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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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. [Operator Instructions] 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 written permission.
I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations.
Good morning and thank you for joining us. With me today are Miles White, Chairman of the Board and Chief Executive Officer, and Brian Yoor, Executive Vice President, Finance and Chief Financial Officer. Miles will provide opening remarks and Brian will discuss our performance and outlook in more detail. Following their comments, Miles, Brian and I will take your questions.
Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2018. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological and other factors that may affect Abbott’s operations are discussed in Item 1a, Risk Factors to our annual report on Securities and Exchange Commission Form 10-K for the year ended December 31, 2017.
Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law. Please note that 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’s medical optics and St. Jude’s vascular closure businesses, which were divested during the first quarter of 2017, as well as the current and prior year sales for Alere which was acquired on October 3, 2017.
With that, I will now turn the call over to Miles.
Okay. Thanks, Scott. And good morning. Today we reported 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. Strong growth we are achieving is a direct result of the steps we have taken to position the company in the most attractive areas of healthcare as well as the outstanding productivity of our new product pipeline.
I will now summarize our first quarter results before turning the call over to Brian. And I will 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 in Europe where we’ve made good progress on test menu expansion and where we’ve seeing increasing competitive win rates.
Diagnostics has been almost 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 United States. This is a very attractive area of diagnostics testing and our integration of this business into Abbott continues to go well as we’ve 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 US was led by Similac, our leading infant formula brand.
Internationally, performance improved across several countries and we continue to see stable market conditions in China following the implementation of a new food safety -- 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 US 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 socio economic 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 pharmaceutical markets in the world.
And lastly, I will turn to medical devices, our 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.
In structural heart, growth was led by MitraClip our market leading device for the minimally-invasive repair of mitral regurgitation. During the quarter we announced that patients in Japan will now have improved access to MitraClip for national reimbursement and we continue to make advancements on a number of clinical development programs targeted to deliver new products and indications for the minimally invasive treatment of various forms of structural heart disease.
In neuromodulation, first quarter growth of nearly 20% was driven 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 this unique combination of affordability accessibility and ease-of-use and will positioning ourselves to maximize its impact.
So, 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'll well positioned to achieve our financial objectives for the year including top tier sales growth and mid-teens 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 as 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 and 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 6% to 7%. And based on current rates, we 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 2018. We forecast an adjusted EPS of $0.70 to $0.72. We forecast organic sales growth of 6% to 7% and at current sales we 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 investments of around 7.5% of sales, and adjusted SG&A expense 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 the modest sequential improvement in sales growth of around 6% and 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. [Operator instructions] And our first question comes from Mike Weinstein from JPMorgan. Your line is open.
Let me start if I can on couple of product launches and hope you can provide some additional color on how the U.S. launches are doing for both Libre and Confirm. And then second the ETT business had a slight weak for this quarter than was expected. Brian’s comment in the second quarter guidance that you expect the business to rebound to double-digits in the second quarter. So, if you can just call out anything in particular that might have impact in the first quarter that you would use one time in nature. Thanks.
Thanks for the question Mike and before I going in to those answers. I’d like to take a minute and just acknowledge you as an analyst in our space for just a terrific job you’ve done over the years and acknowledge your change of career. We won’t have you on these calls anymore, but she always had great questions and always hit the right points. And good luck to you and whatever you’re going to do. And we’ll miss you here.
Thank you, Miles.
Let’s start with Libre. The Libre launch, I’d say has going exceptionally well. And is going exceptionally well, we obviously expected to keep going exceptionally well worldwide. as I mentioned we are 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. So, if I look at the acquisition rate of patients we expect to obviously be over a million patients at year-end and trending at a pretty healthy fashion. And then 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 is -- I think we’re reimbursed about two-thirds of all sales now internationally, that’s strong keeping reimbursement of 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 for the product and so forth. We get a lot of feedback that way.
