Welcome to Abbott's first quarter 2018 earnings conference call. All participants will be able to listen only until the question and answer portion of this call. During the question and answer session, you will be able to ask your question by pressing the star one keys on your touchtone phone. Should you become disconnected throughout this conference call, please redial the number provided to you and reference the Abbott earnings call. This call is being recorded by Abbott. With the exception of any participant's questions asked during the question and answer session, the entire call, including the question and answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's express written permission. I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations.
Good morning. 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. 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, to our annual report on Securities and Exchange Commission Form 10-K for the year ended December 31st, 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 first 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 the 2017 basis of comparison to exclude the impact of exchange and historical results for Abbott 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 3rd, 2017. With that, I will now turn this call over to Miles.
Okay, thanks, Scott, and good morning. Today, we reported the results of a very strong quarter. Ongoing earnings per share were $0.59 at the high end of our guidance range and reflecting 23% growth. Sales increased 7% on an organic basis in the quarter, led by continued strong growth in medical devices and improving performance in our nutrition business. Our full year 2018 adjusted earnings per share guidance of $2.80 to $2.90 remains unchanged and reflects mid-teens growth at the midpoint. Back in January, I commented that we were entering the year with strong momentum, which has continued as we forecasted. The strong growth we're achieving is a direct result of the steps we've taken to position the company in the most attractive areas of healthcare, as well as the outstanding productivity of our new product pipeline.
I'll now summarize our first quarter results before turning the call over to Brian. I'll start with diagnostics, where we achieved sales growth of 5.5% in the quarter. We remain focused on accelerating the launch of our new Alinity systems in Europe, where we've made good progress on test menu expansion and where we're seeing increasing competitive win rates. Diagnostics has been our most consistent growth business over the past several years, and Alinity is a highly differentiated platform which will build upon that strong track record for years to come. In rapid diagnostics, which we created in the fourth quarter of last year with the acquisition of Alere, we achieved sales of nearly $560 million, somewhat ahead of our expectations, and partially due to the strong flu season in the U.S.
This is a very attractive area of diagnostics testing, and our integration of this business into Abbott continues to go well as we put in place the building blocks to drive sustainable growth and margin expansion. In nutrition, sales increased more than 4.5% in the quarter, marking the fifth consecutive quarter of improving performance. Sales growth this quarter was balanced across our pediatric and adult nutrition businesses. In pediatric nutrition, above-market growth in the U.S. was led by Similac, our leading infant formula brand. Internationally, performance improved across several countries, and we continued to see stable market conditions in China following the implementation of new food safety regulations in that country at the beginning of this year. In adult nutrition, sales growth was led by our market-leading Ensure and Glucerna brands in both the U.S. and internationally.
In Established Pharmaceuticals or EPD, sales growth of 7% was led by double-digit growth in India, China, and Brazil. Our unique branded generics model was built to focus specifically on key emerging countries with socioeconomic and competitive conditions that provide a favorable environment for long-term growth. We serve each of these markets with a broad product offering tailored to address local needs. This unique and successful approach positions EPD to continue delivering superior performance in the fastest-growing pharmaceutical markets in the world. Lastly, I'll cover medical devices, where sales grew nearly 10%, led by strong growth in electrophysiology, structural heart, neuromodulation, and diabetes care. In electrophysiology, growth of 19% was led by market uptake of several recently launched products, including our EnSite Precision Cardiac Mapping system and Confirm, the world's first and only smartphone-compatible insertable cardiac monitor, which helps physicians remotely identify cardiac arrhythmias.
First quarter growth by our market-leading portfolio, which includes several recently launched products that offer improved relief for patients suffering from chronic pain and movement disorders. I'll wrap up with diabetes care, where sales grew over 30% in the quarter, driven by FreeStyle Libre, our highly differentiated sensor-based glucose monitoring system. Libre now has over 650,000 users across the globe, which represents an unprecedented level of patient adoption in the industry. As we've discussed previously, we're investing significant capital to expand manufacturing capacity, which will allow us to meet anticipated demand over the coming years. Libre offers a true mass market opportunity with its unique combination of affordability, accessibility, and ease of use, and we're positioning ourselves to maximize its impact. In summary, as expected, the momentum we carried into the year has continued, as reflected by our strong first quarter results.
