Becton Dickinson & Co (BDX) Q4 2020 Earnings Call Transcript

Hello, and welcome to BD's Fourth Fiscal Quarter and Full Fiscal Year 2020 Earnings Call. At the request of BD, today's call is being recorded. It will be available for replay through November 12, 2020, on the Investors page of the bd.com website or by phone at (800) 585-8367 for domestic calls and (404) 537-3406 for international calls, using confirmation number 4475229. Beginning today's call is Ms. Kristen Stewart, Senior Vice President of Strategy and Investor Relations. Ms. Stewart, you may begin.

Thanks, Crystal, and good morning, everyone. Welcome to BD's review of our fiscal fourth quarter results. Joining me today, we have Tom Polen, Chief Executive Officer and President; and Chris Reidy, Executive Vice President, Chief Financial Officer and Chief Administrative Officer. During the Q&A portion of the call, we will have three segment Presidents joining us: Alberto Mas, President of the Medical segment; Patrick Kaltenbach, President of our Life Sciences segment; and Simon Campion, President of our Interventional segment. A few logistics before we get into the call. This call is being made available via webcast at bd.com, where you can also find accompanying slides. Unless otherwise specified, all comparisons will be made on a year-over-year basis versus fiscal 2019 and percent changes are on an FX-neutral basis. During the call, we will be making some forward-looking statements and it is possible that actual results could differ from our expectations; risks, uncertainties, and other factors that could cause such differences can be found in our SEC filings, including our 2019 Form 10-K and subsequent Forms 10-Q. In particular, there continues to be significant uncertainty about the duration and contemplated impact of the COVID-19 pandemic. The commentary we are providing today includes our best estimate based on the information that we currently have. We have made certain assumptions in how we are managing our business, but that could change as we move forward. We will also discuss some non-GAAP financial measures with respect to our performance. Reconciliations to GAAP measures that include the details of purchase accounting and other adjustments can be found in our press release and its related financial schedules and in the appendix of the Investor Relations slides. These are all available on the bd.com website. With that, I'll turn it over to Tom. Tom?

