Good morning, and thank you for standing by. Welcome to Abbott's Third Quarter 2021 Earnings Conference Call. This call is being recorded by Abbott. With the exception of any participant's questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's expressed written permission. I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations, Licensing and Acquisitions.

Good morning, and thank you for joining us. With me today are Robert Ford, President and Chief Executive Officer; and Bob Funck, Executive Vice President, Finance and Chief Financial Officer. Robert and Bob will provide opening remarks. Following their comments, we'll 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 expected financial results for 2021. 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 Form 10-K for the year ended December 31, 2020. 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. 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 excludes the impact of foreign exchange. With that, I will now turn the call over to Robert.

Thanks, Scott. Good morning, everyone, and thanks for joining us. Today, we reported results of another very strong quarter. Ongoing earnings per share were $1.40, reflecting nearly 45% growth compared to last year, and sales increased more than 22% on an organic basis. Excluded COVID testing-related sales, which totaled $1.9 billion in the quarter, organic sales increased 12% versus last year. As we've seen since the start of the pandemic, our diversified mix of health care businesses continues to prove highly resilient. Even as COVID case rates surged in the U.S. and other geographies during the third quarter, strong growth in our more consumer-facing businesses—Nutritionals, Established Pharmaceuticals and Diabetes Care—mitigated the modest impacts we saw from the surges in certain areas of our hospital-based businesses. This has been a consistent theme throughout the pandemic, as evidenced by an increase in total company sales, excluding COVID tests, of 11% on an organic basis through the first 9 months of this year compared to our 2019 pre-pandemic baseline, which highlights that our growth is real and not simply a function of easy comps versus last year. As a result of our strong performance and outlook, today we increased our full-year adjusted earnings per share guidance range now at $5 to $5.10, which reflects nearly 40% growth compared to last year. I'll now summarize our third quarter results before turning the call over to Bob. And I'll start with Nutrition, where sales increased 9% compared to last year. Strong growth in the quarter was led by U.S. Pediatric and international Adult Nutrition. In Pediatric Nutrition, sales grew over 8.5% in the quarter, led by strong growth in the U.S. from continued share gains in our infant formula and toddler portfolio. Sales of Pedialyte, our market-leading rehydration brand, once again grew strong double digits, driven by market uptake of several recently launched new products as well as investments we're making in direct consumer promotion. In Adult Nutrition, sales grew over 9% in the quarter, including mid-teens growth internationally as we continue to see strong demand for our Ensure and Glucerna brands, including new users entering these categories and existing customers increasing their usage. Turning to Diagnostics. Sales increased more than 45% overall and 12.5%, excluding COVID testing-related sales. During the quarter, as the Delta variant spread and COVID cases surged particularly in the U.S., demand for testing increased significantly, most notably for rapid tests. In total, during the quarter, we sold more than 225 million COVID tests globally and have now shipped over 1 billion tests since the start of the pandemic. Over the last several months, we've learned that COVID vaccines, while a powerful tool, are not the lone solution needed in our global fight against this virus. Testing, particularly rapid testing—which is fast, affordable, and easy to use—is an important companion to vaccines and therapeutics. Abbott has established a global leadership position in rapid testing, including a supply capacity of more than 100 million tests per month. Moving to established pharmaceuticals, where sales grew more than 15%, driven by strong execution and a steady cadence of new product introductions. Strong sales performance in the quarter was broad-based across several countries, including double-digit growth in China, Russia, and India, which led to overall sales growth of 18% in our key emerging markets. Lastly, I'll cover Medical Devices, where sales grew 13% in the quarter compared to last year and more than 16% compared to pre-pandemic sales in the third quarter of 2019. Strong performance in the quarter was led by double-digit growth in Rhythm Management, Structural Heart, Heart Failure, and Diabetes Care. In Structural Heart, we continue to enhance our portfolio in large, fast-growing markets with the recent U.S. FDA approvals of Amulet, which closes the left atrial appendage in the heart to help reduce the risk of stroke and people with atrial fibrillation; and Portico for transcatheter aortic valve replacement. In Heart Failure, we announced results from the GUIDE-HF trial of our CardioMEMS system. As with many other recent and ongoing clinical trials across the health care industry, a portion of the CardioMEMS trial overlapped with the COVID-19 pandemic. After adjusting for this impact, CardioMEMS demonstrated a 28% reduction in heart failure hospitalizations. We filed with the U.S. FDA for label expansion based on the trial data in the middle of this year. During the quarter, we also added an attractive growth platform to our vascular device portfolio with the acquisition of Walk Vascular, a commercial stage company with a minimally invasive thrombectomy system called JETi that removes peripheral blood clots. Peripheral thrombectomy is a large, high-growth area where we can leverage our existing commercial presence. I'll wrap up with Diabetes Care, where strong growth was led by FreeStyle Libre sales of nearly $1 billion. During the quarter, we added over 200,000 new users, bringing the total global user base for Libre to well over 3.5 million users. In summary, we continue to achieve strong, well-balanced growth across all of our major businesses, which is being fueled by strong execution and a steady cadence of new products. COVID testing—particularly COVID testing—remains an important companion to vaccines and therapeutics, and Abbott has established a strong leadership position in this area. Based on the strength of our performance and outlook, we're raising our EPS guidance for the year, which now reflects growth of nearly 40% compared to last year. I'll now turn over the call to Bob to discuss our results and outlook for the year in more detail. Bob?

