Abbott Laboratories 10-Q 2022-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2022

OR

For the transition period from to

Commission File No. 1-2189

ABBOTT LABORATORIES

100 Abbott Park Road

Abbott Park, Illinois 60064-6400

Telephone: (224) 667-6100

Securities Registered Pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of l934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of September 30, 2022, Abbott Laboratories had 1,743,573,777 common shares without par value outstanding.

Abbott Laboratories

Table of Contents

Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Earnings

(Unaudited)

(dollars in millions except per share data; shares in thousands)

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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 of Abbott’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 tables detail sales by reportable segment for the three and nine months ended September 30. Percent changes are versus the prior year and are based on unrounded numbers.

Notes:

In order to compute results excluding the impact of exchange rates, current year U.S. dollar sales are multiplied or divided, as appropriate, by the current year average foreign exchange rates and then those amounts are multiplied or divided, as appropriate, by the prior year average foreign exchange rates.

n/m = Percent change is not meaningful

The 1.3 percent increase in total net sales during the third quarter of 2022, excluding the impact of foreign exchange, reflected growth in the Medical Devices and Established Pharmaceutical Products segments partially offset by lower Nutritional Products sales as well as a year-over-year decline in COVID-19 testing-related revenues. Abbott’s COVID-19 testing-related sales totaled approximately $1.7 billion during the third quarter of 2022 and approximately $1.9 billion during the third quarter of 2021. Excluding the impact of COVID-19 testing-related sales, Abbott’s total net sales decreased 3.1 percent. Excluding the impacts of COVID-19 testing-related sales and foreign exchange, Abbott’s total net sales increased 3.2 percent. Abbott’s net sales were unfavorably impacted by changes in foreign exchange rates in the third quarter as the relatively stronger U.S. dollar decreased total international sales by 10.0 percent and total sales by 6.0 percent.

The 10.9 percent increase in total net sales during the first nine months of 2022, excluding the impact of foreign exchange, reflected demand for Abbott’s rapid diagnostic tests to detect COVID-19 as well as growth in the Medical Devices and Established Pharmaceutical Products segments partially offset by lower Nutritional Products sales. Abbott’s COVID-19 testing-related sales totaled approximately $7.3 billion during the first nine months of 2022 and approximately $5.4 billion during the first nine months of 2021. Excluding the impact of COVID-19 testing-related sales, Abbott’s total net sales increased 0.1 percent. Excluding the impacts of COVID-19 testing-related sales and foreign exchange, Abbott’s total net sales increased 4.9 percent. Abbott’s net sales were unfavorably impacted by changes in foreign exchange rates in the first nine months as the relatively stronger U.S. dollar decreased total international sales by 7.4 percent and total sales by 4.7 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 September 30. Percent changes are versus the prior year and are based on unrounded numbers.

Excluding the unfavorable effect of foreign exchange, sales in the Key Emerging Markets for Established Pharmaceutical Products increased 12.2 percent in the first nine months of 2022, led by double-digit growth in several countries, including India and China, and therapeutic areas, including gastroenterology, central nervous system/pain management, and respiratory products. Other Emerging Markets, excluding the effect of foreign exchange, increased by 9.5 percent in the first nine months of 2022.

International Pediatric Nutritional sales, excluding the effect of foreign exchange, decreased 4.6 percent in the first nine months of 2022 versus the comparable 2021 period. The decrease reflects the impact of challenging market dynamics in the infant category in Greater China partially offset by higher sales volumes in various countries in Southeast Asia and Latin America. International Adult Nutritional sales, excluding the effect of foreign exchange, increased 9.0 percent, reflecting double digit growth of the Ensure® and Glucerna® brands in several countries in Southeast Asia and China. In the first nine months of 2022, U.S. Adult Nutritional sales increased 1.0 percent.

In U.S. Pediatric Nutritionals, Abbott initiated a voluntary recall in February 2022 of certain infant powder formula products manufactured at its facility in Sturgis, Michigan and stopped production at the facility. On May 16, 2022, Abbott entered into a consent decree with the U.S. Food and Drug Administration (FDA) on the steps necessary to resume production and maintain the Sturgis facility and operations. On July 1, Abbott restarted partial production at the facility starting with its specialty formula EleCare® and metabolic formulas. Subsequently, Abbott restarted Similac® production. The consent decree does not affect any other Abbott plant or operation.

