Abbott Laboratories (ABT) Q3 2021 Earnings Report, Transcript and Summary

Good morning, and thank you for standing by. Welcome to Abbott's Third Quarter 2021 Earnings Conference Call. [Operator Instructions] This call is being recorded by Abbott. With the exception of any participant's questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's expressed written permission. I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations, 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 expected financial results for 2021. 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 Form 10-K for the year ended December 31, 2020. 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. 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 excludes the impact of foreign exchange. With that, I will now turn the call over to Robert.

Thanks, Scott. Good morning, everyone, and thanks for joining us. Today, we reported results of another very strong quarter. Ongoing earnings per share were $1.40, reflecting nearly 45% growth compared to last year, and sales increased more than 22% on an organic basis. Excluded COVID testing-related sales, which totaled $1.9 billion in the quarter, organic sales increased 12% versus last year. As we've seen since the start of the pandemic, our diversified mix of health care businesses continues to prove highly resilient. Even as COVID case rates surged in the U.S. and other geographies during the third quarter, strong growth in our more consumer-facing businesses, Nutritionals, Established Pharmaceuticals and Diabetes Care, mitigated the modest impacts we saw from the surges in certain areas of our hospital-based businesses. This has been a consistent theme throughout the pandemic, as evidenced by an increase in total company sales, excluding COVID test of 11% on an organic basis through the first 9 months of this year compared to our 2019 pre-pandemic baseline, which highlights that our growth is real and not simply a function of easy comps versus last year. As a result of our strong performance and outlook, today, we increased our full year adjusted earnings per share guidance range now at $5 to $5.10, which reflects nearly 40% growth compared to last year. I'll now summarize our third quarter results before turning the call over to Bob. And I'll start with Nutrition, where sales increased 9% compared to last year. Strong growth in the quarter was led by U.S. Pediatric and international Adult Nutrition. In Pediatric Nutrition, sales grew over 8.5% in the quarter, led by strong growth in the U.S. from continued share gains in our infant formula and toddler portfolio. Sales of Pedialyte, our market-leading rehydration brand, once again grew strong double digits, driven by market uptake of several recently launched new products as well as investments we're making in direct consumer promotion. In Adult Nutrition, sales grew over 9% in the quarter, including mid-teens growth internationally as we continue to see strong demand for our Ensure and Glucerna brands, including new users entering these categories and existing customers increasing their usage. Turning to Diagnostics. Sales increased more than 45% overall and 12.5%, excluding COVID testing-related sales. During the quarter, as the Delta variant spread and COVID cases surge particularly in the U.S., demand for testing increased significantly, most notably for rapid tests. In total, during the quarter, we sold more than 225 million COVID tests globally and have now shipped over 1 billion tests since the start of the pandemic. Over the last several months, we've learned that COVID vaccines, while a powerful tool, are not the lone solution needed in our global fight against this virus. Testing, particularly rapid testing, which is fast, affordable and easy to use is an important companion to vaccines and therapeutics. Abbott has established a global leadership position in rapid testing, including a supply capacity of more than 100 million tests per month. Moving to established pharmaceuticals, where sales grew more than 15%, driven by strong execution and a steady cadence of new product introductions. Strong sales performance in the quarter was broad based across several countries, including double-digit growth in China, Russia and India, which led to overall sales growth of 18% in our key emerging markets. And lastly, I'll cover Medical Devices, where sales grew 13% in the quarter compared to last year and more than 16% compared to pre-pandemic sales in the third quarter of 2019. Strong performance in the quarter was led by double-digit growth in Rhythm Management, Structural Heart, Heart Failure and Diabetes Care. In Structural Heart, we continue to enhance our portfolio in large, fast-growing markets with the recent U.S. FDA approvals of Amulet, which closes the left atrial appendage in the heart to help reduce the risk of stroke and people with atrial fibrillation; and Portico for transcatheter aortic valve replacement. In Heart Failure, we announced results from the GUIDE-HF trial of our CardioMEMS system. As with many other recent and ongoing clinical trials across the health care industry, a portion of the CardioMEMS trial overlapped with the COVID-19 pandemic. After adjusting for this impact, CardioMEMS demonstrated a 28% reduction in heart failure hospitalizations. And we filed with the U.S. FDA for label expansion based on the trial data in the middle of this year. During the quarter, we also added an attractive growth platform to our vascular device portfolio with the acquisition of Walk Vascular, a commercial stage company with a minimally invasive thrombectomy system called JETi that removes peripheral blood clots. Peripheral thrombectomy is a large, high-growth area where we can leverage our existing commercial presence. And I'll wrap up with Diabetes Care, where strong growth was led by FreeStyle Libre sales of nearly $1 billion. During the quarter, we added over 200,000 new users, bringing the total global user base for Libre to well over 3.5 million users. So in summary, we continue to achieve strong, well-balanced growth across all of our major businesses, which is being fueled by strong execution and a steady cadence of new products. COVID testing -- particularly COVID testing remains an important companion to vaccines and therapeutics, and Abbott has established a strong leadership position in this area. And based on the strength of our performance and outlook, we're raising our EPS guidance for the year, which now reflects growth of nearly 40% compared to last year. I'll now turn over the call to Bob to discuss our results and outlook for the year in more detail. Bob?

