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Abbott Laboratories (NYSE: ABT) Third Quarter 2021 Earnings Conference Call, October 20, 2021, 9:00 AM Eastern Time
Good morning, thank you for your support. Welcome to Abbott’s 2021 third quarter earnings conference call. [Operator Instructions] This call is being recorded by Abbott. Except for any participant's questions raised during the Q&A session, the copyright of the material for the entire conference call (including the Q&A session) belongs to Abbott. No recording or rebroadcasting is permitted without Abbott’s express written permission.
I would now like to introduce Mr. Scott Leinenweber, Vice President of Investor Relations, Licensing and Acquisitions.
Scott Leinenweber - Vice President of Investor Relations, Licensing and Acquisitions
Good morning. Thank you for joining us. With me today are Robert Ford, President and Chief Executive Officer; and Bob Funck, Executive Vice President of Finance and Chief Financial Officer. Robert and Bob will make opening speeches. Based on their comments, we will answer your questions.
Before we begin, in accordance with the Private Securities Litigation Reform Act of 1995, including expected financial results for 2021, some of the statements made today may be forward-looking. Abbott warns that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the results indicated in the forward-looking statements. Economic, competitive, government, technical and other factors that may affect Abbott’s operations are discussed in Project 1-A, Risks
Factors in the annual report on Form 10-K for the year ended December 31, 2020. Unless required by law, Abbott assumes no obligation to publicly release any revisions to forward-looking statements due to subsequent events or developments.
In today’s conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott’s continuing operating performance. These non-GAAP financial measures are consistent with comparable GAAP financial measures in our earnings press release and regulatory survey results issued today, and can be found on our website abbott.com. Unless otherwise stated, our comments on sales growth refer to organic sales growth and do not include the impact of foreign exchange.
With this, I will now transfer the call to Robert.
Robert B. Ford - President and Chief Executive Officer
Thanks, Scott. Good morning everyone and thank you for joining us. Today, we report another very strong quarterly performance. Continuous earnings per share were US$1.40, an increase of nearly 45% compared to last year, and sales increased organically by more than 22%. Excluding sales related to COVID testing (a total of $1.9 billion in the quarter), organic sales increased by 12% compared to last year.
As we have seen since the beginning of the pandemic, our diversified healthcare portfolio continues to prove highly resilient. Despite the surge in COVID case rates in the U.S. and other regions in the third quarter, the strong growth in our more consumer-oriented business, nutritional products, mature drugs, and diabetes care mitigated the modest impact we saw from the surge in certain areas of hospitals Basic business.
This has been a consistent theme throughout the pandemic. Compared with our baseline before the 2019 pandemic, in the first nine months of this year, the company’s total sales, excluding COVID testing, have grown organically by 11%, which shows that our The growth is real, not just a function of simple compensation compared to last year.
Due to our strong performance and prospects, today we have increased our full-year adjusted earnings per share guidance range from the current US$5 to US$5.10, an increase of nearly 40% compared to last year.
Before transferring the call to Bob, I will now summarize our third quarter results. I will start with nutritional products, and its sales have increased by 9% compared to last year. American pediatrics and international adult nutrition led the strong growth this quarter. In pediatric nutrition, sales in the quarter increased by more than 8.5%, which was mainly due to the strong growth brought about by the continued increase in the share of infant formula and baby products in the United States. Pedialyte is our market-leading rehydration brand, and its sales have again grown strongly by double digits, driven by the market share of several new products recently launched and our investment in direct consumer promotions.
In terms of adult nutrition, sales this quarter increased by more than 9%, including international youth growth, as we continue to see strong demand for our assurance and the Glucerna brand, including new users entering these categories and increased usage Existing customers.
Turn to diagnosis. Excluding sales related to COVID testing, overall sales increased by more than 45% and an increase of 12.5%. In this quarter, with the spread of Delta variants and a surge in COVID cases, especially in the United States, the demand for testing has increased significantly, especially for rapid testing. In total, in this quarter, we sold more than 225 million COVID tests worldwide, and since the pandemic began, we have now shipped more than 1 billion tests.
In the past few months, we have learned that although the COVID vaccine is a powerful tool, it is not the only solution we need to fight this virus globally. Testing, especially rapid testing, is fast, affordable and easy to use, and is an important companion for vaccines and therapies. Abbott has established a global leader in rapid testing, including a monthly supply capacity of more than 100 million tests.
Turning to mature pharmaceutical companies, sales have increased by more than 15%, driven by strong execution and a steady pace of new product launches. The strong sales performance this quarter is based on a broad base in multiple countries/regions, including double-digit growth in China, Russia and India, which led to an 18% increase in our overall sales in major emerging markets.
Finally, I will introduce medical devices. Sales in this quarter increased by 13% compared to last year and more than 16% compared to pre-pandemic sales in the third quarter of 2019. Number growth in rhythm management, structural heart, heart failure, and diabetes care.