Thanks, Kristen. Good morning, everyone. I hope you're doing well, and thank you for joining us. For today's call, I want to address three main topics. First, my high-level perspective on the quarter and full-year performance; second, I'll give an update on several hot topics we're fully focused on; and finally, I will share progress on BD strategy. Then I'll turn it over to Chris for a review of the P&L and an update on our outlook. So let's jump right in. First, I'll start with the quarter and the full-year performance. In Q4, we had better-than-expected revenue not only from our COVID-related diagnostics testing, but also from our core business that allowed us to not only deliver EPS upside, but also importantly gave us the opportunity to make some strategic investments aligned to our BD 2025 growth strategy. Revenues were up 4.4% on a reported and FX-neutral basis as we were able to offset the overall impact of COVID-19 and grew despite the Alaris ship hold. I want to acknowledge the exceptional execution by our Integrated Diagnostic Solutions business this quarter, particularly the BD Veritor team. The team exceeded our commitments, successfully developing the BD Veritor COVID-19 assay in an accelerated timeframe, securing several regulatory approvals, scaling up manufacturing and continuing to advance the science behind the utility and effectiveness of rapid antigen point-of-care testing. Total COVID-19 testing revenues allowed us to offset the ongoing COVID headwinds in other businesses from lower hospital utilization, surgical procedures, routine lab testing volumes, and research spending. In fact, because of our COVID testing revenues, we were able to move from a net negative COVID impact in Q3 to a net positive COVID impact in Q4. If you exclude COVID-19 testing and look at performance of the base businesses, we are very pleased with the sequential improvement across all of our three segments during the quarter. As you would expect, the pace of the recovery varied by both product category and by geography. So all in, the BD team was able to deliver Q4 mid single-digit sales growth, overcoming the headwinds from COVID-19 and the Alaris ship hold, the latter we estimate to be 240 basis points in the quarter. Our Q4 adjusted EPS was $2.79, down 15.7% on a year-over-year basis. While our revenues returned to growth, we did continue to see some COVID-related pressure, dilution from our May equity issuance and headwinds from the last quarter of the Gore royalty contributed to our EPS decline. As I look back on the year, we faced a number of challenges from the Alaris ship hold to COVID-19 and its significant impact on healthcare utilization globally. In our fiscal Q3, COVID-19 had about a $600 million negative impact to our topline. However, the BD team executed strongly, swiftly launching multiple innovative COVID-19 diagnostic solutions and focusing on execution to return to growth in Q4 and finished the year with revenues flat on an FX-neutral basis. I'm proud of the team for their hard work, closing the year strong and offsetting the continued COVID-19 headwinds. Now I want to turn to several hot topics. Let's start with a review of our COVID testing in the quarter. As I said, I was very pleased with the IDS team's execution this quarter with COVID-19 testing sales coming in at approximately $440 million with Veritor revenues at over $340 million in the quarter. We were able to ramp up Veritor manufacturing capacity faster than originally expected, a testament to BD’s world-class manufacturing excellence. We were also able to sustain a higher average selling price for longer than we anticipated. Looking ahead, we do expect price erosion as additional competitors have come to market and more may do so. We continue to work diligently to expand our BD Veritor and BD MAX manufacturing capacity. Our previously communicated capacity expansions remain firmly intact. We continue to monitor the supply and demand dynamics of the market, and we'll provide you with updates on additional capacity expansions to the extent any further new capacity comes online. On the customer side, we continue to see very strong demand for BD Veritor and BD MAX COVID-19 tests. Regarding BD Veritor, we've seen strong adoption and interest from both traditional and non-traditional accounts in the U.S. Since the last quarter, we have doubled our U.S. installed base of active Veritor Readers to over 50,000 units, and we continue to see strong instrument demand, further extending our footprint. We believe that this broadened Veritor footprint will provide us with additional future growth opportunities beyond COVID-19 testing for current and future planned assays. On September 30, we received the CE Mark for our COVID-19 assay on BD Veritor. And we've been very pleased with the reception of the assay in international markets. We've signed a number of contracts and are actively leveraging one of BD's strengths, which is our large international footprint. In fact, we are now shipping Veritor instruments and assays to customers across Europe, Asia, Latin America and Canada. As we head into the flu season, we recently launched a combination COVID-19, flu and RSV test in Europe on our BD MAX system with our partner CerTest. We continue to work toward the launch of combination flu and COVID-19 assays on our BD MAX and BD Veritor platforms globally. Now let me take a minute and walk through our thinking on the outlook for Veritor. You've heard me say before that there are a number of variables at play. There's the ramp-up of our manufacturing, the number of competitive products and ASPs. And then you have to take into consideration many variables around COVID-19 vaccines, like their timing, availability, effectiveness, and how widely they are adopted. But taking all of that into consideration, we are comfortable forecasting fiscal 2021 Veritor testing in a range of $1 billion to $1.5 billion with the weighting of these revenues being more in the first half of the fiscal year than the second. I know many of you also have questions on the long-term durability of COVID-19 testing and the outlook for fiscal 2022 and beyond. Again, there are many factors at play and there are a variety of scenarios that we are planning for and we will be ready to execute. I would say though, that we do now believe that there is a higher likelihood for testing to continue into fiscal 2022. However, given the uncertainty around demands and ASPs, we believe it would not be prudent to model a continuation of revenues at the same level as fiscal 2021. This leads me to our next topic: our COVID-19 testing reinvestment plans. We are electing to reinvest a portion of our FY2021 COVID-19 testing profits back into the business to ensure long-term durable growth. These profits will be invested consistent with our strategy and value creation framework of grow, simplify, and empower. Our top focus is investing in growth. We activated the organization and investment plan in Q4, initiating a bottoms-up process to identify high-impact projects and programs based on risk-adjusted returns and our capacity to execute. As part of this initiative, we increased investments in the recently launched BD Innovation and Growth Fund. We have also kick-started other programs that accelerate go-to-market investments in the U.S. and internationally and ongoing R&D projects. You've heard me talk about our simplification efforts around Project Recode. We plan to look for ways to optimize that program even more. We are also using COVID-19 profits to accelerate further investments in our Inspire Quality Program to enhance our risk management systems. We believe these investment programs should generate returns beginning in late FY2022. Our current reinvestment plans contemplate fiscal 2021 Veritor testing revenues of, as I said, $1 billion to $1.5 billion. If Veritor testing revenues are above this level, we plan to make additional investments towards long-term growth, yet still allow a portion of the higher revenues to flow through the bottom line. Next I'd like to take a moment to update you on our readiness for a COVID-19 vaccine campaign, where we continue to make great progress. To date, we now have commitments for over 800 million needles and syringes, which includes commitments from countries like the U.S., UK, and Canada and various non-governmental organizations around the world as they prepare for COVID-19 vaccination campaigns. Last June, we estimated the total vaccine syringe and needle opportunity over a 12- to 18-month period could be in the $100 million to $150 million range and we continue to feel this is an achievable objective. Now I'd like to update you on Alaris. The highest priority of the organization continues to be preparing for a comprehensive 510(k) filing, obtaining clearance for Alaris and returning our market-leading infusion pump franchise to growth. Over the last quarter, the team has made further progress and retired risk. We are systematically working our way through various testing stages, and we continue to engage in open dialogue with the FDA about our progress. My confidence level today is higher than it was last quarter that we will be able to submit our 510(k) in late fiscal Q2 or early fiscal Q3 2021. As I mentioned in the past, our focus remains on ensuring a comprehensive submission that will ultimately help enable timely FDA review and clearance. While it was not our intention to predict the FDA's timelines, given the size and complexity of the submission, we do not assume any revenue contribution from a 510(k) clearance in fiscal 2021. The last item on my hot list is I want to comment on innovation and our product pipeline. Category innovation remains one of the core drivers of our growth strategy. We have been focused on improving our pipeline execution and R&D effectiveness, and we continue to make great strides to that end. This quarter, R&D spending increased 8% year-over-year, the first meaningful increase for the company in many years. Looking ahead, we will continue to focus on driving new innovation and a higher level of R&D investments, including through our new BD Growth and Innovation Fund, which we established earlier this year. Through the fund, projects are funded for a maximum of two years and it would be completely new product development opportunities, unfunded or underfunded line extensions that have significant incremental revenue opportunities, or commercial programs designed to accelerate product adoption. We received a lot of great submissions across all three segments and we initiated the first round of funding in Q4. Looking ahead to the next year or so, we are advancing a robust product portfolio with many singles and doubles like we've long been known for. We also have some more notable programs in the pipeline, and I'd like to highlight a few of those for you now. The IDS team is acutely focused on advancing our combination COVID and flu assays on both our BD Veritor and BD MAX platforms as soon as possible for the benefit of patients. I also want to highlight the great strides our Women's Health & Cancer franchise is making. In July, we received FDA approval of the BD Onclarity HPV Assay for extended genotyping, which can improve risk stratification and support risk-based patient management. We are receiving great customer feedback on this assay. In fiscal 2021, we look forward to bringing this assay and BD COR, which is our new high-throughput molecular diagnostic system with fully integrated specimen processing, to customers in the United States. The BD COR system and our Onclarity assay are both available in Europe, and we've been receiving very positive feedback on the initial rollout. In BD Medical, in Q4, we launched the BD UltraSafe Plus 2.25 mL passive safety system, which adds to our proven high-growth safety portfolio in Pharmaceutical Systems. It has been designed to deliver up to a 2 mL dose volume, while enabling an ergonomic and safe injection experience for both patients and healthcare providers. We have secured a number of pharmaceutical partners that plan to commercially launch our new product toward the end of fiscal 2021. Also in BD Medical, during fiscal 2021, we will launch the BD Pyxis ES 1.7, which adds new capabilities and deeper integration of pharmacy and nursing by enhancing automation in the operating room with the Pyxis Anesthesia Station. In BD Interventional, we had a robust year of product launches across its three businesses. Of particular note, the Peripheral Intervention team launched the 0.018 and 300 millimeter LUTONIX DCBs in the U.S. and launched LUTONIX in Japan. PI also launched the Elevation Single Insertion Multiple Sample Breast Biopsy device in addition to the Caterpillar Embolization device, which represents our first foray into the world of interventional oncology. Our Surgery business launched a completely robotic-compatible version of our market-leading anatomically configured 3DMax Inguinal Hernia Mesh as well as the Pureprep Infection Prevention product. Finally, our Urology and Critical Care business capitalized on our developing position in female incontinence by launching Drydock 2.0, which is designed to help women who suffer from incontinence to use PureWick at home. Fiscal 2021 promises to be another year of innovative product launches across the Interventional segment. The team worked hard to minimize the impact of COVID on our product launch schedule, leading to further commercialization of products across all businesses. For competitive reasons, we won't share any specifics with you, but suffice to say you should expect further commercialization activity of new products in our oncology, infection prevention and acute urology platforms in particular. Finally, I want to provide an update on our FDA PMA submission for the LUTONIX Drug Coated Balloon and its use in below-the-knee. The FDA has recently notified us that our PMA supplement remains non-approvable. We are working collaboratively with the FDA to determine what our next steps may be, if any. As a reminder, our entire LUTONIX business today represents less than 1% of our overall sales, and we do not include any revenues in our forecast related to this submission. Before we move on, I want to take a moment and acknowledge John DeFord, who will retire from BD at the end of the calendar year. As you all know, John has had a remarkable career and has made a tremendous and lasting impact since joining BD three years ago. While he will continue to serve as an advisor and a consultant for us, of course, we are going to miss John's leadership and we are going to miss his humor, but we are very excited for Patrick's appointment to the Chief Technology Officer role. We are confident that he is the right leader to deliver on our innovation strategy and product pipeline in our next phase of value creation. As Patrick takes on this important new responsibility, we could not have asked for a better successor than Dave Hickey to lead BD Life Sciences and build on Patrick's track record of success. Dave has been leading the IDS team and the BD Veritor COVID-19 launch. Finally, I want to provide a quick update on our strategy. When I became CEO earlier this year, I outlined my vision for BD’s next phase of value creation. It's what we call BD 2025, which included three drivers: grow, simplify, and empower. The drivers build upon BD strengths—our world-class manufacturing, global scale, our strong category leadership and deep capabilities in software and informatics. And we've made great progress in fiscal 2020 in building the foundation and beginning to execute against our new playbook. As I mentioned, we've been steadfast in strengthening our R&D capabilities and continuously improving our R&D effectiveness. And I'm excited about what is to come from the BD Growth and Innovation Fund. We also look to augment our internal innovation strategy through tuck-in acquisitions. In fiscal 2020, we executed on six tuck-in transactions in higher growth markets, and I'll highlight just three. First is NAT Diagnostics, an early stage, privately held company developing a molecular diagnostic platform for point-of-care testing. This acquisition broadens our point-of-care testing capabilities in infectious disease. While this product is still under development and a few years from launch, we are very excited about the technology and our point-of-care diagnostics business more broadly, and how this adds a molecular capability to that. Another acquisition we closed this year was Straub Medical, a privately held medical device company that markets mechanical atherectomy and thrombectomy devices that treat peripheral arterial disease. This acquisition expands our robust portfolio of PAD and Venous Solutions within our BD Interventional segment. And the third acquisition I'd like to highlight is Adaptec, an innovative startup company that developed Sensica UO, which is an automated urine output measurement solution. It captures hourly urine output measurements and integrates this into the electronic medical record through the BD HealthSight platform. This is BD Interventional’s first connected smart device, which leverages BD’s interoperability position that we have today in about 70% of all U.S. hospitals. We have a robust funnel of deals and we continue to increase our focus here as we move into fiscal 2021. Our efforts around simplification—Project Recode—and Inspire Quality all remain on track. If anything, we have the opportunity to accelerate some projects with some of the COVID-19 test reinvestment proceeds. As I reflect on FY2020, I am proud of how the company worked to navigate through the headwinds of COVID and the Alaris ship hold. Our response to these challenges along with a successful launch of COVID-19 testing enabled BD to deliver flat revenue performance on an FX-neutral basis for the year. As I look ahead, there are some challenges that we face as a company, namely COVID and the Alaris remediation, the latter of which I am confident we will resolve. But there are many more opportunities ahead to drive growth and accelerate our impact on healthcare around the world. We have the right strategy. We're making the right investments. With that, I'd like to hand the call over to Chris Reidy, and then I'll make a few concluding remarks.