About two-thirds of the patients are Type 1 diabetics and about a third or Type 2 patients. So, we’ve got, 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 and 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 and in our case so far the vast majority of our patients are international but we are off to a strong start in the US as well.
At this point, we are a little over 50,000 patients in US and trending strong and I think as far as starts go and continuations and expansions and so far, that’s all good news. So, we are 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 and for us is a future growth driver we think it’s pretty strong.
I am not sure what other detail to fill in. But nice thing is it’s the kind of growth challenge we’d like to have. We are not having to over invest in SG&A because the customers our strongest marketers and given social media and so forth, that’s been a huge plus. So, everything about it is doing really well and I think we will see this be a major growth driver for the company for a quite long time.
With regard to Confirm, also off to a strong start. We are capturing share; physician feedback has 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 are in and competition always makes you pay attention to innovation and next steps and next improvements and so forth. And I suspect we will see response for the success of this product but in the meantime doing quite well.
And then finally EPD, if you focus into the category for many of, it’s always something. And 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. And in this particular case it’s Russia. And in the case of Russia the market has been -- 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. Veropharm brand has withstood that slowly market growth rate far better than the EPD brand because of a lot of the hospital based were EPD brand is more pharmacy based.
There’s been a lot of expansion on pharmacies but that doesn’t mean that there is expansion of prescriptions. And so, the overall market I think is one of temporary distribution channel dynamics as those pharmacies expanded and that has now ceased at that rate and the market I think will stabilize in terms of distributions channels, outlets and so forth. So that’s created a little disruption in that market temporarily and that’s it is, that in Russian. And without Russia we have been in the 8.5% to 9% ranges business and this looks healthier. So, I would say you got that and then maybe a small dynamic in Mexico where we have seen a couple of distributors consolidate. And when distributors consolidate there’s a little more negotiating power and so forth. It’s been a little disruption in Mexico.
But to be honest that one hardly makes the radar screen impacting the overall global growth of EPD. The biggest issue was this quarter Russia. I think we will still see impacting the numbers next quarter. So, I'd say we're probably going to look at the same kind of a number particularly given the Russia impact next quarter. And then I think we'll start to see it turn.
That's good color. Miles let me just ask one follow up. So, you grew 6.9% organic this quarter, your guidance for the year was 6% to 7% if there are probably a bigger picture question people have is on sustainability. So, would you mind spending a minute, it's obviously only April of 2018. But just could you just give us your thoughts and ability to -- this type of revenue growth?
Yeah, I think overall. I'd say this range revenue growth we're going to sustain. I know that I indicated on the last call I expect it to be at the higher end of this. Each day that goes by, where do you have Russia or a tweak or something that affects the expectations in the market did adjust. I am less concerned about couple of tents of a point of growth, and I'm less concerned about the details of each quarter. I mean 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 break every quarter to the tenth. But 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 launched and so much sustainable launch. I mean just between the series of Alinity analyzers and Libre and the new products launched by our medical device groups. There is an awful lot of new product tracking here. And 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. And then whether we ever do anything else opportunistically and M&A and so forth becomes truly that opportunistic and very strategic. So, 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.
So, whether it's [65, 67, 69] might vary quarter-to-quarter. Because lots of things happened quarter-to-quarter. But overall, I think that growth range is pretty doable.
Thank you. And our next question comes from David Lewis from Morgan Stanley. Your line is open. please check that your line is not unmute?
Hello.
Hello?
Hi David.
We surely have a technical problem.
Are you there David? Maybe we move on and try to welcome back 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 of follow questions on Libre. Obviously, the bright spot here in the quarter was the acceleration in nutrition. So, 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 are areas that saw some challenges last year. And I was just curious as to why, you’re guiding too 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 a high a growth rate as they have historically. They’re still healthy markets and I think particularly some international, you call it emerging markets and so forth still have some hefty growth opportunity. But 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.
So, 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. But it’s been true a lot of places.
