Abbott Laboratories (ABT) — Q2 2018 Earnings Call Transcript

Good morning, and thank you for joining us. With me today are Miles White, Chairman of the Board and Chief Executive Officer; and Brian Yoor, Executive Vice President, Finance and Chief Financial Officer. Miles will provide opening remarks, and Brian will discuss our performance and outlook in more detail. Following their comments, Miles, Brian, and I will take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2018. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological, and other factors that may affect Abbott's operations are discussed in Item 1A, Risk Factors, through our Annual Report on Securities and Exchange Commission Form 10-K for the year ended December 31, 2017. 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. Please note that second quarter financial results and guidance provided on the call today for sales, EPS, and line items of the P&L will be for continuing operations only. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Unless otherwise noted, our commentary on sales growth refers to organic sales growth, which adjusts to the 2017 basis of comparison to exclude the impact of exchange and historical results for Abbott's Medical Optics and St. Jude's vascular closure businesses, which were divested during the first quarter of 2017 as well as the current and prior year sales for Alere, which was acquired on October 3, 2017. With that, I will now turn the call over to Miles.

Okay. Thanks, Scott, and good morning. Today, we reported ongoing earnings per share of $0.73, above our previous guidance range. We also raised our full year adjusted earnings per share guidance and narrowed the range to $2.85 to $2.91, which now reflects 15% growth at the midpoint. All four of our businesses exceeded expectations in the quarter and contributed to 8% organic sales growth overall, above our previous guidance range. Over the past several years, we've executed a very deliberate strategy of shaping our portfolio, both adding and pruning. At the same time, we've also invested organically in growth areas that have resulted in game-changing technologies such as FreeStyle Libre and Alinity. These steps have created leadership positions in attractive areas in health care, where innovation makes a big difference for the customers we serve and consequently for our performance. The strong results we're achieving are a direct result of this strategy. Over the past four quarters, we've averaged more than 7% organic sales growth, a true differentiator for a company our size. And with synergies from recent acquisitions and our focus on margin expansion, we're able to fully fund our growth opportunities while at the same time, growing earnings significantly faster than sales. We continue to forecast strong performance for the remainder of the year, as evidenced by the fact that we're raising our full year earnings guidance despite the recent strengthening of the U.S. dollar. Clearly, we'd be raising guidance a bit higher if based solely on the underlying performance of our business. I'll now summarize our second quarter results before turning the call over to Brian. I'll start with Diagnostics, where we achieved sales growth of 6.5% in the quarter, including 8% international growth in our core laboratory business. The pace of our Alinity launch in Europe continues to accelerate, driven by strong competitive win rates and even stronger retention rates. This business, which is already a global leader and growing faster than its market, is well-positioned for sustainable growth for years to come as we capture share and roll out the full suite of Alinity systems across additional geographies, including the U.S. In Rapid Diagnostics, second quarter sales were driven by infectious disease and cardiometabolic testing. The management team has done an excellent job integrating and stabilizing the business, identifying and realizing synergies, and implementing strategies to drive long-term growth. In Established Pharmaceuticals, or EPD, where we built leading positions in the fastest-growing pharmaceutical markets in the world, sales grew more than 12% in the second quarter. EPD continues to execute its unique strategy and is growing faster than the market in several of its priority countries, including India and China. Our focus on enhancing the depth and breadth of our product portfolios and local capabilities continues to strengthen our position and long-term growth opportunities across these markets. In Nutrition, sales increased 6.5% in the quarter, led by strong performance across our international business. We've now achieved several consecutive quarters of improving performance for this business. In Adult Nutrition, growth was led by our market-leading Ensure and Glucerna brands, most notably internationally, where we saw double-digit growth. In Pediatric Nutrition, strong performance was led by balanced growth across several countries in Asia, including Greater China and Latin America. And lastly, I'll cover Medical Devices, where sales grew more than 8%, led by strong double-digit growth in Electrophysiology, Structural Heart, and Diabetes Care. In Electrophysiology, growth of 22% was led by our advanced cardiac mapping and ablation portfolio as well as Confirm, the world's first and only smartphone-compatible insertable cardiac monitor. During the quarter, we further strengthened our product portfolio in the U.S. with the launch of our Advisor HD catheter, which includes a first-of-its-kind configuration to create highly detailed maps of the heart. In Structural Heart, strong growth across several areas of our portfolio was led by MitraClip, our market-leading device for the minimally invasive repair of the mitral heart valve. Earlier this month, we received U.S. FDA approval for our next-generation version of MitraClip, which includes design enhancements and an additional clip size to enable more patients to be treated. In Vascular, during the quarter, we received FDA approval for XIENCE Sierra, the newest generation of our leading coronary stent system, which will enhance our competitiveness in the U.S. market. And we also received national reimbursement for XIENCE Sierra in Japan during the quarter. Lastly, in Diabetes Care, sales grew over 30% for the third consecutive quarter, driven by FreeStyle Libre, our highly differentiated sensor-based glucose monitoring system. Libre offers a true mass-market opportunity with its unique combination of affordability, accessibility, and ease of use, and it's achieving a level of patient adoption that's unprecedented in the industry with more than 800,000 current users globally. So in summary, this was another very good quarter as we execute on our strategic priorities. All four of our businesses exceeded expectations for the quarter and contributed strong growth overall. And lastly, we started the year with strong double-digit EPS guidance. And despite recent currency shifts, today we're raising our outlook even higher based on the strength of our underlying performance. I'll now turn the call over to Brian to discuss our results and outlook for the year in more detail. Brian?