Thanks, Tom, and good morning, everyone. Thanks for joining us today. We are pleased with our fiscal fourth quarter revenue and adjusted earnings per share performance. Overall revenues were $4.8 billion, up 4.4% on both a reported and an FX-neutral basis. We estimate the net impact of COVID was a positive 210 basis points as COVID-19 testing revenue more than offset the ongoing negative impact from lower utilization across our businesses. Even after adjusting for the net COVID-19 effect, we are pleased that we're still able to grow our revenues despite the Alaris Pump ship hold. We estimate the negative impact of the Alaris ship hold was 240 basis points. BD Medical revenues totaled $2.3 billion and were down 4.9% year-over-year. We estimate COVID negatively impacted the business by about 370 basis points. We estimate the Alaris ship hold negative impact was 450 basis points. Medication Delivery Solutions saw sequential improvement consistent with healthcare utilization trends, but still continue to be impacted negatively by COVID-19 on a year-over-year basis. Internationally, MDS declined, largely reflecting the impact of China's volume-based procurement, as well as inventory reductions we took in the quarter. Medication Management Solutions, the Alaris ship hold continues to have a negative impact on the business unit's overall results and there was a difficult comparison with the prior year. International MMS sales were very strong driven by infusion pump sales in Europe. In U.S. dispensing, we saw solid growth and closed the year with strong new committed contracts. In Diabetes Care, sales declines reflected ongoing market price pressures. Pharm System sales were up double-digits this quarter and ended the fiscal year with a strong 9.4% growth driven by our pre-filled and safety syringe portfolios. BD Life Sciences revenues totaled $1.5 billion and were up 31.4%. We estimate the net positive impact of COVID was 26.2 percentage points in the quarter. Our Preanalytical Systems business was down 3% year-over-year. We have seen sequential improvement as routine lab testing volumes improved. Our Diagnostic Systems business was up 97.3% driven by just over $440 million in COVID-19 testing. Biosciences sales were down 9% globally. However, we saw a sequential improvement in reagent sales as research and testing continues to resume. BD Interventional revenues totaled just under $1 billion and were down 3.5% for the quarter. We estimate the net negative impact from COVID was 11.2 percentage points. Our Surgery and our Peripheral Intervention businesses both saw solid sequential improvements as elective procedures continue to return closer to pre-COVID levels in several geographies, most notably in the United States. The Peripheral Intervention business was particularly strong in Japan on the heels of a successful LUTONIX launch. The Urology and Critical Care business performed well with the U.S. returning to growth though offset by an international decline. Now turning to the P&L. Gross margins were 54.8% or 55.1% on an FX-neutral basis, the latter down 200 basis points year-over-year. While we benefited from higher-margin COVID-19 testing revenues, it was more than offset by the continued drag from lower volumes, which drove unfavorable manufacturing variances. We are actively managing our cash and inventory balances globally, and we expect to see more COVID-related manufacturing variances in fiscal 2021, negatively impacting our gross margin line. SSG&A expense of $1.2 billion was 25.1% of revenues, up 110 basis points year-over-year. SSG&A includes a $25 million investment to the BD Foundation this quarter in support of our longstanding commitment to advancing the world of health and supporting the communities where we live and work. We continue to see higher shipping costs related to the pandemic and we also had elevated levels of spend related to Veritor in the quarter. R&D expense of $279 million, representing 5.8% of revenues, was up 20 basis points year-over-year. In dollar terms, spending was up 8% on a year-over-year basis as we invested in COVID diagnostics and other growth initiatives. We expect fiscal 2021 spending on R&D to continue to be higher as we continue to focus on innovation and implement some of the reinvestment plans Tom mentioned earlier. Operating income was $1.1 billion resulting in an operating margin of 23.9%. On an FX-neutral basis, margins decreased 320 basis points, mainly reflecting the contractions in gross margin as well as higher SSG&A and R&D. Interest/other expense net was $110 million, resulting in a decline of $4 million on a year-over-year basis. We had favorability in interest expense this quarter as we repaid debt. The adjusted tax rate came in as expected in the high teens at 18.7%. Preferred dividends in the quarter were $22.8 million. Adjusted earnings per share were $2.79 as previously discussed and this includes a $0.02 headwind from FX. For the year, we generated $3.5 billion in cash flows from operations and our free cash flows were $2.7 billion net of $810 million in capital expenditures. In line with our goal of continuing to increase the strength and flexibility of our balance sheet, we paid down $950 million of debt in the quarter, bringing our total debt repayment to $1.7 billion for the year. This resulted in a net leverage ratio of 3.0x as of September 30, 2020. Now we wanted to share some broad thoughts on fiscal 2021. As we look ahead, the greatest uncertainty we see is the recent COVID-19 resurgences around the world and the potential impact this may have on general healthcare utilization, procedure volumes and diagnostic testing, including COVID testing. Our guidance assumes no major system-wide shutdowns of elective procedures. Assuming no significant changes in utilization and procedure volumes associated with COVID-19 resurgences, we are comfortable forecasting low to mid single-digit FX-neutral revenue growth excluding the COVID testing revenues. Our COVID testing revenues in fiscal 2020 were approximately $580 million. On a total company level, inclusive of COVID testing, we expect FX-neutral revenues to grow in the high single to low double-digit range. Using current exchange rates, we expect FX to add approximately 100 basis points to revenue growth on a reported basis. We expect our adjusted non-GAAP EPS for fiscal 2021 to be in the range of $12.40 to $12.60. Again, our guidance assumes no significant changes in utilization and procedure volumes associated with COVID-19 resurgences. This also does not assume any potential upside to our $1 billion to $1.5 billion in Veritor testing revenues. While we are not giving quarterly guidance, I want to point out some quarterly phasing, as you think about the upcoming year. Given that we are at a September year end, we will not anniversary the initial COVID-19 impact until our fiscal Q3. In addition, U.S. biosciences also has difficult comparisons in fiscal Q1 due to licensing revenue in the prior year. And in Medication Management Solutions, our infusion business has tougher comparisons throughout the year, given the timing of the ship hold and shipments under medical necessity, as well as European sales related to COVID. As Tom mentioned earlier, we do not assume any revenues associated with the Alaris 510(k). However, offsetting these headwinds I just discussed, we would expect our COVID-19 testing revenues to be more heavily weighted to the first half of our fiscal year. In addition, we will anniversary the launch of our COVID testing in the fourth quarter. And taking all of the above into consideration and looking at the Street consensus, we would suggest a phasing that shifts earnings from Q4 into the first half of the year. I also want to take a moment to address FY2022 by making a few observations. Regarding our COVID-19 testing revenues, we see this as perhaps the biggest variable to our fiscal 2022 outlook. Depending on the level of success of Veritor in fiscal 2021, it could make for a difficult comparison to our revenues and earnings in fiscal 2022. And regarding Alaris, as Tom mentioned, we have a higher level of confidence today in our ability to submit the 510(k) at the end of fiscal Q2 2021 or early Q3. We would assume a contribution beginning sometime in fiscal 2022. Keep in mind, we ship pumps under medical necessity in fiscal 2020, thus, we would not necessarily assume there's a one-for-one pent-up demand when we obtain 510(k) clearance. Regarding the remainder of our business and assuming a more normal healthcare utilization environment, we would assume the business will return to an underlying mid single-digit growth rate in fiscal 2022. And with that, let's move on to Q&A.

