58%

Total BGM

$682 million

-16%

*our estimates

2. Record International Sales of $498 Million, Rising 26% YOY, 2% Sequentially

International Diabetes Care sales totaled $498 million, rising 26% YOY as reported (+32% operationally). Sequentially, sales rose a modest 2%, marking twelve straight quarters of sequential growth. OUS Diabetes Care revenue for 2019 totaled $1.8 billion, rising 25% YOY. Unfortunately, we weren’t given any information on uptake of FreeStyle Libre 2, nor were there any updates on which countries the second-gen device has launched in. (To date, we know it has launched in at least Germany and Norway.) Abbott continues to see very strong growth internationally, even as the base grows larger and larger. Our estimate for Abbott’s OUS CGM revenue (~$389 million) is still much, much larger than that of Dexcom’s ($88 million in 3Q19). On the other hand, Dexcom’s US CGM business ($309 million) is more than double that of Abbott’s CGM-only business (~$145 million, by our estimate). Dexcom continues to plan for international rollouts of G6 (Japan and Korea were specifically highlighted at JPM 2020), and we believe more CGM marketing globally will help each company as well as the field.

3. Record US Sales of $193 Million, Rising 43% YOY, 10% Sequentially

US Diabetes Care revenue totaled $193 million, rising 43% YOY and a strong 10% sequentially. Since the first full quarter of FreeStyle Libre availability in the US (1Q18), US Diabetes Care growth rates have been >35% every single quarter. We first estimated that US FreeStyle Libre revenue crossed $100 million in 2Q19 and is now closing in on the $150 million mark. FreeStyle Libre 2 remains with the FDA, under review as an iCGM, with many awaiting its launch in the US (see pipeline highlights below).

Pipeline Highlights

1. FreeStyle Libre 2: “Very Pleased with the Progress” Made with FDA, Abbott Remains “Very Confident” in iCGM Labeling

During Q&A, analyst Bob Hoskins of B of A chose to ask for an update on FreeStyle Libre 2, which has been under review with the FDA since at least 1Q19. In the 3Q19 call, Mr. Ford noted that the review was taking “longer than [Abbott] had expected” and was “working through a handful of open items” with the FDA. It was challenging to characterize what might be prompting the wait, although from our view, it’s not slowing the business. While many assume it has something to do with interoperability standards or FreeStyle Libre’s accuracy in hypoglycemic glucose ranges, it’s simply unknown from our view and not terribly important for the business from a commercial sense. In fact, given the priority of many to get CGM to as many as possible, the fact that Abbott isn’t spending a lot of time on AID this moment or the most intensively managed type 1s is fine. Today, Mr. Ford characterized the handful of open items as “nothing that’s … terribly surprising,” and said that he was “very pleased” with the progress made with the FDA regarding those open items. Once again, Mr. Ford expressed that he was “very confident” in FreeStyle Libre 2 and its ability to meet the iCGM special controls. From our view, in thinking about the business, this may mean less that Libre 2 will be approved in the very near term, and more that they want to get it right (definitely the right sentiment from a patient and provider perspective) and that in the meantime, there’s plenty of other work to do on changing the standard of care for everyone with diabetes (meaning everyone should be using at least Professional CGM twice a year – there is lots to do on regulating this from our view). Still, many are watching the FDA, and this is what we see:

  • The FDA review process for FreeStyle Libre 2 is nearing at least one calendar year. Abbott’s 4Q18 and JPM updates in January said FreeStyle Libre 2 would come to the US “shortly,” but it wasn’t until April’s call that we heard confirmation of the iCGM filing. While some expected the device to be cleared before ADA 2019 (Abbott had a product theater on it), Abbott has typically seen much longer review processes than Dexcom – this has been true historically dating back at least to the 1990s, when one Abbott division actually had a consent decree. On a more encouraging note, management noted on its 2Q19 call that the FDA had actually encouraged Abbott to file the device as an iCGM: “The standards and special controls for the iCGM are very clear and very transparent as it relates to accuracy thresholds, alarms, sensor shutoffs, etc. And we wouldn’t have filed an iCGM if we felt that were going to fall short of those special controls. In fact, we were encouraged by the agency to file Libre 2 as an iCGM.” We assume this is still true, though it also may be the case that this designation may have more complexity than was originally understood.

