ABBOTT LABORATORIES Financial Review - Results of Operations
Abbott's revenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements. Patent protection and licenses, technological and performance features, and inclusion ofAbbott's products under a contract most impact which products are sold; price controls, competition and rebates most impact the net selling prices of products; and foreign currency translation impacts the measurement of net sales and costs.Abbott's primary products are medical devices, diagnostic testing products, nutritional products and branded generic pharmaceuticals. The following table details sales by reportable segment for the three and nine months endedSeptember 30 . Percent changes are versus the prior year and are based on unrounded numbers. Net Sales to External Customers Three Months Three Months Ended Ended Impact of Total Change Sept. 30, Sept. 30, Total Foreign Excl. Foreign (in millions) 2021 2020 Change Exchange Exchange
Established Pharmaceutical Products$ 1,265 $ 1,099
15.1 % (0.2) % 15.3 % Nutritional Products 2,108 1,924 9.6 0.7 8.9 Diagnostic Products 3,912 2,640 48.2 1.4 46.8 Medical Devices 3,632 3,170 14.6 1.5 13.1 Total Reportable Segments 10,917 8,833 23.6 1.1 22.5 Other 11 20 (51.4) 0.9 (52.3) Net Sales$ 10,928 $ 8,853 23.4 1.0 22.4 Total U.S.$ 4,368 $ 3,329 31.2 - 31.2Total International $ 6,560 $ 5,524 18.7 1.7 17.0 Net Sales to External Customers Nine Months Nine Months Ended Ended Impact of Total Change Sept. 30, Sept. 30, Total Foreign Excl. Foreign (in millions) 2021 2020 Change Exchange Exchange Established Pharmaceutical Products$ 3,515 $ 3,156 11.4 % (0.6) % 12.0 % Nutritional Products 6,252 5,711 9.5 1.2 8.3 Diagnostic Products 11,173 6,460 73.0 3.8 69.2 Medical Devices 10,618 8,530 24.5 3.8 20.7 Total Reportable Segments 31,558 23,857 32.3 2.6 29.7 Other 49 50 (1.3) 2.8 (4.1) Net Sales$ 31,607 $ 23,907 32.2 2.6 29.6 Total U.S.$ 11,787 $ 8,823 33.6 - 33.6Total International $ 19,820 $ 15,084 31.4 4.1 27.3
Note: In order to compute results excluding the impact of exchange rates,
current year
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The 22.4 percent increase in total net sales during the third quarter of 2021,
excluding the impact of foreign exchange, reflected demand for Abbott's tests to
detect COVID-19 as well as other growth across Abbott's reportable segments.
During the third quarter of 2021, Abbott's COVID-19 testing-related sales
totaled approximately $1.9 billion led by combined sales of approximately $1.6
billion related to Abbott's BinaxNOW®, Panbio®, and ID NOW® rapid testing
platforms. During the third quarter of 2020, COVID-19 testing-related sales
totaled approximately $0.9 billion . Excluding the impact of COVID-19
testing-related sales, Abbott's total net sales increased 13.2 percent.
Excluding the impacts of COVID-19 testing-related sales and foreign exchange,
Abbott's total net sales increased 12.1 percent. Abbott's net sales were
favorably impacted by changes in foreign exchange rates in the third quarter as
the relatively weaker U.S. dollar increased total international sales by 1.7
percent and total sales by 1.0 percent.
The 29.6 percent increase in total net sales during the first nine months of
2021, excluding the impact of foreign exchange, reflected demand for Abbott's
tests to detect COVID-19 as well as other growth across Abbott's reportable
segments. During the first nine months of 2021, Abbott's COVID-19
testing-related sales totaled approximately $5.4 billion led by combined sales
of approximately $4.5 billion related to Abbott's BinaxNOW, Panbio, and ID NOW
rapid testing platforms. During the first nine months of 2020, COVID-19
testing-related sales totaled approximately $1.5 billion . Excluding the impact
of COVID-19 testing-related sales, Abbott's total net sales increased 17.3
percent. Excluding the impacts of COVID-19 testing-related sales and foreign
exchange, Abbott's total net sales increased 14.9 percent. Abbott's net sales
were favorably impacted by changes in foreign exchange rates in the first nine
months as the relatively weaker U.S. dollar increased total international sales
by 4.1 percent and total sales by 2.6 percent.
