Abbott Laboratories (ABT) Q4 2019 Earnings Report, Transcript and Summary

Good morning, and thank you for standing by. Welcome to Abbott's Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] This call is being recorded by Abbott. With the exception of any participants' questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's express written permission. I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations, Licensing and Acquisitions.

Good morning, and thank you for joining us. With me today are Miles White, Chairman of the Board and Chief Executive Officer; Robert Ford, President and Chief Operating Officer; and Brian Yoor, Executive Vice President, Finance and Chief Financial Officer. Miles will provide opening remarks. Brian will discuss our performance and outlook in more detail. Following their comments, we'll take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2020. 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, 2018. 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 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 organic sales growth, which is defined in our earnings news release issued earlier today. With that, I will now turn the call over to Miles.

Okay. Thanks, Scott. Good morning. 2019 was another highly successful year for Abbott. Our focused execution resulted in strong financial performance, including ongoing earnings per share of $3.24, reflecting 12.5% growth on an absolute basis and even higher growth when excluding the impact of currency. All 4 of our businesses performed well, contributing to full year organic sales growth of more than 7.5%, which is above the guidance range we set at the beginning of last year. The successful year was capped off by a strong fourth quarter with organic sales growth of 8.5%, including double-digit sales growth in Medical Devices, Established Pharmaceuticals and Core Laboratory Diagnostics, along with ongoing EPS growth of more than 17%. Our consistent strong performance demonstrates that our business model is working exactly as intended. We've built the company very deliberately through a multiyear process to deliver superior results for years to come. We've shaped our businesses to align with important trends to make sure we're in the right places with the right products. And we've targeted businesses that are focused on some of the world's greatest health care concerns. For example, diabetes and cardiovascular disease are 2 of the most significant health care challenges of our lifetime. They are chronic, long-lasting and dramatically increasing in prevalence around the world. Nearly every health care decision begins with a diagnostic test. And this testing not only occurs in the traditional hospital setting but also increasingly at alternate sites such as physicians' offices, pharmacies and even at home. Proper nutrition is a foundational element of good health across every stage of life, whether you're a newborn baby, a child striving to grow or an aging adult working to overcome a health condition. And access to health care continues to expand rapidly in emerging markets where 85% of the world's population resides. We've shaped our company to achieve scale and leadership positions in all of these areas. The investments we've made and our focus on execution are working. Our product pipelines are strong. Our operating culture is strong, and we're well positioned to achieve sustainable strong growth for years to come. For 2020, we're forecasting another year of top-tier financial performance. As we announced this morning, we forecast organic sales growth of 7% to 8% and adjusted earnings per share of $3.55 to $3.65, reflecting double-digit growth. I'll now provide a brief overview of our 2019 results and 2020 outlook for each business. And I'll start with Diagnostics where sales grew 6.5% in the fourth quarter, led by double-digit growth in Core Laboratory Testing. The rollout of Alinity continues to go well in Europe where we're winning new business at a high rate and successfully renewing existing contracts that come up for bid. We continue to expand our rollout of Alinity systems across multiple key markets, including the U.S. where last year we obtained FDA approval of Alinity for blood and plasma screening and have made significant progress obtaining regulatory approvals for a critical mass of our immunoassay and clinical chemistry test menu. I'll turn now to Nutrition where sales increased 6% in the quarter, led by strong growth across several countries and segments of our business, including Southeast Asia and Latin America, across both Pediatric and Adult Nutrition as well as above-market growth in the U.S. In Pediatric Nutrition, growth was driven by PediaSure, our nutrition solution to help kids grow and thrive; and Pedialyte, our oral rehydration product, which continues to see unprecedented uptake with both children and adults. In Adult Nutrition, global growth of 10% in the fourth quarter was led by Ensure, our leading complete and balanced nutrition brand; and Glucerna, our leading brand for people with diabetes. Moving now to Medical Devices where sales increased nearly 11.5% in the fourth quarter led by double-digit growth in Structural Heart, Diabetes Care, Electrophysiology and Heart Failure. In Structural Heart, sales increased 17% in the fourth quarter. Over the last couple of years, our portfolio and long-term growth opportunities in this area have strengthened considerably. We've been building our position organically in this area for quite some time when in 2017, the combination with St. Jude created what I'd now consider a best-in-class Structural Heart portfolio. MitraClip, our market-leading device for the minimally invasive treatment of mitral regurgitation or leaky heart valve, is the cornerstone of our portfolio with annual sales this past year of nearly $700 million, growing 30%. Last year, we obtained an important new indication in the U.S. that significantly expands the number of people that can be treated with MitraClip. And just last week, we announced that we're initiating a clinical trial that offers the potential to expand the treatable patient population even further. Beyond MitraClip, several exciting technologies are expected to emerge from our Structural Heart pipeline in 2020, including CE Mark approvals for TriClip, a first-of-its-kind technology to repair leaky tricuspid heart valves; and for Tendyne, which targets replacement of the mitral valve as well as U.S. approval of Portico for transcatheter aortic valve replacement. Turning now to Diabetes Care where sales increased nearly 35% in the quarter led by FreeStyle Libre, our revolutionary continuous glucose monitoring system. 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 U.S. Reimbursement coverage has ramped up quickly around the world as payers increasingly recognize its highly differentiated value proposition. And 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. Now I'll wrap up with Established Pharmaceuticals or EPD where sales increased 10% in the quarter, led by growth across several geographies in Latin America and Asia. For the full year, sales increased 7% for the second year in a row as this business continues to execute its unique branded generic strategy in emerging markets. These markets are growing rapidly, their populations are aging, their middle classes are expanding, and health care spending is increasing due to improving access to health care. Our strategy to build significant presence and scale in these markets is unique and continues to result in strong growth. So in summary, this was another highly successful year with strong performance across our businesses. We continue to strengthen our leadership positions in some of the largest and fastest-growing areas in health care, and we're entering 2020 with great momentum across our businesses and targeting another year of strong organic sales growth and double-digit EPS growth. I'll now turn the call over to Brian to discuss our 2019 results and 2020 outlook in more detail. Brian?