Thank you. We will now open the call for questions. Your first question comes from Bob Hopkins with Bank of America.

Hi. Thank you, and good morning.

Good morning, Bob.

Good morning, Bob.

So just the first question is maybe a clarification on the 2021 guide that you're giving. Can you just sort of sum all that up for us in terms of what does it imply for revenue dollars and how much it's assumed in there in terms of total COVID testing, not just Veritor? And then I know you said you're going to reinvest some of that. Like, what is sort of the net EPS impact of COVID testing, including that reinvestment?

Yes. So on the issue of the guide related to—you know that we guided Veritor at $1 billion to $1.5 billion. When you add BD MAX, that's running at around $400 million in that area, so you can add that on top of that.

Okay. And then any clarity on just a thoughts on reinvestment, just trying to get a sense of the underlying business versus EPS contribution on the underlying business versus total testing. So what are the kind of reinvestment plans implied?

So the way to think about how much is within the $1 billion to $1.5 billion of revenue that we're forecasting. Our guidance assumes a certain amount of reinvestment of that, so not letting it all flow through. As you think about—if Veritor looks like it'll be above $1.5 billion, we would look to invest more than that going forward. And we would likely have some investment depending on the investments in the pipeline and we'll talk to that in a moment. And let some of it flow through to the bottom line as well. So we'll assess that as we're going through the year. But if it's over the $1.5 billion, we would look to invest more, but still allow a portion of that to flow to the bottom line as well.

I think it's fair to say, we plan to reinvest among the initial $1 billion to $1.5 billion range. We're investing roughly 20% of the profits back into the business.

Okay. Thank you very much.

Your next question comes from the line of David Lewis with Morgan Stanley.

Good morning, David.

Good morning, guys. How are you? So I appreciate—it's a very tight guidance in a very uncertain environment. I think a lot of investors will largely view this as a floor. But I did want to come back to the underlying business one more time here. I think everyone's trying to compare the forward year 2021 to a base year, which is 2019, and I appreciate you all has different comparisons there. But I think when people want to try to get to is if we take out some level of Veritor, we get to sort of some earnings number that's sort of in that $10, $10.50 range with reinvestment, maybe it's in $11 range. But if we look at the implied revenue growth 2021 over 2019, it's sort of low-single digits adjusted for pumps. And if we look at the margins, they seem kind of down in 2021 versus 2019. So for Tom and Chris, what investors want to hear is, it could be suggested that there's a problem in the underlying business or it could simply suggest that you're being conservative to begin the year. Help us understand the strength of that core business, and whether you think 2021 underlying margins can be up over the base year in 2019. And how you think that underlying business is sort of performing relative to that classic 5% BD growth rate that you're trying to get to? And then I had a quick follow-up.