Due to the unpredictability of the duration and impact of the current COVID-19
pandemic, the future extent to which the COVID-19 pandemic will have a material
effect on Abbott's business, financial condition or results of operations is
uncertain.
The table below provides detail by sales category for the nine months ended
Impact of Total Change
Sept. 30, Sept. 30, Total Foreign Excl. Foreign
(in millions) 2021 2020 Change Exchange Exchange
Established Pharmaceutical Products -
Key Emerging Markets $ 2,672 $ 2,376 12.4 % (1.8) % 14.2 %
Other Emerging Markets 843 780 8.1 2.7 5.4
Nutritionals -
International Pediatric Nutritionals 1,637 1,629 0.5 2.2 (1.7)
U.S. Pediatric Nutritionals 1,622 1,490 8.9 - 8.9
International Adult Nutritionals 1,987 1,644 20.9 2.0 18.9
U.S. Adult Nutritionals 1,006 948 6.0 - 6.0
Diagnostics -
Core Laboratory 3,780 3,152 19.9 3.5 16.4
Molecular 1,082 956 13.2 3.3 9.9
Point of Care 401 387 3.6 1.0 2.6
Rapid Diagnostics 5,910 1,965 200.7 4.9 195.8
Medical Devices -
Rhythm Management 1,657 1,382 19.9 3.3 16.6
Electrophysiology 1,403 1,128 24.4 3.1 21.3
Heart Failure 650 551 17.8 1.6 16.2
Vascular 1,976 1,736 13.9 3.5 10.4
Structural Heart 1,191 894 33.2 3.7 29.5
Neuromodulation 584 489 19.6 1.5 18.1
Diabetes Care 3,157 2,350 34.3 5.6 28.7
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Key Emerging Markets for the Established Pharmaceutical Products business
include India , Russia , Brazil and China , along with several other markets that
represent the most attractive long-term growth opportunities for Abbott's
branded generics product portfolio. Excluding the unfavorable effect of foreign
exchange, sales in the Key Emerging Markets increased 14.2 percent compared to
the first nine months of 2020 led by growth across several geographies,
including India , China and Brazil . Other Emerging Markets, excluding the effect
of foreign exchange, increased by 5.4 percent in the first nine months of 2021.
International Pediatric Nutritional sales, excluding the effect of foreign
exchange, decreased 1.7 percent in the first nine months of 2021 versus the
comparable 2020 period and the decrease reflects lower sales in China , the
Middle East and Canada partially offset by higher volumes sold in various
countries in Latin America and Europe . U.S. Pediatric Nutritional sales
increased 8.9 percent primarily due to increased demand for Pedialyte®, Abbott's
oral rehydration brand, and Similac®, Abbott's infant brand. International Adult
Nutritional sales, excluding the effect of foreign exchange, increased 18.9
percent, and U.S. Adult Nutritional sales increased 6.0 percent, reflecting
continued growth of the Ensure® and Glucerna® brands in several countries
including the U.S.
The 69.2 percent increase in Diagnostic Products sales, excluding the impact of
foreign exchange, was driven by demand for Abbott's portfolio of COVID-19 tests
as described above as well as growth in the base Core Laboratory and Molecular
businesses. In Core Laboratory , sales increased 16.4 percent, excluding the
effect of foreign exchange, due to the increased volume of routine diagnostic
testing performed in hospitals and other laboratories, partially offset by lower
sales of Abbott's laboratory-based tests for the detection of the IgG and IgM
antibodies, which determine if someone was previously infected with the COVID-19
virus. In March 2021 , Abbott received an Emergency Use Authorization (EUA) in
the U.S. for its AdviseDX SARS-CoV-2 IgG II test for the semi-quantitative
detection of IgG antibodies to COVID-19 on its ARCHITECT® and Alinity® i
platforms. In the first nine months of 2021 and 2020, Core Laboratory IgG and
IgM antibody testing-related sales on Abbott's ARCHITECT and Alinity i platforms
were $159 million and $212 million , respectively. In the first nine months of
2021, Core Laboratory sales increased 23.1 percent, excluding COVID-19
testing-related sales, and increased 19.3 percent, excluding the impact of
foreign exchange and COVID-19 testing-related sales.
