Abbott Laboratories 10-Q 2024-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2024

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 March 31, 2024, Abbott Laboratories had 1,739,633,759 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)

The accompanying notes to the condensed consolidated financial statements are an integral part of this statement.

Abbott Laboratories and Subs

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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 months ended March 31. Percent changes are versus the prior year and are based on unrounded numbers.

The 5.1 percent increase in total net sales during the first three months of 2024, excluding the impact of foreign exchange, reflected higher sales primarily in the Medical Devices and Established Pharmaceuticals segments, partially offset by a decrease in demand for Abbott’s rapid diagnostic tests to detect COVID-19. Abbott’s COVID-19 testing-related sales totaled $204 million during the first quarter of 2024 and $730 million during the first quarter of 2023. Excluding the impact of COVID-19 testing-related sales, Abbott’s total net sales increased 8.2 percent. Excluding the impacts of COVID-19 testing-related sales and foreign exchange, Abbott’s total net sales increased 11.3 percent. In the first quarter of 2024, Abbott’s net sales were unfavorably impacted by changes in foreign exchange rates as the relatively stronger U.S. dollar decreased total international sales by 4.8 percent and total sales by 2.9 percent.

The table below provides detail by sales category for the three months ended March 31. 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 15.4 percent in the first three months of 2024, led by growth in several countries and across several therapeutic areas, including respiratory, women's health, and central nervous system/pain management. Other Emerging Markets, excluding the effect of foreign exchange, increased by 8.2 percent in the first three months of 2024.

Excluding the impact of foreign exchange, total Nutritional Products sales in the first three months of 2024 increased 7.7 percent. In U.S. Pediatric Nutritionals, the 12.0 percent increase in sales in the first three months of 2024 reflects the continued progress in recovering market share following the voluntary recall of certain infant formula products in the first quarter of 2022, partially offset by a decrease in PediaSure® and Pedialyte® sales. Excluding the effect of foreign exchange, the 8.9 percent increase in International Pediatric Nutritional sales in the first three months of 2024 primarily reflects growth in Canada and several countries in Asia Pacific and Latin America.

Excluding the effect of foreign exchange, the increases of 3.0 percent in U.S. Adult Nutritionals and 6.4 percent in International Adult Nutritionals in the first three months of 2024 reflect growth of Ensure® and Glucerna® product sales.

The 15.5 percent decrease in Diagnostic Products sales in the first three months of 2024, excluding the impact of foreign exchange, was primarily driven by lower demand for COVID-19 tests. In Rapid Diagnostics, sales decreased 38.7 percent in the first three months of 2024, excluding the effect of foreign exchange, due to lower demand for COVID-19 tests. In the first three months of 2024 and 2023, Rapid Diagnostics COVID-19 testing-related sales were $197 million and $704 million, respectively. In the first three months of 2024, Rapid Diagnostics sales increased 4.4 percent, excluding COVID-19 testing-related sales, and increased 5.6 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.

In Core Laboratory Diagnostics, sales increased 5.9 percent in the first three months of 2024, excluding the effect of foreign exchange, due to the continued deployment of Abbott's Alinity® testing platform and 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 three months of 2024 and 2023, Core Laboratory Diagnostics COVID-19 testing-related sales were $3 million and $6 million, respectively. In the first three months of 2024, Core Laboratory Diagnostics sales increased 2.2 percent, excluding COVID-19 testing-related sales, and increased 6.2 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.

The 11.7 percent decrease in Molecular Diagnostics sales in the first three months of 2024, excluding the effect of foreign exchange, was primarily driven by lower demand for laboratory-based molecular tests for COVID-19. In the first three months of 2024 and 2023, Molecular Diagnostics COVID-19 testing-related sales were $4 million and $20 million, respectively. In the first three months of 2024, Molecular Diagnostics sales decreased 1.1 percent, excluding COVID-19 testing-related sales, and decreased 0.8 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.

Excluding the effect of foreign exchange, total Medical Devices sales increased 15.4 percent in the first three months of 2024, led by double-digit growth in Diabetes Care, Electrophysiology, Vascular, Structural Heart and Neuromodulation. 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 $1.5 billion in the first three months of 2024, which reflected a 23.3 percent increase, excluding the effect of foreign exchange, over the first three months of 2023 when FreeStyle Libre sales totaled $1.2 billion.