  • As a reminder, FreeStyle Libre 2 will bring Bluetooth connectivity and optional high and low alarms, at the same price and form factor as the FreeStyle Libre. We assume that in the US version, FreeStyle Libre 2 will still require a scan to see the real-time value and trend arrow, as it does in the versions outside the US; we would be surprised if Abbott changed the product form factor to transmit data continuously. This longtime decision was made intentionally as we understand it, not because it is easier to design or manufacture. Adding alarms into the already-compelling FreeStyle Libre product (low cost, fully disposable, small form factor) will be a win for patients who need it (not all do), the HCPs who want it for their patients, and the market. From our view, it’s an even bigger win just getting CGM that drives better care to all patients (the next group to focus on beyond patients on Medicare in the US, who technically get it covered, but it’s a major hassle, is people with diabetes on SFUs or any other drug that causes hypoglcyemia). Drugs or regimens that still prompt hypoglycemia or hyperglycemia are next in our view from a Medicare perspective.

  • Despite the lengthy review process for FreeStyle Libre 2, momentum for FreeStyle Libre “1” shows no signs of slowing down. During Q&A, Mr. Ford noted that the company didn’t really differentiate between FreeStyle Libre 1 and 2 when creating guidance for 2020. That said, we think multiple parts of the market, such as pediatrics, would prefer alarms, though we certainly know segments who do not. Regardless of when FreeStyle Libre 2 reaches the US market, the FreeStyle Libre franchise is undoubtedly in strong shape going into 2020.

2. Still to Come, No Focus in the 4Q19 Call: FreeStyle Libre 3 and US Pediatric Indication

  • In 1Q19, FreeStyle Libre 3 was said to have already have been in development for “quite some time.” In the European version of FreeStyle Libre 2, a user must still physically scan to obtain a real-time glucose value, but from a technical perspective, the communication does seem like it could drive AID with the current Libre 2 configuration. We’re not sure if the second- or third-gen device will be used in Abbott’s pump partnerships with Bigfoot Biomedical and Tandem or its connected pen partnerships with Bigfoot, Novo Nordisk, and Sanofi.

  • A pediatric indication for FreeStyle Libre has been under FDA review since 3Q18 – could Libre 2 receive clearance with this indication right out of the gate? FreeStyle Libre is approved for patients as young as four years old in Europe, though it remains indicated for 18+ years in the US. That said, many teens use FreeStyle Libre off-label, though we’d love to see it approved as that will drive much better reimbursement. With the addition of alarms in FreeStyle Libre 2, Abbott will have a better product to market in peds from the perspective of most parents and patients, for whom Time in Range is so important, particularly avoiding severe hypoglycemia.

3. Partnerships with Bigfoot, Sanofi, Novo Nordisk, Tandem, Omada, and Livongo Not a Focus in Today’s Call

Contrasting with a busier 3Q19 that saw new partnerships with Sanofi, Tandem, and Omada, Abbott did not finalize any major diabetes related deals in 4Q19, nor did it say anything about deals with current partners. Abbott did lead a $45 million Series C funding round for Bigfoot that closed earlier this month – see our report and interview with CEO Jeffrey Brewer here. That partnership also went unmentioned on today’s call, unsurprisingly – the earnings calls tend to be about the commercial business, particularly at year end.

  • Bigfoot update: Two weeks ago, Bigfoot closed a $45 million funding round that was led by Abbott. As we reported then, the funding will be used to support product development and FDA clearance of Bigfoot Unity, a “dose decisioning” system utilizing proprietary smart pen caps and leveraging the Freestyle Libre platform, in 2020, with a 510(k) submission targeted for the “middle of 2020” and a commercial launch targeted “by year-end.” Further down the pipeline, Bigfoot has plans for a closed loop system, “Autonomy,” that will also work with FreeStyle Libre, though its launch is expected in “~2023.”

  • Smart pen partnerships

    • Sanofi: On the first day of EASD 2019, before Sanofi exited diabetes R&D, Abbott and Sanofi jointly announced a worldwide partnership to share data from FreeStyle Libre with insulin dosing information from Sanofi’s future “connected pens, insulin titration apps, and cloud software.” Sanofi is behind competitors on smart pen offerings, so a launch here may be up to a couple years away. While it’s unclear how these efforts will or won’t be affected by Sanofi’s announcement that it will discontinue diabetes R&D at the end of 2019, we believe that Sanofi now has more room to invest in optimized insulin delivery, so its current products work better, rather than in competitive R&D that may not make an impact in the field. We are hopeful about the ways in which the two companies could work together, particularly given Sanofi’s historical strength with primary care providers.