We continue to see significant growth contributions from a number of recently launched products across our portfolio, and we're well-positioned to achieve our financial objectives for the year, including top-tier sales growth and mid-teen EPS growth as we continue to make investments to sustain our growth momentum into the future. I'll now turn the call over to Brian to discuss our results and outlook for the year in more detail. Brian?
Okay, 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 the guidance we provided back in January. Turning to our results, sales for the first quarter increased 6.9% on an organic basis, and exchange had a positive impact of 4.2% on sales. The favorable impact of exchange rates on sales this quarter was driven primarily by the strengthening of the euro and other developed market currencies, which considering our cost base and hedging program, has minimal fall through and impact on our earnings. Regarding other aspects of the P&L, the adjusted gross margin ratio was 59.3% of sales. Adjusted R&D investment was 7.4% of sales. Adjusted SG&A expense was 33.2% of sales. All in line with our previous guidance.
Turning to our outlook for the full year 2018, we continue to forecast organic sales growth of 6%-7% and based on current rates, would expect exchange to have a favorable impact of a little more than 2% on full year reported sales, with more than half of this impact driven by strengthening of the euro. 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, reflecting underlying gross margin improvement across our businesses, adjusted R&D investment of around 7.5% of sales, and adjusted SG&A expense of somewhat above 30.5% of sales. Turning to our outlook for the second quarter of 2018, we forecast an adjusted EPS of $0.70-$0.72.
We forecast organic sales growth of 6%-7%, and at current rates, would expect exchange to have a positive impact of a little below 3% on reported sales. In addition, we expect rapid diagnostics to contribute sales of approximately $500 million in the second 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 somewhat above 30.5% of sales. Before we open the call for questions, I'll now provide an overview of our second quarter organic sales growth outlook by business. For established pharmaceuticals, we forecast double-digit sales growth. In nutrition, we forecast low to mid-single digit sales growth. In diagnostics, we forecast a modest sequential improvement in sales growth of around 6%.
In medical devices, we forecast sales to increase mid to upper single digits, which reflects continued double-digit growth in several areas of the business. With that, we will now open the call for questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star and then the number 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. We kindly ask that if you are currently using a speakerphone, to please pick up the handset before asking your question. Again, that's star, then 1 to ask a question. Our first question comes from Mike Weinstein from JPMorgan. Your line is open.
Thank you. Miles, good morning.
Good morning.
Let me start if I can on a couple of product launches and was hoping you could provide some additional color on how the U.S. launches are going for both Libre and Confirm. Second, the EPD business had a slightly weaker quarter this quarter than was expected. Brian Yoor's commented in his second quarter guidance that he expects the business to rebound to double digits in the second quarter. If you can just call out if there are anything in particular that might have impacted the first quarter that you would view as one-time in nature. Thanks.
Okay. Thanks for the question, Mike. Before I go into those answers, I'd like to take a minute and just acknowledge you as an analyst in our space for just the terrific job you've done over the years and acknowledge your change of career. We won't have you on these calls anymore, but you've always had great questions and you always hit the right points and good luck to you in whatever you're going to do, and we'll miss you here.
Thank you, Mike.
Let's start with Libre. The Libre launch, I'd say, has gone exceptionally well and is going exceptionally well. We obviously expect it to keep going exceptionally well worldwide. As I mentioned, we're up over 650,000 patients at this point. We're adding over 50,000 patients a month. We added about 150,000 just over that this last quarter. If I look at the acquisition rate of patients, we expect to obviously be over 1 million patients at year-end and trending in a pretty healthy fashion. I'm pretty gratified by that growth. It's true globally, and I'd say in terms of color, the mix of patients is very strong. Our reimbursement, I think we're reimbursed at about two-thirds of all sales now internationally. That's strong. We keep getting reimbursement approvals in countries.