In January 2024, Abbott announced that Tandem Diabetes Care, Inc.'s t:slim X2™ insulin pump is the first automated insulin delivery system in the U.S. to integrate with Abbott's FreeStyle Libre 2 Plus sensor for treating diabetes. In February 2024, Insulet's Omnipod® 5 Automated Insulin Delivery System received CE Mark approval to be offered as an integrated solution with Abbott's FreeStyle Libre 2 Plus sensor.

During the first three months of 2024, procedure volumes continued to increase across the cardiovascular and neuromodulation businesses. In Structural Heart, the 13.0 percent increase in sales, excluding the effect of foreign exchange, primarily reflects continued growth of the MitraClip® and Navitor® products, as well as various structural intervention products. In Vascular, the 12.7 percent increase in sales, excluding the impact of foreign exchange, during the first three months of 2024 was primarily due to the acquisition of Cardiovascular Systems, Inc. (CSI) in April 2023 and double-digit growth in other endovascular sales.

In Electrophysiology, the 18.4 percent increase in sales, excluding the effect of foreign exchange, primarily reflects higher procedure volumes in the U.S., the Asia Pacific region and various European countries. In Neuromodulation, the 17.4 percent increase in sales, excluding the effect of foreign exchange, was driven by the EternaTM rechargeable spinal cord stimulation system for the treatment of chronic pain.

Abbott's gross profit margin percentage remained at 50.5 percent for the first quarter of 2024 compared to the first quarter of 2023 as the unfavorable effect of foreign exchange was offset by the favorable impacts of gross margin improvement initiatives, higher pricing in various businesses and product mix.

Research and development (R&D) expenses increased $30 million, or 4.5 percent, in the first quarter of 2024 compared to the prior year. The increase in R&D expenses in the first quarter of 2024 was driven by higher spending on various projects.

Selling, general and administrative (SG&A) expenses increased $197 million, or 7.1 percent, in the first quarter of 2024 compared to the prior year as higher SG&A spending to drive growth across various businesses was partially offset by the favorable impact of foreign exchange.

Restructuring Plans

In 2024, Abbott management approved plans to streamline operations in order to reduce costs and improve efficiencies in its nutritional business, including the discontinuation of its ZonePerfect® product line, and in its medical devices segment. In the first three months of 2024, Abbott recorded employee related severance and other charges of approximately $17 million, of which approximately $11 million was recorded in Cost of products sold, approximately $1 million was recorded in Research and development and approximately $5 million was recorded in Selling, general and administrative expenses. Payments related to these actions totaled $3 million in the first three months of 2024 and the remaining liabilities totaled $14 million at March 31, 2024. In addition, Abbott recognized asset impairment charges of approximately $30 million related to these restructuring plans.

Other (Income) Expense, net

Other income, net totaled $111 million in the first quarter of 2024 and 2023. An increase in income associated with the non-service cost components of net pension and post-retirement medical benefit costs and a favorable change in the fair value of contingent consideration liabilities were offset by charges related to investment impairments.

Interest Expense, net

Interest expense, net increased from $52 million in the first quarter of 2023 to $61 million in the first quarter of 2024 as interest income decreased from $101 million to $80 million due to a lower average cash balance in the first quarter of 2024 versus the first quarter of 2023. The decrease in interest income was partially offset by lower interest expense due to the repayment of approximately $2.25 billion of long-term debt in September and November of 2023.

Taxes on Earnings

Taxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties. In the first three months of 2024 and 2023, taxes on earnings include approximately $25 million and $3 million, respectively, in excess tax benefits associated with share-based compensation. In the first three months of 2024 and 2023, taxes on earnings also include approximately $10 million and $22 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 $82 million to $1.34 billion, including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters.

In September 2023, Abbott received a Statutory Notice of Deficiency (SNOD) from the IRS for the 2019 Federal tax year in the amount of $417 million. The primary adjustments proposed in the SNOD relate to the reallocation of income between Abbott’s U.S. entities and its foreign affiliates. Abbott believes that the income reallocation adjustments proposed in the SNOD are without merit, in part because certain adjustments contradict methods that were agreed to with the IRS in prior audit periods. The SNOD also contains other proposed adjustments that Abbott believes are erroneous and unsupported. Abbott filed a petition with the U.S. Tax Court contesting the SNOD in December 2023.

Abbott’s 2017 and 2018 Federal tax years are also currently under examination by the IRS with respect to income reallocation issues similar to those included in the 2019 Federal tax year. Abbott intends to vigorously defend its filing positions through ongoing discussions with the IRS, the IRS independent appeals process and/or through litigation as necessary.

Abbott reserves for uncertain tax positions related to unresolved matters with the IRS and other taxing authorities. Abbott continues to believe that its reserves for uncertain tax positions are appropriate.