In terms of structural heart, with the recent US FDA approval of Amulet, we continue to enhance our product portfolio in the fast-growing large market. Amulet closes the left atrial appendage of the heart to help reduce the risk of stroke in patients with atrial fibrillation. Portico is used for transcatheter Aortic valve replacement.
In heart failure, we announced the GUIDE-HF test results of the CardioMEMS system. Like many other recent and ongoing clinical trials across the healthcare industry, part of the CardioMEMS trial overlaps with the COVID-19 pandemic. After adjusting for this effect, CardioMEMS's heart failure hospitalization rate was reduced by 28%. And based on the test data in the middle of this year to apply to the US FDA to expand the label.
During the quarter, we also added an attractive growth platform to our vascular device product portfolio through the acquisition of Walk Vascular, a commercial stage company with a minimally invasive thrombectomy system called JETi, which removes peripheral blood clot. Peripheral thrombectomy is a huge high-growth area, and we can use our existing commercial presence.
I will end diabetes care, where FreeStyle Libre has nearly $1 billion in sales, driving strong growth. During the quarter, we added more than 200,000 new users, bringing the total number of Libre's global users to more than 3.5 million.
All in all, we continue to achieve strong and balanced growth in all major businesses, thanks to our strong execution and steady pace of new products. COVID testing, especially COVID testing, remains an important partner for vaccines and therapies, and Abbott has established a strong leadership position in this field. Based on the strength of our performance and prospects, we are improving this year’s earnings per share guidance, which is now up nearly 40% compared to last year.
I will now transfer the call to Bob to discuss our results and outlook for this year in more detail. Bob?
Robert E. Funck - Executive Vice President of Finance and Chief Financial Officer
Thanks, Robert. As Scott mentioned earlier, please note that unless otherwise stated, all sales growth rates mentioned are organic, which is consistent with our previous guidance.
Turn to our results. Sales in the third quarter increased organically by 22.4%, thanks to the strong performance of all of our businesses, as well as global COVID test-related sales of US$1.9 billion this quarter. Excluding sales related to COVID testing, organic sales increased by 12.1% compared to last year and 11.7% compared to the third quarter of 2019. Foreign exchange had a 1% year-on-year favorable impact on sales in the third quarter, leading to a 23.4% increase in reported total sales for the quarter.
Regarding other aspects of profit and loss for the quarter, the adjusted gross profit margin was 58.8% of sales, the adjusted R&D investment was 6% of sales, and the adjusted SG&A expenses were 25% of sales. Our adjusted tax rate for the third quarter was 15.5%, which reflects adjustments made to align our year-to-date tax rate with our revised 15% full-year effective tax rate forecast. Due to changes in our business and geographic revenue mix, the revised full-year forecast is slightly higher than the estimate we provided in July.
Talking about the outlook for the fourth quarter. We forecast sales related to COVID testing to be between 1 billion and 1.4 billion U.S. dollars, and forecast organic sales growth (excluding sales related to COVID testing) to be double digits lower than last year. Based on the current exchange rate, we expect the exchange rate to have an adverse effect of approximately one-half of our reported sales in the fourth quarter.
With this, we will now start asking questions.
Thank you. [Operator Instructions] Our first question comes from Robbie Marcus from JPMorgan Chase. Your line has been opened.
Robbie Marcus - JPMorgan Chase - Analyst
great. And congratulations on a very good quarter.
Robert B. Ford - President and Chief Executive Officer
Robbie Marcus - JPMorgan Chase - Analyst
So maybe after such an excellent quarter led by the COVID test, I think you have a unique view on both sides of the coin, from the COVID test, the number, and the number of device programs. So, Robert, I would love to know where you think we are in the fourth quarter and entering 2022, and any early ideas you can give us on how to consider the progress of COVID test sales and recovery and the durability of the medtech volume.
Robert B. Ford - President and Chief Executive Officer
certainly. I think about the COVID test, it is clear that we have learned a lot since the pandemic began. I think that when we develop a strategy for this, we always believe that rapid testing will become a more sustainable part of the business. I think we are there.
I want to say that the key things-I mentioned in the comments-in the opening comments, the key things we have learned in the past, for example, for several months, the vaccine is an incredible virus. tool. It has had a huge impact on the public health of the world. But it is not enough. We know that it has greatly reduced the hospitalization rate and the mortality rate, but I think we are all here to see that even if you are vaccinated, you can still be infected and still spread the virus.