Thanks, Robert. As Scott mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis, which is consistent with our previous guidance. Turning to our results. Sales for the third quarter increased 22.4% on an organic basis, which was led by strong performance across all of our businesses, along with global COVID testing-related sales of $1.9 billion in the quarter. Excluding COVID testing-related sales, organic sales growth was 12.1% versus last year and 11.7% compared to the third quarter of 2019. Foreign exchange had a favorable year-over-year impact of 1% on third quarter sales, resulting in total reported sales growth of 23.4% in the quarter. Regarding other aspects of the P&L for the quarter, the adjusted gross margin ratio was 58.8% of sales, adjusted R&D investment was 6% of sales, and adjusted SG&A expense was 25% of sales. Our third quarter adjusted tax rate was 15.5%, which reflects an adjustment to align our year-to-date tax rate with our revised full year effective tax rate forecast of 15%. The revised full year forecast is modestly higher than the estimate we provided in July due to a shift in the mix of our business and geographic income. Turning to the outlook for the fourth quarter. We forecast $1 billion to $1.4 billion of COVID testing-related sales and forecast organic sales growth, excluding COVID testing-related sales, in the low double digits versus last year. Based on current rates, we would expect exchange to have an unfavorable impact of around 0.5% to 1% on our fourth quarter reported sales. With that, we'll now open the call for questions.

Our first question comes from Robbie Marcus from JPMorgan.

Great. And congrats on a really nice quarter. So maybe after such a good quarter led by COVID testing, I feel like you have a unique perspective looking at both sides of the coin from COVID testing volumes and also device procedure volumes. So Robert, I'd love to get your sense of where you think we are here in the fourth quarter and heading into 2022. And any early thoughts you could give us on sort of how to think about the progression of COVID testing sales and the recovery and durability of medtech volumes?

