Good morning and thank you for standing by. Welcome to Abbott's First Quarter 2020 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 Robert Ford, President and Chief Executive Officer; and Bob Funck, Executive Vice President, Finance and Chief Financial Officer. Robert and Bob will provide opening remarks. 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, including the impact of the COVID-19 pandemic on Abbott's operations, results and financial results. This 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, 2019. 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 information 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 Robert.

Thanks, Scott. Good morning, everyone, and thank you for joining us. As everyone here knows, we haven't seen a quarter or any time quite like this before. This global environment is unprecedented in our lifetimes. Before we get into the details of the quarter, I want to take a moment to thank our employees, our customers and our suppliers, all of whom are making extraordinary efforts to keep systems working and to maintain supply of our critically important products for the people who need them. This moment has strongly underscored 2 fundamental things to me. The first is the biggest and most important, and that's the essential nature of health and health care. Times like these make very clear what truly matters the most. The second, to bring it closer to home, has to do with the nature of Abbott. We've been in the business of improving people's health through medical innovation for more than 130 years, and it's in moments like these that the importance of our mission becomes even more critical: delivering for the people that depend on us. I've been extremely impressed, though, not at all surprised, by the way my colleagues around the world have stepped up to this moment. As you know, we've quickly developed and launched 3 diagnostic tests for COVID-19: 2 for the laboratory setting and 1 for rapid point-of-care testing. At the same time, our teams in every business and around the world have been making extraordinary efforts to keep our operations running and our supply chains moving and to undertake the thousands of processes to make our vital products and get them to the people who need them. And we're also donating both funding and products to support frontline health care workers, families and communities to meet the challenges of this…

Thanks, Robert. 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 first quarter increased 4.3%. Our adjusted gross margin ratio was 58% of sales. R&D investment was 7.3% of sales, and adjusted SG&A expense was 32.2% of sales. Exchange had an unfavorable year-over-year impact of 1.8% on first quarter sales. During the quarter, we saw the U.S. dollar strengthen versus most currencies, which resulted in a larger unfavorable impact on sales compared to expectations had exchange rates held steady since the time of our earnings call in January. Based on current rates, we would now expect exchange to have a negative impact of a little more than 3% on our full year sales. As we announced this morning in our earnings news release, given the uncertainties regarding the duration and impact of the COVID-19 pandemic, we're suspending our previously issued annual guidance for sales and earnings per share. We're actively monitoring the situation closely, and we'll provide updates as appropriate. Before we open the call for questions, I'd like to briefly discuss Abbott's overall financial condition. As this situation has reminded all of us, unforeseen events can rapidly change the environment we operate in. And our philosophy of maintaining strong financial flexibility is in place for just these types of moments. Overall, I'd say our financial health is strong. We ended the first quarter with approximately $3.7 billion of cash and short-term investments, and we have existing agreements in place that will provide additional access to $5 billion, if needed. As you know, over the last couple of years, we have put a heavy emphasis on strong cash flow generation and rapid debt paydown following a period of strategic shaping. This focused effort has positioned us with healthy leverage ratios and only a modest amount of debt coming due over the next few years. It has also resulted in strong investment-grade credit ratings. That said, we are prudently planning to ensure we can withstand a variety of potential scenarios that may emerge over the coming months. As Robert mentioned earlier, our diversified business model is a true strength in times like these. I would also add that our disciplined and thoughtful approach to financial decisions and capital allocation priorities are also strengths and that Abbott is well positioned to navigate this challenge. With that, we'll now open the call for questions.

[Operator Instructions] And our first question comes from Robbie Marcus with JPMorgan.

And congrats on a good quarter, all things considered. Maybe I can start with the 2 positives in the portfolio here. I'll ask them separately. First, on diagnostics. Abbott's leading the way. You have 3 different tests: the ID NOW molecular tests, the m2000 SARS-COVID-19 test and then the antibody test, which was just announced. I know a lot of people are interested in the potential of all 3 of these tests here. So I was wondering if you could give us an overview of where you are with the testing, the potential revenue implications and volumes that you'll have. And any other tests that we should be on the lookout for on the horizon here?