Thanks, Miles. As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis, which is consistent with our previous guidance. Turning to our results. Sales for the fourth quarter increased 8.5%. Exchange had an unfavorable year-over-year impact of 1.4% on fourth quarter sales. Regarding other aspects of the P&L, the adjusted gross margin ratio was 59.4% of sales, adjusted R&D investment was 6.7% of sales, and adjusted SG&A expense was 28.3% of sales. The fourth quarter adjusted tax rate was 12.8%, lower than our previous full year guidance of around 14.5% due to continued implementation of and adaptation to the U.S. tax reform regulations. Our fourth quarter tax rate reflects the aggregate adjustment to achieve our full year revised effective tax rate of 14%. Turning to our outlook for the full year 2020. Today, we issued guidance for adjusted earnings per share of $3.55 to $3.65. For the full year, we forecast organic sales growth of 7% to 8%. And based on current rates, we would expect exchange to have a negative impact of around 0.5% on our full year reported sales. We forecast an adjusted gross margin ratio of around 59% of sales for the full year, which reflects underlying gross margin improvement across our businesses, offset by the impacts of investments to support the rapid market adoption of our Alinity diagnostic systems, investments in Libre and MitraClip manufacturing capacity expansions and the impact of currency mix. We forecast adjusted R&D investment of approximately 7% of sales and adjusted SG&A expense of around 29.5% of sales. We forecast net interest expense of around $515 million and nonoperating income of around $200 million. Lastly, we forecast an adjusted tax rate of 13.5% to 14% for the full year 2020. Turning to our outlook for the first quarter. We forecast adjusted EPS of $0.69 to $0.71, which reflects double-digit growth. We forecast organic sales growth of around 7% and, at current rates, would expect exchange to have a negative impact of a little more than 1% on our first quarter reported sales. We forecast an adjusted gross margin ratio of somewhat above 58.5% of sales, adjusted R&D investment of somewhat above 7% of sales and adjusted SG&A expense of around 32% of sales. Lastly, we forecast net interest expense of around $130 million in the first quarter. Before we open the call for questions, I'll now provide a quick overview of our first quarter and full year organic sales growth outlook by business. For Established Pharmaceuticals, we forecast mid- to high single-digit growth for both the first quarter and the full year. In Nutrition, we forecast growth of around 4% for the full year and growth of 3% to 4% for the first quarter. In Diagnostics, we forecast mid- to high single-digit growth for both the first quarter and full year. And in Medical Devices, we forecast double-digit growth, similar to last year, for both the first quarter and full year. With that, we will now open the call for questions.

[Operator Instructions] And our first question comes from Bob Hopkins from Bank of America.