I think that the value proposition of Libre, the affordability is particularly strong and appealing to patients as well as the performance, ease of use of the product and so forth. We get a lot of feedback that way. About two-thirds of the patient base are type 1 diabetics and about a third are type 2 patients. We're seeing validation of the appeal and use of the product in both segments. We're investing a significant amount of capital in capacity expansion, anticipating that the growth legs on this product are going to be long because it's got a real mass market appeal and fit. There are, as you know, tens of millions of diabetics and tens of millions of insulin-using diabetics, the majority of which are actually international.
In our case, so far, the vast majority of our patients are international, but we're off to a strong start in the U.S. as well. At this point, we're a little over 50,000 patients in the U.S. and trending strong. I think as far as starts go and continuations and expansions and so forth, it's all good news. We're running hard and the reception of patients here and abroad has been exceptional. I think that the opportunity in the category is quite large, and the category gets a lot of attention. For us as a future growth driver, we think it's pretty strong. I'm not sure what other detail to fill in, but nice thing is it's the kind of growth challenge you like to have. We're not having to over-invest in SG&A because the customers are our strongest marketers.
Given social media and so forth, that's been a huge plus. Everything about it is doing really well, and I think we'll see this be a major growth driver for the company for quite a long time. With regard to Confirm, also off to a strong start. Physician feedback's been very positive. It's a simple procedure, and I think one of the appeals, it is the only device that is smartphone compatible. It's a nice market opportunity, and it's been a nice bump up in the growth rate. I know there's competition out there. There's competition in every category we're in. Competition always makes you pay attention to innovation and next steps and next improvements and so forth. I suspect we'll see response to the success of this product. But in the meantime, doing quite well. Finally, EPD. You know what?
It falls into the category for me of it's always something. Given the focus on whether it's emerging or high growth markets, we seem to have a given market that affects our EPD or even our nutrition business from time to time somewhere. In this particular case, it's Russia. In the case of Russia, the market growth rate has been slowing. We still see that in our IMS data and so forth. As you know, we have two businesses in EPD there, the EPD brand and the Veropharm brand. The Veropharm brand has withstood that slowing market growth rate far better than the EPD brand because a lot of it is hospital-based, whereas the EPD brand is more pharmacy-based. There's been a lot of expansion of pharmacies, but that doesn't mean that there's expansion of prescriptions.
The overall market, I think, is one of temporary distribution channel dynamics as those pharmacies expanded, and that has now ceased at that rate. The market, I think, will stabilize in terms of distribution channels, outlets, and so forth. That's created a little disruption in that market temporarily, and that's all this is that in Russia. Without Russia, we'd be in the 8.5%-9% range as a business, and this would look healthier. I'd say you got that and then maybe a small dynamic in Mexico where we've seen a couple of distributors consolidate. When distributors consolidate, there's a little more negotiating power and so forth. We've seen a little bit of disruption in Mexico. To be honest, that one hardly makes the radar screen of impacting the overall global growth of EPD.
The biggest issue was this quarter Russia. I think we'll still see Russia impact in the numbers next quarter. I'd say we're probably going to look at the same kind of a number particularly given the Russia impact next quarter, then I think we'll start to see it turn.
That's good color. Miles, let me just ask one follow-up. You grew 6.9% organic this quarter. Your guidance for the year is 6%-7%. If there's probably a bigger picture question people have, it's on sustainability. Would you mind just spending a minute, it's obviously only April of 2018, but just could you just give us your thoughts on the ability to sustain this type of revenue growth?
Yeah, I think overall, I'd say, this range of revenue growth we're going to sustain. I know that I indicated on the last call, I expect to be at the higher end of this and each day that goes by, whether you have a Russia or a tweet or something that affects the expectations in the market, it adjusts. I'm less concerned about a couple of tenths of a point of growth, and I'm less concerned about the details of each quarter. I pay attention to that because obviously it matters to investors. I'm much more concerned about the long-term sustainability of the overall growth trajectory of the company, and that I'm pretty confident in. I'm not sure I can predict every quarter to the tenth.