Obviously, you will not go to the hospital. I think we have all heard or seen such stories. Therefore, I think this is our biggest way of learning when we enter the fourth quarter and next year, that is, testing will still be an important partner here. Even if there is a treatment, it will still be an important part of the fight against the virus. I think we also learned a lot about understanding the difference between symptom test and screening test. We are beginning to pay more attention to understanding channels and platforms that are more in line with symptom testing and screening tests. We can definitely see the correlation between symptom detection and cases, the rise in cases, and the decline in cases. We did not see this correlation in the screening. Therefore, even if cases in the United States begin to decline, the demand for screening has actually increased a lot. So, I think this is another important study, because we are considering entering the fourth quarter and considering entering next year.
Another, I want to say, the key difference we started to make is to understand the types of government purchase tests and the types of private purchases. What I want to say is that at the beginning of the pandemic, most of our sales were concentrated in government departments, whether it was the international government, the US federal government, or the state government. This is still very strong. But the growth we are seeing now is very significant. I think it is consistent with the screening part is the private aspect of the market, whether it is over-the-counter transactions, cash payments, or many companies, we have seen many companies in the past few During the month, we signed a contract with us to ensure that they can conduct a quick test so that it can be provided to their employees.
So, although we have not seen-although we have seen some shelf and inventory issues in retail stores, which will be resolved in the next few weeks, we still see many companies buying tests to provide to their employees. So, I think, all of this is basically talking, listen, I don’t know how much there will be next year, but it is clear that the screening part of the market will become an important part, even for therapies and vaccines. So I think this will be an important part.
Our basic business is doing very well. Robbie has continued to recover from the second quarter. We saw this in the device. We saw this in the diagnosis. Yes, with the increase in Delta and US cases, there was some weakness in the third quarter. There may be more in August and half of the entire September. We started to see it picking up again at the end of the quarter, the previous few weeks. We like some of the pickups we see here, but these are pockets. I would not call it general weakness and slowdown. There are some pockets here in the United States and some pockets in some countries, but in general, the basic business is doing well.
Therefore, when you consider 2022, I expect that our basic business, our basic basic business will continue to maintain this momentum, a very strong momentum, especially the release of all our new products. The problem here will be COVID. And I think that as we enter next year, it will be very difficult to predict a complete number-the number of COVID throughout the year next year. I think we might be - we might be thinking about it, okay, okay, there might be a COVID number that will let us enter 2022 comfortably. Then we will have to update the progress of COVID on a quarterly basis here and we will be playing for the whole year next year. So this is my opinion.
The COVID test will be there. Next year we will have to do more on a rolling basis. Our basic business continues to accelerate development. There was a bit of weakness in the third quarter, but I like what we are seeing in terms of recovery. I like the investment portfolio we have built around the heart business, EPD business, nutrition business, and diagnostics business, so it's all good.
Robbie Marcus - JPMorgan Chase - Analyst
great. great. That's really helpful. Then, maybe Robert, on this basis, I know that your planning process is still early. But as you just said, there are many variables and many moving parts. So far, you have had a good year in equipment and a good year in testing. How should investors consider their early ideas for 2022 and 2021 from the perspective of the top and bottom lines? thanks.
Robert B. Ford - President and Chief Executive Officer
Yes. I mean, I think, like I said, we are still in our process. We will give guidance for 2022 in January, as we always do, Robbie. I want to learn more about how this epidemic unfolded here, especially in terms of COVID, but in terms of basic business. I think our basic business, I would say, we have always been very good at predicting our business from the revenue and profit margin of the basic business.
Therefore, I think what you can expect in 2022 is that with the launch of all these product launches that we announced this year, the underlying business will become stronger. Then, the problem here is really the COVID test. Like I said, we will own part of it, and I think we will feel good about putting it in. Then, we must roll over. I think this is the way to think about it. The basic business may be the more sustainable part, which is gaining momentum and will enter 2022 with many growth opportunities. Then we will have to look at COVID on a more rolling basis.
Robbie Marcus - JPMorgan Chase - Analyst
Thank you. Our next question comes from Bob Hopkins of Bank of America. Your line has been opened.
Bob Hopkins-Bank of America-Analyst
thank you very much. Good morning, congratulations on such a steady execution. I only have two questions. To save time, I will mention them earlier, because the first one is very simple. The first question is about Amulet. And I realize that it’s in the early stages of release, but just like your top-down comments on how things are going, maybe you can share any metrics, such as the percentage talisman of the current active US coronary artery count, so I’ll like it. Some colors there.
Then, the second question is more like a broad-based question. I just want to know if you can provide more details about what you see in terms of inflation and supply chain, because the headlines are clearly unchanged. But information from Abbott and other companies we follow seems to be manageable in general. So just want to know if you can talk a little bit, if you can quantify the headwind, or just let us better understand why it is manageable and give us some points. Thank you.
Robert B. Ford - President and Chief Executive Officer
OK. Well, I will take the amulet. Then I will let Bob talk about inflation and supply chain. I mean, I just want to say, it can be managed, but we have a great team. So-I will let Bob report.