Sure. I think regarding COVID testing, we obviously—since the start here of the pandemic, we've been learning a lot. One of the things that, as we developed our strategy for that, we always believed that the rapid test was going to be a more sustainable part of the business. And I think we were pretty right there. I'd say the key thing that I—and I made this in the comments, in the opening remarks—the key thing that we learned over the last, let's say, couple of months here is that the vaccine is just an incredible tool for the value. It's had a huge impact on public health around the world. But alone, it's not enough. We know that it dramatically reduces hospitalizations and mortality. But I think we're all seeing here that even if you're vaccinated, you could still get and transmit the virus. Obviously, you're not heading to a hospital, but I think we've all heard and seen stories of that. So I think that's the biggest kind of learning here for us as we go into Q4 and as we go into next year is that testing is going to remain an important companion here. Even with therapeutics, it's still going to remain an important part of fighting the virus. We’ve also learned a lot about understanding kind of the difference between symptomatic testing and screening testing. We started to pay much closer attention to understanding the channels and the platforms that are more aligned to symptomatic testing versus screening testing. We can definitely see a correlation on the symptomatic testing with cases going up and down. What we don't see that correlation is on screening. So even as cases have started to come down a little bit in the U.S., actually, screening demand has increased quite a bit. I think that is another key learning as we think about going into Q4 and into next year also. The other key distinction we've started to make is understanding government purchasing a test versus private. In the beginning of the pandemic, most of our sales were focused on governments—whether international governments, federal government here in the U.S., and state governments also. That continues to be pretty strong. But what we've seen now grew pretty significantly, and I think it's aligned to the screening pieces of the private side of the market, whether it's OTC, cash pay, or companies. We've seen a lot of companies in the last couple of months here, signing contracts with us to ensure that they've got rapid testing to give to their employees. While we're not seeing—we only see some shelf and stocking issues at the retail, and those will work their way through that in the next couple of weeks, we are seeing still a lot of companies buy tests to give to their employees. All of this is basically saying, listen, I don't know how much is going to be there next year, but it's clearly here that, that screening segment of the market is going to be an important part, even with therapeutics and vaccines. So I think that's going to be an important part. Our base business has done very well and continues to be on a recovery trajectory here, Robbie, starting in Q2. We saw that in devices and Diagnostics. Yes, there was some softness during Q3 as Delta and cases increased here in the U.S. That’s probably more in August and throughout half of September; we started to see it kind of pick back up again towards the end of the quarter and first couple of weeks. We like what we're seeing here in terms of some pickup. But these were pockets. I wouldn't call it a general softness and slowdown; there were pockets here in the U.S., in some countries. But generally speaking, that base business is doing very well. When you think about 2022, I expect our base business—our underlying base business to continue that momentum, very strong momentum across the board, especially with all of our new product launches. The question here is going to be COVID. It will be very difficult as we go into next year to forecast a full number, a full year number of COVID next year. I think we're probably thinking about, okay, there's probably a COVID number that we're comfortable going into 2022 with. We will have to update on a rolling quarterly basis here how COVID's going to play out throughout next year. That's kind of how I see it. COVID testing will be there. We'll have to do it more on a rolling basis as we go to next year. And our base business continues to accelerate. There was a little bit of softness in Q3, but I like what we're seeing in terms of recovery. I like the portfolio that we built around our cardio business, our EPD business, our Nutrition business, and our Diagnostic business. So that's all good.

Great. Great. That was really helpful. And then maybe, Robert, to build on that, I know it's still very early in your planning process. But as you just said, there's a lot of variables, a lot of moving pieces. You've had a great year in devices so far, a bumper year in testing. Any early thoughts on how investors should be thinking about 2022 versus 2021 from a top and bottom line perspective?

Yes. I mean I think like I said, we're still in our process. We'll give our guidance in 2022 in January, like we always do, Robbie. I want to see a little bit more in terms of how this pandemic is unfolding here, especially on the COVID side, but on the base business side. I think our base business, I would say, we've been pretty good at forecasting our business both from a top-line and a margin perspective on our base business. You can expect in 2022 is that base business to get even stronger with the rollout of all these product launches that we've announced over this year. The question here really is going to be kind of COVID testing. Like I said, we'll have a portion of it that I think we'll feel good about putting it in, and then we will have to be updating on a rolling basis. The base business, which is probably the more sustainable piece, is building momentum, and it will go into 2022 with a lot of growth opportunity. We'll have to look at COVID on a more rolling basis.

Our next question comes from Bob Hopkins from Bank of America.