Thanks, Miles. As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis, which is consistent with our previous guidance. Turning to our results. Sales for the second quarter increased 8% on an organic basis, above our previous guidance range. Sales in Rapid Diagnostics, which was acquired late last year and is therefore not included in our organic sales growth results, achieved sales of $484 million. Exchange had a favorable year-over-year impact of 1.7% on second quarter sales. During the quarter, we saw the U.S. dollar strengthen versus several currencies, resulting in a less favorable impact on our sales this quarter compared to expectations had exchange rates held steady since the time of our earnings call in April. Regarding other aspects of the P&L, the adjusted gross margin ratio was 59.2% of sales. Adjusted R&D investment was 7.1% of sales, and adjusted SG&A expense was 30.7% of sales. Turning to our outlook for the full year 2018. Based on our strong performance and momentum, we're increasing our organic sales growth forecast to 6.5% to 7.5%. At current exchange rates, we would expect exchange to have a favorable impact of around 50 basis points on full year reported sales, which would be around 170 basis points lower than expectations based on exchange rates in April. In addition, we continue to expect Rapid Diagnostics to contribute sales of a little more than $2 billion. We continue to forecast an adjusted gross margin ratio of somewhat above 59% of sales, which includes underlying gross margin improvement across our businesses. We forecast adjusted R&D investment of around 7.5% of sales and adjusted SG&A expense of somewhat below 30.5% of sales. Turning to our outlook for the third quarter of 2018. We forecast an adjusted EPS of $0.73 to $0.75. We forecast organic sales growth of mid- to high single digits. And at current rates, we expect exchange to have a negative impact of approximately 2% on reported sales. And in addition, we expect Rapid Diagnostics to contribute sales of approximately $500 million in the third quarter. We forecast an adjusted gross margin ratio of around 59% of sales, adjusted R&D investment of around 7.5% of sales and adjusted SG&A expense of around 29.5% of sales. Before we open the call for questions, I'll now provide an overview of our third quarter organic sales growth outlook by business. For Established Pharmaceuticals, we forecast mid- to high single-digit sales growth, which takes into consideration our strong third quarter results last year when quarterly sales patterns in India were impacted by the implementation of the new tax system in that country. In Nutrition, we forecast mid-single-digit growth for the third quarter and are increasing our full year forecast for 2018 to mid-single digits as well. In Diagnostics, we forecast mid- to high single-digit sales growth. And in Medical Devices, we forecast high single-digit sales growth for the third quarter and are increasing our full year forecast for 2018 to high single digits as well, which reflects continued double-digit growth in several areas of the business. With that, we will now open the call for questions.