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 third quarter increased 22.4% on an organic basis, which was led by strong performance across all of our businesses, along with global COVID testing-related sales of $1.9 billion in the quarter. Excluding COVID testing-related sales, organic sales growth was 12.1% versus last year and 11.7% compared to the third quarter of 2019. Foreign exchange had a favorable year-over-year impact of 1% on third quarter sales, resulting in total reported sales growth of 23.4% in the quarter. Regarding other aspects of the P&L for the quarter, the adjusted gross margin ratio was 58.8% of sales, adjusted R&D investment was 6% of sales, and adjusted SG&A expense was 25% of sales. Our third quarter adjusted tax rate was 15.5%, which reflects an adjustment to align our year-to-date tax rate with our revised full year effective tax rate forecast of 15%. The revised full year forecast is modestly higher than the estimate we provided in July due to a shift in the mix of our business and geographic income. Turning to the outlook for the fourth quarter. We forecast $1 billion to $1.4 billion of COVID testing-related sales and forecast organic sales growth, excluding COVID testing-related sales, in the low double digits versus last year. And based on current rates, we would expect exchange to have an unfavorable impact of around 0.5% of 1% on our fourth quarter reported sales. With that, we'll now open the call for questions.

[Operator Instructions] Our first question comes from Robbie Marcus from JPMorgan.

Great. And congrats on a really nice quarter. So maybe after such a good quarter led by COVID testing, I feel like you have a unique perspective looking at both sides of the coin from COVID testing, volumes and also device procedure volumes. So Robert, I'd love to get your sense of where you think we are here in fourth quarter and heading into 2022. And any early thoughts you could give us on sort of how to think about the progression of COVID testing sales and the recovery and durability of medtech volumes?

