Becton Dickinson & Co (BDX) Q2 2021 Earnings Call Transcript

Hello, and welcome to BD's Second Fiscal Quarter 2021 Earnings Call. At the request of BD, today's call is being recorded. It will be available for replay through May 13, 2021 on the Investors page of the bd.com website or by phone at (855) 859-2056 for domestic calls and area code (404) 537-3406 for international calls using confirmation number 6334356. I would like to inform all parties that your lines have been placed in a listen-only mode until the question-and-answer segment. Beginning today's call is Ms. Kristen Stewart, Senior Vice President of Strategy and Investor Relations. Ms. Stewart, you may begin.

Thanks Regina, and good morning everyone and thank you for joining us. This call is being made available via webcast at bd.com. We have a lot of exciting news to discuss today. Earlier this morning, we issued two press releases. The first discusses our second quarter results of fiscal 2021. The second announces our intention to spin-off our diabetes business into a separate public company. You can find these press releases along with an accompanying presentation that we will be referring to during today's call on the Investor page of bd.com. Leading this morning's call today is Tom Polen, BD's Chairman, Chief Executive Officer and President; and Chris Reidy, Executive Vice President, Chief Financial Officer and Chief Administrative Officer. Given the announcement of the spin-off of our diabetes business, we will also have Dev Kurdikar, our Worldwide President of Diabetes Care, who has been named CEO of NewCo to provide his early thoughts on the transaction. Following our prepared remarks Tom and Chris will be joined for Q&A by our three segment presidents, Alberto Mas, President of the Medical Segment; Simon Campion, President of Interventional Segment; Dave Hickey, President of the Life Sciences Segment. And before I turn it over to Tom, I want to address a few items. During the call, we'll be making some forward-looking statements and it is possible that these actual results could differ from our expectations. Risks uncertainties and other factors that could cause such differences can be found in our earnings release and our SEC filings including our 2020 Form 10 and subsequent Form 10-Qs. We will also be discussing some non-GAAP financial measures with respect to our performance. Reconciliations to GAAP measures that include details of our purchase accounting and other adjustments can be found in our earnings release and its financial schedules. They are also in the appendix of the Investor Relations presentation slides available at the bd.com website. Unless otherwise specified all comparisons will be on a year-over-year basis versus relevant period. When we discuss revenue percent changes they are on an FX-neutral basis unless otherwise noted. To avoid any confusion, when we refer to any given period, whether that's on a quarter or year basis, we will be referring to the period in fiscal terms, unless we specifically call it out as a calendar period. Finally, when we refer to NewCo, during today's call we are referring to the independent publicly traded diabetes company following the effective date of the spin, while RemainCo refers to BD post separation. And with all that said, I am very pleased to turn it over to Tom. Tom?