Miles, two dynamics that really stand out to us this quarter in addition to, obviously, the stronger organic number. Just international Nutrition recovery and obviously, the Libre progression. So can you just give us some details on sort of the drivers of Nutrition acceleration, the sustainability in the back half of the year? And then Libre, where it is relative to your plan and your comfort with maybe $100 million number in U.S. Libre this year, and I had a quick follow-up.

Okay. In the Nutrition business, I'd say, first of all, we're pleased with the success in performance. It's across the board. It's not in any one place. We've been through pretty detailed reviews and plans by geographic area and so forth. A lot of times, we're talking about Nutrition in terms of either the U.S. or China. In this case, it's actually not concentrated that way. It's really across the board in all the countries we're in. So I'm pretty pleased to see a uniform increase in performance and our plans taking hold and working in a lot of countries internationally. And like a lot of things, it's small things and a lot of them in coordination, blocking and tackling and just doing a better job with our marketing, our positioning in products, and so forth. So as far as sustainability goes, I feel like this business ought to be able to perform in a, call it, low to mid-single-digit range on a fairly sustainable basis. And if we can stay in the range we're in, that's pretty good. I feel pretty good about that. And it's up and down depending on promotions and given geographic areas from time to time. We'll see a competitor put on a heavy promotion in something like adult nutrition in the U.S., and it goes away. Share doesn't change much in that case. But long-term sustainable growth here. We continue to maintain our position as the market leader and even advance it in a number of cases. So I feel like it's pretty solid and look forward to it staying at a, call it, a mid-single-digit level. With regard to Libre, we can't be anything but pleased. It's going extremely well. We're on track with where we want to be in terms of patient acquisition and growth, etc. We have nothing to compare us to. No real market dynamics to compare ourselves to other than the acquisition of patients, and we expect to go out of the year with over 1 million patients, which is unprecedented and unseen. We think this is a mass-market sort of a product as opposed to a very niche medical device type product because there are so many people that are either insulin-dependent or trying not to be insulin-dependent. And so I think the opportunity here remains enormous. I think the growth is quite sustainable. There's quite a lot more to do to keep enhancing not only the product, the offering, the market, and so forth. We like the mix of patients we're getting. We like the geographic mix. We like the geographic advancements. The reimbursement has been very good. Just about everything about this is going better than planned. So I think this is one of the key big sustainable growth drivers of the company, along with the system family Alinity in the diagnostic area. We've got a number of growth drivers here. Either big innovative products like this or a collection of, call it, smaller innovative niches like we've got in – a niche is probably too small to describe it, but a lot of places where innovation makes a big difference in medical devices. And then you've got market growth. And in spite of the volatility at currencies with that affect our pharmaceutical or Nutrition business, the underlying market still had very strong growth. And I think all of our growth drivers look very reliable for the long term.

All right. And just another quick focus for me was the neuromod focus for the quarter. I mean, you're kind of anniversarying some fairly explosive growth in that business. But can you just discuss the relative change in neuromod growth this quarter, the drivers of it, what you're doing to address it? And do you believe this portfolio can get back to market growth?

You've raised a good point. There are a few factors at play here, one of which you noted. We had significant growth last year, which is part of the issue we’re facing; it was somewhat self-inflicted. Our business relies heavily on the engagement of our sales representatives with both physicians and patients. However, we did not increase our sales force in line with the rapid growth we achieved. When we finally did expand our sales team recently, it resulted in some disruption due to the way we executed it. The challenge we faced was creating disruption in our own sales as we added new salespeople and service personnel in the field. We had to reassign territories and conduct extensive training. Consequently, this has contributed to our compensation issues. I do believe we will return to market growth. This situation is temporary and caused by our own actions. We will address it and learn how to expand our sales force in a more seamless manner in tandem with our growth moving forward. We brought this on ourselves.