I would tell you that the overall sustainable growth of the company, I feel pretty confident about, and particularly in this range, for now, for this year and beyond, because there is so much new product launch and so much sustainable launch. Just between the series of Alinity analyzers and Libre and the new products launched by our medical device groups, there's an awful lot of new product tracking here. That's not just a temporal thing that goes a couple of months or a couple of quarters. Our objective was to make sure that we had really healthy, robust R&D pipelines and a good cadence of new product launches so we could sustain growth organically. Then whether we ever do anything else opportunistically in M&A and so forth becomes purely that, opportunistic and very strategic.
I think with the underlying baseline, I'm pretty confident of the current sales trajectory of the company, and I think we've got some pretty solid validation points here with the performance of the new products that have launched that are quite visible, quite trackable, quite predictable, to validate the growth prospects going forward. Whether it's 6.5, 6.7, 6.9, it might vary quarter-to-quarter because lots of things happen quarter-to-quarter. Overall, I think that growth range is pretty doable.
That's excellent. Thank you, Miles.
Thank you. Our next question comes from David Lewis from Morgan Stanley. Your line is open. Please check that your line's not on mute.
Hello?
Hello? Hi, David.
Sounds like David's having some technical issues.
He appears to have a technical problem.
Are you there, David?
Maybe we move on and try to work him back in as we go, Crystal.
Okay, great. Our next question will come from Larry Biegelsen from Wells Fargo. Your line is open.
Good morning, guys. Thanks for taking the question. I wanted to start with nutrition and then ask a couple follow-up questions on Libre. Obviously, the bright spot here in the quarter was the acceleration in nutrition. Miles, can you talk about the sustainability of that? The international pediatric nutrition improved, and also the adult nutrition business in the U.S. also improved. Those were areas that saw some challenges last year. I was just curious as to why you were guiding to low to mid-single digits for Q2, and then I had a follow-up on Libre.
Okay. Let me deal with nutrition first. I think for the long term, I'd be cautious about setting expectations much higher than low to mid-single digits in this business because markets around the world have slowed to a degree. They're not growing at as high a growth rate as they have historically. They're still healthy markets, and I think particularly some international, call it emerging markets and so forth, still have some hefty growth opportunity. I think overall, when you put it all together, it's probably a low to mid-single digit business from a growth standpoint. It is profitable. It does generate a lot of cash, and it is a fundamentally very strong and valuable business. I'm happy about that.
I would say that we've seen some sequential improvement because we've been attending to what I think have been adjustments to how we market, how we sell, adjusting to digital channels or online channels and so forth in some markets where there's been a tremendous amount of distribution channel shift and change. China sticks out. It's been true a lot of places. I think that it's a highly competitive business in a branded space. We've reacted to that pretty well. I give our U.S. team a lot of credit for how well they've done in the pediatric and adult space. It's extremely competitive, and it's competitive in both pediatric and adults, not just pediatric in the U.S. We will see from time to time a competitor try to pulse advertising or other things to take momentary share.
I think overall, we've not only sustained our position but steadily grown it from a share standpoint. I certainly see that in the U.S., so I'm feeling pretty good about how the U.S. is doing overall. In some markets where we've had some either competitive issues or just disruption, like the disruption in China for the last two years over this change in food safety and so forth, the law, I think we've responded to that pretty well, and I think we're seeing that stabilize. As I said, we're making adjustments in how we market, what channels we go to, where the emphasis is. I think we've got some stability in China. I would say we also have a lot of ambition to do better competitively in China which we're getting our hands around.
Right now, I think if we're able to see steady, stable growth in this business at the rate we're at, or even sequential improvement going forward, that'd be pretty good. I wouldn't want to get out over the tips of my skis on that and predict a whole lot faster or higher. Right now, I'm happy that it's stable and headed north.
