Abbott Laboratories 10-Q 2023-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2023

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 June 30, 2023, Abbott Laboratories had 1,735,357,980 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 six months ended June 30. Percent changes are versus the prior year and are based on unrounded numbers.

The 8.9 percent decrease in total net sales during the second quarter of 2023, excluding the impact of foreign exchange, reflected the decrease in demand for Abbott’s rapid diagnostic tests to detect COVID-19, partially offset by higher growth across other businesses. Abbott’s COVID-19 testing-related sales totaled approximately $263 million during the second quarter of 2023 and approximately $2.3 billion during the second quarter of 2022. Excluding the impact of COVID-19 testing-related sales, Abbott’s total net sales increased 8.8 percent. Excluding the impacts of COVID-19 testing-related sales and foreign exchange, Abbott’s total net sales increased 11.9 percent. Abbott’s net sales were unfavorably impacted by changes in foreign exchange rates in the second quarter as the relatively stronger U.S. dollar decreased total international sales by 4.4 percent and total sales by 2.5 percent.

The 11.9 percent decrease in total net sales during the first six months of 2023, excluding the impact of foreign exchange, reflected lower demand for Abbott’s COVID-19 tests, partially offset by higher growth across other businesses. Abbott’s COVID-19 testing-related sales totaled approximately $993 million during the first six months of 2023 and approximately $5.6 billion during the first six months of 2022. Excluding the impact of COVID-19 testing-related sales, Abbott’s total net sales increased 6.9 percent. Excluding the impacts of COVID-19 testing-related sales and foreign exchange, Abbott’s total net sales increased 10.6 percent. Abbott’s net sales were unfavorably impacted by changes in foreign exchange rates in the first six months as the relatively stronger U.S. dollar decreased total international sales by 5.0 percent and total sales by 2.9 percent.

Due to the unpredictability of demand for COVID-19 tests, the future extent to which COVID-19 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 six months ended June 30, 2023. Percent changes are versus the prior year and are based on unrounded numbers.

Note: The Acelis Connected Health business was internally transferred from Rapid Diagnostics to Heart Failure on January 1, 2023. As a result, $57 million of sales for the first six months of 2022 were moved from Rapid Diagnostics to Heart Failure.

Excluding the unfavorable effect of foreign exchange, sales in Key Emerging Markets for Established Pharmaceutical Products increased 10.7 percent in the first six months of 2023, led by growth in several countries, including India, China, and Brazil, and across several therapeutic areas, including women's health, respiratory, and central nervous system/pain management. Other Emerging Markets, excluding the effect of foreign exchange, increased by 16.3 percent in the first six months of 2023.

Excluding the impact of foreign exchange, total Nutritional Products sales in the first six months of 2023 increased 8.5 percent. The 28.6 percent increase in U.S. Pediatric Nutritional sales in the first six months of 2023 reflects the unfavorable impact of the voluntary recall of certain infant formula products in the first quarter of 2022 as well as progress in recovering market share in this business following the voluntary recall, partially offset by a decrease in 2023 Pedialyte® sales. Excluding the effect of foreign exchange, the 0.7 percent increase in International Pediatric Nutritional sales in the first six months of 2023 primarily reflects growth in various markets offset by the impact of exiting the pediatric nutrition business in China.

Excluding the effect of foreign exchange, the increases of 5.8 percent in U.S. Adult Nutritionals and 4.8 percent in International Adult Nutritionals in the first six months of 2023 were led by growth of Ensure® products.

The 46.0 percent decrease in Diagnostic Products sales in the first six months of 2023, excluding the impact of foreign exchange, was driven by lower demand for COVID-19 tests. In Rapid Diagnostics, sales decreased 67.9 percent in the first six months of 2023, excluding the effect of foreign exchange, due to lower demand for COVID-19 tests. In the first six months of 2023 and 2022, Rapid Diagnostics COVID-19 testing-related sales were $954 million and $5.3 billion, respectively. In the first six months of 2023, Rapid Diagnostics sales increased 3.3 percent, excluding COVID-19 testing-related sales, and increased 5.7 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.

In Core Laboratory Diagnostics, sales increased 7.3 percent in the first six months of 2023, excluding the effect of foreign exchange, due to the higher volume of routine diagnostic testing performed in hospitals and other laboratories, partially offset by lower test sales for the detection of COVID-19 IgG and IgM antibodies. In the first six months of 2023 and 2022, Core Laboratory Diagnostics COVID-19 testing-related sales were $11 million and $40 million, respectively. In the first six months of 2023, Core Laboratory Diagnostics sales increased 4.2 percent, excluding COVID-19 testing-related sales, and increased 8.6 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.