It appears that based on the guidance, you are anticipating similar growth in the second half after considering the Indian GST benefit we experienced in EPD during the first half. My question is, Miles, what makes you confident that you can maintain similar underlying growth in the second half, especially since the comparisons will become much more challenging? I also have a follow-up.

The fundamentals of our markets are quite strong. Our primary concern is currency fluctuations. Many companies are facing a stronger dollar, and for us, a considerable part of our business operates in high-growth markets where currencies are hard to hedge and can be volatile. We appreciate the growth and favorable trends in these markets, but we also recognize the occasional unpredictability of currency movements. As I mentioned earlier, we would likely increase our guidance even more, but we are cautious due to the currency challenges we anticipate for the rest of the year. Having experienced this before, we remain careful in the second half until we observe current currency trends, as predictions for the first half can be misleading. There has been significant currency fluctuation since the first quarter. We have already absorbed a considerable amount of negative currency impact, and we expect to face more in the latter half. However, we understand our situation well, and the fundamental dynamics of our business are solid. That said, things can be unpredictable. For instance, our pharmaceutical business is inconsistent. When certain factors create unusual comparisons in a given year, it affects our results the following year. This volatility is typical in our emerging markets, often leading to fluctuating growth rates. For example, last quarter was influenced by various factors in Russia, and this quarter, we're dealing with comparisons related to GST. We anticipate similar volatility going forward. We often ponder whether these changes are due to the core performance of the business or just timing and volatility. Nevertheless, growth rates in our emerging markets remain robust. We are addressing all the challenges we encounter, but we expect to see fluctuations in several areas. We noted slower growth in the neuromod sector this quarter, yet I believe the underlying market dynamics are still appealing and we expect strong performance moving forward. Next year, we will be looking back at this quarter for comparisons. Overall, I am confident in the positive trends across our businesses. I am very satisfied with the progress in Nutrition, the acceleration in Alinity within Diagnostics, and the consistent improvement of Libre. These are significant growth drivers. Although there may be slight fluctuations in growth rates, the overall trend remains strong. As I mentioned, we would likely raise guidance further if not for concerns regarding exchange rates.

That's helpful. And then for my follow-up, I had to follow up on David's question. Within med tech, there were some pockets of strength like Diabetes and Electrophysiology, but there were a couple of soft spots, like CRM. You've already addressed Neuromodulation and Heart Failure. So any more color on CRM and Heart Failure, how we should be thinking about those segments in the second half of the year?

Yes, there's a couple of dynamics going on with CRM. That one gets a fair amount of my attention, I would tell you. First of all, we got a little bit of a tough comparison to last year because we launched the low-voltage MRI-compatible products then and obviously, had stocking dynamics in the second quarter and so forth. But beyond that, there's also sort of an underlying battery replacement timing thing going on here because when St. Jude, prior to us in '15, '16, had its battery issues, it pulled forward a lot of replacements to replace those batteries. And so you see fewer replacements now because they were pulled forward. Whereas, in the de novo segment, where we got new patients, we're doing extremely well. So when you kind of take it apart, you look at it and say, "Well, if we're right about our diagnosis and analysis here, we should see this pick up in the future with a bit of a tailwind once we get past this replacement phenomenon relative to 2016." So we've looked at that. I think for the rest of this year, we're probably flat in CRM, but that's not a satisfactory position for us. So my expectation is we keep improving the growth rate here. We're not happy with what the growth rate looks like, but we think we understand why. With regard to Electrophysiology and others, they're doing great, as you pointed out. Heart Failure, we need a destination therapy claim, and I think we're going to be in great shape. I think it's that simple.