On Amulet, listen, we got the approval in August. We have started the release. I know there are a lot of expectations, at least during the last two conference calls about data, and when we will release the data and why we will do it, and when we will do it. So we released data very close to our approval. I think this is a good strategy because it allows our team to prepare for it.
I would say about the data, I mean, you saw it when we released the data. Compared with the products currently on the market, this product has many advantages. We have quite a wide range of size combinations. This will help when you look at different anatomical structures and adapt better there. The steerable sheath we have makes the placement very precise. This is very important, especially when you are considering transcatheter treatment.
Then you see the data, you can get an excellent closure rate without blood thinners, yes-right after the surgery. Ultimately this is why patients go to the hospital or part of the reason they go there. So I think we have a great product here. I think the team has done a good job preparing the contract. Now, I want to say that our goal is to sign a certain number of contracts before the end of this year. In the first month, we have achieved 40% of the target. So I think we will definitely achieve what we need to achieve in terms of obtaining our contract, our account, and the contract we want to sign and run, so that we can start to build, use and become familiar with the system.
We have a very strong business presence here. I think this is a key aspect of the launch. Implants of these devices, electrophysiologists or interventional cardiologists. I mean, we have a lot of great products and a lot of great phone calls. So this is also very effective. A certain level of coordination is always required there, and this coordination is great. I am really happy to see this.
The initial feedback was very positive. So, very satisfied with the first signs. Like you said, about a month, a month and a half. All the signs I have seen indicate that we will have a good opportunity to establish Amulet as another product in this category. The most important thing is that we are investing, as I said, to expand this category through all of our clinical trials, and CATALYST is one of them, which is also very important. So, I want to say that for the first half month, I was very, very satisfied with what I saw.
Robert E. Funck - Executive Vice President of Finance and Chief Financial Officer
OK. thanks. I will accept inflation comments. Therefore, I think that inflation and the supply chain are indeed linked. The global supply chain cannot keep up with strong demand. Therefore, like everyone else, we have seen an increase in input costs in our business areas. We are experiencing some higher transportation costs, and in some cases, higher commodity costs. What I want to say is that the cost of goods is more like the nutrition area of the business. In some areas, we can adjust pricing flexibly, and we plan to do so. In other areas, this flexibility does not exist. Therefore, we are working hard to mitigate the impact we are seeing, such as looking at other manufacturing costs.
As Robert mentioned, we have a very strong purchasing organization and supply chain organization, and they have done a good job cooperating with our suppliers. Our suppliers understand the key nature of our products. As a result, we have succeeded in ensuring that we have access to the resources needed to support our business.
Bob Hopkins-Bank of America-Analyst
Thank you. Our next question comes from Josh Jennings of Cowen. Your line has been opened.
Josh Jennings-Cowan-Analyst
Hi. Good morning. Thank you for answering the question. And congratulations on the strong third quarter results. Hope you can hear some bearish and accept or help us understand some bearish and accept of 2022 operating margin? Obviously, COVID testing will be a factor, but as we enter 2022, any other operating margin expansion drivers you will highlight and any other levers that Abbott can pull to drive earnings next year will depend on how the COVID testing environment works ?
Robert B. Ford - President and Chief Executive Officer
certainly. I want to say, like I said at the beginning, I mean, think about 2022, our basic business, our basic business will grow very strongly at the top and bottom. Therefore, we will see an expansion of the profit margin of this business. As Bob said, this is a combination. We have gross margin improvement teams in all businesses, and they are working hard to reduce other manufacturing costs. Therefore, this is very important to promote the expansion of profit margins.
Then, it's just a mixed nature. As we continue to launch our pipeline, what I want to say is that it is mainly focused on medical equipment, where we have obtained a gross margin profile, which can increase the company's total revenue profit. Therefore, I think that many of them are actually driven by revenue, and driving our revenue and the execution of these new product launches enables us to achieve this kind of profit margin expansion in 2022.
Like I said, the COVID part is really just the part that we have to do quarter by quarter and update and rolling forecast every quarter. We will have a number that makes us comfortable, but those—I want to say, these are the key drivers here. Our product launches, our ongoing basic business, mixed profit margin expansion and gross margin improvement. I want to keep the same configuration files that we now have in the basic business in terms of expenditure, R&D and SG&A, so that we want to maintain these configuration files. Obviously, if you view our profile now, it will be a bit distorted due to the COVID episode. However, if you look historically, our R&D and SG&A have been at a low 7% between 20% and 30%, this is where we want to land.
Josh Jennings-Cowan-Analyst
Thanks for that. Then, just follow up with Libre quickly. Some of our consultants talked about the potential of Abbott to add other analytes to the platform, especially the addition of ketone monitoring as a potential competitive advantage. Any update on how 3.0 is used here, but any update on the future development trend of Libre, and how do you continue to maintain your competitive advantage here? Thank you for answering the question.