So, I think that it’s a highly competitive business in a branded space. We react 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. And we will see from time-to-time a competitor tries to false advertising or other things to take momentary share. But I think overall, we’ve not only sustained our position, but steadily grown it, from a share standpoint, we certainly see that in the U.S., I’m feeling pretty good about how the U.S. is doing overall.
And in some markets, where we got some either competitive issues or just disruption like the disruption in China for the last two years over this changing food safety and so forth the law. I think we respond to that pretty well. And I think we’re seeing that stabilize as we are making adjustments in how we market, what channels we go to where the emphasis is. I think we got some stability in China. But I would say, we also have a lot of ambition to do better competitively in China, [we forget our hands around].
So 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 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 is stable and headed north.
That’s very helpful. And then on Libre, clearly the launch is off to a good start in the U.S. and international numbers have been spectacular. But I think investors want to get some confidence about the sustainability of that. So, I guess my question is first, earlier in the year, you’re seen comfortable with 50 million to 100 million for the U.S. in 2018, is that still the case? And second, what can you say on the pipeline. I know, you don’t want to disclose much, but investors obviously want some visibility beyond 2018. Is there anything, you can tell us to give investors' confidence that there is more to come here? Thanks.
More to come on Libre?
On the pipeline, I mean, you have collaboration with Big Foot, you’re expected to deliver next generation device to them with alarm, that kind of thing. So, the pipeline in the sustainability.
Coming back to your first question about the -- we previously said 50 million to 100 million of sales in year one seemed reasonable and so forth, absolutely. And we’ll be at the higher end of that range and we are tracking that way now and it’s very early in the year as you know. So, I have no concern about that at all and let's just say we are ahead of our expectations here and you can see that in the growth rates, in the numbers and the patient acquisition rates and so forth. I think we’ll go out at the end of this year $1 billion or more in run rate and 1 million patients or more. In fact, I think we are going to have well over 1 million patients at that point because our patient acquisition rate right now is pretty steady and rising. So yes, I think all of that’s pretty reasonable, I’d validate that for you.
And then with regard to pipeline, product improvements and so forth, yes, I mean as you know we’ve got a pediatric claim in Europe, we will have that in the US that we’ll file this year. There’s improvements, alarms and so forth that will be -- that’s coming. I am trying to think of all the things coming but I would just say yes there is plenty coming and other dimensions of it coming out of R&D that we will have announcements for this year and next year. So now 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.
Thank you. And our next question comes from David Lewis from Morgan Stanley. Your line is open.
So, Miles, I wanted to start with diagnostics. Two things to focus on there, may be a follow up on the balance sheet. Two things, Alere is a model kind of recovered faster than I guess we expected. So, if you could talk about Alere recovery and how the integration is going? And then secondarily Alinity and how you see the pipeline building there US ex-US throughout the balance of the year?
Yes, I am sneaking the notes so I can remember all that, okay. Alright. I will start with Alere yes, I would say what Alere sees 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. I mean there’s a lot of things we will keep improving in both businesses overtime, investments we want to make and so forth. But I think the notion of make it a part of the company getting everything under control, getting a management team established and strategies and directions established and so forth, that’s all gone exceptionally well.
We are on track with all our synergies. I think we 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 Alere’s sales is seasonal and somewhat dependent on things like the flu season, if not the flu season in particular. So, we saw an obvious upshot in our flu related and strip 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 flu season and so forth.
But some years will probably be lighter but this year was particularly strong and that was a big plus. Now underlying that interestingly enough as we’ve told you we think they had a lot of good product lines that were undermarketed. We have 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 out, we want to put a lot more money in to R&D product refreshments, product improvements, that sort of stuff, that’s a multiyear thing, that’s not going to be next quarter kind of evidence. But I think we’ve got our hands around the commercial opportunities. There are places where we see room for correction, improvement et cetera. But I think we 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 is also underlying improvements in key product lines and key sales that I think are going really well that we are pretty happy about.