The 53.3 percent decrease in Molecular Diagnostics sales in the first six months of 2023, excluding the effect of foreign exchange, was driven by lower demand for laboratory-based molecular tests for COVID-19 as well as lower demand for respiratory testing compared to significantly higher-than-usual demand in the first six months of 2022. In the first six months of 2023 and 2022, Molecular Diagnostics COVID-19 testing-related sales were $28 million and $321 million, respectively. In the first six months of 2023, Molecular Diagnostics sales decreased 16.5 percent, excluding COVID-19 testing-related sales, and decreased 14.5 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.

Excluding the effect of foreign exchange, total Medical Devices sales grew 13.9 percent in the first six months of 2023, led by double-digit growth in Diabetes Care, Structural Heart, Heart Failure, Neuromodulation and Electrophysiology. Higher Diabetes Care sales were driven by continued growth of FreeStyle Libre®, Abbott’s continuous glucose monitoring system, in the U.S. and internationally. FreeStyle Libre sales totaled $2.5 billion in the first six months of 2023, which reflected a 25.1 percent increase, excluding the effect of foreign exchange, over the first six months of 2022 when FreeStyle Libre sales totaled $2.1 billion.

During the first six months of 2023, procedure volumes increased across the cardiovascular and neuromodulation businesses. In Structural Heart, the 15.5 percent increase in sales, excluding the effect of foreign exchange, reflects continued growth of the MitraClip® product along with contributions from recently launched products, including Amulet®, Navitor®, and TriClip®. In Vascular, the 7.9 percent increase in sales, excluding the impact of foreign exchange, during the first six months of 2023 reflects the acquisition of Cardiovascular Systems, Inc. (CSI) on April 27, 2023 as well as double-digit growth in endovascular sales.

In Electrophysiology, the 12.8 percent increase in sales, excluding the effect of foreign exchange, primarily reflects higher procedure volumes in the U.S., China, and various European countries. In Neuromodulation, the 13.8 percent increase in sales, excluding the effect of foreign exchange, was driven by the recent launch of the Eterna® rechargeable spinal cord stimulation system for the treatment of chronic pain along with market growth compared to the prior year period.

In the first six months of 2023, Medical Devices received various product approvals. In January 2023, Abbott announced that the U.S. Food and Drug Administration (FDA) had approved Navitor, Abbott's second-generation transcatheter aortic valve implantation system to treat people with severe aortic stenosis who are at high or extreme risk for open-heart surgery. In March 2023, Abbott's Freestyle Libre continuous glucose monitoring system received U.S. FDA clearance for integration with automated insulin delivery systems. In March 2023, the U.S. FDA approved Abbott's Epic® Max stented tissue valve to treat people with aortic regurgitation or stenosis. In May 2023, Abbott received U.S. FDA approval of its TactiFlex® Ablation Catheter, Sensor Enabled™, the world's first ablation catheter with a flexible electrode tip and contact force sensing technology to treat patients with atrial fibrillation. In June 2023, Abbott received U.S. FDA approval of its AVEIR® dual chamber leadless pacemaker system, the world's first dual chamber leadless pacing system that treats people with abnormal or slow heart rhythms.

The gross profit margin percentage was 50.1 percent for the second quarter of 2023 compared to 51.7 percent for the second quarter of 2022 and 50.3 percent for the first six months of 2023 compared to 52.8 percent for the first six months of 2022. The decrease in the quarter and first six months of 2023 reflects the unfavorable effects of lower sales of COVID-19 tests, foreign exchange, and higher costs for various manufacturing inputs, partially offset by the impact in 2022 of the voluntary product recall in the Nutritional business and the impact in 2023 of gross margin improvement initiatives.

Research and development (R&D) expenses increased $31 million, or 4.5 percent, in the second quarter of 2023 and decreased $12.0 million, or 0.9 percent, in the first six months of 2023 compared to the prior year. The increase in R&D expense in the second quarter of 2023 was primarily driven by impairment charges related to in-process R&D assets acquired in previous business combinations, partially offset by the favorable impact of foreign exchange. The decrease in R&D expense in the first six months of 2023 was primarily driven by the favorable impact of foreign exchange and the level of spending on various projects, partially offset by the impairment charges recorded in the second quarter of 2023.

Selling, general and administrative expenses decreased $17 million, or 0.6 percent, in the second quarter of 2023, and decreased $42 million, or 0.8 percent, in the first six months of 2023 compared to the prior year. Higher selling and marketing spending to drive growth across various businesses was offset by the favorable impact of foreign exchange. The decrease during the first six months of 2023 also reflects the nonrecurrence of 2022 expenses related to the voluntary product recall in the Nutritional segment.