The 9.9 percent increase in Molecular Diagnostics sales, excluding the effect of
foreign exchange, was driven by growth in the base business from the continued
roll-out of the Alinity® m platform as well as higher demand in the first half
of 2021 for Abbott's laboratory-based molecular tests for COVID-19 on its m2000®
and Alinity m platforms. In the first nine months of 2021 and 2020, Molecular
Diagnostics COVID-19 testing-related sales were $699 million and $664 million ,
respectively. In March 2021 , Abbott received an EUA in the U.S. for its
multiplex molecular test on its Alinity m system to detect COVID-19, influenza
A, influenza B, and respiratory syncytial virus (RSV) in one test. In the first
nine months of 2021, Molecular Diagnostics sales increased 31.3 percent,
excluding COVID-19 testing-related sales, and increased 28.1 percent, excluding
the impact of foreign exchange and COVID-19 testing-related sales.
In Rapid Diagnostics , sales increased 195.8 percent, excluding the effect of
foreign exchange, due to the demand for Abbott's COVID-19 tests on its rapid
testing platforms, including the Panbio system, the ID NOW platform, and the
BinaxNOW COVID-19 Ag Card test. In the first nine months of 2021 and 2020, Rapid
Diagnostics COVID-19 testing-related sales were $4.5 billion and $0.65 billion ,
respectively. In January 2021 , Abbott received CE Mark for two new uses of its
Panbio rapid antigen test: asymptomatic testing and self-swabbing under the
supervision of a healthcare worker. On March 31, 2021 , Abbott announced that it
had received an EUA in the U.S. for its over-the-counter, non-prescription
BinaxNOW COVID-19 Ag Self Test for individuals with or without symptoms. In the
first quarter of 2021, Abbott also received EUAs that allow the non-prescription
use of the BinaxNOW COVID-19 Ag Card Home Test and the BinaxNOW COVID-19 Ag Card
test for professional use for individuals with or without symptoms. In June
2021 , Abbott announced that it had received CE Mark in Europe for its
over-the-counter Panbio COVID-19 Antigen Self-Test for individuals with or
without symptoms.
Excluding the effect of foreign exchange, total Medical Devices sales grew 20.7
percent driven by double-digit growth across all divisions, led by Diabetes
Care, Structural Heart and Electrophysiology. Growth in Diabetes Care sales was
driven by continued growth of FreeStyle Libre®, Abbott's continuous glucose
monitoring system, internationally and in the U.S. FreeStyle Libre and Libre
Sense™ sales totaled $2.7 billion in the first nine months of 2021, which
reflected a 37.2 percent increase, excluding the effect of foreign exchange,
over the first nine months of 2020 when Libre sales totaled $1.9 billion . Libre
Sense , which received CE Mark in Europe in the third quarter of 2020, is
Abbott's glucose sport biosensor specifically designed for athletes.
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While procedure volumes acrossAbbott's cardiovascular and neuromodulation businesses were negatively impacted early in 2021 by elevated COVID-19 case rates in certain countries, including theU.S. , overall volumes improved over the course of the first nine months of 2021 across various businesses. The year-over-year increases in the various businesses reflect a recovery from the 2020 levels when the pandemic reduced procedure volumes as well as sales growth from pre-pandemic levels in Structural Heart, Electrophysiology, and Heart Failure, excluding the effect of foreign exchange. InJanuary 2021 , theU.S. Centers for Medicare & Medicaid Services expanded reimbursement coverage eligibility for MitraClip®,Abbott's market-leading device for the minimally invasive treatment of mitral regurgitation (MR), a leaky heart valve. The growth in Structural Heart during the first nine months of 2021 was broad-based across several areas of the business, including MitraClip and TriClip®, the world's first minimally invasive, clip-based device for repair of a leaky tricuspid heart valve which was launched inEurope inMay 2020 .