That's very helpful. Then on Libre, clearly, the launch is off to a good start, in the U.S., the international numbers have been spectacular. I think investors want to get some confidence about the sustainability of that. I guess my question is first, earlier in the year, you seemed comfortable with $50 million-$100 million for the U.S. in 2018. Is that still the case? Second, what can you say on the pipeline? I know you don't want to disclose much, investors obviously want some visibility beyond 2018. Is there anything you can tell us to give investors confidence that there's more to come here? Thanks.
More to come on Libre?
On the pipeline. You have a collaboration with Bigfoot.
Yeah.
You're expected to deliver a next generation to device-
Yeah
the device to them with alarms.
Got it.
That kind of thing. The pipeline and the sustainability.
Yeah. Okay. Let me go back to your first question about the, we previously said $50 million-$100 million of sales in year one seemed reasonable and so forth. Absolutely. We'll be at the higher end of that range, and we're tracking that way now. It's very early in the year, as you know. Yeah, I have no concern about that at all. Let's just say we're ahead of our expectations here, and you can see that in the growth rates and the numbers and the patient acquisition rates and so forth. I think we'll go out of the end of this year, $1 billion or more in run rate and 1 million patients or more. Frankly, I think we're going to have well over 1 million patients at that point because our patient acquisition rate right now is pretty steady and rising.
Yeah, I think all of that's pretty reasonable. I'd validate that for you. Then with regard to pipeline, product improvements and so forth, yes. As you know, we've got a pediatric claim in Europe. We'll have that in the U.S. that'll file this year. There's improvements, alarms, and so forth. That's coming. I'm trying to think of all the things coming, but I would just say, yeah, there's plenty coming and other dimensions of it coming out of R&D that we'll have announcements for this year and next year. No, there's a steady cadence of improvements, variations, claims, et cetera, in the product, going forward, that I think keep this going for a long time.
Perfect. Thanks for taking the questions.
Yeah.
Thank you. Our next question comes from David Lewis from Morgan Stanley. Your line is open.
Okay. Can you hear me?
We can now.
Miles, wanted to start with diagnostics. Two things to focus on there, maybe a follow-up on the balance sheet. Two things. Alere, to our model, kind of recovered faster than I guess we expected. Can you talk about Alere recovery and how the integration's going? Secondarily, Alinity and how you see the pipeline building there, U.S., ex-U.S., throughout the balance of the year?
Yeah, I'm just making a note so I can remember all that okay. All right. I'll start with Alere. Yeah, I'll tell you what, I'm really pleased with our management team. I'd say the integration, the bulk hard work of the integration of that and St. Jude is pretty well complete. There's a lot of things we'll keep improving in both businesses over time, investments we want to make and so forth. I think the notion of making it a part of the company, getting everything under control, getting a management team established, getting strategies and directions established, and so forth, that's all gone exceptionally well. We're on track with all our synergies. I think we've benefited. It's been a blessing.
There's been a particularly strong flu season, and a big chunk of Alere's business, probably 15% or so of Alere's sales, is seasonal and somewhat dependent on things like the flu season. It's not the flu season in particular. We saw an obvious upshoot in our flu-related and strep-related testing and so forth from late fall into the winter, and that's clearly reflected in the numbers. That will vary from year to year, depending on morbidity and the flu season and so forth. Some years probably be lighter, but this year it was particularly strong, and that was a big plus. Underlying that, interestingly enough, as we've told you, we think they had a lot of good product lines that were under-marketed. We've had increasing success with a number of those product lines and strategies.
One of the things that's on our radar screen that we're working at, we want to put a lot more money into R&D, product refreshments, product improvements, that sort of stuff. That's a multi-year thing. That's not going to be next quarter kind of evidence. I think we've got our hands around the commercial opportunities. There's places where we see room for correction, improvement, et cetera. I think we've got the management team stabilized. I think it's financially stabilized. I think the uptick in sales, while largely driven in this particular period by the flu season, there's also underlying improvements in key product lines and key sales that I think are going really well that we're pretty happy about. Alinity.