Sure, Robbie. So yes, it was definitely an intense first quarter here for our Diagnostic business, even though it doesn't look like that in the sales number, right? We've got a core lab business that had some declines and it -- given the similar dynamics that we saw in our cardiovascular procedures as the hospitalization and procedures kind of came down. And then on the other side of the business, we have our rapid and molecular business where we did see positive growth in the quarter. And we actually didn't have a lot of COVID test sales for those businesses in the quarter. As you know, we got our approvals towards the end of the quarter, last week or so in March. So the potential here for the COVID tests are more significant for us in the second quarter here. But our biggest motivation on the testing aspect here, the key driver here is we want to help people. We want to help people get tested. We want to help society move forward. We want to help workers get back to work, people get back to schools, et cetera. So when you look at the diagnostic platform, the suite of platforms and products that we have built over the last 20 years here, they've really been aimed at being able to do just that. So in mid-February, when we saw that the virus was not going to mimic what we had seen in maybe previous viruses, like a SARS or a MERS, for example, and we saw that this was going to be something much more significant, much more widespread, we assembled 4 different and independent R&D teams to go about it in individual groups. I mean there was obviously some collaboration between them, but we wanted them stand-alone going…

Appreciate the response. Very helpful. And maybe just one other bright spot in the portfolio is Libre. This is a nonprocedure-based recurring revenue product. You had great international numbers. The U.S. number looked a little lighter this quarter, kind of flat quarter-over-quarter. Maybe just help us understand the trends in that business and how sustainable that is as people are away from their endocrinologists?

Sure. As I said, if you look at our script data, if you want to look at the U.S. data, we had a very good quarter as it relates to kind of script. And beginning of the year, I talked about how we were deploying a lot of demand-generation strategies here, whether it was sales force expansions, direct-to-consumer advertising, et cetera. And you can see that those that follow the weekly Rx data, you can see that inflection point starting in the first couple of weeks of January here versus where we exited. So our scripts between Q1 of 2020 and Q4 of '19, the scripts actually grew 35% sequentially, obviously, over 100% if you look at it over year-over-year. So the sequential growth rate there that maybe you're referring to is really focused here on just kind of timing of sales and sales shipments in the quarter. I expect to see that shipment, selling mimic what we've been seeing in our Rx generation in the U.S. that you saw in the first quarter. And I think that speaks a lot to the value proposition of FreeStyle Libre. It is not only is it accessible, affordable, but it's easy to use, it's easy to start patients on the product. So I think that we've seen that play out here even within the situation that we saw with COVID in the U.S. And you're right in international business has done very, very well, growing at very high rates, and that's off a very, very large base. So I'm very pleased with the international business. I think there's more work to be done there for sure. We're starting to roll out the Libre 2 product in Europe and in the international markets a little bit more intentionally with that expansion. I think we showed some of our accuracy data on Libre 2 in the European conference beginning of this month, and I think that's going to help fuel a lot of our growth also in the international markets, too.

Our next question comes from David Lewis from Morgan Stanley.

Robert, just a couple of quick questions for me. I guess the first thing, just sort of thinking about recovery. You gave some comments on China. But I wonder where is China right now as a kind of a percent of prior normal. In the U.S., have you seen week over week, the business get softer. Has the U.S. sort of reached some stabilization at a trough? And then just more broadly, how are you thinking about sort of recovery kind of across the quarters this year? Any qualitative commentary would be helpful. And then I have a quick follow-up.

Sure. So just on your question on China, I mean, it's an important market for us, but we're not overly reliant on China. But let me put the -- let me put your general demand question here, I think, a little bit into context, and I'll kind of walk through what we saw in the quarter geographically and across the businesses and then talk a little bit about how we see the rest of the year going. But if you look at our business and break them out into 2 groups, I would say, more hospital-based demand generation businesses and then the second part, more consumer-based demand businesses, they're about 50-50 -- roughly 50-50 in size. And we don't tend to look at our businesses that way, David. But I think as we looked at coronavirus and started to look at our models, we started to look at this approach here by looking at hospital and consumer base. On the consumer-based side businesses, so you look at our EPD business, our Nutrition business, our Diabetes Care business, all of them performed in the quarter very, very well. They all performed in line with our trends, with our targets, with our aspirations, with the execution of our growth strategies. Obviously, the exception to that was some parts of our Nutrition business, where we did see pantry loading as a result of some of -- towards the end of March there, where we saw a lot of consumers try to stock up and get ready. But excluding that, all of them kind of performed well and on target. And obviously, there was increased demand for some of these products, and our supply chain was resilient, was able to fulfill them. So I see those businesses kind of going forward, performing at the…

Okay. That's actually very specific, probably more than I hoped for. And then in terms of the second question, just you've probably been less active on growth-oriented M&A these last couple of years than some of your peers, but you're going to emerge from this pandemic crisis with probably the strongest balance sheet in large-cap device. So how are we thinking about your interest in -- buybacks, I imagine, are less of your focus, but your interest in opportunistic M&A here coming out of this crisis?