In the first nine months of 2021, various product approvals in the Medical Devices segment included:
In
? transcatheter aortic valve implantation (TAVI) system for patients with severe
aortic stenosis who are at high or extreme surgical risk,
In
? Amplatzer® Amulet® Left Atrial Appendage Occluder, which offers immediate
closure of the left atrial appendage, an area in the heart where blood clots
can form,
In
? treat people with symptomatic, severe aortic stenosis who are at high or
extreme risk for open heart surgery, and
In
? System to treat people with a patent foramen ovale - a small opening between
the upper chambers of the heart - who are at risk of recurrent ischemic stroke.
The gross profit margin percentage was 54.8 percent for the third quarter of 2021 compared to 49.4 percent for the third quarter of 2020. The increase in the quarter reflects the effects of higher sales volume in various businesses, higher utilization at various manufacturing sites, a change in estimate to the restructuring actions recognized in the second quarter related toAbbott's manufacturing network for COVID-19 diagnostic tests and the nonrecurrence of the 2020 impairment of an intangible asset. The gross profit margin percentage was 51.6 percent for the first nine months of 2021 compared to 49.2 percent for the first nine months of 2020. The increase primarily reflects the effects of higher sales volume, higher manufacturing utilization, and the nonrecurrence of the 2020 intangible asset impairment, partially offset by the impact of higher restructuring charges in the first nine months of 2021. Research and development expenses increased$92 million , or 16.1 percent, in the third quarter of 2021 and increased$258 million , or 15.0 percent, in the first nine months of 2021 compared to the prior year. The increases in R&D expenses in the third quarter and first nine months of 2021 were primarily driven by higher spending on various projects to advance products in development. Selling, general and administrative (SG&A) expenses for the third quarter of 2021 increased$465 million , or 20.2 percent, and increased$1.15 billion , or 16.1 percent, for the first nine months of 2021, due primarily to higher selling and marketing spending to drive growth across various businesses and the nonrecurrence of$100 million of income in 2020 from a litigation settlement. The increase in the first nine months of 2021 also includes charges related
to certain litigation. Restructuring Plans
OnMay 27, 2021 ,Abbott management approved a restructuring plan related to its Diagnostic Products segment to align its manufacturing network for COVID-19 diagnostic tests with changes in the second quarter in projected testing demand driven by several factors, including significant reductions in cases in theU.S. and other major developed countries, the accelerated rollout of COVID-19 vaccines globally and theU.S. health authority's updated guidance on testing for fully vaccinated individuals. In the second quarter of 2021,Abbott recorded charges of$499 million under this plan in Cost of products sold. The charge recognized in the second quarter included fixed asset write-downs of$80 million , inventory-related charges of$248 million , and other exit costs, which included contract cancellations and employee-related costs of$171 million . In the third quarter of 2021, as the Delta variant of COVID-19 spread and the number of new COVID-19 cases increased significantly particularly in theU.S. , demand for rapid COVID-19 tests increased significantly. As a result, in the third quarterAbbott sold approximately$120 million of inventory that was previously estimated to have no net realizable value under the second quarter restructuring action. In addition, the estimate of other exit costs was reduced by a net$19 million asAbbott fulfilled its purchase obligations under certain contracts for which a liability was recorded in the second quarter orAbbott settled with the counterparty in the third quarter. 27 Table of Contents
Other (Income) Expense, net
Other income, net increased from$46 million of income in the third quarter of 2020 to$74 million of income in the third quarter of 2021 and from$25 million of income in the first nine months of 2020 to$214 million of income in the first nine months of 2021. The increase in the third quarter was primarily due to higher income in 2021 related to the non-service cost components of net pension and post-retirement medical benefit costs. The increase in the first nine months of 2021 was primarily due to a$100 million change related to the nonrecurrence of 2020 equity investment impairments, a gain on the sale of an equity method investment in 2021 and higher income in 2021 related to the non-service cost components of net pension and post-retirement medical benefit costs. Interest Expense, net Interest expense, net was virtually unchanged versus the prior year, decreasing$4 million in the third quarter of 2021 and decreasing$3 million in the first nine months of 2021 due to the reduction in interest expense driven by lower interest rates in 2021. The effect of higher cash and short-term investment balances mostly offset the impact of lower interest rates on interest income in the first nine months of 2021.