Oh, great. So I guess first, Miles, congratulations on such an incredible run of 20-plus years of value creation. Obviously, an incredibly impressive track record. And in light of that, now the first question, I'd love to ask both you and Robert to comment on a topic that I know is on the minds of most investors from a big-picture perspective. And that is the durability of the incredible 7% revenue growth outlook that you guys have expressed for 2020 and beyond. And the main reason I want to ask that question is that when you take a step back, there is no other company in med tech modeling anything close to that kind of growth off of that large of a base especially for multiple years. So Miles, for you, I guess just if you wouldn't mind providing some big-picture thoughts on that durability topic. And then for Robert, maybe getting a little bit more specific on the product areas that give you the confidence long term and whether or not M&A or divestitures could play a slightly bigger role going forward to help you maintain that level of growth.

Bob, this is Miles. The temptation to sort of say something that sticks my successor with just unbelievable goals for the future, et cetera, is overwhelming, so I'm going to speak first. Seriously, we have been building what we've got here for an extended period of time. It didn't just happen. It's not based on a single driving product or driving business. It's actually quite broad-based across all of our businesses. And while a lot of people have commented to me or us that, "Gee, you've got the law of big numbers and hard for a big company to grow, et cetera," we don't actually feel like that big a company. And we don't necessarily feel, even though we've got leading positions in so many of our businesses, we don't actually feel like the law of big numbers is working against us. We feel like the opportunity for growth, if you've got an innovative pipeline and you're in markets where there's a natural tailwind of growth demographically or from an innovation standpoint and so on, I don't really think that this whole notion of, gee, our size or big numbers applies. If we were a tech company, you wouldn't be asking us that because we'd be too small. So I think if we look at the size of the opportunities, where we've placed the company and its businesses and the portfolio of products and geographies and so forth, I think there's enormous market opportunity that's untapped. And I think there's enormous penetration to be tapped. And I think there's some obvious examples out there. And fortunately, in all of our businesses, I think every one of them is innovating and creating new products and innovating to replace older products in a way that's really never been true before. And it's across the board. And so as we look forward at that and model it, we think our growth rates are sustainable. How far out are they sustainable? I don't know, but years anyway. And are we going to have speed bumps? We're going to have speed bumps of our own making. We're going to have speed bumps from trade. We're going to have speed bumps from exchange. We're going to have speed bumps in any number of ways as all companies have and do. And yet we -- and we have them now, and we're still growing at a very healthy, strong rate. And I credit the innovation pipeline, some smart acquisitions at the right time with the right businesses, the right strategies, the right fits. I credit the execution of our organization and the culture of execution that is here. I have super confidence in my successor, no qualms. The minute you retire, everybody thinks you ought to diversify your holdings because you're too concentrated in one thing. I only wish I had more. And I'll remind him every day that I'm a shareholder, but -- which he knows. But I have nothing but confidence in the pipeline, the management, the products, the strategies and the new leader who's going to take over from me. I have tremendous confidence in Robert, and he's got all the abilities, all the skills, et cetera. So 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.

Yes. Bob, this is Robert here. As you're aware, under Miles' leadership the last 20-plus years, Abbott's been reshaped several times. I was close to him and to the Board when we went with this last reshaping of the company to really position and align our businesses to kind of high-growth markets, geographies, et cetera. And as Miles said, it wasn't just the acquisition piece of it, which was important, but it was also how we looked at our internal R&D, our internal innovation and how we thought about it. So obviously, with the transition here as CEO, there's the 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. And in 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 #1 priority to do that is to really execute, as Miles said, on these organic growth opportunities we have. And we have multiple growth drivers, as you know, Bob, that, in my opinion, they're in their very early stages. Whether it's Libre, the Alinity rollouts, 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 is a very unique strategy. So I look at all of that, and your 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. So 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. It's not just a kind of one and done. We've got multiple kind of rollouts here. Our -- 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.

Great. That's super helpful. Just one super short follow-up on diabetes. Robert, if you wouldn't mind, just give us a quick update on Libre 2 time lines and your 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?