Sure. I think regarding COVID testing, we obviously -- since the start here of the pandemic, we've been learning a lot. And I think one of the things that as we developed our strategy for that, we always believe that the rapid test was going to be a kind of more sustainable part of the business. And I think we were pretty right there. I'd say the key thing that I -- and I made this in the comments, in the opening comments, the key thing that we learned over the last, let's say, couple of months here is that the vaccine is just an incredible tool for the value. It's had a huge impact on public health around the world. But alone, it's not enough. We know that dramatically reduces hospitalizations, dramatically reduces mortality. But I think we're all seeing here that even if you're vaccinated, you could still get and you could still transmit the virus. Obviously, you're not heading to a hospital, but I think we've all heard and seen stories of that. So I think that's the biggest kind of learning here for us as we go into Q4 and as we go into next year is that testing is going to remain an important companion here. And even with therapeutics, it's still going to remain an important part of fighting the virus. And I think we've also learned a lot about understanding kind of the difference between symptomatic testing and screening testing. And we started to pay much closer attention to understanding the channels and the platforms that are more aligned to symptomatic testing versus screening testing. And we can definitely see a correlation on the symptomatic testing with cases going up, cases going down. What we don't see that correlation is, is on screening. So even as cases have started to come down a little bit in the U.S., actually screening demand has increased quite a bit. So I think that is another kind of key learning as we think about going into Q4 and thinking about going into next year also. The other, I'd say, key distinction we've started to make is understanding kind of government purchasing a test versus kind of private. And I'd say in the beginning of the pandemic, most of our sales were focused to governments, whether international governments, federal government here in the U.S., state governments also. And that continues to be pretty strong. But what we've seen now grew pretty significantly. And I think it's aligned to the screening pieces, the private side of the market, whether it's OTC, cash pay, whether it's a lot of companies. We've seen a lot of companies in the last couple of months here, signed contracts with us to ensure that they've got rapid testing to be able to give to their employees. So while we're not seeing -- we only see some shelf and stocking issues at the retail and those will work their way through that in the next couple of weeks, we are seeing still a lot of companies buy test to give to their employees. So I think all of this is basically saying, listen, I don't know how much is going to be there next year, but it's clearly here that, that screening segment of the market is going to be an important part, even with therapeutics and vaccines. So I think that's going to be an important part. Our base business has done very well, continues to be on a recovery trajectory here, Robbie. Started in Q2, we saw that in devices. We saw that in Diagnostics. Yes, there was some there was some softness during Q3 as Delta and cases increased here in the U.S. That's probably more in August and throughout half of September, we started to see it kind of re-picked back up again towards the end of the quarter, first couple of weeks. We like what we're seeing here in terms of some pickup. But these were pockets. I wouldn't call it like a general softness and slowdown or pockets here in the U.S., some pockets in some countries. But generally speaking, that base business is doing very well. So when you think about 2022, I expect our base business -- our underlying base business to continue that momentum, very strong momentum across the board, especially with all of our new product launches. And the question here is going to be COVID. And I think it's going to be very difficult, as we go into next year, to be able to forecast a full number, a full year number of COVID next year. I think we're probably thinking about, okay, well, there's probably a COVID number that we're comfortable going into 2022. And then we'll have to update on a rolling quarterly basis here how COVID's going to play out throughout next year. So that's kind of how I see it. COVID is going to -- COVID testing will be there. We'll have to kind of do it more on a rolling basis as we go to next year. And our base business continues to accelerate. There was a little bit of softness in Q3, but I like what we're seeing in terms of recovery. And I like the portfolio that we built around our cardio business, our EPD business, our Nutrition business, our Diagnostic business. So that's all good.

Great. Great. That was really helpful. And then maybe, Robert, to build on that, I know it's still very early in your planning process. But as you just said, there's a lot of variables, a lot of moving pieces. You've had a great year in devices so far, a bumper year in testing. Any early thoughts on how investors should be thinking about 2022 versus 2021 from a top and bottom line perspective?

Yes. I mean I think like I said, we're still in our process. We'll give our guidance in 2022 in January, like we always do, Robbie. And I want to see a little bit more in terms of how this pandemic is unfolding here, especially on the COVID side, but on the base business side. I think our base business, I would say is, we've been pretty good at forecasting our business both from a top line, from a margin on our base business. So I think what you can expect in 2022 is that base business getting even stronger with the rollout of all these product launches that we've announced over this year. And then the question here really is going to be kind of COVID testing. And like I said, we'll have a portion of it that, I think, we'll feel good about putting it in. And then we'll have to be updating on a rolling basis. And I think that's kind of how to think about it. The base business, which is probably the more sustainable piece, is building momentum. And it will go into 2022 with a lot of growth opportunity. And then we'll have to kind of look at COVID on a more rolling basis.

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

Congrats on some solid execution. I just have 2 questions. And in the interest of time, I'll just mention them both upfront because the first one is pretty straightforward. The first question is just on Amulet, and I realize it's very early in the launch. But just would love your sort of top-down comments on how things are going. And maybe any metrics you can share in terms of perhaps like the percentage of your U.S. coronary accounts that are now active with Amulet. So we'd love some just color there. And then the second question is more of a broad-based question. I was just wondering if you could provide just a little bit more detail on what you're seeing on inflation and supply chain because the headlines are obviously -- they're just constant. But the message from Abbott and other companies we follow just seems to be that it's sort of generally manageable. So just wondering if you can kind of talk to that a little bit, if you can quantify the headwinds or just give us a better understanding of why it's manageable and just put some perspective around it for us.