Congrats on some solid execution. I just have 2 questions. And in the interest of time, I'll just mention them both upfront because the first one is pretty straightforward. The first question is just on Amulet, and I realize it's very early in the launch. But just would love your sort of top-down comments on how things are going. And maybe any metrics you can share in terms of perhaps like the percentage of your U.S. coronary accounts that are now active with Amulet. So we'd love some just color there. And then the second question is more of a broad-based question. I was just wondering if you could provide just a little bit more detail on what you're seeing on inflation and supply chain because the headlines are obviously— they're just constant. But the message from Abbott and other companies we follow just seems to be that it's sort of generally manageable. So just wondering if you can kind of talk to that a little bit, if you can quantify the headwinds or just give us a better understanding of why it's manageable and just put some perspective around it for us.

Okay. Well, I'll take the Amulet, and then I'll let Bob kind of talk about the inflation supply chain. I would just say it is manageable, but that we have a great team. So—I'll let Bob cover that. On Amulet, listen, we received approval in August. We already initiated the launch. I know there's a lot of anticipation, at least on the last 2 calls, about the data and when we're going to publish the data and why we're going to do it, and the time that we were going to do it. We released that data really close to our approval, and I think that was a good strategy because it allowed our team to prepare for that. I will say, regarding the data, I mean, you saw when we released it. The product has got a lot of advantages versus the product that's on the market right now. We've got a pretty broad portfolio of sizes, and that helps as you're looking at different anatomies and getting a better fit. The steerable sheath that we've got has resulted in great precision in the placement, and that's super important, especially when you're looking at transcatheter therapies. You saw the data of superior closure rates without the need for blood thinners, falling right at the procedure. Ultimately, that's why the patient went to the hospital or part of the reason why they went there. We've got a great product here, and I think the team has done a good job getting the contracts ready. Right now I would say we have a goal of a certain amount of contracts by the end of this year, and in the first month, we've already gotten 40% of them of that target. I think we're going to definitely hit what we need to hit in terms of getting our contracts, our accounts—the ones that we want to get on contract up and running so we can start to build the usage and familiarity with the system. We've got a really strong commercial presence here, and that’s a key aspect in the rollout. The implants of these devices, the electrophysiologists, or the interventional cardiologists, I mean we've got a lot of great products and a lot of great call points. That’s worked out very well, too. There's always a certain amount of coordination required there, and that coordination has been fantastic. I'm really pleased to see that. Initial feedback has been super positive, so I’m very happy with the initial signs. Like you said, it’s about a month, one and a half months into it. All the signs that I'm seeing show that we’ll have a great opportunity here to establish Amulet as another product in the category. On top of that, we're making the investments, as I said, to grow the category with all of our clinical trials. CATALYST is one of them that I think is important also. So I'd say one and a half months—the odds are very positive with what I'm seeing.

Okay. Thanks. I'll take the inflation comments. I think inflation and supply chain are really linked together. The global supply chains have not been able to keep up with the strong demand out there. Like others, we're seeing some increased input costs across areas of our business. We're experiencing some higher shipping costs and, in some cases, higher commodity costs. I'd say the commodity costs are really more in the Nutrition area of the business. In some areas, we have flexibility to adjust pricing a bit, and we plan to do that. In other areas, that flexibility doesn't exist, and we're working to mitigate the impacts we're seeing, such as looking at other manufacturing costs. As Robert mentioned, we've got a very strong procurement organization and supply chain organization, and they're doing a great job working with our suppliers. Our suppliers understand the critical nature of our products. We've been successful in terms of ensuring that we're able to get what we need to support the business.

Our next question comes from Joshua Jennings from Cowen.

Congratulations on the strong 3Q results. Hopefully, Rob, hoping to just hear maybe some puts and takes or help us understand some of the puts and takes of the 2022 operating margin. Clearly, COVID testing is going to be a factor, but any other drivers of operating margin expansion that you would highlight as we move into 2022, and then any other levers that Abbott is able to pull to drive earnings next year, depending on how the COVID testing environment plays out?