During the first three quarters of 2022, Abbott took various actions to mitigate the impact of the recall on the supply of formula in the U.S. These actions included the shipment of infant formula powder into the U.S. from Abbott's FDA-registered facility in Ireland; prioritization of infant formula production at its Columbus, Ohio facility; conversion of other liquid manufacturing lines into manufacturing Similac liquid ready-to-feed product; increased production of powder infant formula at its Casa Grande, Arizona manufacturing site; and importation of product from its facility in Spain as permitted by the FDA.

The 31.7 percent decrease in U.S. Pediatric Nutritional sales in the first nine months of 2022 reflects the impact of the recall and the Sturgis production stoppage partially offset by increased demand for Abbott’s Pedialyte® products. U.S. sales of infant powder formula brands associated with the recall were $277 million and $900 million in the first nine months of 2022 and 2021, respectively.

The 23.1 percent increase in Diagnostic Products sales in the first nine months of 2022, excluding the impact of foreign exchange, was driven by demand for Abbott’s portfolio of COVID-19 tests in Rapid Diagnostics and growth in routine diagnostic testing in Molecular Diagnostics. In Core Laboratory Diagnostics, sales increased 1.6 percent in the first nine months of 2022, excluding the effect of foreign exchange, due to the higher volume of routine diagnostic testing from the continued roll-out of the Alinity® platform and an expanded menu of tests. These increases were partially offset by lower sales of Abbott’s laboratory-based tests for the detection of COVID-19 IgG and IgM antibodies, which determine if someone was previously infected with the COVID-19 virus, as well as market disruptions in China due to COVID-19 quarantine restrictions in various cities primarily during the second quarter of 2022. In the first nine months of 2022 and 2021, Core Laboratory Diagnostics IgG and IgM antibody testing-related sales on Abbott’s ARCHITECT and Alinity i platforms were $51 million and $159 million, respectively. In the first nine months of 2022, Core Laboratory Diagnostics sales decreased 1.3 percent, excluding COVID-19 testing-related sales, and increased 4.6 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.

The 21.9 percent decrease in Molecular Diagnostics sales in the first nine months of 2022, excluding the effect of foreign exchange, was driven by lower demand for Abbott’s laboratory-based molecular tests for COVID-19 partially offset by growth in the base business from increased routine molecular testing. In the first nine months of 2022 and 2021, Molecular Diagnostics COVID-19 testing-related sales were $375 million and $699 million, respectively. In the first nine months of 2022, Molecular Diagnostics sales increased 14.9 percent, excluding COVID-19 testing-related sales, and increased 19.4 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.

In Rapid Diagnostics, sales increased 46.7 percent in the first nine months of 2022, 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 2022 and 2021, Rapid Diagnostics COVID-19 testing-related sales were $6.9 billion and $4.5 billion, respectively. In the first nine months of 2022, Rapid Diagnostics sales increased 11.8 percent, excluding COVID-19 testing-related sales, and increased 14.6 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales. These increases reflect higher sales

of ID NOW tests for flu, strep, and respiratory syncytial virus (RSV) as well as growth in various other Rapid Diagnostics products.

Excluding the effect of foreign exchange, total Medical Devices sales grew 8.4 percent in the first nine months of 2022, driven by growth in Diabetes Care, Electrophysiology, Structural Heart and Heart Failure. Growth in Diabetes Care sales was driven by continued growth of FreeStyle Libre®, Abbott’s continuous glucose monitoring system, in the U.S. and internationally. FreeStyle Libre sales totaled $3.1 billion in the first nine months of 2022, which reflected a 22.8 percent increase, excluding the effect of foreign exchange, over the first nine months of 2021 when FreeStyle Libre sales totaled $2.7 billion. During the third quarter of 2022, Abbott launched its FreeStyle Libre 3 system in the U.S., which automatically delivers up-to-the-minute glucose readings and 14-day accuracy in a wearable sensor.

