Abbott Laboratories' (ABT) JPMorgan Healthcare Brokers Conference (Transcript)

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Abbott Laboratories (NYSE:ABT) JPMorgan Healthcare Conference January 10, 2017 7:00 PM ET

Executives

Brian Yoor - SVP and CFO

Analysts

Michael Weinstein - JPMorgan

Michael Weinstein

Good afternoon everybody. It's my pleasure to introduce our next speaker from Abbott Labs. We have the Company's Senior Vice President and Chief Financial Officer, Brian Yoor. Following Brian's prepared remarks, we will have a break out session across the hall. Brian?

Brian Yoor

All right, thanks Mike. Good afternoon everyone. Before we begin, please take a moment to review our forward-looking statement as noted on the second slide.

Okay, at Abbott our purpose is to help people live their best possible lives through better health. To that end, our balance and diversified portfolio of healthcare businesses is comprised of global market leading positions and products that improve treatment standards and deliver innovative solutions that have a lasting impact on health.

We continue to strengthen and diversify our businesses, product lines and geographies targeting leadership positions in all areas where we compete. This approach has led to an exceptional track record of creating long-term share holder value and consist of the following key components balance, relevance, a global presence and financial performance.

Well managed diversity has been a core strategy of ours for many years and we work hard to maintain the balance. In our mix of businesses and the geographies in which we compete and in the customers that we serve. We adjust the mix when appropriate and continually shape our company to ensure we're in the right businesses to provide the best opportunities for our future.

We strive to build leadership positions in the diverse areas of healthcare where we compete, so we shape the company for balance, breadth and strength in the categories we choose to be in. We seek areas in healthcare that are aligned with long-term growth trends and where there is room for innovation, where technological advancement can make a difference for our customers.

Today Abbott is one of the most globalized healthcare companies in the world with strong positions in both developed and emerging markets affording us the scale and breadth to be a global healthcare leader and to create market opportunities. This strategic framework drives our financial performance enabling Abbott to deliver sustainable top tier growth, steady margin expansion and free cash flow generation to enhance value for our shareholders.

Abbott is focused on achieving and maintaining leadership positions in all areas in which we compete. In Establish Pharmaceuticals, we hold leading market positions in India, Russia and Latin America. This leadership was created both organically and inorganically including a series of transactions that brought breadth and scale in our emerging markets.

In Nutrition, Abbott is the world-wide leader in the adult market and maintains leadership positions in the pediatric market across several geographies including the number one position in the United States.

In diagnostics we have leading testing platforms in core laboratory, molecular and point-of-care diagnostics and continue to build that leadership position with our new Alinity platform which will have a positive impact for the years to come. And in medical devices, our recent acquisition of St. Jude Medical creates a global medical device leader with strong positions in cardiovascular, diabetes and neuromodulation markets. I’ll cover each of this business in more detail in just a few minutes.

All of our businesses are well-positioned to address the most relevant needs and to build on attractive healthcare and demographic trends such as improving social economic conditions in emerging markets, in a rapidly aging global population that are driving increasing demand for healthcare. In 2015 people above the age of 65 comprise 8.5% of the global population. In just 15 years this will increase to 12% and by 2050 is projected that people over the age of 65 will comprise nearly 17% of the global population.

Abbott's portfolio is positioned to benefit from this demographic shift offering diagnostics tests and innovative solutions to promote healthy aging and to address prominent health conditions associated with aging including heart disease and diabetes.

In emerging markets, rapid growth in healthcare is being driven by an expanding middle-class and improved access to care. Healthcare spending as a percentage of GDP remains low in these geographies compared to the developed world representing a significant long-term growth opportunity as emerging markets continue investing to modernize their healthcare systems.

Over the past several decades, Abbott has made significant investments to establish a strong local presence in the world's fastest-growing markets including India, China, Russia and many others. Our growth rate in these economies has been strong and we're well-positioned to continue growing with the increasing demand for healthcare and to respond with relevant localized solutions.

I'll now briefly discuss each of our four businesses in more detail. I’ll start with nutrition where Abbott is a global leader with a portfolio that is uniquely balanced across geographies and across product segments. We hold the number one or number two position in several countries with a broad and diversified portfolio addressing the unique nutrition needs for people of all ages. With annual sales approaching $4 billion, our pediatric nutrition business includes Similac one of Abbott's most well-known brands which includes a full line of infant and toddler formulas that support healthy growth and development.