Yes. David, good question. So I think if you look at it on an underlying basis, we are in that range that we've talked about around that 5% plus. We're in that. So if you look, we're in the low to mid-single digits in the core, of course, that has, and it may be on that lower side of that. You've got the Alaris headwind, of course, which is still annualizing in the year as well. So that is a headwind that is built into the core. If you take that out, you're back right in that range that you mentioned before. So I'll let Chris add some more commentary on that. But just a reminder on that, we still do have annualization of the Alaris impact built into that.

Yes. I would say, David, the core is strong. You saw that in the fourth quarter as well. It's doing well. The margins are improving. To your point around the 2019 to 2021, there are a number of things. We are seeing synergies from the BARDA transaction over that period of time kicking in. Then obviously it's impacted. You have to take out the COVID impact, the drag, and then the add back for Veritor. But keep in mind, if we had a bit of a drag during that period in the China volume-based procurement and the Alaris, and when you adjust for that, we are seeing growth in the margins and feel very comfortable with the long-term view of the underlying 5% and double-digit growth on the bottom, and that's very consistent with what we've seen.

And David, the only thing I would add is that our assumption is that we still are not getting back to a normalized level throughout fiscal 2021. So our guidance and margin forecast would still assume that the overall business continues to see headwinds on a margin perspective as we're still not back to pre-COVID levels overall.

I think to your point, we are looking—you're seeing some depression of the margins from the investments that we're making as well. So we're not letting it all flow through. We're making the investments that we outlined.

Totally understand. So there's some COVID adjustment factor there. Okay. Very good. I think investors will appreciate that clarity. And then just Tom, as you think about COVID testing for next year, obviously it's front-loaded in the first half and lighter in second half—that's very consistent with some of the PCR providers' assumptions for peak testing. Can you sort of help us understand your capacity expansion plans for first half and second half, and what is embedded in terms of price pressure for next year and where's that coming from? Thanks so much.

Sure. Good questions, David. As you think about what we've shared before, we shared 8 million tests per month by October, which we’re in. Twelve million tests per month starting in March of 2021—that's our capacity ramp on Veritor. And so those capacity plans remain firmly intact and so that's the basis of our outlook that we've shared. I made the comment, of course, we do continue to monitor the supply-demand dynamics of the market, and we'll provide you with any updates on additional capacity expansions beyond that if we were to make those, but we won't provide those until that capacity were to come online. Regarding ASPs, we had said $20 ASP; we did a little bit better than that in Q4, as I mentioned. But we do expect to see pricing headwinds, ASP erosion, as there are more competitors in the market now than there were at the start of Q4. And we expect that there will be other entrants. So we would expect that $20 ASP could come down as we move through the year. Okay. Thanks, David.

Your next question comes from Amit Hazan with Goldman Sachs.

Good morning, Amit.

Thanks. Good morning. Just one clarification for this coming fiscal year on utilization. Can you just talk a little bit more to what you're assuming in the guidance for underlying hospital admissions and utilization versus what you've been seeing and what the impact would be not just on BD Medical, but on the entire business—routine diagnostic testing as well?

Yes. Great question, Amit, and good morning. So during the quarter, as I mentioned, we did observe sequential improvements across our businesses that are more elective procedure-oriented, as well as in lab testing volumes. We saw them through the quarter evolve to around 90%. We have access to some pretty unique information through our BD MedMined platform, which is in about 338 hospitals that gives us literally real-time insights into hospital trends on inpatient admissions, ICU admissions, ER trends, ER outpatient versus inpatient. We can see that literally on a daily basis, what happened yesterday in these institutions, which are broadly distributed across the U.S. As we look at that, we see hospital inpatient admissions trending around 85% to 90%, and we've posted some of this data in our deck so that we can share that more broadly. We thought there would be some information that you'd be interested in. So our projections and outlook do not assume any significant change to that on the positive nor on the downside as we think about the potential of a COVID resurgence. We do see, and as we talk to healthcare providers around the world, there's been a lot of preparation and learnings from the initial COVID surge—how to better keep facilities open, how to make patients more comfortable so they still come in for elective procedures. So I think we certainly don't expect that it would retrench back to the lower utilization levels that we saw earlier. But of course, that's difficult to predict, and it could be somewhere between where it is today and could get better if there's not a large resurgence. But we've taken a more moderate, middle-of-the-road assumption that it will be relatively stable as it is today as we think about our forward-looking guidance.

Simon, do you want to share some of your survey work that you've done through?

Yes. Just to back that, I think we shared some survey work on the August call, and we've repeated that survey work with about 600 physicians in our Surgery and PI business. They are seeing volumes rebound significantly; their capacity is at quite a high level compared to pre-COVID, and their office-based volumes are increasing for the most part, so the funnel of patients is pretty robust. There's still some rollover patients as well that are in the mix—patients that were scheduled earlier this year but had procedures postponed—so they're still in the mix as well. So it's pretty robust on the elective side right now.

Thanks for the question, Amit.

Your next question comes from the line of Vijay Kumar with Evercore ISI.

Good morning, Vijay.

Hey guys. Good morning, Chris. Thanks for taking my question. Chris, maybe on the guidance here: I guess if I just look at the gross COVID tailwinds, right, $1.5 billion at the high end on Veritor, $400 million of MAX—that's about $1.9 billion here. And I think we had somewhere north of $600 million in 2020. So on a net basis we're looking at $1.2 billion, $1.3 billion of net diagnostic tailwinds for fiscal 2021?

That’s right.

So you get high singles, you pick up high singles just on the tailwind. FX is another point; is that implying the base is going to be flattish for next year? The reason I ask is, you have $800 million of headwinds in 3Q. And assuming to normalize this rate, shouldn't the base be up, contribute a few hundred basis points of topline next year?

No, it doesn't imply that. We'd have to look at how you're doing the math, but it would imply more in that mid-single digits on the underlying ex-COVID testing. So thinking in that 4% to 5% range, which is very healthy. We do still see the drag. As I pointed out in some of the prepared remarks, we see that tough compare in Alaris against the first quarter. We do still have the tough compare against the first half of the year in the base business until we overlap the COVID period, but then rebounding in the second half of the period. So when you cut through all of that you think in the mid-single digits for the underlying business.

I think that's an important point to reiterate, Vijay. Because of the timing of our fiscal year, we don't anniversary the lower utilization rates from COVID impact until Q3. The first and second quarter our compares are still at a pre-COVID basis of utilization. And so that obviously has an impact on that. Even despite that, in those mid-single digits, the base business is actually quite strong.