Sure. I'd say, like I said in the beginning, I think in 2022, our base business—our underlying base business is going to grow very strong, both on the top and bottom lines. We will see margin expansion in that business. That's a combination. Like Bob said, we’ve got gross margin improvement teams across all of our businesses that are working at ways to mitigate other manufacturing costs. That will be important in order to drive margin expansion. The nature of the mix as we continue to roll out our pipeline, which is predominantly focused, I’d say, on the med device side, we've got gross margin profiles there that are accretive to the company's gross margin. A lot of it is driven on the top line, driving our top line, and the execution of these new product launches allows us to get that kind of margin expansion in 2022. The COVID piece is really just one where we're going to have to go quarter-by-quarter and update and roll our forecast every quarter. We'll have a number that we'll feel comfortable with. Those are the kind of key drivers here—our product launches, our ongoing base business, margin expansions by mix, and gross margin improvement. I want to maintain the same profiles that we've got right now in our base business in terms of spend, R&D and SG&A. Those profiles, we wouldn't want to change. If you look at our profiles right now, it's a little bit distorted because of the COVID piece. Historically, we've been in the low 7s in R&D and SG&A between 20% and 30%. That's where we want to kind of land.

And then just a quick follow-up on Libre. We've had some consultants talk about the potential for Abbott to add other analytes onto the platform, particularly the addition of ketone monitoring as a potential competitive advantage. Any updates just in terms of how the 3.0 is on tap here, but any updates in terms of the future development plans for Libre and how you continue to maintain your competitive edge here?

Sure. I've always said that Libre was a platform. We always know every time you put out a number, it becomes like the next—what is that, and what's after that. We've launched Libre 2, and it's doing very well in the U.S. We’ve launched Libre 3 in Europe and will obviously be rolling Libre 3 out. Regarding your question on analytes, yes, that is an area that we are intentionally looking at, using the platform of Libre, the manufacturing platform, to develop new analytes. You mentioned one that we've got particular experience in—our blood glucose monitoring. We have a blood ketone system. We believe that's an important aspect, especially for type 1 and pumpers. We think that might be a real important kind of feature. There are a lot of new drugs for type 2 where there are certain warnings regarding DKA. We think that might also be an opportunity, too. But that's only one analyte, and we've got a pipeline of analytes—a dedicated team focused on looking at business opportunities the market needs for that. As we get closer to those launches, which will be coming up fairly soon, we'll be updating the market. I'm really excited about using the Libre platform to expand even beyond diabetes.

Our next question comes from Larry Biegelsen from Wells Fargo.

Robert, I wanted to focus on the device side and the pipeline. Just starting with Amulet, to ask Bob's earlier question in another way, the surveys seem to be coming back, suggesting Amulet can take about 1/3 of the U.S. market and maybe even 20% next year. It’s not easy for a second to market to become a market leader, but Amulet has a nice profile. What's your reaction to some of these consensus estimates for share? Do you think you can do better? I had a follow-up.

Sure. Amulet is new to the U.S., but it’s not new to the international markets. When you look at the international market, Amulet's got a 50% market share. I've seen some of the reports—not all of them, but I’m aware of some of these surveys done with different physicians. What I see here in the U.S. compared to what we actually see in Europe is a great product. Its size portfolio is an advantage; its closure rate is also an advantage. Yes, as I said, this is a multibillion-dollar market where we think we can be a true competitor, but at the same time, we’re investing to develop it. I think it's important to make investments in next-generation products. We're going to be making investments in the commercial infrastructure, not only during the implant but also to develop the patient referral network. We're investing in clinical trials. The CATALYST trial is going to compare it to NOACs. I think that will be a great opportunity to expand the market. I think it's a combination of market expansion. Yes, we're competitive with our offering and team. I think 50% international is a good aspiration to have here in the U.S.