Okay.
Yeah, go ahead.
No, sorry. Just Alinity, yes.
Alinity, we have taken some pretty deliberate steps to dramatically tip up our launch activity. With these large systems and their multi-test menus, it is really important to have full or nearly full menus at launch because customers, when they switch over a lab or switch over given instruments and so forth, want to be able to switch all the tests on that product and not have to run two different systems and so forth. We are sort of hitting stride now on the completion or breadth of the menu offerings, particularly Europe, U.S. is coming along, et cetera. Our blood screening system, Alinity s, has a full menu. That is up. We have got some pretty ambitious plans about not only conversion of the existing installed base, but share capture and account capture. I would say about 15% of accounts come up for renewal or contracting each year.
This will be a fairly steady multi-year rollout and trend. I track things like our prospect list or prospect bank, how many prospects, how many actively in the sales process, what is our win rate with existing accounts, what is our win rate with new accounts. I would say the magnitude of the prospect banks and accounts that we are in has increased about sixfold, and our win rate in our existing accounts is extremely high up in the well over 90% category, which you would expect because we have got happy customers, and they are always easier to sell to than the new ones. Our win rate in new accounts is quite high also, and so that has been pretty gratifying. That is so far Europe, N as evidence. We are investing in expansion of sales force and expansion of installation and service teams, expansion of support.
It is well underway, and it is going well. We are pleased.
Okay, Miles, very clear. Just a quick one for me. I think a lot of commentary this morning on growth drivers, but one of the big successes for us this year is debt paydown. It looks like you could be at 1.5, 2 turns net debt to EBITDA by the end of the year. I just wonder how capital priorities could change towards the end of the year, and do you have capacity for sort of growth-oriented M&A towards the back half of the year? Thanks so much.
Yeah. In terms of debt, we've paid down $6 billion already this year, and it's April. I'd say we expect to pay down another $2 billion before year-end. Cash flows are strong. We paid a lot of attention to that because it is our intent to bring our debt down. As you know, when we completed these two acquisitions, we had about $28 billion in gross debt, and we're already at $22 billion, and we'll be $20 billion or a little lower at year-end. That'll put us at about a 2 times net debt to EBITDA ratio, not one and a half, but 2. I still think that's pretty healthy, and it's a pretty rapid rate of paydown on the debt. Do you start to change your capital priorities at that point?
I would tell you right now, we think the dividend is important for a category of our investors, and we like to target our dividend in 40% of EPS to maybe a little more than 40% of EPS range, 40%-45% of earnings. We like to maintain that range, and we've been steadily raising the dividend, and I think that remains a priority. Obviously, debt paydown remains a priority. We're getting rapidly to a very healthy range and healthy balance. Would we keep paying down debt? We would. Yet I think to answer your point, will we have capacity if we choose to? We would, but I would tell you right now, that's not my priority. We're not looking at M&A, we're not looking at anything. It's not in our priority list just now.
I do want to keep paying down debt, do want to pay a healthy dividend. Frankly, we've got some organic capital opportunities here internally, both between the launch of Alinity and capacity expansion with Libre that are worthwhile. I don't see that impinging on us so much that it squeezes us. We have the flexibility you refer to, and of course, as we get into 2019, we clearly have flexibility. Right now, I don't feel constrained, but I also don't have anything on the radar screen that I'm particularly interested in pursuing because we've got so much organic growth opportunity as it is. I'm feeling pretty good about the debt balance, feeling pretty good about the ability to fund our internal needs, our dividend, all of those things. We're in a good spot.
Great. Thanks so much, Miles.
Thank you. Our next question comes from Rick Wise from Stifel. Your line is open.
Good morning, Miles. Miles, just a big question to start off with. Maybe you could talk a little bit about your internal investing priorities. It seems you yesterday stepped up a little higher than I might have thought. You're clearly investing in R&D. I mean, you've highlighted some topics, Libre diagnostics, but maybe where are your priorities more broadly, and do you see that extra investment or that extra opportunity invested sustaining or accelerating the kind of 6%-7% organic growth outlook you're talking about?