Robert B. Ford - President and Chief Executive Officer
certainly. I mean, I always-we always say Libre is a platform. We always-I know-every time you come up with a number, it becomes the next one, what is that, and what is after that. So, we launched-Libre 2 is doing well in the United States. We launched Libre 3 in Europe. We will obviously launch Libre 3.
Regarding your question about analytes, yes, I mean, this is an area that we deliberately focus on, that is, using the Libre platform, a manufacturing platform that can develop new analytes. You mentioned a person who we have special experience in blood glucose monitoring. We have a blood ketone system, so we believe this is an important aspect, especially for Type 1 and pumps. We think this is a very important function. If you look-into the type 2 population, there are many new type 2 drugs, which have certain warnings about DKA, we think this may also be an opportunity.
But this is only an analyte, we have an analyte pipeline here, and a dedicated team only focuses on finding the business opportunities that the market needs. As we get closer and closer to these upcoming products, we will update the market. But I'm really happy that using the Libre platform here can expand beyond diabetes.
Josh Jennings-Cowan-Analyst
Thank you. Our next question comes from Larry Biegelsen of Wells Fargo Bank. Your line has been opened.
Larry Biegelsen-Wells Fargo Securities-Analyst
Good morning. Thank you for answering the question. Robert, I want to focus on the equipment side and the pipeline. Just starting with Amulet, asking Bob's previous questions in another way, the survey seems to have come back, showing that Amulet can occupy about one-third of the US market, and may even occupy 20% next year. The second entry into the market to become a market leader is not easy, but Amulet's image is very good. What is your reaction to some of these consensus estimates? Do you think you can do better? I have a follow-up.
Robert B. Ford - President and Chief Executive Officer
certainly. Well, I mean, Amulet is new to the US, but no stranger to the international market. Looking at the international market, Amulet has a 50% market share. I have read some reports, not all of them, but I know that some of these investigations are done by different doctors. What I read and what I think about them is that what I see in the US is similar to what we actually see in Europe, that is, it is a great product. Its size portfolio is an advantage. Its closing rate is also an advantage. Yes, as I said, this is a multi-billion dollar market, and we think we can also become real competitors.
But at the same time, invest in developing it. I think this is also an important part of Larry. So, as I mentioned, we are investing in next-generation products. We will invest in commercial infrastructure, which will not only exist during the implantation period, but also to develop a patient referral network. We will invest in clinical trials. I think the CATALYST trial will compare it with NOAC. I think this will also be an excellent opportunity to expand the market. So I think this is a combination of market expansion. Yes, our products are competitive. We compete with our team. I think that 50% internationally in the United States is a good wish.
Larry Biegelsen-Wells Fargo Securities-Analyst
This is very helpful. Then, I want to ask about Portico and CardioMEMS. Therefore, with Portico, you can own Navitor outside of the United States. Do you think you need to really promote sharing in the United States? Do you think you can compete without signs of medium and low risk? I don't think you will have until around 2024. Finally, on CardioMEMS, given the impact of COVID, what are your views on label expansion and business opportunities? Did you mention it in the GUIDE-HF test? Thank you for answering the question.
Robert B. Ford - President and Chief Executive Officer
Of course, Larry. Let me talk more about Portico and TAVI here. This is a very important part of the structural heart. We want to be leaders of the structural heart. When we integrated the business with St. Jude, we had this vision. We know that we need to be real players in the TAVI field. So I really see this as a long game. I mean, we will launch Portico in the US. The Navitor of your question is an excellent second-generation device. We have obtained the CE mark and the feedback is that it is a very very competitive device. Its clinical manifestations at high risk are very powerful. Yes, I also want to bring it to the United States, but not because I think we need it, because Portico is not competitive. The porch is very competitive. But in the context of developing a strategy to become a real player in the TAVI field, we knew that we would have to bring the second generation to the United States. We must also study how to develop further on Navitor.
So I think we have about 5 shares in Europe. This is not my desire for TAVI space. As far as you are concerned, there are two entrenched competitors in the market. And-but we have higher ambitions, with only 5 shares, which is what we have in Europe. So I think this is a combination of team investment, pipeline investment, and clinical data. You are right. Our low-risk-low-to-medium risk trial will be read out later, but it is there, and we are investing in it. Because we think this is a great opportunity for us to become a real participant in this market. So, I am very excited about this. And I know that the team cannot become a true full-service participant in the field of Structural Heart.
Regarding CardioMEMS, listen, I think the data is very compelling. I mean, this is the second one, you know, Larry, this is the second RCT we have done. I firmly believe in RCT trials and their need to generate clinical evidence. We applied for the label extension at the end of June. I think the data is very convincing. Part of it is to expand to categories 2 and 4, and then can also extend the indications to patients with elevated BMP, which is currently only applicable to patients who were previously hospitalized. So, I think the data combination here is actually the second RCT we have completed, and it is also a very large RCT on CHAMPIONS, CHAMPIONS experiment, I think this is a good opportunity for us to develop this market.