Sure. Listen, I'd say right now, we've done a lot of work on our balance sheet over the last couple of years. We've talked a lot about the work we've done to improve our leverage ratios, the work that the organization has done to improve our cash conversion cycle. So yes, our financial strength here is very strong. As Bob talked about, we've got a strong cash position here towards the end of the quarter, close to $4 billion. We have access to credit facilities. And we've got businesses that are strong cash flow generators, and that's going to be important as we go forward. We don't have a lot of debt maturing or coming due here in the next couple of years. So I don't foresee our capital allocation strategy here to kind of really change at this point. Where -- we have a strong dividend, we pay a strong dividend, and we're going to continue to do that. That's an important part of our identity. We haven't done a lot of share repurchases historically. Most of the time when we do that, it's really just to try and offset some of the dilution. I think Bob and the finance team, I would say, is definitely looking at our CapEx and our CapEx spending. I don't -- we'll probably see some slowdown a little bit in that. And the team -- I know Bob is kind of working on that. We'll see how that's going to look like but that will just be a factor of getting the work done. And right now, there are some of our projects that require people to be building sites, et cetera. So we'll continue to focus on that. We'll continue to build our capacity expansions that we've talked about in the past. But we'll probably see some phasing a little bit over there. And on your question on M&A, I mean, I'm not really looking at anything. As we talked about it, there's an opportunistic side to it and then there's a strategic side to it. And on the strategic side, I just don't see anything right now that fits what we want to do and where we want to go. And quite frankly, our execution here -- again, going back and maybe this sounds a little bit broken record here, but we've just got so many opportunities in our existing portfolio to keep on focusing on, and now you layer on top of that the opportunity we have on our testing platforms. So our big focus here is on internal execution.

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

Just a couple of quick questions. First, I wanted to kind of circle back to testing, specifically regarding the 2 COVID-19 tests that are being run, on ID NOW and m2000. I just wanted to be super clear on where you are today in terms of shipping capacity. Is it that 5 million per month that you talked about? And also, can you give us a sense as we look forward, given the critical importance of these tests, kind of where you'll be, say, maybe midyear in terms of testing and shipping capacity?

Sure. On the testing side, I mean, we talked about achieving a manufacturing ramp up here as we come out of the gates with the ID NOW platform at about 1.5 million tests, and we're on target to do that definitely throughout the middle of this month here. And we're making improvements in the manufacturing process and adding more shifts, et cetera, to be able to expand that to get to 2 million tests by June. And that's what we've talked about. And right now, we're on plan, on target to be able to kind of deliver on that expansion. Obviously, we need more than 2 million of the ID NOW tests, so we're looking at how we can ramp up. As I explained in the beginning, on the first question, these manufacturing processes are highly precise, highly automated, so that we can get the performance and reliability of the product. So these involve making -- setting up manufacturing lines and you don't do those in a week or 2 weeks. So there's a lot of work going on there, but we know we need to -- we know that there's a need for more ID NOW tests. And on the m2000, we made the commitment here to ship 1 million tests in the month of March, which we did. We talked about shipping 4 million tests in the month of April, and we're on target to do that, to manufacture 4 million tests, and we're on target to do that. We've moved the team along to find ways that we can expand that, and the teams are working on that also. So I'd say right now, that 5 million tests mark on those 2 tests is where we're at. And as we make progress with our manufacturing ramp-ups, we will be clear about what the market can expect from.

Great. And then one follow-up on the same sort of topic. Congratulations on the new serology test that you just announced. I was wondering if you could talk a little bit about sensitivity and specificity data relating to that test. And whether you think the high levels that have been quoted are kind of sustainable when you think about general population testing?

Yes, to answer your question on the accuracy. Right now, the label we have is, if you do the test 14 days post symptoms, the sensitivity of the test is 100% and the specificity of that test is 99.5%, and that's over 1,000 samples. So I think we've got a very, very accurate, reliable test here to be able to work on. Obviously, if you try and do this test 5 days after you've been exposed to the virus, your body hasn't produced enough antibodies to be able to be detected at a reliable, accurate level. So that's why when I talked about how we've set up our tests, the forms, the different form factors, that the use of the antibody test is more to look towards a couple of weeks after somebody has been exposed. Have they built enough antibodies that they've defeated the virus? So that's the data.

And our next question comes from Vijay Kumar from Evercore.