I just have two, one kind of big picture and one on a divisional level. From a big picture perspective, I think you guys have been very clear on the topic of durable revenue growth. I have a question on durable earnings growth. Your earnings growth has obviously been running well above your targets. As we go forward, if you're successful in driving the kind of revenue growth you think you can drive in this business, what does a durable earnings growth outlook look like for the company? Is it closer to 15% than 10%? Just any thoughts on that topic would be appreciated.

In these calls, I often get asked to predict future earnings growth. We aim for double-digit earnings growth each year, even in the long term. While we don’t always achieve it exactly, we come close, and in some years, we exceed it significantly. Our overall goal is to maintain a double-digit growth rate, as it’s essential for being recognized as a growth company. We’ve structured our business to focus on growth markets, products, and innovative areas, while still benefiting from our legacy businesses that, although growing more slowly, contribute positively. We seek incremental growth and profits that surpass our sales growth. This blend is intended to help us reach our double-digit target, guiding the company’s evolution over the last six years to enhance growth and eliminate less fitting elements. We strategically position ourselves in the right geographic and innovative markets. Our goal is to enhance bottom-line results through margin improvements and spending efficiency. I can’t precisely predict whether our growth will be 10%, 11%, 12%, 13%, 14%, or 15%, but we start every year with the expectation of maintaining that double-digit identity and integrate this into our product and business strategies. We know that circumstances can change throughout the year due to market dynamics, trade issues, product approvals or delays, and more. With our diverse mix of innovative and profitable businesses and a strong pipeline of new products, I see a sustainable long-term growth trajectory. Although we’re not seeing much organic growth from the Alere business yet, I’m pleased with its performance, which has exceeded our expectations. As we manage our various business components, we remain focused on growth. Our target is always double digits, but I’m not ready to specify how many double digits we might aim for in the coming year.

Fair enough. But I appreciate the detailed answer. And then one other thing I wanted to touch on really quickly was just if there's one business that seems like it's really done better than you thought at the beginning of the year, it's maybe nutritionals. So I was wondering if you could just talk about what's driven the improvement and how sustainable that is.

I believe it's not a straightforward situation. Our markets vary significantly. You might think that infant formula and Ensure are straightforward products, but they are actually complex at certain levels. Each market has its own dynamics, and while we face similar multinational competitors across many regions, their strategies and products differ from one market to another. There are also local and regional players to consider. For instance, in Vietnam, we compete with a strong state player, Vinamilk, which has a solid presence in rural areas, whereas we perform well in urban centers. This dynamic is specific to Vietnam. The challenges we encounter in the Middle East and other parts of Asia differ as well. Thus, there isn't a single factor at play. We could apply various analytical frameworks to categorize these countries, but it wouldn't capture the nuances; each country has its own characteristics. Overall, we needed to enhance several aspects. Our product focus was one area; having too many or too few offerings can be detrimental. We need specific innovations, key ingredients, and marketing strategies that resonate with consumers, healthcare professionals, and hospitals in each market. We conducted a thorough analysis of our top 15 countries to develop new strategies. As for management changes, there were a few instances, but not many. It ultimately comes down to our execution, and we have raised our performance standards, which is evident. We have a solid business. There was a period where we lost our momentum, but I'm pleased to see that the new top management has set a strong direction for our key regions. Beyond that, the focus is on refining various details to enhance execution. We have observed significant changes in distribution channels, including a substantial impact from online and digital marketing. We noticed a surge in specialized baby stores, for instance. We were initially slow to adapt to these shifts, and our competitors responded more swiftly, leaving us at a disadvantage. However, we now realize what we overlooked, and we are actively addressing it, which is making a noticeable difference. Consequently, our execution has improved significantly.

Miles, two questions on Libre. First, can you give us a little bit more color on the U.S. rollout and where you are with commercial coverage? And are you still comfortable with your Libre guidance for the year, which, in the U.S., I think is $90 million to $100 million? And then I had a follow-up.