Sure. So on Libre 2, specifically last October, I mentioned that we were working through a handful of issues. Quite frankly, we encountered 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 in its iCGM label. So regarding the guidance on Libre 2, what I can tell you is that we've got a lot of growth. We -- 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 U.S. 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 -- Miles talked about challenging some of the paradigms. It 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. So 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 kind of medical benefit DME products. Our growth is very kind of consistent and sequential. The U.S. has done very well in the year. Obviously, we want to do better, but we exited the year with well over 0.5 million patients in the U.S. We set up some goals for 2019 as it relates to distribution, payer coverage in the U.S., formulary positions. And we exited 2019 exactly where we wanted to be with all of those goals all favorable to Libre. So our focus in the U.S. 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 the U.S. is also there in our international markets, which is obviously a much larger base for us, and we saw great momentum in Q4. So our 2020 here is really focusing on international markets is 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 kind of 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. So 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. So 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 that 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.

And our next question comes from Robbie Marcus from JPMorgan.

I'll echo Bob's sentiment. Miles, sorry to see you go, but we're very happy to have someone so confident as Robert step in. Maybe if we could turn to Structural Heart. I was wondering if you could give an update on where we are with reimbursement and MitraClip. And then also, a bit more broadly, Miles, you talked about some of the new product launches we're going to see in 2020. Maybe you could just walk us through those and the expectations throughout the year.

So Robbie, I'll take that. On MitraClip, listen, we had a great quarter, had a great year. And as Miles said in his comments, about $700 million product growing at 30%. And the interesting thing here is that the penetration of the therapy is only at about 5%, right? So we see a long opportunity. I talked about MitraClip being a multiyear, multibillion-dollar opportunity here, and there's several elements to that. CMS reimbursement is an important building block. We expect that sometime in Q2. But I've always said that it was more than just the CMS reimbursement for the indication expansion we got. We know that we need to be able to penetrate the therapy. We need to open new centers, make it more available to do that. We need to hire more reps, invest in field clinical teams to be able to get that penetration. And we've also invested in a lot of clinical evidence and building clinical evidence here. We just recently announced our study to investigate MitraClip in moderate-risk surgical patients. So again, we've been investing to build this market. And obviously, MitraClip gets a lot of attention in the Structural Heart portfolio. But if I take a step back here, I think it's important that we look at -- we've always seen valvular heart disease as a big opportunity for Abbott, whether it's the demographics, whether it's the medical need. And we saw this unique opportunity with the St. Jude acquisition to put together our MitraClip capabilities with the portfolio of St. Jude and really create a stand-alone business unit that was best-in-class for Structural Heart, and we did that. And it's been about 2 years that we've done that. And I think we're seeing really the impact of the effect of a dedicated team, R&D, clinical. And we've got a nice cadence of products coming out this year as a result of that work. We've got 2 new CE approvals that we expect this year. Miles mentioned them. TriClip, this is a modified version of our MitraClip to treat the leaky heart valve. We believe it's a big opportunity because therapy -- if mitral therapy is low, tricuspid leaky valve treatment or repair is even lower. So we know that -- we know how to build this. We did it with mitral, and we're going to go about doing it the same way, building the capabilities, the clinical evidence. Another big opportunity we have is with Tendyne. This will be the first minimally invasive mitral replacement valve. So if you think about our team right now, we've built a lot of competency on mitral repair. And now we're going to put in the hands of this team not only the opportunity to offer repair but also a replacement solution that's minimally invasive. And I think there's a great opportunity for us in that space, too. Both those products are enrolling here in the U.S., so we do plan to bring those to the U.S. On the aortic side, we've made investments on Portico. We knew that we needed to make some clinical and some R&D investments here to increase the competitiveness of the system. And we like the data. We think there's going to be a segment of the population, segment of the market that we will be able to compete effectively. It's under FDA review, and we expect approval shortly. And then finally, on our structural interventions, this is a part of the portfolio that doesn't get a lot of attention here, but it's about 1/4 of our Structural Heart business. It's growing double digit. We've got great products there. We've seen a great ramp-up with our stroke prevention technology with PFO, our congenital business; and Amulet, which is right now under clinical evaluation in the U.S. for treatment of LAA. So I take a step back here, I said, yes, MitraClip is a big growth driver. We've got a lot of things going right there. We're making the right investments from a clinical, from a commercial perspective. But I look at the portfolio that's been built here, and I'm very excited. It's very complete. It's very differentiated, and there's a nice cadence, Robbie, to the launches.

Great. Appreciate that. And maybe just a quick follow-up. Alinity still hasn't really started to launch in the U.S., yet you put up 13% growth in core lab in the fourth quarter. How should we be thinking about the impact in 2020 from Alinity both in the U.S. and outside the U.S.?