That's helpful. And then I wanted to ask about Portico and CardioMEMS. With Portico, you have Navitor outside the U.S. Do you think you need that in the U.S. to really drive share? Do you think you can compete without an intermediate low-risk indication, which I don't think you'll have until about 2024? And just lastly on CardioMEMS, how are you feeling about the label expansion and the commercial opportunity, given the COVID impact you mentioned on the GUIDE-HF trial?

Sure, Larry. Let me talk about Portico and TAVI here more broadly. This is a hugely important segment in Structural Heart. We want to be a structural heart leader. We had that vision when we put the businesses together with St. Jude. We know that we need to be a true player in the TAVI space. I’m really looking at this as a long game. What I mean is we're launching Portico in the U.S. Navitor, to your question, is a great second-generation device. We got it CE Marked, and the feedback is that it's a very, very competitive device. Its clinical profile in high risk is really strong. Yes, I want to bring it to the U.S. also, but not because I feel we need to, because Portico is competitive. It’s very competitive. In this context of building a strategy here to be a real player in the TAVI space, we know we need to bring a second generation here in the U.S. We're investing to further develop Navitor. We're about a 5% share in Europe; that’s not my aspiration for TAVI. To your point, there are 2 pretty well-entrenched competitors in the market. We have higher aspirations than a 5% share in Europe. The combination of investment in the team, in the pipeline, in the clinical data, you're right, our kind of intermediate low-risk trial reads out a little bit later on. But it's there. We're investing because we see this as a big opportunity for us to be a real player in the market. I'm excited about it; I know the team is also. Regarding CardioMEMS, the data was compelling. This is the second RCT trial we’ve done, and I'm a big believer in RCT trials and their need to generate clinical evidence. We filed for label expansion at the end of June. I think the data was very compelling. Part of it is expansion to Class II and Class IV and also to expand indications to patients with elevated BNP, which is today, just for patients previously hospitalized. The combination of the data and the fact that it’s already the second RCT we’ve done, a very large one on top of the CHAMPION trial, presents a great opportunity for us to develop this market. We've created a more dedicated business unit for Heart Failure, where both the LVAD and CardioMEMS team are going to be combined under one GM, similar to what we've done with our other businesses. This is a great opportunity for us in 2022 and beyond. I'm not going to comment on when—all I can tell you is we filed it at the end of Q2. The data is strong, and I'll just leave it as that. I'm highly hopeful we’ll see that next year for sure.

Our next question comes from Cecilia Furlong from Morgan Stanley.

Great. I wanted to ask about just your neuromod business, SCS, as well as other deferrable procedures. Can you walk through just sequential trends in the quarter if you started to see recovery in some of your more deferrable procedures trending ahead of others and also how you're thinking about the ability to recapture deferred procedures? Do some of this recovery in procedure recapture flow into 2022?

Sure. I would say, this is probably out of our device businesses, the business that’s had a little bit of a harder time in terms of recovering post-COVID. It's been lagging a bit. It’s been pretty flat, I would say, in terms of its trajectory. We're not expecting a big bulge or influx to come into Q4, and we’ll see how Q1 and Q2 of next year looks to give a better sense. What we can control, and that's what I focus on, we focus the team on, is on our pipeline. I think the team here has done a really good job. I’d highlight a couple of things here that we’ve done. NeuroSphere, this novel remote care platform, we've launched. It’s the first kind of system that was approved by the FDA. We did a full market release at the end of June, and I really like the numbers we’re seeing. We’ve done over 5,000 remote programming sessions. It’s not only a remote program, but it also allows us visibility of the patients in the funnel. Using the adoption of that tool is great because it will significantly impact the sales and service business model. That’s going well, and I think that will help get better visibility. Another key thing here is entrance into the rechargeable segment, which is about half of the market. We really don’t have a competitive system here, and the team has developed a rechargeable system that is best-in-class, with significant advantages over market leaders in this segment. We’re looking forward to bringing that product to market next year. We’ve also made investments in trials, the most notable being DISTINCT, which is an indication for nonsurgical lower back. We’ve completed enrollment in that study. The combination of these factors is important for us to take share. If we see the bulge of patients come back in Q1 and Q2, that’ll be an additional tailwind for us.