Yes, we're completely comfortable with our guidance for the year and are on track. I would like to accelerate our progress even more, and as I've mentioned previously, we're investing significantly in capacity expansion to prepare for greater growth in the future. The industry as a whole is gaining more attention, and we have established a very profitable position at a price point that is accessible, which has made it well-received by patients, consumers, and reimbursement bodies. We have a strong value proposition with our product, especially due to our highly automated manufacturing process, which provides us with a significant cost advantage. Everything is running smoothly, and I'm really excited about this product's potential. Often, pharmaceutical or medical devices can be costly within the healthcare system, with limited patient numbers making it more difficult for recovery of costs. However, many people are living with diabetes, including myself, whether they are insulin-dependent or not. This product addresses a critical need. To reach a mass market, it must be accessible and affordable, making it easy for people to use and see its benefits. We're pleased with the distribution of type 1 versus type 2 users, with roughly two-thirds being type 1 and one-third type 2, which reflects the clinical effectiveness and advantages for both types of users. Our focus now is on how quickly we can grow. The consumer uptake, retention, and repeat usage all indicate positive trends. As I mentioned, we expect to reach over 1 million patients globally by the end of the year, with a considerable number in the U.S. We are currently the clear leader in this market, with no real competition. Our metrics show that we've achieved over 90% globally concerning sensor days and usage. The market opportunity is vast, and we’re focusing on our pace of growth. It’s encouraging to see a product that makes a significant impact, and this one is genuinely exciting for us.

And then let me just one quick follow-up. Can you discuss what's next in terms of features for Libre and timing?

I could, but I'm not going to set any expectations around that because I don't want to create any trigger points or talking points. There are several planned enhancements for the product, some of which are already available overseas. Navigating the FDA in this country presents different challenges. I don't want to delve into that discussion, but yes, we have many ideas for advancing the product further, Glenn.

Maybe starting with a broad question. In some of your earlier comments, you mentioned this lightly. As we consider your current priorities, should we expect you to mainly concentrate on continuing execution with your existing portfolio now that things are progressing? Do you believe the portfolio is in good shape as it stands, or are you contemplating more than just mergers and acquisitions? I'm always interested in your perspective on the strategic addition of technology or inorganic growth. Are you now more actively assessing the components of your existing portfolio and contemplating the possibility of making changes that could enhance growth or margins, either by integrating new elements or letting go of current ones?