The Organization for Economic Cooperation & Development (OECD) has proposed a two-pillared plan for a revised international tax system. Pillar 1 proposes to reallocate taxing rights among the jurisdictions in which in-scope multinational corporations operate. Abbott is continuing to analyze the Pillar 1 proposal. Pillar 2 proposes to assess a 15 percent minimum tax on the earnings of in-scope multinational corporations on a country-by-country basis. Numerous countries have enacted legislation to adopt the Pillar 2 model rules. A subset of the rules became effective January 1, 2024, and the remaining rules become effective January 1, 2025 or later. Abbott continues to analyze the Pillar 2 model rules. The full implementation of the model rules may have a material impact on Abbott’s condensed consolidated financial statements in the future.

Liquidity and Capital Resources

The decrease in cash and cash equivalents from $6.9 billion at December 31, 2023 to $6.3 billion at March 31, 2024 primarily reflects the payment of dividends and capital expenditures, partially offset by the cash generated from operations in the first three months of 2024. Working capital was $8.4 billion at March 31, 2024 and $8.8 billion at December 31, 2023. The decrease in working capital in 2024 primarily reflects a decrease in cash and cash equivalents, as well as an increase in the current portion of long-term debt, partially offset by decreases in accrued salaries and accounts payable.

In the Condensed Consolidated Statement of Cash Flows, Net cash from operating activities for the first three months of 2024 totaled approximately $1.0 billion, which reflects a decrease of $118 million from the prior year. The decrease reflects lower operating earnings and an increase in trade receivables in 2024. In the first three months of 2024, Net cash from operating activities includes $280 million of pension contributions and the payment of cash taxes of approximately $225 million. In the first three months of 2023, Net cash from operating activities includes $282 million of pension contributions and the payment of cash taxes of approximately $122 million.

At March 31, 2024, Abbott’s long-term debt rating was AA- by S&P Global Ratings and Aa3 by Moody’s Investors Service. Abbott expects to maintain an investment grade rating.

Abbott has readily available financial resources, including unused lines of credit that support commercial paper borrowing arrangements and provide Abbott with the ability to borrow up to $5 billion on an unsecured basis. On January 29, 2024, Abbott terminated its 2020 Five Year Credit Agreement (2020 Agreement) and entered into a new Five Year Credit Agreement (Revolving Credit Agreement). There were no outstanding borrowings under the 2020 Agreement at the time of its termination. Any borrowings under the Revolving Credit Agreement will mature and be payable on January 29, 2029 and will bear interest, at Abbott’s option, based on either a base rate or Secured Overnight Financing Rate (SOFR), plus an applicable margin based on Abbott’s credit ratings.

In the first quarter of 2024, Abbott declared a quarterly dividend of $0.55 per share on its common shares, which represents an increase of 7.8 percent over the $0.51 per share dividend declared in the first quarter of 2023.

Business Acquisition

On September 22, 2023, Abbott completed the acquisition of Bigfoot Biomedical, Inc. (Bigfoot), which will further Abbott's efforts to develop connected solutions for making diabetes management more personal and precise. The purchase price, the preliminary allocation of acquired assets and liabilities, and the revenue and net income contributed by Bigfoot since the date of acquisition are not material to Abbott's condensed consolidated financial statements.

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 complementary technologies to Abbott's portfolio of vascular device offerings.

The final allocation of the purchase price of the CSI acquisition resulted in the recording of two non-deductible developed technology intangible assets totaling $305 million; non-deductible in-process research and development of $15 million, which will be accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation; non-deductible goodwill of $369 million; net deferred tax assets of $46 million and other net assets of $116 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. Revenues and earnings of CSI included in Abbott's condensed consolidated financial statements since the acquisition date are not material to Abbott's consolidated revenue and earnings.

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 2023 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, 2023, 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, Philip P. Boudreau, 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 March 31, 2024, 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, 2023, including those described below (as of March 31, 2024, except where noted below). While it is not feasible to predict the outcome of such pending claims, proceedings, and investigations with certainty, management is of the opinion that their ultimate resolution should not have a material adverse effect on Abbott's financial position, cash flows, or results of operations.

In its 2023 Annual Report on Form 10-K, Abbott reported that its first U.S. patent infringement trial against DexCom, Inc. (DexCom) was scheduled for March 2024. In March 2024, the trial occurred, with the jury finding that DexCom's G6 products infringe one of Abbott's inserter patents. A further trial to determine damages will occur at a future date.

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.