Great. I wanted to ask you as well about your recent acquisition of Walk Vascular and at a high level, can you talk about your outlook just for the underlying market growth in the peripheral space over the next several years versus some of the other high-growth target end markets, including diabetes and EP? Are there other areas you look to build out around your vascular business? And beyond that, too, just what's your current outlook for pursuing a PE indication for the thrombectomy system?

Sure. We've been looking at this area for quite a bit. As I always said, we're always looking and studying. This was an opportunity that we saw. We think it's an attractive segment. We see it about $700 million, growing double digits. This kind of fell right into that sweet spot of strategic—makes sense strategically for us. We've got a commercial footprint with an endovascular sales and service team. We know the customers, we have the call point, and we have the capacity to leverage our manufacturing expertise to scale up production. This made perfect sense for us to add it to the portfolio, and that integration is going pretty well. I don't expect any significant contributions in Q4, but as we enter next year, I think it will impact our vascular business. Yes, we’re looking. There are plenty of segments in the endo space that we continue to study, continue to seek areas of interest in. If we find the right moment to add opportunities, we will. Regarding the PE indication, yes, absolutely. We know that is very important in the peripheral space. We’re investing. That’s one of the key aspects in the integration—to establish that indication. So yes, we are working on that.

Our next question comes from Vijay Kumar from Evercore ISI.

Robert, my first one was—going back to testing. I think your Q4 assumptions of $1 billion to $1.4 billion, that’s a sequential step down versus Q3. I'm curious, where are we on capacity right now? What is the demand for these testing products right now? Are we seeing any sequential step down in demand right now? I think you guys did win about $600 million-ish of DoD contracts. Is that baked into that Q4 number? Or is that a fiscal '22 contributor?

Okay, so regarding the Q4 forecast of $1 billion to $1.4 billion here, our capacity is we can do significantly more than that, Vijay, especially as we finished this month. We'll be in full ramp-up mode. So we can do more than the $1.4 billion. The factor here is that, as I said in the opening comments, I continue to see the surveillance in the screening market continue to increase. We've got those businesses; everything we can make, we're rolling in here. I’d say the only question we’ve got here with the drop is on symptomatic sales. As cases decline in the U.S., we’re going to see a little bit of a decline in symptomatic testing. Other factors affecting the $1 billion to $1.4 billion are just pricing. We’ve got a market leadership position in rapid testing, especially in OTC. We were at about 90% share. Before September, we dropped to about 60 just because of supply. Now we’re back up to 75% share and are seeing a little bit of price pressure. In that number, I’ve baked in some price pressure to ensure we maintain that market leadership position as we see more entrants. If we don’t need that price, then it will drive another beat to that number, too. Those are the drivers of the thinking behind the forecast: a little pricing pressure and what we’re going to see on symptomatic testing.

Sorry, the DoD contract—$600 million, is that assumed in Q4? Or is that a fiscal '22 contributor?

Well, we're going to have to—yes, so the DoD contract is actually, I think you're quoting the maximum amount of the contract, which got a lot of news headlines. The contract has a minimum amount, which is significantly lower than that—less than $100 million. It’s going to depend on DoD and the federal government’s purchasing. We factored in a little bit of that minimum piece in Q4. I'll talk about going into next year; that will be a portion we feel comfortable with adding on. It's a pretty big range, Vijay, in terms of maximum and minimum.

Understood. And just one on your earlier comments, Robert, on the SG&A looking back at historical trends of 29% to 30%, R&D at 7% of revenues. Was that comment referring to fiscal '22, what the OpEx as a percentage of revenue should look like for your base business? The variable over and beyond that should be COVID—is that the right way to think about it?