I often receive this question in various forms during calls and investor visits, and it’s always interesting to consider. The truth is, we have intentionally shaped the company since the AbbVie split six years ago. This has not been a random or reactive process; it has been driven by a clear intention and a plan. At this stage, I believe some companies become overly focused on transactions. It's essential to run the company effectively rather than just treating everything as a transaction. Our primary focus is on organic operations and execution. It's vital to distinguish between our ongoing business operations and transactional activities. We aim to establish internal growth mechanisms, emphasizing productive R&D, innovation, and positioning in the right markets and segments. Our investors expect us to generate returns and grow the company, so we strategically place ourselves in areas that support these goals. While I don’t believe you ever reach a point of complete comfort, I think we are in a strong position with much of our strategic repositioning accomplished. Integration efforts for St. Jude and Alere are largely complete. We’ve moved beyond that stage, focusing now on capturing synergies and establishing R&D pipelines, particularly for Alere, which was lacking compared to St. Jude’s robust pipeline. Ongoing delivery of new technologies and product innovations is crucial. Over the last several years, we have built strong R&D pipelines in Abbott and St. Jude. We’re pleased with where we stand. A core objective is to achieve our strategic goals, and any potential transactions would be seen as opportunistic. We’re looking for opportunities that align strategically with our objectives, and we prefer to act from a position of choice rather than necessity. Currently, we’re focusing on reducing the debt we acquired during the St. Jude and Alere acquisitions. We are ahead of schedule in our debt repayment, on track to pay back $8 billion this year, aided by strong cash management and cash flow. We continue to pay dividends and plan to increase them, maintaining consistent capital expenditures that drive our growth. With significant investments in both Libre and Alinity, we’re in a good position financially and can afford to be selective about new opportunities. However, at this moment, I haven't identified any compelling prospects that require immediate attention. The biggest opportunities lie within our existing pipelines and businesses. The question is how quickly and significantly they will grow, but our outlook appears promising. Regarding debt reduction, opinions vary, but typically comfort levels hover around $15 billion to $20 billion. I recognize that even with $15 billion in debt, it’s still significant. Currently, share buybacks don’t seem economically viable or yielding benefits in the market, so we aim to make prudent decisions about timing. While we keep an eye on potential openings in Medical Devices and other areas, I wouldn't advise anyone to anticipate any major moves shortly. I'm satisfied with our current portfolio, which consists of strong, well-operating businesses at the onset of growth driven by new product and technological innovations. Our considerable presence in emerging markets should help us navigate challenges while capitalizing on healthcare developments in those regions. Overall, we’re in a position to be opportunistic without actively pursuing significant M&A or major transactions right now. From a financial perspective, my priority remains on paying down debt to maintain strategic flexibility. Our approach to capital allocation has been sound, and with ample cash and capital, we can exercise discretion. We receive ongoing input from investment bankers about potential opportunities, but I feel confident in our existing portfolio at this time.

Yes. Appreciate that comprehensive answer. Just last for me. You had a couple of notable...

MitraClip certainly allows us to reach more patients due to changes in size and increased flexibility with the product. Anytime we can make incremental improvements to our products, we enhance their reach, longevity, and competitiveness. This is all beneficial for our Structural Heart business, and we have more developments in our pipeline. XIENCE Sierra is showing excellent early performance in Europe and Japan. We recently launched it in the United States, and while I only have anecdotal feedback so far, I expect it to perform well there as well. Regarding the stent business, I anticipate growth in the low single digits at best. The competition is robust, and the market seems to believe that significant innovations have already taken place. There are incremental improvements possible, but this is a competitive market. Therefore, I view our expectations for growth as modest. I believe XIENCE Sierra will capture its market share and prove to be competitive, as we are already witnessing positive results in Europe and Japan. While I do not foresee major breakthroughs in this area, XIENCE Sierra is a vital and profitable part of our device business that we need to maintain our leadership and competitive edge.

Can we spend a moment or two looking at the Diagnostic business? Alinity has been launched in Europe for over a year. It's rolling out in the United States now. How should we think about that contributing and also the whole business holistically now that Alere is part of it?

Joanne, Alere is part of the Diagnostics business, but it isn't integrated into the core lab operations. What we have is a collection of businesses by major segments. Regarding Alere, it expands our presence in point of care and patient testing, as well as distributed testing. We are indeed in a very strong position. One of our goals is to renew, update, and enhance several products, and allocate more resources toward innovation and research and development. Currently, we have a robust portfolio, though I'd describe it as stable and experiencing low growth. However, we expect this to change over time. Since acquiring Alere, we have indicated it wouldn't be a high-growth area immediately, but we do anticipate growth. Integrating the business and establishing management has gone exceptionally well, much faster than expected. We are very pleased with how that business is performing and how the management team is leading it, and we look forward to its contributions to our future growth and innovation. Regarding Alinity, it's important to note that we do not control when customers decide to purchase or make decisions. These systems are large mainframe operations, and contracts typically last five, seven, or even ten years, representing long-term commitments. Transitioning from one competitor's system to another is not a quick process; it can extend over several months. Consequently, we are working according to their schedules. We are actively enhancing these processes and increasing receptiveness to new systems, especially during replacements. Our test menu in Europe is comprehensive and robust, and while our U.S. menu is not as extensive, it's rapidly growing with 150 to 200 different tests requiring individual approval and licensing. This puts us in a strong position in Europe, even though ramping up the menu takes time in the U.S. as well. We're tracking prospects, which have significantly increased over the past few quarters, and analyzing close rates. In competitive situations where we are already present, our win rate is approximately 97%. We are retaining our existing accounts while also expanding. In scenarios where we aim to replace competitor systems, our win rate exceeds 50%, which is quite promising. Decisions to switch long-standing systems require careful consideration, so a win rate like this is a strong indicator. All key metrics we monitor, including speed to deployment and testing performance, are showing exceptional progress. We are currently expanding our sales and service teams in Europe, and this recruitment is progressing quickly and effectively. It has been more successful than our previous experiences in neuromod, which serves as a valuable lesson. The ramp-up is accelerating, and we have a detailed plan outlining the pace of expansion for years ahead, with clear mapping for every country and account. Now, it's about execution and how quickly we can move forward, and everything is advancing very well. I am optimistic about the future of the Diagnostics business across all areas.