Yes. I think that we're going to continue to see this kind of rollout of the Alinity platform. The challenge we had a little bit in the U.S., and Miles talked about the progress we made, is that when we launched it in Europe, we had a more complete kind of assay menu. And that allowed us to more -- with more intentionality go after the market, the existing accounts, new accounts. And in the U.S., we've now achieved, let's say, a critical mass of assay menu, test panel, et cetera, that allows us to have that same kind of intentionality we had in Europe, have that same intentionality move into the U.S. Q4, we did have some capital sales, so that brings up the growth rate a little bit. But I think you're going to see the same kind of growth rate in the U.S., the same kind of ramp-up that we saw in Europe.

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

I don't want to sound like a broken record, but I'll reiterate, Miles, there's some fairly significant and unique value creation over these last 20 years, so congratulations again on behalf of shareholders. Robert and Miles, just starting off with a couple of businesses that has lagged in 2019 that are actually showing some improvement here in the back half of '19, which were neuromodulation and CRM, some pretty decent improvement specifically in the fourth quarter. Wondering, Robert, if you can just talk through what specific changes have been made in those 2 businesses and how you're thinking about the outlook or sustainability of those franchises into 2020. And then I had a quick follow-up.

Sure. So let's start a little bit with neuro then. I mean I think we had a tough year, full year in neuro. When we came into the year, we talked about some of the challenges we were up against, and there are really 2 we had. Obviously, the sales force expansion and some of the disruption that, that created, but we felt it was important to do to make that sales force expansion. And then some of the market declines that we saw. We've kind of seen double-digit growth in the beginning of the year, kind of saw that go to flat and even negative growth rates. So I think the sales force expansion piece, we kind of got past that in the middle of the year. It's a unique selling model. About 30% to 35% of our sales team in the U.S. was new. It was under a year, so we spent a lot of time getting them up to speed not only with their territories but how to go about the selling process, et cetera. And I think that's largely behind us. Now obviously, if you look at the sales reps, the ones that have 7 to 10 years of experience, they're much more productive than the ones that have got 12 months. But we're seeing a nice, steady ramp-up in terms of the productivity of those new sales reps. And the other thing we talked about was how innovation and new product launches could kind of fuel the market growth. And I think you saw that in Q4, not only with us but even with some of the other players in the market come out with new product launches, at least what I've seen now from some of the pre-announcements, having kind of an impact there. And so we came out with our product launch, Proclaim XR, early in Q4. And I think you saw the impact of that in Q4. I think it's a modest -- it was a modest improvement. We expect more. And a lot of our focus here in 2020 is going to be to ensure that this new sales team has got innovation to sell. So we're expanding our MRI portfolio. We know we need to do. We're launching a new radiofrequency ablation generator. This is an important part of our customers' practices, and we felt that we weren't as competitive with our offering there. So we've developed a new system that will be rolling out this year. And we also believe that programming and connectivity, connectivity to devices, consumer devices is an important aspect of patient adoption of the therapy. So we'll continue to work on how we integrate the implanted device into those more consumer products. And so we've got a nice cadence of rollouts there. And on the CRM side, we talked about this in the beginning of last year, we had -- we encountered some challenges. And we felt that one of the things that we needed to do for the CRM side was -- is to make sure it got more focus and more attention, not only from me obviously but from the management team. So we made an organizational structure change Q1 of last year, which got finalized in Q2, where we separated the CRM business from the EP business. And we didn't do it just from a field sales perspective. We did it really across all functions. So we have a dedicated CRM business unit with a dedicated leader, R&D, et cetera. And I think you've seen some of the output of that focus in the second half of the year. I would like to see a couple more quarters strung together. So that's what we're aspiring here to. But I think one of the biggest impacts of that focus, obviously the field has an impact, but I'm more excited about the focus on the R&D side. I think we had kind of slowed down our R&D innovation over here. And that focus, that dedicated business unit focus, I think you'll see the output of that not only in 2020, we have a couple of product launches in the U.S., a new ICD, and in Europe also, but we've got plans for a nice cadence of innovation in '21 and '22. So I'm excited about kind of what we've done there. Obviously, it's early innings in terms of this business unit to be creating, but I like what I see.