Okay. Well, I'll take the Amulet and then I'll let Bob kind of talk to kind of the inflation supply chain. I mean I would just say it is manageable, but -- that we have a great team. So -- and I'll let Bob cover that. On Amulet, listen, we received approval in August. We already initiated the launch. I know there's a lot of anticipation, at least on the last 2 calls, about the data and when we're going to publish the data and why we're going to do it, the time that we were going to do it. And so we released that data really close to our approval. And I think that was a good strategy because it allowed our team to kind of prepare for that. I will say, regarding the data, I mean, you saw when we released the data, it's -- the product has got a lot of advantages versus the product that's on the market right now. We've got a pretty broad portfolio of sizes, and that helps as you're looking at different anatomies and having a better fit there. The steerable sheath that we've got has resulted in great precision in the placement, and that's super important, especially when you're looking at transcatheter therapies. And then you saw the data of superior kind of closure rates without the need for blood thinners, right -- falling right at the procedure. And ultimately, that's why the patient went to the hospital or part of the reason why they went there. So I think we've got a great product here. I think the team has done a good job getting the contracts ready. Right now I would say we have a goal of certain amount of contracts by the end of this year. And in the first month, we've already gotten 40% of them of that target. So I think that we're going to definitely hit what we need to hit in terms of getting our contracts, our accounts, the ones that we want to get on contract up and running so we could start to build the usage and familiarity with the system. We've got a really strong commercial presence here. And I think that's a key aspect in the rollout. The implants of these devices, the electrophysiologist or the interventional cardiologist, I mean we've got a lot of great products and a lot of great call point. So that's worked out very well, too. There's always a certain amount of coordination that's required there, and that coordination has been fantastic. I'm really pleased to see that. Initial feedback has been super positive. So very happy with the initial signs. Like you said, it's about a month, 1.5 months into it. All the signs that I'm seeing show that we'll have a great opportunity here to establish Amulet as another product in the category. And then on top of that, we're making the investments, like I said, to grow the category with all of our clinical trials. Catalyst is one of them that I think is important also. So I'd say 1.5 months, very, very pleased with what I'm seeing.

Okay. Thanks. I'll take the inflation comments. So I think inflation and supply chain are really linked together. The global supply chains have not been able to keep up with the strong demand out there. And so like others, we're seeing some increased input costs across areas of our business. We're experiencing some higher shipping costs, and in some cases, higher commodity costs. I'd say the commodity costs are really more kind of in the Nutrition area of the business. In some areas, we have flexibility to adjust pricing a bit, and we plan to do that. In other areas, that flexibility doesn't exist, and so we're working to mitigate the impacts we're seeing such as looking at other manufacturing costs. As Robert mentioned, we've got a very strong procurement organization and supply chain organizations, and they're doing a great job working with our suppliers. And our suppliers understand the critical nature of our products. And so it's been -- we've been successful in terms of ensuring that we're able to get what we need to support the business.

Our next question comes from Josh Jennings from Cowen.

Congratulations on the strong 3Q results. Hopefully, Rob, hoping to just hear maybe some puts and takes or help us understand some of the puts and takes of the 2022 operating margin. Clearly, COVID testing is going to be a factor, but any other drivers of operating margin expansion that you would highlight as we move into 2022 and then any other levers that Abbott is able to pull to drive earnings next year, depending on how the COVID testing environment plays out.

Sure. I'd say -- like I said in the beginning, I mean, I think 2022, our base business, our underlying base business is going to grow very strong, both on the top and the bottom. So we'll see margin expansion in that business. And that's a combination. Like Bob said, we've got gross margin improvement teams across all of our business that are working at ways to mitigate other manufacturing costs. So that will be important to be able to drive margin expansion. And then just the nature of the mix as we continue to roll out our pipeline, which is predominantly focused, I'd say, on the med device side, we've got gross margin profiles there that are accretive to the company's gross margin. So I think a lot of it is really driven on the top line and driving our top line. And the execution of these new product launches allows us to get that kind of margin expansion into 2022. And like I said, we -- the COVID piece is really just one where we're going to have to go quarter-by-quarter and update and roll our forecast every quarter. We'll have a number that we'll feel comfortable with. But those -- I'd say those are the kind of key drivers here, our product launches, our ongoing base business, margin expansions by mix and gross margin improvement. I want to keep the same profiles that we've got right now in our base business in terms of spend, R&D and SG&A. So those profiles, we wouldn't want to maintain. Obviously, if you look at our profiles right now, it's a little bit distorted because of the COVID piece. But if you look historically where we've been in the low 7s in R&D and SG&A between 20% and 30%, that's where we're going to want to kind of land.

And then just a quick follow-up on Libre. We've had some consultants talk about the potential for Abbott to add other analytes onto the platform and particularly the addition of ketone monitoring as a potential competitive advantage. Any updates just in terms of how the 3.0 on tap here, but any updates in terms of the future development plans for Libre and how you continue to maintain your competitive edge here?