Understood. And then one quick on margins and free cash flows here. Maybe at this point, I just want to check if I'm doing the math right. Is the implied operating margin for fiscal 2021 close to 26.5% and free cash flow conversion we're back to north of 90%? Were there any timing impacts or is this getting back to historical trends of BD printing north of 9% free cash conversion? Thank you.

Yes. So we have to work with you on the math there too. But I think, what we're saying is if you use Q4 as a jumping-off point for the year, we’re likely to have some headwinds as we talked about. And we are making adjustments for the investments that we were talking about, what have you; Veritor does lift that. But taking all that into consideration, we would expect to see some good margin growth compared to the baseline of where we were in 2020. But it doesn't quite get to the 26% number that you're talking about.

Understood. So just on the free cash, Chris, was there any one-time effect?

I'm not sure what your question is there, Vijay. We did give the free cash flow—what was your question on that, Vijay?

Were there any timing elements that benefited free cash flow or is this normalized free cash conversion metric we should be looking forward to?

Nothing looking forward, but obviously a lot of impacts throughout the year, lumpiness from the COVID drop-through and what have you. We did a lot to offset that. We reduced the inventory levels as we talked about. So it did feel like a lot of lumpiness, but we were able to offset a good portion of the drag to be in a solid position as we exited the year. Going forward, I don't see anything that would be lumpy in nature.

Thanks guys.

Your next question comes from the line of Robbie Marcus with JPMorgan.

Hey. Good morning, Robbie.

Hi, good morning. Two questions both on free cash flow and capital allocation. Maybe just to follow-up on Vijay’s question: I think part of the question is there are a number of exclusions in the fiscal 2021 guidance that some of them appear to be cash exclusions. I just want to see—should free cash flow conversion next year take a step down on legal and some of those other items? Are there further offsets in the working capital to make it look more normal?

Good question, Robbie. So, no, I think some of the cash impacts that we consider kind of below the line have been integration spending and EUMDR related. Those were the biggest ones. And the integration spending has been—will be lower going into 2021. EUMDR is still with us. We continue to invest to make sure we're in good shape with the regulations there. So there will be a portion of that, but the free cash flow conversion will increase in 2021.

Got it. That's helpful. And maybe a broader question just on your theory and thought process behind guidance. I don't envy you having to give guidance here in the middle of the pandemic for the forward 12 months. We've seen guidance that had a lot of beats, but then lowered guidance over time. How did you approach fiscal 2021 guidance here? What ends up to be a pretty narrow range? How should we assume—what's your tolerance levels around it? What were some of the strategic thinking that you and the Board did? And I'm really trying to get at how confident are you that this is more of a floor and a beatable target rather than it could be better or could be worse in certain areas. Thanks.

Sure. It's a great question. Obviously, we've been following things very, very closely. We do see, as we said, sequential improvement in our businesses. And so we took that into account. Obviously we're watching the potential for a resurgence very closely. And I think we were very clear when we gave the guidance that we're not assuming a major resurgence that would have a big impact on utilization and on elective surgeries. So we are not assuming that. And that's something that we'll have to wait and see. But at the same time, as we look at the course of the business and the way hospital systems are able to handle the current level, that gives us a certain amount of comfort and visibility as we go forward. I think the other thing that we have in here is the fact that Veritor gives us some natural offset if there is some level of utilization impact; it would probably go hand in hand over the course of the year with a bit more incremental Veritor testing. So there's some opportunity there. And obviously we have built in some piece of our investment of the Veritor revenues and we can gate that to some extent. And so with all of those things, we felt comfortable again, assuming that there's no major change in the resurgence that we could achieve the guidance that we gave.

Appreciate the color.

Your next question comes from the line of Brian Weinstein with William Blair.

Hey. Good morning, Brian.

Hey guys. Thanks for taking the question. Just a couple of questions on Veritor testing. I'll rapid fire a couple here. First, are you guys looking to expand your offering there? Are you thinking about anything on the non-instrumented side? And then you mentioned that you doubled the installed base recently to over 50,000 units. Does that include the roughly 11,000 into nursing homes? And I'm curious what utilization you would expect in total for Veritor post-pandemic in order to help us gauge the long-term value creation that you're driving there. So a few on Veritor. Thanks.

Yes. Good questions, Brian. So the doubled installed base of over 50,000 does include those that have been put in the nursing home segment. As I mentioned, we are looking at what additional menu we can put on that platform. We have a number of opportunities that we think are pretty exciting. Particularly, we've never had an installed base in the nursing home segment itself. Part of the work we've done is identifying what specific assays are relevant to the nursing home segment. There are other segments that we now have Veritor placements in that we wouldn't have looked at before in terms of whether there is some unique menu that's more relevant to these segments that haven't been traditional call points for us. We're just wrapping up that work. That'll be an area of investment—adding additional menu expansion on Veritor, where you reinvest some of those profits to add additional relevant menu for the new call points where we have Veritor placed. So we see longevity there beyond COVID-19 testing itself. Of course, we are expanding the menu actively, working on our COVID-19/flu assay. As we've always said, we'll provide timing on that when we're ready to launch it and obtain EUA, and we will launch on BD MAX beyond the assay we've already launched in Europe with our partner CerTest. We feel really good about the momentum on Veritor. We hear great feedback from our customers on that, and again, we do see longevity on the installed base—not only for COVID-19, which as I mentioned before, we think we'll have more longevity. If you asked me this time last quarter how much testing is going to happen in FY2022, I would have said I was unsure; I feel more confident today that there will be longer testing runway of COVID testing into 2022 and potentially beyond. Obviously then our work on adding menu to that will prolong the growth opportunities for Veritor beyond the COVID window. Thanks, Brian.

Obviously, is there anything on the non-instrumented side? Or are you guys looking to develop anything that would be an antigen test that would not be on the Veritor platform?

Yes. We're looking at that, Brian. If we decide to do that, we'll share that when we're ready to launch it. But I would say at this point, particularly in developed markets, we are very confident in the value that the instrumented platform brings. As a reminder, our instrumented platform is at a very different cost base than most other instrumented platforms—in that $250 to $300 range. So it's not a significant capital challenge for customers. It wouldn't even be a challenge significantly to bring it into the home, and we get the benefits. Remember, we’re one of the original inventors of lateral flow testing. Our first technologies were manual and moved to instrumented platforms because they got higher performance on flu and RSV and COVID is, of course, an assay for which performance matters particularly. We see the benefits of an instrumented platform when it comes to sensitivity and specificity. We still believe strongly in that. We continue to publish evidence supporting the role of antigen testing versus molecular testing, including recent publications about the role of antigen testing in relation to infectivity assessments. We're going to continue to invest heavily behind scientific evidence, and you can expect more of that from us. It supports the value of Veritor and the technology that we're deploying.