As children grow, we offer PediaSure our complete and balanced nutritional supplement designed for children with a variety of feeding difficulties and Pedialyte a specially formulated fluid drink for infants and children to prevent dehydration. But our commitment to healthy living doesn't end here, Abbott is the world leader in adult nutrition. Our $3 billion adult nutrition business is anchored by Ensure, which includes an extensive line of products that provide complete and balanced nutrition to help people stay active and healthy, as well as to recover from illness.

Abbott also offers a number of brands to support the unique nutritional needs of people with chronic diseases including Glucerna for people with diabetes. The aging global population provides a strong tailwind for our adult nutrition business creating opportunities to further expand our offering and to shape the market.

In addition to this unique product balance, our nutrition business is also geographically well-balanced with roughly 40% of our sales occurring in the United States and 60% outside of the United States including nearly 50% of our total nutrition sales in emerging markets. Our track record of developing science-based innovative nutritional products and shaping markets is unparalleled. We have also built a world-class global supply chain and development organization that spans both the developed and emerging markets including state-of-the-art manufacturing facilities and localized R&D efforts in China and India in order to develop innovative products designed to meet the local adult and pediatric nutritional needs.

Turning to Established Pharmaceuticals or EPD, the home of our branded generics business. Over the past several years, we've reshaped and strengthened this business through a series of strategic actions including the sale of our developed markets business and the acquisitions of CFR Pharmaceuticals in Latin America and Veropharm in Russia. With annual sales approaching $4 billion, this business is executing at a high level and growing into the business we envision when we created it.

Abbott's branded generics businesses is now focused exclusively on emerging markets and holds leading market positions in India, Russia and Latin America. In emerging markets, the vast majority of branded generic pharmaceutical products are paid for directly by patients who value and trust Abbott's reputation for high quality brands making EPD one of our most consumer facing businesses.

Our operating model focuses on a portfolio selling approach in therapeutic areas where we have well recognized brands including gastroenterology, women's health, cardio metabolics, central nervous system, respiratory and influenza vaccines. This portfolio approach is a key point of differentiation and ensures our sales representatives are equipped with a broad product offering and therapeutic area expertise to meet the various needs of physicians.

It also affords unique channel opportunities to create differentiated relationships with retailers and pharmacy chains that are looking to offer their customers a complete line of solutions to treat the prominent health conditions.

Moving to our diagnostics business, which remains a reliable growth business consistently achieving above market growth in both developed and emerging markets. Diagnostics testing influences up to 70% of healthcare decisions and lab professionals are under constant pressure to deliver test results of quality, speed and efficiency.

Our diagnostics business with annual sales approaching $5 billion has a long history of product innovation that has resulted in sustained leadership and immunoassay testing and blood screening. And we're in the early stages of building on this legacy with the launch of Alinity, an integrated family of next-generation systems across immunoassay, clinical chemistry, hematology, blood screening, point-of-care and molecular diagnostics.

We spend a significant amount of time with our laboratory customers in the design phase for Alinity to ensure that we were building solutions for the issues they face every day whether it is higher testing volumes, constrained staffing and space and/or complex disparate processes and instruments. The Alinity family of solutions represents a major leap forward over competitive systems in terms of automation, throughput, space efficiency and ease-of-use which will help labs improve productivity and increased testing volume while reducing errors all within a much smaller footprint.

In the fourth quarter of last year, we initiated the global launch of Alinity in Europe and over the next several years we'll launch the full Alinity suite across Europe and into additional geographies providing a highly differentiated platform for sustainable long-term growth.

And lastly I'll cover medical device businesses. With the recent acquisition of St. Jude represents a major strategic move that establish Abbott with a premier medical device business with leading positions in cardiovascular, neuromodulation and diabetes care markets. Together the combined medical device portfolio will have annual sales of approximately $10 billion with the best-in-class pipeline ready to deliver next-generation technologies.

Abbott has been working for many years to build our presence in cardiovascular care, one of the largest and most important areas of healthcare. It was just over 10 years ago that we accelerated our ongoing efforts to build a vascular presence by acquiring the Guidant business and over relatively short period of time we became the global leader in that space.

With the acquisition of St. Jude, Abbott will now compete in nearly every area of the $30 billion cardiovascular device market and hold number one or number two positions across several large and high-growth markets including Coronary Stents, Cardiac Rhythm Management, Atrial Fibrillation and heart failure.