Sure. I mean I've always -- we've always said that Libre was a platform. We always -- I know every time you put out a number, it becomes like the next what is that and what's after that. And so we've launched Libre 2. It's doing very well in the U.S. We've launched Libre 3 in Europe, and we'll obviously be rolling Libre 3 out. Regarding your question on analytes, yes, I mean that is an area that we are intentionally looking at, which is using the platform of Libre, the manufacturing platform to be able to develop new analytes. You mentioned one that we've got particular experience in our blood glucose monitoring. We have a blood ketone system. So that, we believe, is an important aspect, especially for type 1 and pumpers. We think that, that's a real important kind of feature. If you look at going into the type 2 population, there's a lot of new drugs for type 2 where there are certain warnings regarding DKA. And we think that, that might also be an opportunity, too. But that's only one analyte, and we've got a pipeline here of analytes, a dedicated team that's only focused on looking at what are the business opportunities the market needs for that. And as we get closer to those launches, which will be coming up fairly soon, we'll be updating the market. But I'm really excited about using the Libre platform here to be able to kind of expand even beyond diabetes.

Our next question comes from Larry Biegelsen from Wells Fargo.

Robert, I wanted to focus on the device side and the pipeline. Just starting with Amulet, to ask Bob's earlier question in another way, the surveys seem to be coming back, suggesting Amulet can take about 1/3 of the U.S. market and maybe even 20% next year. It's not easy for a second to market to become a market leader, but Amulet has a nice profile. What's your reaction to some of these consensus estimates for share? Do you think you can do better? And I had a follow-up.

Sure. Well, I mean, Amulet is new to the U.S., but it's not new to the international markets. When you look at the international market, Amulet's got a 50% market share. I've seen some of the reports, not all of them, but I'm aware of some of these surveys that are done with different physicians. And what I read and what I see them is similar what I see here in the U.S. versus what we actually see in Europe, which is it's a great product. It's sized portfolio is an advantage. Its closure rate is also an advantage. And yes, we -- as I said, this is a multibillion-dollar market where we think that we can be a true competitor in also but, at the same time, invest to develop it. I think that's an important part here also, Larry. So as I mentioned, we're making investments in next-generation product. We're going to be making investments in the commercial infrastructure, which is not only to be there during the implant but also to develop the patient referral network. And we're going to be investing in clinical trials. I think the CATALYST trial is going to be comparing it to NOACs. I think that will be a great opportunity to expand the market also. So I think it's a combination of kind of market expansion. And yes, we're competitive with our offering. We're competitive with our team. And I think 50% international is a good aspiration to have here in the U.S.

That's helpful. And then I wanted to ask about Portico and CardioMEMS. So with Portico, you have Navitor outside the U.S. Do you think you need that in the U.S. to really drive share? And do you think you can compete in the -- without an intermediate low-risk indication, which I don't think you'll have until about 2024. And just lastly on CardioMEMS, how are you feeling about the label expansion and the commercial opportunity, given the COVID impact you mentioned on the GUIDE-HF trial?

Sure, Larry. Let me talk about Portico and TAVI here more broadly. This is a hugely important segment in Structural Heart. We want to be a structural heart leader. We had that vision when we put the businesses together with St. Jude. And we know that we need to be a true player here in the TAVI space. So I'm really looking at this for us as a long game. And what I mean by that is we're launching Portico in the U.S. Navitor, to your question, is a great second-generation device. We got it CE Marked and feedback is that it's a very, very competitive device. Its clinical profile in high risk is really strong. And yes, I want to bring it to the U.S. also, but not because I feel we need to because Portico is not competitive. Portico is very competitive. But in this context of building a strategy here to be a real player in the TAVI space, we know that we're going to have to bring a second generation here in the U.S. We'll have to also look about how do we develop further on Navitor. So I think that we've got about a 5% share in Europe. That's not my aspiration for the TAVI space. To your point, there's 2 pretty well entrenched competitors in the market. And -- but we have a higher aspiration than just kind of a 5% share, which is what we have in Europe. So I think the combination here of investment in the team, investment in the pipeline, in the clinical data, you're right, our kind of low-risk -- intermediate low-risk trial kind of reads out a little bit later on. But it's there. We're investing in it because we see this as a big opportunity for us to be a real player in this market. So I'm excited about it, and I know the team is to be able to kind of be a real -- a go-to full-service player in the field of structural heart. Regarding CardioMems, listen, I think we -- the data, I think, was pretty compelling. I mean this is the second -- and you know this, Larry, this is the second RCT trial that we've done. And I'm a big believer in RCT trials and the need for them to be able to generate the clinical evidence. We filed for the label expansion end of June. I think the data was very compelling. And part of it is expansion to Class II and Class IV and then also to be able to expand indication to patients with elevated BNP, which is, today, just for patients that have been previously hospitalized. So I think the combination here of the data, the fact that it is already the second RCT that we've done, a very large one also on top of CHAMPIONs -- the CHAMPIONs trial. I think there's a great opportunity here for us to develop this market. One of the things that we did in the quarter here also is we now have a more dedicated business unit for Heart Failure, where both the LVAD and CardioMEMS team are going to be combined under 1 GM, very similar to what we've done with our other businesses because we believe in the benefit of that focus and that attention to the business. So I think the combination of what we've submitted, our focus, this is a great opportunity for us in 2022 and beyond. I'm not going to comment on when -- all I can tell you is we filed it at the end of Q2. And I think the data is very strong, and we'll just leave it like that. And I'm highly hopeful that we'll be seeing that next year for sure.