Great. Thank you.

Your next question comes from the line of Larry Keusch with Raymond James.

Hey, Larry. Good morning.

Good morning, Larry.

Yes. Good morning, everyone. Two questions. First, Tom, you said in a couple of spots during the call that you are more confident in the timing for the filing of the Alaris 510(k). So just again, want to get a little sense of what makes you more confident than where we were three months ago? Is it just that you've knocked off some of the key objectives? And as part of that question, given some of the hardware recalls that you've had recently, how does that get handled? Does that have to find its way into a filing as well? And then Chris, as you look at the first quarter numbers that are out there for consensus, do you have any high-level thoughts as to how those feel?

Good questions, Larry. So in terms of what gives us more confidence, I think you nailed it. It's the fact that we are systematically working our way through the various testing stages. We've completed much more testing since the last update, and that gives us confidence. We also continue to have very active and ongoing dialogue with the FDA about our progress. That's why, as I mentioned earlier, we have greater confidence in the timelines we shared—late Q2, early Q3 of this fiscal year. When it comes to the hardware recalls, that's part of our remediation of the Alaris franchise. It's us looking at all the different complaint history and determining whether there are further improvements we can be making to the platform. That's part of our 483 response and activities. So those are all built into the current 510(k) submission work. They do not have any impact on the timing of the 510(k) submission.

And then in terms of your question regarding the phasing, I'd say we commented in our prepared remarks that as we looked at the consensus, we did feel that consensus was a bit high in Q4. We wanted to correct that and we think that some of that should be moved into the first half. I would say move a little bit more of that to Q2 than to Q1, but Q1 is a bit light given what we're looking at. We just wanted to get the quarterly phasing right up front out of the box as we enter the year. So that's why we were specific around taking it out of the fourth quarter and putting it in the first half, with a bit more in Q2 than Q1.

Okay. Terrific. Thanks guys. Appreciate it.

Your next question comes from the line of Lawrence Biegelsen with Wells Fargo.

Hey, Lawrence. Good morning.

Good morning. One on international, one on fiscal 2022. We heard a lot of good color commentary on this call about what you're seeing in the U.S., but obviously we're seeing things deteriorate in places like Europe. How do your comments about the COVID impact in the U.S. compare to what you're seeing outside the U.S.?

Yes. We're seeing still strong performance in Asia in terms of utilization. We're seeing very strong control of COVID across pretty much all Asian nations at this point. In Europe, we are seeing quarantine measures tighten. European countries are much better prepared this time to continue to deliver care through that period of time. Can there be an impact on procedure volumes as we look forward? Yes. Out of Europe, it may be slightly more impacted depending on the country, although they are much better prepared. But from what we're seeing now, we're seeing better management and continued use of procedures early in this resurgence. That's one of the caveats we had to make. We can't predict the extent of everything on a forward-looking basis. So our assumptions do recognize that particularly in Europe there can be some increase in restrictions, and if it's a significant increase, that would be something that's not in our current assumptions.

Thanks for that, Tom. Chris, in your prepared remarks you gave some good color on fiscal 2022. I heard that 5% plus topline growth and double-digit EPS growth. It sounds like you expect to return there in fiscal 2022, but in your prepared remarks I heard topline on an underlying basis. So I'm assuming you want us to adjust for the COVID testing delta there. But I didn't hear anything on how to think about EPS. Should the starting point be the guidance you gave for $12.40 to $12.60, or is there a different way we should be thinking about EPS growth beyond fiscal 2021?

Yes. You're mostly right. The biggest variable in 2022 is what happens to Veritor testing revenues. We feel better about testing extending into 2022, but we've said it would not be prudent to assume the same level of testing in 2022 as in 2021. We'll update you as quarters progress. You would expect to see some drop-off in that piece, and the slope of that drop-off will influence the numbers. Another variable is when Alaris revenues start coming back as we attain 510(k) clearance—again, we did not include anything in our 2021 guidance for that, but we assume some contribution beginning in 2022, though not a one-for-one pent-up demand because of shipments under medical necessity in 2020 and maybe into 2021. But we do feel that the base business in 2022 on an underlying basis will be solid and continue to be solid, and that's the way to think about it.

And to add on, as you see us navigate through the pandemic and the utilization impact, you're seeing us work our way back to driving durable, sustainable growth. We worked hard and executed well in a challenging time. Prior to COVID, our end markets were growing about 4% and our investments in R&D and tuck-in M&A supplement that growth. We still feel strong about the path forward to 5% plus growth. This year, with Veritor, we're at near double that level, and we're taking a portion of those profits to further invest in our growth and innovation fund and other initiatives to drive durability and consistency of our growth profile.

Thanks so much.

Your next question comes from the line of Rick Wise with Stifel.

Good morning, Rick.

Good morning, everybody. It's clear that innovation is a top priority for you. One element of that as you discussed is R&D spending, and you emphasized strongly the 8% growth there. So how do we think about R&D going forward? Historically it's been around that plus or minus 6% of sales range. Are you suggesting that we should think about R&D as meaningfully higher going forward? Any perspective would be great. Thank you.

Let me comment at a high-level and then turn to Chris for P&L detail. You're going to see R&D at a higher-than-normalized level in 2021 because of the reinvestment of the Veritor proceeds. The 8% growth in Q4 came off relatively flat R&D growth over the last five to six years during the synergy window. It's a notable step up and we will continue to increase R&D because our base strategy includes that and we're using the opportunity to reinvest those Veritor proceeds and leveraging the Growth and Innovation Fund and the selection process for incremental projects. That process was successful at BARDA and John helped implement it here at BD. As we think about beyond 2021 on the P&L, you would expect to see R&D growing in line with revenue on a forward basis.

So to add: we clearly are focused on innovation, and you should expect R&D to increase. We emphasized the 8% growth year-over-year because we need to get back to that 6% mark—we had fallen below that over the last few years, and it's important to get back there. I think 6% of revenue is a good proxy to think about for 2021 and beyond because it's off a much higher revenue base, so from a dollar standpoint that's a significant step up.

Thank you. And just lastly, what assumptions are you making about flu as you give us your first-half and fiscal 2021 projections? And Chris, congratulations on leverage down to 3x. Is that where you both want to be? Where are you heading? Just help us think through at a high level your balance sheet goals.