Rick, I don't have an investment at Abbott that doesn't think they can use more money or a business at Abbott. It's actually a good problem to have. They all believe with more sales and marketing expense and resources that they can expand faster, run faster, et cetera. Of course, there's always kind of a prudent balance to that. I'd say we're kind of lucky. We've got a lot of things that are launching, a lot of new product opportunities, and we've got some market expansion opportunities in EPD and so forth. The combination of it is adding sales reps, adding service and support, and increasing our penetration in a number of places. We're very fortunate, I think, with Libre in particular, that it's not as sales and marketing intensive from an expense standpoint as you might think. We get a lot of benefits.
It's extremely, let's say, productive, what I'll call the digital world, social media world, et cetera. The places that I think would benefit from a lot more resource, obviously, there's various device areas that would, but you also got to make sure you've got the product ready to go and so forth. We got a nice steady pipeline. I'd like to put more money behind it. Nutrition, it depends. It's dependent on given countries and given channels. It's more selective. Would I put more money behind it? Yeah, I think so. I think our spend rate could stand to improve in some areas of nutrition. I think it could stand to improve in EPD. If I put more behind Libre, I don't know. I mean, the growth rate right now is pretty hefty.
The good news is we're always going to be in this balance between how much we beat earnings by and how much we feed back into the business. What I've tried to do over the years is find a balance there, a balance for the investor and a balance for the business to keep sustaining it and keep up with it. We watch on a % of sales basis, and where our opportunities are. I think right now I'm going to put a lot more into Alinity, because I think that clearly gets a bit of a boost, and it's labor intensive. I know that's a bit of a ramble, the good news is I don't have a problem figuring out where to put money.
It's a bigger challenge of making sure I always keep the balance between what the investor would like to see and what we keep plowing back into the business because I know you guys want to see sustained growth. I'm confident we have sustained growth, then it's just a question of how hard to push on the gas pedal.
Got you. Just last from me, on a more focused basis, maybe you'd reflect a little bit about the current dynamics in cardiac rhythm management, CRM. The business was flat this quarter. We had assumed low single-digit growth, that your portfolio's filled out. I assume you did well on the de novo side, maybe not so well on the replacement side, just what's the outlook from here? What are you expecting? Can this business grow, just how are you thinking about this longer term? Thanks so much.
Yeah. Thanks for the question. The business can grow, you're exactly right. It's a tale of two different situations, the de novo and the replacement. We're doing very well in de novo, to be honest, that's pretty gratifying. It's a little slower in replacement for a reason, that some of that got pulled forward when there was a battery issue a couple of years ago. A lot of that replacement got pulled forward, it's a little bit out of the sync of the normal rate of sales that come from replacement versus sales that come from de novo. I do think that's kind of a temporary phenomenon while we move out of that zone. The de novo side is quite robust, I'm pretty happy about that. As we move forward, do I think this business grows more than 1% or 2%?
I think it can. I think we see that evidence, and we give it that attention. I also think we've got a lot of opportunity in electrophysiology. There's parts of this business that whether it's stents or CRM, they're lower growth rates because they're mature and established markets, and you say to yourself, "Can you grow these at a little healthier growth rate than 1% or 2%?" In both cases, yes. Our vascular business was slower this quarter. We lost a couple of share points in the United States over the last few quarters. Yet with the approval and launch of XIENCE Sierra in the United States, I think that changes. We've got plans.
You run your more legacy mature businesses one way and your new product launches another way, you can't ignore the large established positions you've got in CRM and stents and so forth, and we're not. It does go up and down with different competitive launches or improvements and so forth from time to time. It pulses a little here and there, we believe we can drive CRM and our vascular stent business at better rates than we see right now, that the CRM numbers you see are exactly the anomaly you called out between de novo and replacement.
Thank you.
Thank you. Our next question comes from Chris Pasquale from Guggenheim. Your line is open.