One of the things we did this quarter is that we now have a more focused heart failure business unit, where the LVAD and CardioMEMS teams will be merged under one GM, which is very similar to what we did before and our other Business cooperation, because we believe that this kind of focus and attention to business will bring benefits. So, I think combining the content we submitted and our focus, this is a good opportunity for us in 2022 and beyond.
I am not going to comment on when, I can only tell you that we submitted it at the end of the second quarter. I think the data is very strong, and we just keep it going. I very much hope that we will definitely see it next year.
Larry Biegelsen-Wells Fargo Securities-Analyst
Thank you. Our next question comes from Cecilia Furlong from Morgan Stanley. Your line has been opened.
Cecilia Furlong - Morgan Stanley - Analyst
great. Thank you for answering the question. I just want to ask about your Neuromod business, SDS, and other deferrable programs. If you start to see some of the more deferrable programs recovering ahead of other programs, can you only understand the continuous trends this quarter? "The ability to restore deferred procedures is being considered. If most of the restoration procedures recapture occurred in the fourth quarter or there is a shortage of personnel, will some of these restoration procedures flow into 2022?
Robert B. Ford - President and Chief Executive Officer
certainly. Well, I want to say that this may not have anything to do with our equipment business, which has encountered some difficulties in recovering from COVID. Like you said, Cecilia, this may be more selective. So it is a bit lagging. I would say that in terms of the kind of trajectory, it has been very flat, and if we look at our trials and implants, then-but this is indeed something beyond our control. Bounce back. We can see the patient’s pipeline. We work closely with the surgery center, and we already understand this. We don't expect a big bolus in the fourth quarter, and then we will have to see how the first and second quarters of next year will be able to give a better feeling there.
But what we can control, this is what I pay attention to-we pay attention to the team, is our pipeline. I think the team here is doing very well. I want to emphasize here some of the things we have already accomplished. NeuroSphere is this novel remote care platform, and we have launched it. This is the first system approved by the FDA. We conducted a comprehensive market launch at the end of June. I really like the numbers we see. We have completed more than 5,000 remote programming sessions. Not only is it a remote programmer, but it also allows us to see patients in the funnel. Therefore, it is very good to use this tool because I think it will make a real major change in the business model of the types of sales and services that exist in the business. So it went smoothly. I think this will help to gain better visibility.
Another key here is to enter the rechargeable market, which accounts for about half of the market. We really don't have a competing system there, and the team has developed a rechargeable system that has a first-class significant advantage compared to the market leader in this segment. Therefore, we look forward to bringing this product to the market next year.
Then, we also invested in experiments. I think the most noteworthy may be the difference, which is a sign of a non-surgical waist. We have completed the registration for this study. So I think the combination of these factors is very important for us to be able to share. Then, if we see a large number of patients coming back in the first and second quarters, it will be an additional tailwind for us.
Cecilia Furlong - Morgan Stanley - Analyst
great. Thank you. I also want to ask about your recent acquisition of Walk Vascular. Really at a high level, can you just talk about your prospects for the potential market growth in peripheral areas and other high-growth target end markets (including diabetes and EP) in the next few years? Do you want to build other areas around your vascular business? In addition, what are your current views on the PE indications of the thrombectomy system? thanks.
Robert B. Ford - President and Chief Executive Officer
certainly. So we have been paying attention to this field. As I have always said, we have been looking for, we have been learning, this is the opportunity we see, and we think this is an attractive market segment. We see it is about 700 million U.S. dollars, growing at a double-digit rate. This strategy has just fallen into the best position of the strategy, and it is strategically meaningful to us. We have an intravascular sales and service team with a commercial footprint there. We know our customers. We have call points. We have the ability to use our manufacturing expertise here to expand the scale of manufacturing. Therefore, it makes a lot of sense for us to be able to add it to the product portfolio, and the integration goes very smoothly.
I don't expect any major contributions in the fourth quarter. But as we enter next year, I think this will have an impact on our vascular business. Yes, I mean, like I said, there are many market segments in the field of endoscopy, and I will say, we will continue to research, and we will continue to focus on our areas of interest. If we find the right ones when we can add these opportunities, we will.
Regarding your question about key instructions, yes, we absolutely know this is very important in the peripheral area. So we are investing. One of the key aspects of integration is the investment to be able to establish this directive. So yes, we are working hard.
Cecilia Furlong - Morgan Stanley - Analyst
great. thank you very much.
Thank you. Our next question comes from Vijay Kumar of Evercore ISI. Your line has been opened.