The comment was more about ensuring that we don't have a drop in investment. When you look at our investment in Q3, it’s down to 6% for R&D. Our SG&A is down to 25%. The comment was about that there’s a little distortion factor here because of COVID, and we're going to ensure we continue to invest in the business. The investment we made this year—we’ve added about $1 billion between R&D and SG&A to sustain the long-term business with R&D investments. I talked about how we could adjust that spending this year and next year; a portion of that spend is discretionary on the SG&A side, and we will be looking at that. But the comment was to ensure that there wasn’t a distortion—we understood the distortion of COVID.

Our next question comes from Matt Miksic from Credit Suisse.

Congrats on the strong results. So maybe just a follow-up on some of the things you were just talking about—this concept of reinvesting the proceeds of this very strong COVID business. There’s a perception out there, I think, because COVID testing is maybe not permanent and hard to predict, that it's somehow less important or harder to value than the rest of your businesses. But the last few months, in this quarter, $1.5 billion of upside in Q3 is, by our estimates, more than $0.5 billion in operating cash. That goes up against your $2 billion or $2.5 billion operating cash run rate. The question is, in addition to being part of the solution as you've talked about to the pandemic, maybe drill down a little bit into some of the things you mentioned—opportunities to invest behind, which growth programs do you see an opportunity to sort of dial things up? How, if at all, does this change maybe the way you think about M&A and your activity on that front?

Sure. I think you've captured pretty well all the elements there of how we look at COVID. As I said in the beginning, there's definitely an opportunity to accelerate the strategy of decentralized testing because of COVID. That strategy has been in place, and that’s an area we are investing to ensure that we see more testing in pharmacies, urgent care centers, and testing beyond COVID—flu, RSV, and respiratory viruses by developing assays that will be used on that rapid testing platform. That's one investment for sure. You can see the investment impact on some of the business; you see it in Nutrition. We put more direct-to-consumer promotion in that business, and you can see the acceleration in growth rates. We’ve obviously put investment into Libre, both on the SG&A side. We rolled out a new TV commercial and funded that to be competitive in messaging. We increased our sales force in the U.S. and key markets for Libre so that we can reach out to more physicians, and we see the impact on Libre—almost $1 billion of sales this quarter. About 65% comes from the U.S.; we are making great progress in penetrating the type 2 population, whether it’s non-insulin users or non-intensive insulin users. We have about 90% market share in that segment. Growth is being supported. We've got new product launches that require feet on the street—sales force, clinical specialists—which we're funding. It's clear where we're putting our investments. We’ve discussed R&D investments to ensure we have a pipeline beyond '22 and '23—predominantly in the Diagnostics and Device areas. It’s been broad-based. The $1 billion increase has gone well across all businesses. If I ask general managers and presidents of my businesses, they have a list ready to go. We don't have a shortage of opportunity. Regarding cash flow generation—COVID has generated significant cash. We’ve invested some of that in organic opportunities, whether it’s manufacturing sites here in the U.S. for COVID, MitraClip, or Libre. We made those internal investments, but also looked where we could provide the best return to shareholders—you saw that in our dividend increase at the beginning of this year. We increased our dividend by 25%. We also bought back shares in Q2 and stepped that up in Q3; we have capacity to do more in Q4 if it makes sense for our shareholders. We find a way to deploy capital. On the M&A side—if we see strategic fit, one that makes financial sense, we'll do that also. Right now, I’d say that med tech and diagnostic valuations, especially reputable high-growth assets, are a little frothy. We're in study mode, paying attention. The good news is that we don't need M&A to support top-tier performance. Our results show strong growth across our businesses, and I am proud of our product pipeline focus. We enter 2022 with a lot of momentum, and I think we're well-placed strategically as we go into next year.

Thank you, operator, and thank you for all of your questions. This now concludes Abbott's conference call. A webcast replay of this call will be available after 11:00 a.m. Central Time today on Abbott's Investor Relations website at abbottinvestor.com. Thank you for joining us today.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.