Alinity, we have taken some pretty deliberate steps to dramatically chip up our launch activity. With these large systems, and their multi-test menus. It's really important to have full or nearly full menus at launch because customers when they switch over a lab or switchover given instruments and so forth, want to be able to switch all the test on that product and not have to run different systems and so forth. And we're 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 has a full menu that's up. So, we've got some pretty ambitious plans about not only conversion of existing installed base but share capture and account capture. I would say about 15% of accounts come up for renewal or contracting each year. So, this will be a fairly steady multi-year rollout and trend. But if I track things like our prospect lists or prospect bank how many prospects, how many actively in the sales process, what's our win rate with the existing accounts, what's our win rate with new accounts? And I'd say the magnitude of the prospect banks and accounts has increased about six-fold. And our win rate in our existing accounts is extremely high up in the well over 90% category which you'd expect that happy customers and they're always easier to sell to than new ones. But our win rate in new accounts is quite high also. And so that's been pretty gratifying. And that's so far Europe and has evidenced. So, we're investing in expansion of sales force and expansion of installation service teams, expansion of support. It's well underway, and it's going well. So, we're pleased.
Okay. And Miles, very clear. And then just quick one from me, I think a lot of commentary this morning on growth drivers. But one of the basic steps for us this year is debt paydown. And it looks like you could be 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 paid down $6 billion already this year, its [ph] April. And I'd say we expect to pay down another $2 billion before year-end. And 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 have about $28 billion in gross debt. And we're already 22 and we'll be 20 or little lower at year-end. That will put us at about 2 times net debt-to-EBITDA ratio not 1.5 or 2 and I still think that’s pretty healthy and it’s a pretty rapid rate of pay down on the debt. So, does the 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 bit more than 40% of EPS range, 40% to 45% of earnings. And we like to maintain that range and we’ve been steadily raising the dividend, and I think that remains a priority.
Obviously, debt pay down remains a priority. But we’re getting rapidly to a very healthy range and healthy balance. Would we keep paying down debt, we would. And yes, 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. And we’re not looking at M&A, we’re not looking at any day. It’s not in our priority list just now. I do want to keep paying down debt, do want to pay a healthy dividend. And frankly, we’ve got some organic capital opportunities here internally both between the launch of Alinity and capacity expansion with Libre that are worthwhile. And I don’t see that impinging on us so much that it squeezes us.
We have flexibility referred to and of course as we get into ’19, we clearly have flexibility. But right now, I don’t feel constrained, but 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. And 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.
And our next question comes from Rick Wise from Stifel. Your line is open.
Miles, just a big question to start off with. Maybe you could talk a little bit about your internal investing priorities. It seems SG&A stepped up a little higher than might I have thought, you’re clearly investing in R&D. And 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 investments sustaining or accelerating to kind of 6% to 7% organic growth outlook you’re talking about?
Rick, I don’t have an investment at Abbott. It doesn’t mean that can use more money. Our 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. And of course, as always have a prudent balance to that. But I’d say, we’re kind of lucky. We’ve got a lot of things that are launching, a lot of new products and opportunities. And we’ve got some market expansion opportunities in EPD and so forth. So, and the combination of it is adding sales reps, adding service and support and increasing our penetration in a number of places.
So, 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 have to make sure you get the product ready to go and so forth. So, we got a nice steady pipeline. We’d like to put more money behind it. And nutrition it depends -- it's dependent on give countries and given channels. It’s more selective. Would I put more money behind it? Yes, I think so. I think us 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. So, the good news is we are always going to be in this balance between how much we beat earnings by and how much we feed backed into the business. And what I 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 percent of sales basis on where opportunities are. I think right now I am going to put a lot more in Alinity and -- because I think that clearly gets a bit of a boost and its labor intensive. So, I know that’s a bit of ramble but 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’ll be keep ploughing into the business because I know you guys want to see sustained growth. I am confident we have sustained growth and then it's just a question and how to hard push on the gas pedal.