Thanks. One question on Libre and then one on the neuro business. First, can you give us any color on who's using Libre in the U.S. today? I'm thinking in particular about how the patients you've onboarded so far break down in terms of type 1 versus type 2, and then CGM naive versus competitive wins.
Yeah. Okay, I'm going to have Scott take that question for you. Go ahead, Scott.
Hi, Chris. How you doing? Yeah, I would say in terms of the mix, it generally, as best we can tell, it's a little bit harder with data in the U.S. than some of what we get out of Europe because we sell a lot through our web shop in Europe. We estimate around two-thirds type 1 and a third type 2 in the U.S., just like we are internationally. We think that would hold. We're also getting, we feel, a nice balance of competitive wins versus people that are trying CGM for the first time and expanding that overall category. A nice balance kind of across both dimensions.
Okay. Then neuro continues to be a really strong segment for you. Last year, you actually became the market share leader, in the SCS space in the U.S. I'm curious, with all the focus on the opioid epidemic in the country right now and pain management in general, do you see an opportunity to move spinal cord stimulation up the treatment continuum, to reduce the dependence on drug therapy for those patients?
I would say, look, that has been a great space for us, and we're now the number 1 player in chronic pain. Certainly we have a great portfolio, and that's playing out with physicians and with patients, and they're seeing great real-world results and whatnot in the real world. I do think that category continues to expand. I think it will take some market development, certainly, with respect to reimbursement and guidelines and things of that nature. It may build itself over time. It's not going to be a spike. Certainly we feel that's a really nice space longer term.
Thanks.
We'll take one more question.
Thank you. Our final question comes from Glenn Novarro from RBC Capital Markets. Your line is open.
Hi. Good morning. Thanks for fitting me in. Miles, I have two questions on China. The first is relating to all this tariff noise that we're hearing. Abbott has a major presence in China, but I don't believe you manufacture a lot in China and then send manufactured product back to the U.S. Maybe can you discuss the impact of any of these tariff threats between the U.S. and China on your sales and EPS? The second question is on China Nutritionals, which did perform better than our expectations. Is China recovering sooner than you expected, and why? Thanks.
Let me take that one first. No, it's not recovering sooner than I expected. I expected it earlier than this. I'm glad that it is stabilized now. I think we expected stability much sooner than this, but we're there now. I think we've got a reasonably stable, predictable market. Are we doing as well as we'd like? We'll see that over time here. We're doing better, but I'd like to do better than better. There's still room to go to improve performance and improve share gain, improve channel shift, and so on. Yeah, I wouldn't tell you that this is ahead of my expectations or whatever, because mine may have been running a little ahead of where we are.
With regard to production in China, I hate to disabuse you of this notion, we do produce in China, we do bring product to the U.S. from China, and that happened because Alere produced a lot in China. Or at least a reasonable amount. What we manufacture in China that is exported from China or imported to the U.S. is almost entirely diagnostic products in the Alere acquisition. There could be some impact financially on that if something were to happen from a tariff standpoint. We have done that analysis, ironically, we've got a lot of business in China. We export a lot to China. We do manufacture infant nutrition in China as it is. We got a balance. We've got a balance of things that we manufacture, import, export, et cetera.
When we net out the impact of potential tariffs, the tariffs we might experience exporting to China or into China are minimal. The tariffs we would experience coming back to the U.S. from products manufactured in China are where the impact would be. I would say that based on everything I've seen so far, total magnitude of impact on us, if it were to happen at all, about $0.01. We think we've got a highly manageable circumstance if what we've seen and estimated and the degree of tariff rates, products they apply it to, and so forth, about $0.01. I put that in the category of I'm always solving for $0.01 somewhere, that's a manageable outcome.
Okay, great. Thanks for the color, Miles.
You bet. Thank you.
Very good. Well, thank you, operator, and thank you for all of your questions. This now concludes Abbott's conference call. A webcast replay of this call will be available after 11:00 A.M. Central Time today on Abbott's Investor Relations website at abbottinvestor.com. Thank you for joining us today.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.