This best-in-class portfolio has a depth, breadth, scale and innovation to help patients restore their health, improve outcomes and deliver greater value to customers and to payers. The acquisition of St. Jude also brings us into a very attractive new field neuromodulation. This fast-growing device market is an important therapeutic area for us that addresses pain and movement disorders such as Parkinson's disease. Abbott has a strong track record of delivering value to shareholders through its acquisitions. Our integration approach will bring forward the best of both companies with a focus on creating best-in-class commercial, manufacturing, regulatory, clinical and reimbursement organizations.

We'll also have significant focus on realizing revenue and operational synergies from the combination with anticipated annual pretax synergies of $500 million by 2020. These synergies include revenue expansion opportunities for both Abbott and St. Jude products, optimization of supply chain and distribution infrastructure and certain SG&A efficiencies.

Rounding out our medical devices business is diabetes care, where Abbott has a long-established presence. Growth in this business is being led largely by FreeStyle Libre our innovative sensor-based glucose monitoring system that eliminates routine fingersticks.

Libre was designed with patients in mind and offers a true breakthrough in routine glucose monitoring using a small sensor worn on the back of the upper arm to automatically measure and continuously store glucose readings. The system offers convenience, ease-of-use and affordability and is truly a highly differentiated solution for the large and growing global diabetic population. Initially launched in Europe, the consumer response to Libre has been very impressive with over 200,000 users in the first two years on the market.

Abbott submitted for FDA approval of the consumer version of FreeStyle Libre during the third quarter of 2016 and we look forward to bringing this important product to the U.S. market in the future.

Before I wrap up, let me take a moment to touch on an important area of focus across all of our businesses and that's our focus on innovation to create new and better products. Our innovation pipeline ranges from transformational medical technologies to opportunities that are more evolutionary in nature, such as new formulations, better packaging and other brand enhancements and has never been stronger than it is today.

In nutrition and in our branded generics business, where renovation cycles are more rapid and incremental, we're focused on enhancing our product portfolios with a steady rhythm of innovated and differentiated new product launches. Recent examples in nutrition include a portfolio of infant and toddler non-GMO products, as well as the first infant formulas in the U.S. with HMOs which are unique immune nursing prebiotic.

In Established Pharmaceuticals, we take a country or region specific approach emphasizing the continuous addition of locally relevant products through internal development, cross registration of brands across geographies, as well as local and regional acquisitions and in licensing to enhance our product portfolios. Currently, we have more than 400 new products in line extension opportunities in development through this approach.

Additionally in the fourth quarter of last year, we announced our new Established Pharmaceuticals innovation and development center in India. This center will develop new drug formulations indications, dosing, packaging and other differentiated offerings and will act as a hub shipping products to over 30 countries that will further develop the products to suit their local needs.

In diagnostics as I mentioned earlier, we're beginning the roll out of our Alinity family of diagnostic systems. This is an extremely ambitious undertaking and one that will strengthen our competitive position tremendously for the years to come. In medical devices, in addition to our revolutionary Freestyle Libre system for diabetes, we're driving important new product innovations in a number of other areas.

In our structural heart business, MitraClip as an example of how Abbott is pushing the transcatheter valve market forward with the first of its kind technology for the minimally invasive repair of mitral regurgitation, the most common heart valve condition in the world.

In addition to MitraClip, Abbott has multiple ongoing development programs for minimally invasive mitral valve replacement. The combination of Abbott and St. Jude further strengthens our leadership in this area by enhancing our tissue valve R&D expertise and broadening our commercial presence with cardiac surgeons that perform these procedures.

St. Jude enhances our new product pipeline in other areas as well. They've been a highly successful innovator and significantly strengthen us scientifically and technologically. For example in atrial fibrillation, where Abbott becomes the number two player globally with the broadest portfolio of products including the new EnSite Precision Mapping System which received FDA approval just a few weeks ago.

In heart failure, where Abbott now becomes the clear global leader in the rapidly growing area of the left ventricle assist devices with heart rate along with other important new heart failure products with great potential to positively impact is costly and medically challenging condition.

So in summary, Abbott is a unique large-cap diversified healthcare investment opportunity. As we look to the future, we see tremendous opportunity ahead. We hold leadership positions across all of our businesses and we're entering a period where innovation and new product launches will fortify our leadership. All of our businesses compete in large markets that are aligned with favorable healthcare and demographic trends in both developed and emerging markets and our portfolio is broad and well-balanced across businesses, geographies and our mix of payers.

Going forward with this set of growth drivers in place, Abbott is well-positioned to deliver top-tier growth with strong cash flow generation and increasing returns to shareholders. We feel very good about where we're at today and certainly about the future. Thank you.

Question-and-Answer Session

Q -

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