And my follow-up question is on your MitraClip franchise. We have the next generation product, which was just FDA-approved, and the COAPT trial reading out in September. Can you just give us an update on where that business is?

Yes. With respect to MitraClip, you can see the performance in the numbers there, and Structural Heart is doing quite well. We will get a read-out rate on the U.S. COAPT trial data later this year, very likely at the TCT Conference in September. So that will be a big event for us. We're also doing quite a bit with respect to geographic expansion as well. We received national reimbursement in Japan here in the second quarter. That's a nice opportunity for us, too. That market is quite sizable. So MitraClip is hitting on all cylinders with a lot of growth in front of it.

So Joanne, I'd wrap up. I like the way Scott wrapped that up. It's hitting on all cylinders. Obviously, in a company our size and diversity, everything doesn't hit on all cylinders all the time. But I'd say right now, I think for the markets we have and let's call it, the exchange and the currency volatility we've all got out there and so on, I think the company is performing exceptionally well and feel pretty good about all the underlying performance and the strength going forward here.

Miles, just a couple quick ones here for me. One on the EPD business and the situation in Russia, I think you had previously said you still expected that to be a headwind in 2Q. Did that come back earlier than expected? And then just quickly on Diagnostics, the legacy Abbott Point of Care business has slowed a little bit over the last few quarters. Is that a function of the integration work being done there? Or is there something else happening?

Well, let me take the Point of Care first. Yes, there's a couple of things going on there, and I'd say a little bit of it in integration. We had a number of management changes because we were populating the new Rapid Diagnostics business. So we had a lot of new over new over new there, and we may have lost touch with ourselves a little bit in the transition. And yes, there's a couple customer dynamics, big accounts and so forth, where we had some challenges that have since been addressed. So I expect that to improve. I don't think that's a long-term condition. But yes, we've had a couple of, let's just call it, slip-ups here that slowed our growth rate. And I think we'll be seeing that come back to a much healthier growth rate. With regard to Russia and EPD, I'm going to get a little bit of help here from Scott and Brian. But generally, I'd say, look, yes, it's as predicted. I think we're seeing the cycle pass through here in the second quarter, but I don't know that it's completely done. But everything we kind of thought would play out is or has. And so we're seeing that come back to, let's call it, a better position. You guys can add anything.

Yes. I would just add, our end customer demand remains in line with our expectations. We're tracking that. And I'd say, this quarter, we actually returned to growth in Russia, which is a good sign based on the stabilization we're seeing and how the destocking has progressed as we had planned thus far.

I'm actually kind of surprised we got it that close. Usually, you try to break these things and you're never right. And it's actually turned out to be more right than we thought.

Well, thank you, operator, and thank you for all of your questions. This now concludes Abbott's conference call. A webcast replay of the call will be available after 11 a.m. Central Time today on Abbott Investor Relations website at abbottinvestor.com. Thank you for joining us today.