    • Novo Nordisk: Abbott also has a partnership with Novo Nordisk to share CGM and insulin dosing data, and Novo Nordisk’s smart pens are now slated for a launch in 2020 – we see lots of opportunity in the coming years for the insulin manufacturers to help patients dose more optimally and simultaneously to sell more insulin (far more patients are likely to be underdosing than overdosing).

    • Lilly?: An Abbott/Lilly partnership seems like a logical follow-on; Lilly officially partnered with Dexcom in December 2019 and the non-exclusive partnership leaves the door open for other CGM companies.

  • Tandem update: Abbott announced plans to integrate a “next generation” FreeStyle Libre with Tandem’s t:slim X2 pump. The announcement was just a precursor to a formal commercial partnership announcement, leaving a lot of room for speculation. See our report for a list of what potential integrations could look like – we were glad to hear of this agreement since automated insulin delivery is so important to people on mealtime insulin and will only become more so. The agreement also reinforces Abbott’s confidence that FreeStyle Libre will eventually receive iCGM clearance, and it gives Abbott a second pump partner (after Bigfoot in 2017).

  • Omada update: In October 2019, Abbott and Omada announced plans to bring FreeStyle Libre into Omada’s digital program for people with type 2 diabetes. Omada will bring the integrated solution to market via employers/health plans, and it will include both insulin and non-insulin users. Patients will receive an online physician consultation and prescription of FreeStyle Libre, which will be delivered straight to patients’ doorsteps with a wireless weight scale. The partnership gives Abbott a strong, proven partner in the digital health/coaching landscape, as Omada has more than 275,000 participants enrolled to date. See more takeaways in our report.

  • Livongo update: Neither Abbott nor Livongo have given an update on the partnership announced last year to bring FreeStyle Libre Pro to eligible Livongo members at select on-site clinics. We’d love to hear more about this given the upside for these patients. During JPM 2020, Livongo and Dexcom announced a data integration partnership, and seemed to hint at further collaborations between the two companies in the future.

Outgoing CEO Miles White and Incoming CEO (Current COO) Robert Ford

  • “Several years back, we saw an opportunity to approach continuous glucose monitoring, or CGM, in a fundamentally different manner compared to others in the space. We challenged ourselves to rethink existing paradigms as we sought to develop a solution that would truly benefit the mass population of people living with diabetes around the world. That aspiration influenced every aspect of Libre, highly accurate, simple to use, particularly affordable, and easy for patients to access. The results of our unique approach have been remarkable by any measure. Libre has quickly become the global market-leading wearable CGM. Its user base has roughly doubled each year to its current level of approximately 2 million users globally, including the highest user base among CGMs in the US. Reimbursement coverage has ramped up quickly around the world, as payers increasingly recognized its highly differentiated value proposition. It’s the only CGM that’s widely available through the pharmacy channel, which is a significant benefit for patients as it simplifies the process of acquiring the product. In 2019, Libre achieved full-year sales approaching $2 billion, an increase of 70% versus the prior year. And importantly, as we plan for the substantial growth opportunity to come, we significantly expanded our manufacturing capacity to keep up with anticipated demand for this life-changing technology.” – Mr. White

  • “The minute you retire, everybody thinks you’ve to diversify your holdings, because you’re too concentrated in one thing. I only wish I had more. I’ll remind him every day that I’m a shareholder - which he knows. But, I have nothing but confidence in the pipeline, the management, the products, the strategies and the new leader who is going to take over for me. I have tremendous confidence in Robert and he’s got all the abilities, all the skills, et cetera. We can keep talking about the law of big numbers and, ‘Gee, how do you grow on this base?’” We don’t feel slowed or anything by that. We feel like we’ve got tremendous opportunity to sustain our growth rates.” – Mr. White