Okay. And just 2 quick follow-ups for me. Just, Robert, on MitraClip, is there a specific embedded assumption in the guidance for MitraClip? And how acutely do you think we see that recovery in the back half? And then your margin guidance, about 50 basis points is a little lower than 2019, consistent with our numbers. But if you could just highlight 2 or 3 of the examples of significant reinvestment for growth in 2020, that would be super helpful.

So I just -- on your question about MitraClip, recovering growth, and I think we've been pretty strong in our growth rate. The U.S. has done very well. And what we saw in the international market, if that's what you're referring to, we did see that kind of impact of the -- some of the studies that came out in Europe impact us in the first quarter. But every quarter sequential to that, we've seen improvement, and I think we've passed that on. Regarding the guidance, I mean we've got a lot of growth, as I said, with Libre. We've got a lot of growth here. We've contemplated, as I said, CMS approval. But I have been fairly consistent with this: CMS approval is going to be an important aspect here, but it's not just that, right? It's the -- we've been showing really strong growth in the U.S. even without the reimbursement. And that's a result of the investments that we've been making both from a field and clinical perspective. And I'm sorry, what was the other question?

It is on margin expansion. I'll start off by saying just margin improvement is an ongoing focus for us, David, 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 in the foreign currency mix. We have a little bit of a headwind next year. But we have a gross margin expansion plan underlying. 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 that's 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.

Our next question comes from Vijay Kumar from Evercore.

Congrats on a really nice print here. One, maybe on Nutrition, the adult side is coming really strong. I know China has been a bit of a bother with some regulatory changes a couple of years ago. Could you comment on what you're seeing in China? Is Adult Nutrition back? Has something changed in China for you guys?

Well, listen, we achieved a pretty strong growth rate in Q4. And that's despite some of the softness that we did see in China. We talked a little bit about it in Q3, Vijay. We've seen some improvement, but some of those dynamics are still there, whether it's the birth rate or some of the kind of competitive intensity. We have obviously developed a plan here as we were going into Q4 and going into 2020 here. A big part of that strategy to address some of those competitive dynamics there is innovation and product launches. And we've put a plan together here. We've got a nice steady steam -- stream of cadence of launches in China. But I do think that it does point out to the strength of our Nutrition business, that we're able to post this kind of growth rate despite still some continued softness in China. And I think that speaks to the strength of the business. Miles talked about we had some very strong growth in Southeast Asia and Latin America on both sides of the business, Pediatric and Adult. And I don't think that -- I think it shows this -- China is an important market for us for sure. It has our intentions -- our attention, but we're not overly reliant on it.

That's helpful, Robert. And one on Diagnostics. I know flu has been the topic du jour. I'm just curious on what it means for Diagnostics. On the core lab side, with Alinity, really strong trends. You spoke about continued share gains in Europe. I'm just curious where we are in -- on the U.S. side. Have you -- is the win rate on the U.S. side comparable to Europe? Or is that something that we should be expecting for the back half heading into 2021?

Yes. As I said in Europe, I think we've had kind of good success in Europe. We've talked about winning new businesses at that 50% rate, the renewals of our existing business or retailing nearly all of that business. And I think in the U.S. right now, it might be a little bit too early just because you don't -- we really didn't have the intentionality of the launch that we had in Europe. Now that we've got a more complete menu, I think our ability to compete and our competitive fitness, let's call it that way, in the U.S. increases to the same level that we've had in Europe.

And our next question comes from Larry Biegelsen from Wells Fargo.

Congrats on another really strong quarter, and Miles, I'll echo what the other -- the other comment and add that I'll miss interacting with you on these calls. Always insightful and fun. Just 2 quick questions. One, maybe for Robert, on capital allocation. 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? And I just had one quick follow-up.

Sure. 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 the last couple of years has been to pay down debt. We paid down close to $10 billion over the last 2 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 kind of 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, it's true to me, which is it needs to meet our threshold of it being strategic or -- 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 2 buckets. But we're always going to keep looking as we've always done.

Perfect. And then just one housekeeping. For Brian, and Brian, congratulations on your retirement, and I'll miss you as well. Just FX on EPS impact in 2020.

The impact of what?

EPS FX.

Oh, FX. It's around $0.05, Larry.

And our next question comes from Rick Wise from Stifel.