During the first nine months of 2022, procedure volumes across Abbott’s cardiovascular and neuromodulation businesses were negatively impacted by new surges of COVID-19 in various geographies as well as intermittent COVID-19 lockdown restrictions in China and healthcare staffing challenges throughout the nine months. Despite such challenges, overall volume trends improved in several businesses versus the first nine months of 2021. In Electrophysiology, the 8.2 percent growth, excluding the effect of foreign exchange, reflects the increase in procedure volumes and the continued roll‑out of Abbott’s EnSite® X EP System with Ensite Omnipolar Technology (OT), a new cardiac mapping platform available in the U.S., Japan and across Europe. In January 2022, Abbott announced FDA clearance for the EnSite® X EP System with EnSite OT. The system leverages the Advisor® HD Grid Catheter to provide a 360‑degree view of the heart without regard to the orientation of the catheter in the heart.

Growth in Structural Heart during the first nine months of 2022, excluding the effect of foreign exchange, was 12.8 percent, driven by growth across several areas of the business, including 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 and MitraClip®, Abbott's market-leading device for the minimally invasive treatment of mitral regurgitation, a leaky heart valve. In Vascular, sales during the first nine months of 2022, excluding the impact of foreign exchange, were virtually unchanged as higher endovascular sales were offset by the negative effect of lower average pricing for drug-eluting stents (DES) in the U.S. and a lag in the recovery of percutaneous coronary intervention case rates compared to many other cardiovascular procedures.

In the first nine months of 2022, Medical Devices received various other product approvals. In February 2022, Abbott received FDA approval for an expanded indication for its CardioMEMS® HF system, a small implantable sensor and remote monitoring system that can detect early warning signs of worsening heart failure. In April 2022, Abbott announced FDA approval for its Aveir® single-chamber leadless pacemaker for the treatment of patients in the U.S. with slow heart rhythms.

The gross profit margin percentage was 50.7 percent for the third quarter of 2022 compared to 54.8 percent for the third quarter of 2021. The decrease reflects the continued impact of the voluntary product recall and Sturgis manufacturing stoppage in the Nutritional business during the first half of 2022 as well as the prioritization of infant formula sales related to the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). The decrease also reflects higher manufacturing and supply chain costs across Abbott's businesses, including inflation, commodities and distribution expenses as well as lower COVID-19 testing-related sales in 2022 and the nonrecurrence of a favorable change in estimate in the third quarter of 2021 related to a previously recognized restructuring plan.

The gross profit margin was 52.1 percent for the first nine months of 2022 compared to 51.6 percent for the first nine months of 2021. The increase reflects the nonrecurrence of 2021 restructuring charges and the impact of higher sales of COVID-19 rapid tests during the first nine months of 2022. These favorable impacts were partially offset by the impact of the voluntary product recall and Sturgis manufacturing stoppage in the Nutritional business as well as higher manufacturing and supply chain costs across Abbott's businesses, including inflation and higher commodity and distribution expenses. The future extent to which inflation, supply chain disruptions, and unfavorable foreign exchange rates will have a material effect on Abbott's operating results is uncertain.

Research and development (R&D) expenses increased $110 million, or 16.2 percent, in the third quarter of 2022 and increased $183 million, or 9.2 percent, in the first nine months of 2022 compared to the prior year. The increase in the third quarter primarily reflects the impairment of certain in-process R&D intangible assets in the third quarter of 2022. The increase in the first nine months was also driven by higher spending on various projects to advance products in development partially offset by the favorable impact of foreign exchange.

Selling, general and administrative (SG&A) expenses decreased $36 million, or 1.3 percent, in the third quarter of 2022 compared to the prior year as higher selling and marketing spending to drive growth across various businesses was more than offset by the favorable impact of foreign exchange. SG&A expenses were virtually unchanged in the first nine months of 2022 compared to the prior year as higher selling and marketing spending was offset by the nonrecurrence of certain 2021 litigation costs and the favorable impact of foreign exchange.

Other (Income) Expense, net

Other income, net increased from $74 million of income in the third quarter of 2021 to $93 million of income in the third quarter of 2022 and from $214 million of income in the first nine months of 2021 to $253 million of income in the first nine months of 2022. The increases in the third quarter and the first nine months of 2022 were primarily due to higher income in 2022 related to the non-service cost components of net pension and post-retirement medical benefit costs. In the first nine months of 2022, the higher year-to-date income related to the non-service cost components was partially offset by the nonrecurrence of a gain on the sale of an equity method investment that occurred in the second quarter of 2021.

Interest Expense, net

Interest expense, net declined $37 million in the third quarter of 2022 and $61 million in the first nine months of 2022 versus 2021 due to the impact of higher interest rates and cash and short-term investment balances on interest income and the repayment of debt in the first quarter of 2022 partially offset by the impact of interest rate hedge contracts related to certain fixed-rate debt.