  • “Obvious, with the transition here to CEO, there’s a natural question of the incoming, do they think differently, is there a change in strategy, is it a different way of thinking and I can tell you, I’m very much aligned with Miles. We see things very similar as it relates to our strategy, how we operate, the philosophy of the company, the vision we have for Abbott. The last 18 months for me in particular to be kind of close to Miles during this transition period, being closer to him with his mentorship and learning how he has been able to kind of create value as you referenced in the beginning there, that leaves me with my number one priority to do that is to really execute as Miles said on these organic growth opportunities we have. We have multiple growth drivers as you know that in my opinion are in their very early stages, whether it’s Libre, the Alinity rollout, our rejuvenated cardiovascular portfolio, I think we’ve got a great opportunity in our adult international nutrition business, our branded generic pharmaceutical business in the emerging markets which has a very unique strategy. So look at all of that and question of how sustainable is this, I think all these opportunities are in the early stages here and it’s really going to be up to me and the team here to make sure that we maximize on all of these opportunities. We’ve got a portfolio that’s aligned to the biggest areas of medical need, attractive geographies. As Miles said about the pipeline, it’s a very rich pipeline. We talk about how this pipeline has evolved and how we haven’t seen as rich as a pipeline at Abbott in a long time and it’s a nice cadence also.” – Mr. Ford

  • “The way we operate is very strong. Miles talked about our culture. We set high aspirations for ourselves and we do have a culture of accountability, of execution. And then, you layer that in with 100,000 of colleagues around the world that are passionate, they care about what they’re doing, they believe in what we’re doing, they believe in our strategy, I think we’ve got all the elements here to be able to sustain this kind of growth rate going forward.” – Mr. Ford

Diabetes-Related Q&A

Q (Bob Hopkins, Bank of America): Robert, if you wouldn’t mind just giving us a quick update on Libre 2 timeline and thoughts there. And then, if you’re willing to give us a sense for in your 2020 guidance what sort of growth assumption are you making for Libre in 2020.

A (Robert Ford, COO): Sure. On Libre 2, last October, I mentioned that we’re working through a handful of issues. Quite frankly, we encounter these handful of issues in other parts of our businesses, too, so, it’s nothing that for us is terribly surprising. It’s normal. I’m not going to go into any of the real specifics here. But what I will say Bob is that since that time in October, I’m very pleased with the progress that we’ve made and I continue to be very confident in Libre 2 and its performance and the product itself and its iCGM label.

Regarding the guidance on Libre 2, what I can tell you is that we’ve got a lot of growth. Our guidance contemplates a lot of Libre growth. So we’re not necessarily differentiating here between 1 and 2. But if you look at our Q4, we had a great Q4 with Libre and that’s without Libre 2 in the US. It was a great way to exit and to enter 2020.

As Miles said, we’re the market leader in CGM in revenue and in the amount of patients and we’re growing at twice the rate. Our strategy here has always been, from the moment we launched, to look at this as a more kind of consumer, retail, kind of web shop, online play here. When you look at our Q4, you don’t see that kind of big Q4 spike and then drop in Q1 which you usually see from medical benefit DME products. Our growth is very consistent and sequential. The US has done very well in the year. Obviously, we want to do better, but we exited the year with well over half a million patients in the US.

We set up some goals for 2019 as it relates to distribution, payer coverage in the US, formulary positions, and we exited 2019 exactly where we wanted to be with all of those goals all favorable to Libre. Our focus in the US in 2020 here is really to take advantage of what we’ve established in terms of the infrastructure and drive demand. So you’ll see more TV advertising, you’ll see more sales force expansion, you’ll see more partnerships and execution of those partnerships, you’ll see more sampling and I think that that same momentum that you see in US is also there in our international markets, which is obviously a much larger base for us and we saw great momentum in Q4.

Our 2020 is really focusing on international markets, expanding Libre into geographies that we haven’t yet launched. We were capacity constrained in 2019, so there are several markets that we haven’t launched, and we’ve put in place now plans to roll Libre into those new geographies and roll out Libre 2 into some of those Libre 1 markets.

One thing I think is important to put front and center here is the clinical aspect of Libre. It is the most studied CGM right now. And if you look at the data, whether it’s our data, whether it’s real-world evidence data, whether it’s third-party government-sponsored trials, they all say the same thing, which is people that use Libre have better outcomes, they live better, their A1c drops, their hypo drops, their rate of hospitalization goes down.