Our next question comes from Cecilia Furlong from Morgan Stanley.

Great. I wanted to ask about just your neuromod business, SCS as well as other deferrable procedures. And can you walk through just sequential trends in the quarter if you started to see recovery in some of the -- in some of your more deferrable procedures trending ahead of others and also how you're thinking about the ability to recapture deferred procedures that the majority of procedure recapture can occur in 4Q or staffing shortages. Do some of this recovery in procedure recapture flow into 2022?

Sure. Well, I would say, this is probably out of our device businesses, the business that's had a little bit of a harder time in terms of recovering post COVID. It's probably more elective like you said, Cecilia. So it has been lagging a bit. It's been pretty flat, I would say, in terms of kind of its trajectory if we look at our trials and our implants. So -- but that's really something that we can't control in terms of kind of how that is going to bounce back. We have visibility to the pipeline of patients. We work closely with the surgery centers, and we've got visibility to that. We're not expecting a big bolus to come into Q4 and then we'll have to kind of see how Q1 and Q2 of next year looks like to be able to kind of give a better sense there. But what we can control, and that's what I focus -- we focus the team on is on our pipeline. And I think the team here has done a really good job. I'd highlight a couple of things here that we've done. NeuroSphere, which is this novel remote care platform, we've launched it. It's the first kind of system that was approved by the FDA. We did a full market release at the end of June. And I really like the numbers we're seeing. We've done over 5,000 remote programming sessions. And not only is it a remote program, but it also allows us to get visibility of the patients in the funnel. So using the adoption of that tool is great because I think it will have a real big change on the sales and service kind of business model that exists in this business. So that's going very well, and I think that will help get better visibility. Another key thing here is entrance into the rechargeable segment, which is about half of the market. We really don't have a competitive system in there, and the team has developed a rechargeable system that is best-in-class, significant advantages versus the market leaders in this segment. So we're looking forward to bringing that product to market next year. And then we've also made investments in trials. I think probably the most notable one is DISTINCT, which is an indication for nonsurgical lower back. We've completed enrollment in that study. So I think the combination of these factors here are important for us to be able to kind of take share. And then if we see the bolus of patients come back in Q1 and Q2, that will be an additional tailwind for us.

Great. And I wanted to ask you as well about your recent acquisition of Walk Vascular and really at a high level, can you talk about your outlook just for the underlying market growth in the peripheral space over the next several years versus some of the other high-growth target end markets, including diabetes and EP? And are there other areas you look to build out around your vascular business? And beyond that, too, just what's your current outlook for pursuing a PE indication for the thrombectomy system?

Sure. So we've been looking at this area for quite a bit. As I always said, we're always looking. We're always studying. And this was an opportunity that we saw. We think it's an attractive segment. We see it about $700 million, growing double digits. And this kind of fell right into that sweet spot of kind of strategic -- make sense strategically for us. We've got a commercial footprint out there with an endovascular sales and service team. We know the customers. We have the call point. And we've got the capacity here to be able to leverage our manufacturing expertise here to be able to kind of scale up manufacturing. So this made perfect sense for us to be able to add it to the portfolio. And that integration is going pretty well. I don't expect any significant contributions in Q4. But as we go into next year, I think it will have an impact on our vascular business. And yes, I mean we're -- like I said, there are plenty of segments in the endo space, I would say, that we continue to study, we continue to look at, areas that we're interested in. And if we find the right moment for us to be able to add those opportunities, we will. Regarding your question on the PE indication, yes. Absolutely. We know that is very important in the peripheral space. So we're investing. That's one of the key aspects in the integration is to invest to be able to get that indication established. So yes, we are working on that.