Vijay Kumar - Evercore ISI - Analyst
Hello everyone. Thank you for answering my question. Robert, my first one is to go back to the test. I think your fourth quarter hypothesis is between 1 billion and 1.4 billion US dollars, which is a substantial decrease compared to the second quarter. I am curious-where is our current capacity and what is the current demand for these test products? Are we seeing a continuous decline in demand now? I think you did win the Department of Defense contract of about $600 million. Is this in the fourth quarter figures or is it a contributor in FY22?
Robert B. Ford - President and Chief Executive Officer
OK. Therefore, regarding the forecast of 1 billion to 1.4 billion US dollars in the fourth quarter, our production capacity is that we can do much more than that, Vijay, especially in our third quarter, we did not fully improve, but now this month is about to end , We will enter the full acceleration mode. So we can do more than 1.4 billion US dollars. I think the factor we are focusing on is that, as I said in the opening comments of the first question, I continue to see the surveillance and screening market continue to grow. This is also a kind of Binax and ID NOW. So we have these businesses, everything we can do, we are all rolling here.
I want to say that the only problem we have here is about symptoms. This is what you see in this downgrade, assuming that as the number of cases in the United States decreases, we will see a slight drop in symptom detection. So this is one of the factors. Another factor for the US$1 billion to US$1.4 billion is pricing. We are a market leader in rapid testing, especially in OTC. If you look at the Nielsen data, you will be able to see that our share in September was about 90%. We dropped to around 60% just because of supply, and now we are back to 75%. We are seeing some price pressures. So on this number, I have been under some price pressure to ensure that we maintain our market leadership when we see more market entrants enter. .
So these are the driving factors and the thinking there, Vijay, a bit of pricing pressure and what we will see in the symptom test.
Vijay Kumar - Evercore ISI - Analyst
The Department of Defense contract is $600 million, is it assumed in the fourth quarter or is it a contributor in fiscal year 22?
Robert B. Ford - President and Chief Executive Officer
Well, we will have to-yes. So the contract of the Department of Defense is actually-I think you quoted the maximum amount of the contract, I know this is the cause of a lot of news headlines, but the contract actually has a minimum amount, much lower than that amount, less than 100 million US dollars . Therefore, in terms of procurement, it really depends on the Department of Defense and the federal government. We considered this smallest part in the fourth quarter. When I talk about entering next year, this will be part of what we are willing to add. So-but it's a fairly large range, Vijay, in terms of maximum and minimum. so...
Vijay Kumar - Evercore ISI - Analyst
Understood. In your previous comment, Robert, regarding SG&A, looking back at the historical trend from 29% to 30%, R&D accounted for 7% of revenue. This comment refers to FY22, operating expenses as a percentage of revenue should look like yours Basic business, and then the variable beyond that range should be COVID. Is this the right way to consider FY22?
Robert B. Ford - President and Chief Executive Officer
The comments are more to ensure that you don’t see a drop in investment when you review our third quarter profile. In terms of R&D, it dropped to 6%, and our SG&A dropped to 25%. Therefore, this comment is more about the distortions due to COVID, and we will ensure that we continue to invest in this business.
If you look at the investment we have made this year, Vijay, we have added approximately $1 billion to the business between R&D and SG&A, so that we can continue to drive revenue growth and at the same time promote long-term development to achieve business sustainability through R&D investment sex. I talked about how we can pulse this expenditure not only this year but as we enter next year. Part of the expenditure is more discretionary in SG&A, and we will study this. But-so the comments are more about ensuring that there is no distortion, we at least understand the distortion of COVID from our personal data.
Vijay Kumar - Evercore ISI - Analyst
Thank you. Our next question comes from Matt Miksic from Credit Suisse. Your line has been opened.
Matt Miksic-Credit Suisse-Analyst
Hi. thanks. And congratulations on the good results. So, maybe it's just a follow-up to some of the things you just talked about, a bit like the concept of reinvesting the proceeds of this very powerful COVID business. Therefore, I think that since the COVID test may not be permanent and unpredictable, there is a perception that it is somewhat less important or difficult to value compared to your other businesses.
But it is clear that the upside of 1.5 billion US dollars in the past few months and the third quarter of this quarter, according to our estimates, more than 500 million US dollars in operating cash, which is the same as your operating rate of 2 billion US dollars or 2.5 billion US dollars in operating cash Far away. So, the question is, in addition to becoming part of the solution like the pandemic you talked about, it may be possible to gain insight into some of the things you just described, the investment opportunities behind them, and which are your growth plans. Are there opportunities for adjustments? If so, will this change your views on mergers and acquisitions and your activities in this area? thanks.