Taxes on Earnings from Continuing Operations
Taxes on earnings from continuing operations reflect the estimated annual effective rates and include charges for interest and penalties. In the first nine months of 2021 and 2020, taxes on earnings from continuing operations include approximately$97 million and$87 million , respectively, in excess tax benefits associated with share-based compensation. In the first nine months of 2020, taxes on earnings from continuing operations also include approximately$81 million in tax benefits related to the settlement of the formerSt. Jude Medical consolidated group's 2014 through 2016 federal income tax returns in theU.S. Earnings from discontinued operations, net of tax, in the first nine months of 2020 reflect the recognition of$20 million of net tax benefits primarily as a result of the resolution of various tax positions related to prior years. Tax authorities in various jurisdictions regularly reviewAbbott's income tax filings.Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease approximately$80 million , including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters.
Liquidity and Capital Resources
The increase in cash and cash equivalents from$6.8 billion atDecember 31, 2020 to$9.3 billion atSeptember 30, 2021 primarily reflects the cash generated from operations in the first nine months of 2021, partially offset by the payment of dividends, capital expenditures and share repurchases. Working capital was$10.6 billion atSeptember 30, 2021 and$8.5 billion atDecember 31, 2020 . The increase in working capital in 2021 primarily reflects the increase in cash and cash equivalents partially offset by an increase in the current portion of long-term debt. In the Condensed Consolidated Statement of Cash Flows, Net cash from operating activities for the first nine months of 2021 totaled$7.5 billion , an increase of$3.4 billion over the prior year primarily due to higher operating earnings and improved working capital management, partially offset by higher cash taxes paid. Cash taxes paid in 2021 totaled approximately$990 million versus$700 million in 2020. Other, net in Net cash from operating activities was a use of$140 million for the first nine months of 2021 and a source of$42 million for the first nine months of 2020. The year-over-year change in Other, net in Net cash from operating activities reflects the nonrecurrence of 2020 non-cash impairment charges related to intangible assets and equity investments. InSeptember 2019 , the board of directors authorized the early redemption of up to$5 billion of outstanding long-term notes. As ofSeptember 30, 2021 ,$2.15 billion of the$5 billion authorization remains available.
At
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InOctober 2019 , the board of directors authorized the repurchase of up to$3 billion ofAbbott's common shares from time to time. The 2019 authorization was in addition to the approximately$100 million of the share repurchase program authorized in 2014 that remained unused as ofDecember 31, 2020 . In the first nine months of 2021,Abbott repurchased 10.1 million of its common shares for$1.187 billion which fully utilized the authorization remaining under the 2014 share repurchase program and a portion of the 2019 authorization. As ofSeptember 30, 2021 ,$1.910 billion remains available for repurchase under the 2019 share repurchase program. OnApril 27, 2016 , the board of directors authorized the issuance and sale for general corporate purposes of up to 75 million common shares that would result in proceeds of up to$3 billion . No shares have been issued under this authorization. In each of the first three quarters of 2021,Abbott declared a quarterly dividend of$0.45 per share on its common shares, which represents an increase of 25 percent over the$0.36 per share dividend declared in each of the first three quarters of 2020.
Recently Adopted Accounting Standards
InDecember 2019 , theFinancial Accounting Standards Board issued Accounting Standards Update ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which among other things, eliminates certain exceptions in the current rules regarding the approach for intraperiod tax allocations and the methodology for calculating income taxes in an interim period, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.Abbott adopted the standard onJanuary 1, 2021 . The new standard did not have an impact on its condensed consolidated financial statements. Legislative Issues
Abbott's primary markets are highly competitive and subject to substantial government regulations throughout the world.Abbott expects debate to continue over the availability, method of delivery, and payment for health care products and services. It is not possible to predict the extent to whichAbbott or the health care industry in general might be adversely affected by these factors in the future. A more complete discussion of these factors is contained in Item 1, Business, and Item 1A, Risk Factors, in the 2020 Annual Report on Form 10-K.
Private Securities Litigation Reform Act of 1995 - A Caution Concerning Forward-Looking Statements
Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995,Abbott cautions that any forward-looking statements made byAbbott 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 affectAbbott's operations are discussed in Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , and are incorporated herein by reference.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. 29 Table of Contents
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