Our next question comes from Vijay Kumar from Evercore ISI.

Robert, my first one was -- going back to testing, I think your Q4 assumptions of $1 billion to $1.4 billion, that's a sequential step down versus 3Q. I'm curious, where are we on capacity right now? And what is the demand for these testing products right now? Are we seeing any sequential step down in demand right now? And I think you guys did win about $600 million-ish of DoD contracts. Is that baked into that Q4 number? Or is that a fiscal '22 contributor?

Okay. So regarding the Q4 forecast of $1 billion to $1.4 billion here, our capacity is we can do significantly more than that, Vijay, especially as we've -- Q3, we didn't have the full ramp-up, but now we're finishing this month. We'll be in full ramp-up mode. So we can do more than the $1.4 billion. I think the factor here that we're looking at is, as I said in the opening comments here in the first question, I continue to see the surveillance in the screening market to continue to increase. And that's with kind of Binax and ID NOW also. So we've got those businesses, everything we can make, we're rolling in here. I'd say the only question we've got here a little bit is on the symptomatic. And that's what you see maybe in this step-down here is assuming as cases decline in the U.S. that we're going to see a little bit of a decline in symptomatic testing. So that's a little -- that's one part of the factor. The other factor in the $1 billion to $1.4 billion is just pricing. We've got a market leadership position in rapid testing, especially in OTC. If you look at Nielsen data, you'll be able to see that we were at about 90% share. Before the month of September, we dropped to about 60 just because of supply. And now we're back up to 75% share, and we're seeing a little bit of price pressure. So in that number, I've baked in some price pressure to ensure that we maintain that market leadership position as we see more market entrants come in. But if we don't need that price, then that will obviously drive another beat to that number, too. But -- so that's -- those are the drivers and the thinking there, Vijay, a little bit of pricing pressure and what are we going to see on the symptomatic testing.

Sorry, the DoD contract, $600 million, is that assumed in Q4? Or is that a fiscal '22 contributor?

Well, we're going to have to -- yes, so the DoD contract is actually a -- I think you're quoting the maximum amount of the contract, which I know is kind of what got a lot of the news headlines. But the contract actually has a minimum amount, which is significantly lower than that, less than $100 million. So it's really going to depend here on the DoD and the federal government in terms of their purchasing. We factored in a little bit of that minimum piece in Q4. And as I talk about going into next year, that will be a portion of the part that we will feel comfortable with adding on. So -- but it's a pretty big range, Vijay, in terms of what the maximum is and what the minimum is.

Understood. And just one on your earlier comments, Robert, on the SG&A, looking back at historical trends of 29% to 30%, R&D at 7% of revenues. Was that comment referring to fiscal '22, what the OpEx as a percentage of revenue should look like for your base business? And then the variable over and beyond that should be COVID, is that the right way to think about the [indiscernible].

The comment was more about ensuring that we don't -- you don't see that there is a drop in investment. When you look at our profile in Q3 in terms of R&D, it's down to 6%. Our SG&A is down to 25%. So that comment was more about there's a little bit of a distortion factor here because of COVID, and we're going to make sure that we continue to invest in the business. If you look at the investment we've made, Vijay, this year, we've added about $1 billion between R&D and SG&A to the business so that we can continue to drive the top line and, at the same time, drive the long-term sustainability of the business with the R&D investments. I talked about how we could pulsate that spend, not only this year, but as we go into next year, a portion of that spend is a little bit more discretionary on the SG&A side, and we'll be looking at that. But -- so the comment there was more about ensuring that there wasn't a distortion. We at least understood the distortion of COVID in terms of our profiles.

Our next question comes from Matt Miksic from Credit Suisse.

Congrats on the strong results. So maybe just a follow-up on some of the things you were just talking about sort of this concept of reinvesting the proceeds of this very strong COVID business. So there's a perception out there, I think, because COVID testing is maybe not permanent and hard to predict that it's somehow less important or harder to value than the rest of your businesses. But the last few months, obviously, in this quarter, $1.5 billion of upside in Q3 is, by our estimates, more than $0.5 billion in operating cash. And that goes up against your $2 billion or $2.5 billion operating cash run rate. So the question is, in addition to kind of being part of the solution as you've talked about to the pandemic, maybe drill down a little bit into some of the things you were just describing, opportunities to invest behind, which ones of your growth programs do you see an opportunity to sort of dial things up? And how, if at all, does this change maybe the way you think about M&A and your activity on that front?