Got you. And just last from me on a more focused basis, maybe you reflected 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. Your portfolio is filled out. I assume you did well on the de novo side may be not so on the replacement side. But just what’s the outlook from here, what are you expecting, is it -- can this business grow and just how are you thinking about this longer term?
Thanks for the question. The business can grow. And you are exactly right, that’s a tale of two different situations, the de novo and the replacement, we are doing very well on de novo to be honest. And that’s pretty gratifying. And it’s a little slower in replacement for a reason, some of that got pulled forward when there was a battery issue couple of years ago. So, a lot of that replacement got pulled forward, so it’s a little bit out of the sink of the normal rate of the sale to come from replacement versus sales to come from de novo. So, I do think that’s kind of a temporary phenomenon while we move out of that zone.
But the de novo side is quite robust and I am pretty happy about that. So, as we move forward do I think this business grows more than 1% or 2%? I think it can. So, I think we see evidence and give it that attention. I also think we get a lot of opportunity in electrophysiology. I mean there are parts of this business that whether it’s stents or CRM the lower growth rates with their mature and established markets and you said 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, and yes with the approval of launch of XIENCE Sierra in the United States I think that changes.
So, we’ve got plans, when you're more legacy mature businesses one way into the new product launches another way but you can't, you can't ignore the large established position 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. But we believe we can drive CRM and endovascular 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. And 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? And I'm thinking in particular about how the patients you onboarded so far breakdown in terms of type 1 versus type 2. And then CGM naive versus competitive wins?
Yeah, I'm going to let Scott take that question for you. Go ahead, Scott.
Hi Chris, how are 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 saw a lot through our web shop in Europe. But we're getting, we estimated around two thirds type 1 and third type 2 in the U.S. just like we are internationally. We think that one, and then 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. So, a nice balance stands across both dimensions.
Okay. And then neuro continues to be a really strong segment for you. Last year you guys actually became the market share leader in the FTS space in the U.S. I'm curious what all the focus on the opioid, epidemic om the country right now and pain management in general. Do you see an opportunity to move spinal cord stimulation up between the continuum to reduce the dependence on drug therapy for those patients?
Yeah, I would say look, that has been a great space for us. And we're now the number one player in chronic pain. So certainly, we have a great portfolio and that's playing out with physicians and with patients and we're seeing great real-world results and what not in the real world. So, I do think that 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. So, it may build itself overtime, it's like going to be a spike. But certainly, we feel that's a really nice space longer term.
Thank you. And our final question comes from Glenn Novarro from RBC Capital Markets. Your line is open.
Hi good morning. Thanks for feeding me in. Miles I have two questions on China. The first is relating to all this tariff noise that we're hearing. Abbott has major prices in China, but I don't believe you manufactured a lot in China and then send manufactured product back to the U.S. so maybe can you discuss the impact of any of these tariff threats between the U.S. and China on your sales and EPS. And then 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. But I'm glad that it is stabilized now. I think we expect the stability is much sooner than this, but we're there now. So, I think we've got a reasonably stable predictable market. Are we doing as well as we've like, what we'll see that overtime here. We're doing better, but I’d like to do better than better. So, they’re still room to go to improve performance and improve share gain, improve channel shift and so on. But 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.
Then with regard to production in China, I think to disabuse this notion, but we do produce in China. And 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. So, 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. And so there could be some impact financially on that if something where to happen from a tariff standpoint. We have done that analysis. And 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.
So, we got a balance, we 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. And I would say that based on everything I’ve seen so far total magnitude of impact on us if that were to happen at all about a penny. And so, 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 a penny. And so, I put that in the category of I’m always solving for penny somewhere. So that’s a manageable outcome.
Very good. Well, thank you operator and thank you all of your questions. This now concludes Abbott’s conference call. A webcast replay of this call will be available after 11 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.