The value proposition that we’ve always envisioned for Libre, not only is it intact, but we actually see it growing. It’s an easy-to-use, intuitive, consumer-friendly product that delivers the outcomes that are real and measurable, and it’s priced for mass adoption. It’s affordable. We always saw the therapy benefit not only for type 1s and for pumpers, we saw this therapy benefit for people that were on one shot a day insulin, oral med patients. We always looked at this market to be 80 million to 100 million people. Now, is it going to penetrate all 100 million people? That might be a little bit too aspirational, but what I would say is it more than 2 million, 3 million, 5 million, 10 million people, absolutely. And that’s how we’re building our strategy, investing in the product, investing in awareness, and investing in the scalability, so we can capitalize on this opportunity.

Q (David Ryan Lewis, Morgan Stanley): Margin guidance of about 50 basis points is a little lower than 2019. It’s consistent with our numbers, but if you could just highlight two or three of the examples of significant reinvestment for growth in 2020 that would be super helpful.

A (Brian Yoor, CFO): I’d start off by saying just margin improvement is an ongoing focus for us, David. It has been and will continue to be, whether that’s gross margin, whether that’s the leverage we continue to get in SG&A, and yes, notably we did see that this year. You may be off just a little bit from our model and the foreign currency mix, we have a little bit of a headwind next year, but we have gross margin expansion planned, underlined. But keep in mind, as Robert said, with these investments that we’re doing for growth, whether that’s continued Libre expansion, whether it’s the most recent MitraClip expansion we announced, as well as the unprecedented uptake of Alinity, that’s presenting a little bit of a headwind. But as a good news item in the short- term and longer-term, you’ll continue to see those gross margins expand as we look out over the years.

Q (Larry Biegelsen, Wells Fargo): I know I’ve asked this on a few calls before, but you guys have paid down a lot of debt recently. Are you, Robert, maybe thinking about M&A a little bit differently? Should we expect more tuck-ins in 2020?

A (Robert Ford): I think what you’ll see is the same philosophy, the same framework that we’ve had for all these years which is a very kind of balanced approach. As you’ve said, a lot of our focus for the last couple of years has been to pay down debt. We’ve paid down close to $10 billion over the last two years. Our net debt-to-EBITDA ratio is around 1.5 now. And we’ve got kind of payments that are due in the next few years and that’s all kind of contemplated in our capital plan. The other thing we’re always going to have a mindful eye here Larry is ensuring that a portion of that capital goes back to our shareholders. Our dividend is a big part of our identity. We’ve increased our dividend for 47 consecutive years. This year, we just announced a 13% increase, so – and we announced also at the end of last year a share repurchase of about $3 billion. We do that from time to time mainly to offset dilution.

We’ll also look at our growth opportunities. And we’ve talked a lot about them, whether it’s the rollout of Alinity, whether it’s the manufacturing expansion of Libre. We just announced in Q4 a new manufacturing site, a second manufacturing site for MitraClip. Those are all great returns for our shareholders in terms of the return of that capital.

And then on the M&A side, we’re not looking to do any deals right now. I think the framework that Miles has always worked is true to me, which is it needs to meet our threshold of it being strategic and at the same time opportunistic, and we’ve been looking at it a lot. We’re always studying, we’re always looking, and I haven’t seen anything crossing the radar here that kind of falls into those two buckets. But we’re always going to keep looking as we’ve always done.

Close Concerns Questions

  • How many patients are receiving glucose monitoring from Abbott devices, between CGM and FreeStyle Libre and its traditional FreeStyle BGM devices?

  • Is the delay in FreeStyle Libre 2’s FDA review stemming from relative accuracy in hypoglcyemia or something related to interoperability, or something else?

  • How meaningful is the delay, given that Abbott’s business continues very strong in the US and arguably even stronger internationally?

  • What is the breakdown between type 1/type 2 FreeStyle Libre users? MDI vs. pump?

  • How will we see the growth of the FreeStyle Libre franchise change as manufacturing capacity becomes less constrained?

  • What kind of investment in marketing toward consumers and providers will be seen in 2020?

  • Which countries outside the US is Abbott looking to expand FreeStyle Libre to in 2020? Which countries are currently seeing the highest rates of growth?

  • Will Bigfoot’s Unity system be able to come to market by the end of the year and how will the partnership between the two companies evolve?

  • What are Abbott’s plans for its BGM business? Although the pricing pressure continues, are an increasing number of patients using FreeStyle monitors? Although it does not appear to be the focus, will a growing number of patients begin to use these devices in areas in which even traditional BGM hasn’t been possible to access? 

 

--by Albert Cai and Kelly Close