Sure. I think you've captured pretty well all the elements there of how we look at COVID. As I said in the beginning, when we started this, there's definitely an opportunity to accelerate the strategy of decentralized testing because of COVID, and that strategy has been in place, and that's an area that we are investing to ensure that we do have an ability to -- so we see more testing in pharmacy, more testing in urgent care centers and testing that goes beyond COVID that even goes beyond flu and RSV and respiratory viruses by developing assays that will be used on that rapid testing platform. So that's one investment, for sure. You can see the impact on the investment on some of the business. You see it in Nutrition. So we have been putting more disciplinary advertising and direct-to-consumer promotion in that business, and you could see the step-up in the growth rate there. We've obviously put investment into Libre, both on the SG&A side. You see -- we've rolled out a new TV commercial and funded that to a level that we feel is competitive, is leading in terms of messaging. Increased our sales force in the U.S. and other key markets for Libre so that we can call on more physicians, and you see the impact there on Libre. I mean we did almost $1 billion of sales of Libre this quarter. And in the U.S., it's about 65%. We're making great progress in penetrating the type 2 population, whether it's non-insulin users or non-intensive insulin users. We've got about a 90% market share of that segment at least. So that growth is also being supported. And we've got all these new product launches that I've been talking about on the cardiovascular side that require feet on the street, whether it's sales force, clinical specialists. And we're funding that also. So I think that, that's very clearly where we're putting our investments. We've talked about R&D investments and making sure that we've got pipeline beyond '22 and '23, and that's predominantly been in the Diagnostics and Device areas also. So it's been pretty broad based. That $1 billion increase has kind of gone well across all the businesses. And if I ask my general managers and my presidents of my businesses, do they have a next tranche of where they would go, they would have that list ready to go, too. So there's no shortage of opportunity. And then the other topic you talked about or touched on was the cash flow generation and -- as a result of the COVID business. And yes, it has generated a lot of cash. We have invested some of that cash in the organic opportunities we have, whether it's manufacturing sites here in the U.S. for COVID, for MitraClip, for Libre. So we've made those internal investments, but we've also looked at where we could provide the best return to our shareholders. And you saw that in the form of our dividend increase at the beginning of this year. We increased our dividend by 25%. You saw that we also -- probably saw that we bought back shares in Q2. And we've stepped that up even further in Q3, and we've got capacity to do more of that in Q4, if that makes sense for our shareholders. So we find a way to kind of deploy that capital. And on the M&A side, I mean, I've talked about this. If we think there's a strategic fit for us, one that is financially justified for us, that we can do better with it, that we can make it better and that there's value for our shareholders, we'll do that also. Right now, I'd say, I think the med tech and diagnostic valuations out there, especially the ones that we would be interested in, in high-quality, high-growth assets is a little bit frothy. So we're in the mode of studying and paying attention. I think the good news here is that we don't really need M&A to be able to support what I think is pretty top-tier performance here. So that's pretty comprehensive in terms of how we're looking at COVID. And it both funds our internal organic growth and allows us to either provide some more value to shareholders through buybacks, dividends. And if there's a growth vehicle out there that I think will make sense, we'll -- we won't be shy for that also. So I'll just close here a little bit and just say our results, we're achieving very strong growth across all of our businesses. I'm very excited and proud about the pipeline that all the businesses have been focused on. We've historically really focused on our organic pipelines, and that continues to be highly productive. We are entering to very new and attractive growth segments across our portfolio, and there's more products along the way there. So we're investing in our key platforms, as I've said. COVID testing is going to be an important companion to vaccines and therapeutics. At what level, I can't say right now for next year. I've given a range on what I think it's going to look like in Q4, and there could be opportunities there for us to do better than that. But I think the rapid test here is really the value proposition that's going to make sense going into next year, and we're a leader in that segment. We've built scale. We've built manufacturing, and we know how to operate in this environment, whether it's retail pharmacies or direct consumers. So our focus right now is we're going to finish strong 2021, enter into 2022 with a lot of momentum. And I think we're well-placed strategically here as we go into next year. So with that, I'll thank you all for joining us today.

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.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.