Maybe I'll start off with EPD. EPD, Robert, is always a little bit of a black box to us medical device analysts or I'll just say to me. I won't drag everybody else into it. Currently doing exceptionally well, strong fourth quarter, and you're saying mid- to high single digits for 2020. But maybe just give us a little update on some of the key drivers. What could get you to the upper end of your range? And maybe some of the challenges, just give us some perspective about what you're thinking about for 2020.

Sure. I've heard this comment a couple of times now about kind of EPD or pharma business kind of being a black box or not as transparent and as -- not as understanding. I mean I will say here the biggest focus of this business is taking opportunity of the geographic dynamics, right? You can either have a proprietary pharmaceutical business, a little bit more higher cost versus a pure generic business, which is obviously very, very cheap. Our branded generic business kind of sits between those 2 bookends. I come from an emerging market, so I can tell you that when we buy medications, it's not reimbursed. So you pay for it out of pocket. And you're willing to pay a little bit of a premium to ensure that what you're getting is high-quality product. And I think that that's what this business has been built on, is taking advantage of that dynamic of this population in these markets, growing with their disposable income and allocating some of that to their health care costs on brands that they trust. And that's what we've been building over these years. A key driver of this strategy here is you need to be -- you need to have the breadth and the depth in your therapy classes. So we have comprehensive portfolios in the geographies that we're competing. They're deep in each therapy class. You need to be omnichannel. You need to be present in the doctor's office. You need to be present in the pharmacy. You need to be able to kind of communicate directly with the consumer. And you need to be local. You need to have a local R&D engine, organization and manufacturing to be able to move fast with the opportunities that you see. And I think that's at the core of our strategy. One of the challenges in this business, as Miles has always said, is the FX piece of it. But the performance growth, we expect it to be in this kind of high single-digit growth. And a big driver of that is being in the right markets with the right infrastructure with the right products with the depth and the focus on execution.

Great. And turning to 2 other areas. Heart Failure business has done a great job. How sustainable is the robust growth we've seen? And maybe talk a little bit about the implications of the less invasive surgical approach for HeartMate 3, what that might mean. And just last, maybe touch a little bit on Alere. It's been a little bit of a disappointment. What are the next steps? Help us understand what's going on and where we go from here with Alere.

Sure. On Heart Failure, I mean we had a very successful 2019. We achieved the destination therapy indication for HeartMate 3 at the end of '18, so that rolled into '19. So you saw the growth rate of about 20% here, Rick. That growth is predominantly driven by share gains and specifically here in the U.S. So we exited 2019, our estimation right now is, through our internal data, north of 80%. So as we go into 2020, we expect that to not be at that 20% rate now and to mirror more of what the market is growing, which is we expect to be in that mid-single-digit range. But I do believe that we've got a lot of opportunity. I talked about cadence of innovation in our products, and one product that's come pretty quiet, but we've done a really good job there is CardioMEMS. CardioMEMS is now close to $100 million. It's growing 30%. We continue to enroll in our GUIDE-HF trial that's going to be used to open an NCD. But the outcomes there are also extremely meaningful in terms of hospitalization reductions, et cetera. So I think that'll be kind of our next driver of growth in Heart Failure, and I'm very pleased with what the team has been able to build in that business. Going to your question on Alere, it's been a little bit of a -- we'll call it like a mixed bag here. We've had some businesses that we brought into Abbott, and I think we've done very well with them. We've accelerated their performance. If I look at the infectious disease portfolio in our developed markets, that's done very well. Yes, of course, there's some opportunity there with the flu season. But I think the team has done a really good job here expanding the portfolio and looking at those -- that installed base beyond just a flu test. And our cardiometabolics business has done very well too, growing in the high single digits, low double digits. So I think those 2 businesses, we've done a really good job with. And I think the team has done a good job on the cost side with the synergies, too. But you have pointed out that there are some parts in the business here where we're not pleased with, we're not satisfied. Our emerging markets infectious disease segment had a tough 2019. Part of that is kind of NGO purchasing cycles and dynamics in certain markets. But we've got to do better than that. And we've implemented a strategy here to really look at other emerging markets outside of the African continent here and build the value proposition of those tests in other emerging markets. In our toxicology business too, I don't think we've been able to kind of fully maximize the value there. And that one there has got a lot of attention, too. So we had a good Q4, a lot of focus here, a lot of good growth in the U.S. I think part of that was a little bit of the flu. But if we can get these 2 business here, our emerging markets and our toxicology business, to execute on the plans that we've put in place for them, I think you'll see that as kind of a mid-growth -- mid-single-digit kind of growth business for us. But I look at the trend and the dynamics of these products, the opportunities we have, the strategy to get into these businesses is still very much intact also. Miles talked about more and more testing move into alternative channels. We continue to see that. And we're targeting steady improvement here. But I think the long-term growth opportunity because of that trend is very positive.