Congratulations, guys. Two questions for me. So one, maybe on the near term. I guess when you think about the serology test and applicability to opening up the economy, there are some issues around prevalence rates and false positives and is this now paving the way for a second wave of infection. So maybe address that? I mean how these tests could be deployed perhaps in helping us open up the economy? And one other -- when you think about your employees getting back to work, what signs are you looking for to completely open up workforce and let employees back?

Sure. I mean as I said, we have to look at the suite of tests as not -- one test is not the panacea. You need to look at the comprehensive suite of testing and deploy them in the right ways over here. As I said, I think the serology test here is very reliable as we roll this out for the antibodies. We're working on an IgG -- on an IgM antibody test also. Obviously, as companies are thinking about coming back to work, the way we're looking at this a little bit is, okay, we know that there's going to be a little bit different -- work a little bit differently the way we've historically been working. So maybe not a lot of big kind of meetings. 20 people, 30 people in the meeting rooms will probably be a little bit different than that. I think we'll see people wearing masks. I think we'll see more cleaning of door knobs and elevator buttons and all of that. And I think that's ongoing right now. I think there are a lot of companies that are doing this right now, and that seems to be working. So if you now add on to all of those protocols kind of the lateral flow test here that's got a very strong sensitivity, reliability, et cetera, and you add that on and you can test at companies using an occupational health team, et cetera, that will be an additional layer of security, of testing that will be on top of like thermometers and everything I just described also. So I think it's going to be an important tool. And I think that we've talked about this a lot in terms of microclimates. We try to think about everybody coming back at once, and then you use all this data that you just referenced, prevalence and sensitivity and specificity, and you try and look at that at very large populations. We need to think about it more in terms of like a factory, an office building, a school. And then running these tests will allow you to -- on top of what you are doing, provide another tool to be able to assist companies and schools, et cetera, get people back to work. So I think that's how, at least, we're looking at it, and I think how I've heard other companies looking at how to reopen, how to get back.

Yes, that's helpful. And then maybe one -- so a bigger picture question or maybe this is more -- help us understand on how we should be thinking about the future. Because when I look at 2021, and obviously, I'm not asking for guidance. We know '20 was impacted. But what is the right base to be looking at procedure volumes, right? When you look at the underlying rate of incidence and prevalence pool for disease states, those really haven't changed. So if we don't have a, knock wood, a second wave of infection coming in or next year being impacted, should we be looking at procedure volumes in '19 as the base, the right base to build off? Or should we be -- there are some issues on hospital capacity constraints. And should we be looking at the depressed 2020 procedure numbers as the right base to looking at how those numbers could track -- trend next year?

Well, I can appreciate you trying to figure out 2021 already, Vijay, but listen, I think it's pretty tough right now for us to figure out how exactly Q2 is going to look like, let alone next year. But I think you raised some of the unknowns here that really make it difficult to predict how fast the economy recovers, how fast hospitals return to normalcy, how does our testing platform and how's the testing environment evolved. Listen, we're all hoping for a fast recovery here, but if it takes longer, we'll have strong demand for testing. And that will continue to help buffer the impact. I do think there's a lot of pent-up demand here on cardiovascular devices and diagnostics. And I think hospitals are figuring out how they're going to get back to work. I think there's a lot of patients that are in need of care. And I think that -- I can't -- I don't know if we can predict exactly when it's going to come back. But I do think that when it does come back, I think you'll see these device procedures, which are extremely important -- as truly important in the care continuum, et cetera, that we will see them come back. So that's probably my best answer for you is I believe that we'll see a recovery towards the second half of this year in these elective procedures. And you can kind of try and model out what kind of V-shape is it. Is it -- does it look more like an L? Does it look more like a V? Is it something in between, et cetera? But I think that's how, at least, we're looking at the rest of this year.

Our next question comes from Matt Taylor with UBS.

So first question, I just wanted to follow-up on the testing since it's so important and certainly commend the team for their efforts in getting those out so quickly. So it's 2 part. One is, you mentioned in the earlier remarks that there's been a lot of commentary about difficulty in the testing market. It's not only due to kits, but folks have mentioned swabs and reagents and other things like that. I was just wondering from your perspective -- I'm sure you're getting a lot of feedback on this. What do you think is the biggest challenge out there in terms of getting access to testing now? And how do you see that improving over the next weeks and months? And then on -- yes, go ahead, sorry.