Robert B. Ford - President and Chief Executive Officer
certainly. I think you capture all the elements of how we view COVID very well. As I said at the beginning, when we start to do this, there is definitely an opportunity to accelerate the strategy of decentralized testing because of COVID. And the strategy is in place. This is an area we are investing in to ensure that we are indeed capable, so we will conduct more tests in pharmacies, more tests in emergency care centers, and beyond COVID and even flu and RSV. Testing and respiratory viruses, through the development of detection methods that will be used on this rapid test platform. So this must be an investment.
You can see the impact of investment on certain businesses. You can see it in nutrition. Therefore, we have been putting more discretionary advertising and direct consumer promotions in this business, and you can see that the growth rate there has increased. We obviously have invested in Libre in SG&A. We launched a new TV commercial and provided funding for it. We think it is competitive and leads in the delivery of information. We have increased our sales force in the United States and other major Libre markets so that we can call in more doctors, and you will see the impact there is on Libre.
I mean, our Libre sales in the US this quarter were close to $1 billion, which is about 65%. We have made great progress in penetrating the Type 2 population, both non-insulin users and non-intensive insulin users. We have approximately 90% of the market share of non-insulin users or non-intensive insulin users. We have at least approximately 90% of the market share in this segment. Therefore, this growth is also supported. We have launched all these new cardiovascular products that I have been talking about. These new products need to be carried out on the street. Whether it is a salesperson or a clinical expert, we are also funding these. So, I think this is obviously where we invest.
We talked about R&D investment and made sure we have more than 22 and 23 years of pipeline. This is also mainly in the field of diagnosis and equipment. Therefore, its foundation is very broad. The $1 billion growth is progressing well in all businesses. If I ask my general manager and my business president if they have a place to go for the next batch, they will also prepare this list. So there is no shortage of opportunities.
Then, another topic you talked about or touched on is the cash flow generated by the COVID business. Yes, it generates a lot of cash. We have invested part of our cash in the organic opportunities we have, whether it is in the COVID, MitraClip and Libre manufacturing bases in the United States. So we made these internal investments, but we also studied the areas in which we can provide the best returns to shareholders. You saw this in the form of our dividend increase at the beginning of this year. We increased our dividend by 25%. You also see us-you may see that we repurchased shares in the second quarter, and we further increased the repurchase efforts in the third quarter.
If this makes sense to our shareholders, we have the ability to do more in the fourth quarter. Therefore, we have found a way to deploy this capital. In terms of mergers and acquisitions, I mean, I have already talked about this. We believe that there is a strategy that suits us, one that is financially reasonable to us, we can use it to do better, we can make it better, and be valuable to shareholders, and we will do the same. Now, what I want to say is that I think the medical technology and diagnostic valuations there, especially the valuations and high-quality, high-growth assets that we are interested in, are a bit frothy. Therefore, we are in a learning and paying attention mode.
I think the good news here is that we don’t really need M&A to support what I think is very top performance here. That's it—in terms of how we view COVID, it's very comprehensive. Both of these funds are internal organic growth, allowing us to provide more value to shareholders through repurchases and dividends. If there are growth tools there, I think it makes sense, and we will not be ashamed of this.
So I will end here, just to say that as a result, we have achieved very strong growth in all businesses. I am very excited and proud of the pipeline that all businesses focus on. Historically, we have been focusing on our organic pipeline and continue to be efficient. We are entering a very new and attractive total market segment in our portfolio, and there are more products in the process. So, as I said, we are investing in our key platforms.
COVID testing will become an important companion for vaccines and treatments. At what level? I can't state the year now. I have given a range of what I think the fourth quarter will look like. We may have a chance-do better than this first. But I think the quick test here is indeed a value proposition that will make sense next year. We are leaders in this field.
We have established scale, we have established manufacturing, and we know how to operate in this environment, whether it is a retail pharmacy or a direct consumer. Therefore, our focus now is that we will end strongly in 2021 and enter 2022 with a strong momentum. I think we are in a strategically advantageous position as we enter next year.
So, I want to thank everyone for joining us today.
Scott Leinenweber - Vice President of Investor Relations, Licensing and Acquisitions
Thank you, operator, and thank you for all your questions. This concludes the Abbott conference call. A web replay of the conference call will be available on Abbott’s investor relations website abbottinvestor.com after 11 a.m. Central Time today. Thank you for joining us today.
Scott Leinenweber - Vice President of Investor Relations, Licensing and Acquisitions
Robert B. Ford - President and Chief Executive Officer
Robert E. Funck - Executive Vice President of Finance and Chief Financial Officer
Robbie Marcus - JPMorgan Chase - Analyst
Bob Hopkins-Bank of America-Analyst
Josh Jennings-Cowan-Analyst
Larry Biegelsen-Wells Fargo Securities-Analyst
Cecilia Furlong - Morgan Stanley - Analyst
Vijay Kumar - Evercore ISI - Analyst
Matt Miksic-Credit Suisse-Analyst
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