Taxes on Earnings

Taxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties. In the first nine months of 2022 and 2021, taxes on earnings include approximately $36 million and $97 million, respectively, in excess tax benefits associated with share-based compensation. In the first nine months of 2022, taxes on earnings also include approximately $20 million of tax expense as the result of the resolution of various tax positions related to prior years.

Tax authorities in various jurisdictions regularly review Abbott’s income tax filings. Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease approximately $75 million to $100 million, including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters.

Liquidity and Capital Resources September 30, 2022 Compared with December 31, 2021

The decrease in cash and cash equivalents from $9.8 billion at December 31, 2021 to $9.6 billion at September 30, 2022 primarily reflects share repurchases, the payment of dividends, capital expenditures, and the repayment of debt partially offset by the cash generated from operations in the first nine months of 2022. Working capital was $11.5 billion at September 30, 2022 and $11.1 billion at December 31, 2021. The increase in working capital in 2022 primarily reflects an increase in inventory partially offset by an increase in the current portion of long-term debt and a decrease in cash and cash equivalents.

In the Condensed Consolidated Statement of Cash Flows, Net cash from operating activities for the first nine months of 2022 totaled approximately $7.3 billion, a decrease of $211 million from the prior year primarily due to an increased investment in working capital partially offset by higher operating earnings. Net cash from operating activities includes $362 million of pension contributions and the payment of cash taxes of approximately $987 million in 2022. Net cash from operating activities includes $366 million of pension contributions and the payment of cash taxes of approximately $990 million in 2021.

On March 15, 2022, Abbott repaid the $750 million outstanding principal amount of its 2.55% Notes upon maturity.

In September 2019, the board of directors authorized the early redemption of up to $5 billion of outstanding long-term notes. As of September 30, 2022, $2.15 billion of the $5 billion authorization remains available.

At September 30, 2022, Abbott’s long-term debt rating was AA- by Standard & Poor’s Corporation and A1 by Moody’s Investors Service. Abbott expects to maintain an investment grade rating. Abbott has readily available financial resources, including lines of credit of $5.0 billion which expire in 2025.

In December 2021, the board of directors authorized the repurchase of up to $5 billion of Abbott’s common shares from time to time. The new authorization was in addition to the $1.081 billion portion of the share repurchase program authorized in 2019 that was unused as of December 31, 2021. In the first nine months of 2022, Abbott repurchased 25.7 million of its common shares for $2.965 billion which fully utilized the authorization remaining under the 2019 share repurchase program and a portion of the 2021 authorization. As of September 30, 2022, $3.116 billion remains available for repurchase under the 2021 repurchase program.

In each of the first three quarters of 2022, Abbott declared a quarterly dividend of $0.47 per share on its common shares, which represents an increase of 4.4 percent over the $0.45 per share dividend declared in each of the first three quarters of 2021.

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 which Abbott 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 2021 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 by Abbott 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" in our Annual Report on Form 10-K for the year ended December 31, 2021, 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.

PART I. FINANCIAL INFORMATION

(a)Evaluation of disclosure controls and procedures. The Chief Executive Officer, Robert B. Ford, and Chief Financial Officer, Robert E. Funck, Jr., evaluated the effectiveness of Abbott Laboratories’ disclosure controls and procedures as of the end of the period covered by this report, and concluded that Abbott Laboratories’ disclosure controls and procedures were effective to ensure that information Abbott is required to disclose in the reports that it files or submits with the Securities and Exchange Commission (the “Commission”) under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and to ensure that information required to be disclosed by Abbott in the reports that it files or submits under the Exchange Act is accumulated and communicated to Abbott’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b)Changes in internal control over financial reporting. During the quarter ended September 30, 2022, there were no changes in Abbott’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, Abbott’s internal control over financial reporting.

PART II. OTHER INFORMATION

Abbott is involved in various claims, legal proceedings and investigations as described in our Annual Report on Form 10-K for the year ended December 31, 2021 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c)Issuer Purchases of Equity Securities

1.These shares do not include the shares surrendered to Abbott to satisfy tax withholding obligations in connection with the vesting of restricted stock or restricted stock units.

2.On December 10, 2021, the board of directors authorized the repurchase of up to $5 billion of Abbott common shares, from time to time.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.