No. So on the question there of testing and testing supplies and shortages there, I mean I think when you look at kind of what we've done, I mean, we've made sure, obviously, that when we ship out our test, they have everything they need to test, whether it's controls, calibrators, whether it's swabs and ID NOW, those come together here. So from Abbott's perspective, we're trying to make sure that they have everything that they need. I do think that some of the challenges you have is potentially workflow. At least for us, we've got our m2000s. They're in regional hospitals, regional labs, which is a good thing because you can now have not only your big central labs doing a lot of centralization, but then you can use the regional network to be able to get to test. And I just think it's a workflow process here, how to get the samples. I think a lot of hospitals might not want to be doing a lot of mass testing into the hospital. So how do you collect the samples? And then how you bring them into the hospital? And then how do you get them out? So I think that's probably one of the bigger challenges. And I think that the team, whether it's on the federal government side and also with a lot of governors, are figuring this out. And they're sharing how they're doing it and sharing best practices. And at least on our side, we're starting to see a ramp-up here on the m2000. But there's obviously more that they can do.

Okay. And then one follow-up on that. I think on Bob's question, you commented on the accuracy of the serology test, which is high. Could you comment on the accuracy of the other tests, your confidence in them with smaller samples that you had to get out quickly and the relative importance of the 2 serology tests in determining who's had the virus and who has immunity?

Yes, sure. So on the molecular test, listen, molecular test is the gold standard for accuracy. RNA testing, testing viral load, et cetera, is the gold standard. And if you look at how we did the test, obviously, it's -- it was worked in conjunction with the FDA, using a testing model that was provided by the FDA. The tests are performed at 100% of the expected outcomes in the samples for both negative and positive results. So I think the ID NOW system is very reliable. The other, m2000, we use levels of detection. And I mean, you can go through levels of detection labels, and you could see the accuracy and reliability of the m2000 versus the other systems that have been approved also. So -- and as I said, the use of the antibody test is just going to be an important tool in conjunction with kind of molecular testing to be able to screen, test and manage the population. So we'll see how that's going to kind of roll out, and it will follow kind of the vision that we've kind of thought of, having both a lab-based system and a lateral flow-based system.

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

Robert, let me just ask one multipart device question. On 2 milestones we're waiting for, the MitraClip FMR, NCD, any update there? And of course, Libre 2, any update on the status there? Just lastly, any other time lines in devices that could be impacted by coronavirus would be helpful.

Sure, Larry. I was waiting for the Libre question. Let me answer your CMS question over here on secondary MR. As you as you'd expect under these circumstances here, CMS has delayed the issuance of the proposed NCD. We were previously expecting that to be mid-February. But given the current circumstances, the delay here isn't really having an impact on our business. I'm confident in the process. I'm confident that we've been working with them and the different societies over here. And this will move forward on the appropriate time. On Libre 2, I guess I sound like a broken record here, Larry, but what I'll say is, I'm very confident in the product the same way that I've been saying. I'm confident. I mean I think some of you might have seen the accuracy data that we published at the European conference beginning of February. So I'm very encouraged about resolving these -- some of these kind of open items here in the near future with the FDA. We're just working through some finishing items. So -- but like I said, that's not holding back Libre or Libre's growth here. So more to come.

Yes. Anything else though that we should be aware of that could be impacted on the device side from a time line standpoint?

Yes, there's been some discussion on clinical trial and clinical trial regulatory time lines here. Our near-term forecast here wasn't really overly reliant on kind of any patient enrollment end points. There's obviously been some delays in some of the enrollment, and as we've seen a kind of mandate here to pause some of these procedures here. So -- but I think once this is over, for the ongoing trials that have kind of longer time lines here, we'll look at opportunities that we'll have to accelerate enrollment and make up for some time here. So let me just say here then, closing here. I think we had a pretty unusual quarter here for us. I think you saw the strength of our diversified business model come through here in true strength. Some parts of the business, we did have some challenges, as I've described. Other parts of the business have been pretty stable, and I think they'll continue to be pretty stable. And then there are others that are performing at very high levels. And I think we'll start to see on the testing side, how fast we can ramp up. The team here has done an amazing job around the world, not only to develop the test, but also the manufacturing, the supply chain teams across the world, across our network have done an incredible job. I think our -- I said our financial strength here is pretty strong. I think we had that question here, and we'll continue to look at ways to improve on that. And as I said, we believe that there is a recovery, and we'll start to see that, I believe, in the Q3, Q4 time frame. I think health care is a little bit different than you might expect from maybe other industries. So once we get better -- a better sense of how that's going to look like towards the second half of the year, we'll definitely be updating and providing some more qualitative updates on that. So okay.

Good. All right. Well, 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 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. You may all disconnect. Everyone, have a wonderful day.