Congratulations.

And our final question comes from Kristen Stewart from Barclays.

Congratulations, Miles, on your retirement, and Brian, I hope your next chapter is a positive one as well. Just I guess a couple of cleanup questions. In terms of the, I guess, PHP product, I was just wondering if you can maybe update us on just the time lines there for expected launch. And then also for Amulet as well, just kind of expectations for launch, just to get some time lines. And then also, I think you, Robert, had also mentioned just some products within the CRM business launching there. Could you just maybe update us on expectations for that franchise? I think you mentioned a new ICD platform and some other milestones you expect within the CRM portfolio.

So sure. On PHP and Amulet, I mean those are still, let's say, a couple of years away. So we're still in kind of clinical evaluation of that. We'll then kind of put the information together, submit to the FDA. So I'd say your kind of normal time lines over there. So you can look at it about a couple of years away. On the CRM side, like I said, I think the biggest opportunity we had when we changed the structure was to kind of get the innovation going. So we've got 2 product launches. We've got a new version of -- a new update to our implantable cardiac monitor planned for this year. We've got a new ICD planned again for both U.S. and Europe. And our growth expectations here are to be -- to do better than what we've been doing, steady sequential improvement. We've had some challenges. And I think that these products here will allow us to continue that sequential improvement here. So I'll...

And then I'm sorry, go ahead.

Go ahead.

I was just going to say, and do you see any opportunities -- I think Bob had mentioned this, but any opportunities just in terms of divestitures within Medical Devices or elsewhere within the portfolio or some smaller tuck-in? I know you said -- didn't sound like you were going to do any larger-scale M&A, but just more product lines to bring into the portfolio from a more of a tuck-in acquisition from technology, earlier stage.

Yes. Listen, if I take that and just talk about our model, we have a diversified model. I fundamentally believe in our diversified model. I think you've seen sequential improvement in all 4 areas over the last couple of years from a big-picture perspective. Now when you go into each one of them, can you find some areas that we can do better and we should do better? Yes, we can, and we've talked about some of those today. But that doesn't mean that we don't think there are great opportunities. That just means that we need to focus on doing better and executing better on that. So as I look at these 4 businesses, I like the businesses we have.

Okay. This is Miles again. I'll wrap up and close for us. So first of all, thank you all very much for your very kind comments. And on behalf of both Brian and I, well, I'll speak and tell you that it's been a great honor and a great pleasure for us to lead our company. It's been a tremendous experience. I feel like I've had 2 or 3 careers here in the last 21 years and probably have. Brian was estimating this morning, this was our 85th or 86th earnings call. And therefore, I can't tell you that I know yet whether I'm going to miss them, but I sure have a lot of them. And they're always challenging. They're always interesting opportunities to converse with you about the prospects of the company and so forth. I feel like I'll leave the company in perhaps its best position ever in terms of products and growth, future opportunities, et cetera. As I said at the beginning, I'm very pleased with the succession and the management team that's here. It's not just the CEO that's changing. The CFO is changing, and Bob Funck, who's a longtime Abbott employee and he's been our controller for a number of years and been in some of the most challenging jobs at Abbott and so forth, will be an absolutely superb successor to Brian. You know that a lot of our management team has changed over the last couple of years as we move to a next generation of leaders and managers in the company. And I think it's a great mix of people that are homegrown and also have come to us either through St. Jude or other outside places. And we're just really happy with the team we've got, the pipelines we've got, the positions we've got. We think our success is sustainable. And I think the track record that we've laid down over the last years has been recognized that way, and we're appreciative of the recognition that all of you have given it. As I commented tongue-in-cheek, as a significant shareholder of the company, I'll obviously be watching closely and especially in the immediate future as the Chairman. So with that, we'll close the call. Thank you all very much, and thanks for all your support.

Very good. Thank you, operator, and thank you for all of your questions. This now concludes Abbott's conference call. A webcast replay of this call will be available after 11:00 a.m. Central Time today on Abbott's Investor Relations website at abbottinvestor.com. Thank you for joining us today.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.