Great question. On flu, it's certainly light in the Southern Hemisphere, so it's unclear what the impact will be this season. For us, COVID overwhelms the whole thing—we're selling every Veritor test we can make. We're making flu tests and shipping them, but if flu tests aren't being utilized at prior levels, we'll make more COVID tests at least for the first couple of quarters. We do have a combination assay in development that we look forward to launching later this year and we'll give more color when appropriate. Logically, if people are isolated, wearing masks and taking precautions, flu could be lighter in the Northern Hemisphere as well, but the impacts on our business this year will be different because of the role of COVID and the presence of COVID testing. Regarding leverage, we're proud to have gotten down to 3.0x this past quarter, and as we've always said that was an initial commitment. We would expect leverage to continue to float down with increasing EBITDA as we go forward. A company like ours should aim to be in that roughly 2.5x range, and we expect to work toward that over time.

Thanks so much.

Your next question comes from the line of Jason Bednar with Piper Sandler.

Hey guys. This is Jerome for Jason. Thank you for taking the questions. I wanted to refer back to a slide in your deck where you point out that some procedures rarely trended above 100% of normal range. That's an interesting data set. Just wondering if you had any feedback on whether that was primarily related to patient willingness or challenges of processing those patients through the hospital. And then any thoughts on the relative outperformance of inpatient versus outpatient as it seems to show?

Just to comment on that, the data comes from the MedMined dataset and is U.S.-only; it's based on the 338 hospitals. Anecdotally, there has been apprehensiveness around patients going into care settings in the United States, which likely influenced some of the trends shown.

Yes. Referring to our survey we've just completed, the majority of physicians reflected that patient sentiment is one of the driving factors. Screening declines in early COVID phases have been significant—data suggests additional mortality impacts from delayed screening. Hospitals have been putting out public messaging encouraging patients to attend appointments. Protocols implemented are establishing frameworks for patients to feel comfortable attending. Hospitals and physicians want to do procedures; the big variable is getting patients back in for screening and subsequent procedures.

Thanks for the question, Jerome.

Your next question comes from the line of Matt Taylor with UBS.

Good morning, Matt.

Hey. Good morning, Tom and Chris. Thanks for taking the question. I wanted to ask about the forward year. You made some comments before. If there's a testing cliff at some point and you have a tough compare, are there things you would do proactively—like a buyback or phasing down some of those investments you're making now in growth—to smooth earnings and help with that transition?

Great question. That's exactly the thought process. As we initially looked at this, it could have been a cliff from 2021 to 2022. One way to mitigate that would be to make investments in 2021 that help drive long-term growth but are one-year investments that mitigate the cliff. That logic continues as we think about testing extending into 2022, which looks less like a cliff and more like a downward slope. Making investments in 2021 can help mitigate that slope. Those are the kinds of investments we could make—R&D, M&A in deals that become more accretive in year two. So yes, that's exactly what we're doing.

Thanks for the question, Matt.

Thanks. I had one follow-up on pricing. Have you actually seen price pressure yet, or is this just something you're anticipating and therefore being conservative in baking in some potential pressure for Veritor ASPs?

We haven't really seen the full pressure yet. In Q4, the ASP was a bit higher than we had signaled. But we don't think it's prudent to assume that will hold as other competitors move into the market. We had originally signaled a $20 ASP and that was exceeded in Q4, but we expect pressure as the year proceeds and that's what we included in our guidance assumptions.

Great. Thank you.

Crystal, we'll take just one more question given the time. Apologies to those left in the queue.

Thank you. Your last question comes from the line of Josh Jennings with Cowen.

Good morning. Josh.

Good morning. Thanks for taking the question. I was hoping you might share the percentage of the revenue base levered to hospitals' capital equipment budgets. And if you could talk about the recovery of the capital franchise—it's hard to parse with Veritor instrument placements and the Alaris ship hold. But is the rest of the capital franchise recovered in fiscal Q4 and what's the outlook for that portion of the revenue base in fiscal 2021?

This is consistent with what we've said in the past: the percentage of revenue focused on capital is in that 15%-ish range. That's in areas like Kiestra and some in the biosciences side. We have seen pressure on capital during the third quarter particularly due to inability to install because hospitals were restricting access. We saw that sequentially improve into Q4. We would expect that to continue to improve through 2021 assuming no major resurgence.

We did see improvements in the capital and research areas; dispensing also returned to modest growth in the U.S. in Q4. We ended the year with strong net gains and committed contracts. Kiestra installations are complex and were delayed earlier in the pandemic but are restarting now. It is a bit difficult to fully isolate Alaris impact, but we were seeing restarts and getting back into labs to do installations.

Great. Thanks for that. Just one follow-up on LUTONIX. VOYAGER PAD Analysis at TCT was a compelling rebuttal to the earlier meta-analysis. Can you give an update on the DCB market relative to its 2018 high-water mark? Could LUTONIX become a growth driver for Interventional over the next 12 to 24 months?

Yes. Pre-COVID we had seen a significant rebound in our LUTONIX business—around 70% to 80% of Q1 2019 levels, prior to the Katsanos concerns. Q3 deteriorated, but as of September we were pretty much at the pre-COVID levels I mentioned, which were around 70% to 80% of pre-COVID. The recent VOYAGER data and subsequent analyses have flipped physician sentiment: where a year ago many were uncomfortable with paclitaxel safety, now a majority are comfortable with paclitaxel safety and with LUTONIX specifically. That helped drive Q4 performance, both domestically and in Japan where we had a successful launch in December. We've also received FDA approvals on the 0.018 platform, the 300 mm balloon platform and the low-profile AV platform. We're pleased with where we are with LUTONIX.

Okay. Thanks.

So thanks everyone for the good dialogue this morning. We've shared with you the challenges, opportunities, and successes that shaped Q4 and fiscal 2020, and that are influencing our expectations for the year ahead. One thing we didn't talk about though were the people of BD—the 70,000 associates around the globe—who rallied around our purpose of advancing the world of health at a time when the need was most urgent. So I want to close with a message to the BD team: thank you for your focus on our purpose, for your resilience when it came to executing our most critical priorities and your willingness to embrace bold new ideas. You delivered a strong Q4 that exceeded our expectations to finish a trying year on a high note. By building on the bold actions we took in FY2020 and by continuing to execute our long-term strategy to grow, simplify, and empower, we will address healthcare's immediate needs while bringing more innovative new solutions that will support our growth across all three of our segments. In FY2021, there will be no shortage of opportunities for you to think boldly, make a meaningful impact and change more lives for the better. On behalf of the entire executive team, I want to say thank you to BD associates around the world for your efforts, sacrifices, and achievements over the past year. You showed the world and each other just how vital BD is to the delivery of healthcare. Thanks again, and let's keep going forward.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.