Other (Income) Expense, net

Other income, net increased from $82 million of income in the second quarter of 2022 to $176 million of income in the second quarter of 2023 and from $160 million of income in the first six months of 2022 to $287 million of income in the first six months of 2023. The increases in the second quarter and the first six months of 2023 reflect higher income in 2023 related to the non-service cost components of net pension and post-retirement medical benefit costs, as well as favorable changes in the fair value of contingent consideration liabilities related to previous business combinations.

Interest Expense, net

Interest expense, net declined $45 million in the second quarter of 2023 and $110 million in the first six months of 2023 versus 2022 due to the favorable impact of higher interest rates on interest income, partially offset by the negative 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 six months of 2023 and 2022, taxes on earnings include approximately $9 million and $32 million, respectively, in excess tax benefits associated with share-based compensation. In the first six months of 2023 and 2022, taxes on earnings also include approximately $62 million and $27 million, respectively, 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 $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 June 30, 2023 Compared with December 31, 2022

The decrease in cash and cash equivalents from $9.9 billion at December 31, 2022 to $7.8 billion at June 30, 2023 primarily reflects the payment of dividends, share repurchases, the cost of a business acquisition and capital expenditures, partially offset by the cash generated from operations in the first six months of 2023. Working capital was $9.2 billion at June 30, 2023 and $9.7 billion at December 31, 2022. The decrease in working capital in 2023 primarily reflects a decrease in cash and cash equivalents, partially offset by an increase in inventory and decreases in accounts payable and other accrued liabilities.

In the Condensed Consolidated Statement of Cash Flows, Net cash from operating activities for the first six months of 2023 totaled approximately $2.3 billion, a decrease of $2.1 billion from the prior year. The decrease is primarily due to the decline in operating earnings and an increase in cash taxes paid. Net cash from operating activities in 2023 includes $290 million of pension contributions and the payment of cash taxes of approximately $837 million. Net cash from operating activities in 2022 includes $348 million of pension contributions and the payment of cash taxes of approximately $657 million.

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 June 30, 2023, $2.15 billion of the $5 billion authorization remains available.

At June 30, 2023, Abbott’s long-term debt rating was AA- by Standard & Poor’s Corporation and Aa3 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 the first six months of 2023, Abbott repurchased approximately 7 million of its common shares for $725 million. As of June 30, 2023, $1.709 billion remains available for repurchase under the share repurchase program authorized by the board of directors in December 2021.

In each of the first two quarters of 2023, Abbott declared a quarterly dividend of $0.51 per share on its common shares, which represents an increase of 8.5 percent over the $0.47 per share dividend declared in each of the first two quarters of 2022.

Business Acquisition

On April 27, 2023, Abbott completed the acquisition of CSI for $20 per common share, which equated to a purchase price of $851 million. The transaction was funded with cash on hand and accounted for as a business combination. CSI's atherectomy system, which is used in treating peripheral and coronary artery disease, adds complimentary technologies to Abbott's portfolio of vascular device offerings.

The preliminary allocation of the purchase price of the acquisition resulted in the recording of a non-deductible developed technology intangible asset of $290 million; non-deductible in-process research and development of $60 million, which will be accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation; non-deductible goodwill of approximately $340 million; net deferred tax assets of approximately $18 million and other net assets of approximately $143 million. The goodwill is identifiable to the Medical Devices reportable segment and is attributable to expected synergies from combining operations, as well as intangible assets that do not qualify for separate recognition. Allocation of the purchase price of the acquisition will be finalized when the valuation of assets and liabilities is completed. Revenues and earnings of CSI included in Abbott's consolidated financial statements since the acquisition date are not material to Abbott's consolidated revenue and earnings. If the acquisition of CSI had taken place as of the beginning of 2022, consolidated net sales and earnings would not have been significantly different from reported amounts.

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 2022 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, 2022, 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 June 30, 2023, 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, 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.

On May 1, 2023, Andrea F. Wainer, Executive Vice President, Rapid and Molecular Diagnostics, adopted a plan for the sale of securities of Abbott that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). Ms. Wainer's Rule 10b5-1 plan provides for the sale of 5,400 shares and the exercise of up to 111,606 stock options until June 30, 2024.

The Illinois Department of Commerce and Economic Opportunity designated Abbott as an Illinois High Impact Business (HIB) through June 2043. Dividends paid by a corporation that is designated as a HIB and conducts business in a foreign trade zone may be eligible for a subtraction from base income for Illinois income tax purposes.

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.