Thanks Kristen. Good morning everyone and thank you for joining us. Today we will provide an update on how we are executing on creating value for our stakeholders through our BD 2025 strategy. We have a lot of exciting updates for you, so let's jump right in. Our second quarter results came in better than expected and we delivered strong revenue and EPS growth. We are very pleased with the continued momentum in our core business, and therefore, based on our first half results and our projections for the second half we are reaffirming our fiscal 2021 guidance. We are making steady progress on each of our growth initiatives, which include very purposely shifting our investments and portfolio into higher-growth categories and shifting our weighted average market growth rate over time. We are advancing our product pipeline as well as our tuck-in M&A strategy, which now includes making selective investments in earlier stage and potentially disruptive technologies. And this morning we announced our intention to spin-off our Diabetes Care businesses into a separate public company. We see this planned spin as a significant value-creating opportunity for all stakeholders for our patients, customers, associates and shareholders. As an independent public company, we believe the diabetes business can leverage its global leadership position and unleash its growth potential in this attractive market category through the more efficient allocation of its own capital. For RemainCo BD, this transaction allows us to focus on our prioritized core businesses. We expect this transaction to strengthen our mid single-digit revenue and double-digit total return growth profile. We expect the spin to be completed in the first half of calendar year 2022 subject to customary closing conditions, including final approval by the BD Board of Directors and the SEC declaring our registration statement effective. We are progressing well against our simplification initiatives, which are focused on reducing complexity, enhancing our product quality, refining our customer experience and improving cost efficiencies. Our recode initiatives are progressing on track to generate savings of $300 million by the end of FY '24. And these initiatives help unlock value and allow us the flexibility to reinvest back into our business to fuel future growth. Chris will talk more about our capital allocation strategy later in the call, but we expect share repurchases to return as part of a more balanced capital allocation strategy, as our balance sheet position and cash flows have strengthened over the past year. We also continue to be guided by our purpose of advancing the world of health and continue to make great progress on our ESG initiatives. On Earth Day, we reaffirmed our climate change targets, which includes our pledge to be carbon neutral by 2040 across our direct operations. Last week as I was preparing for our Board meeting, I reflected on where we were a year ago where we are today and the progress we've made. First, we achieved my number one priority since taking over as CEO. Last week, we announced that we submitted our Alaris 510(k) premarket notification. This is an important milestone in our commitment to our customers and our patients. The Alaris pump is the leading infusion pump in the US market administering more than one million infusions each day. Second, we've significantly strengthened our balance sheet and cash flows. Over the past year we've improved our net leverage ratio by a full turn from 3.4x to 2.4x and taken actions to meaningfully strengthen our cash flows. Third, we answered the call to action with COVID. We developed a series of innovative COVID diagnostic tests and scaled these to diagnose patients and help control the spread. We secured our global supply chain to ensure that our essential medical devices were available to treat COVID patients in ICUs around the world including BD devices used in the treatment of an estimated 90% of US ICU patients. And today we continue to add capacity and enable over 1 billion doses of COVID-19 vaccine to be delivered using our injection devices. I am very proud of our team's impact when it matters most. Fourth, we reinvested in growth. We set up the BD Innovation and Growth Fund and advanced impactful new innovation programs in each of our businesses. We acquired 11 tuck-in acquisitions since the beginning of 2020 along with early-stage investments and we're reinvesting some of BD Veritor profits back into the business and behind our BD 2025 strategy. Fifth, we started to shift the BD culture to one of a growth mindset. We've been systematically advancing our leadership capabilities and culture in this area which includes partnering with the Neuro Leadership Institute to embed an enhanced focus on innovation and growth across our culture and mindset and the progress we're making with shifting the culture is very real and tangible. And today, we are announcing our intention to spin-off the diabetes business. We believe this spin-off will be another value-creating opportunity for our shareholders. But what excites me most is not what we've done it's where we're going and what's to come over the next several years all of our future successes and milestones to come. The BD 2025 value-creation story has only just begun. And later this year we are planning to host an Investor Day and we'll look forward to sharing greater insights into our 2025 strategy and pipeline. So with that let's turn to Slide 8 and our second quarter results. Chris is going to run through our financial results in greater detail later on. But just to highlight, we are very pleased with our second quarter results as the BD team continued to execute well. Our second quarter revenues totaled $4.9 billion, up 15.4% on a reported basis and up 12.2% on an FX-neutral basis. I was particularly pleased with the continued momentum of our core businesses which were above our expectations in all three business segments. To call out a few, our market-leading BD Pharmaceutical Systems business continues to deliver robust revenue growth of nearly 10%. Medication Delivery Solutions business was up over 8%, as we continue to deliver on our COVID vaccine injection devices commitments and our results were also driven by higher patient acuity. Our Bioscience business turned in double-digit growth as research activity has rebounded and urology and critical care continued to perform well driven by PureWick and targeted temperature management. In China, where we began to anniversary the impact of COVID-19 we saw a strong revenue growth of 62% and we continue to invest support our future growth including reinvesting some of the profits from our COVID diagnostics. Our R&D spending was up 18.7% year-over-year on a currency-neutral basis. Adjusted EPS was $3.19 representing year-over-year growth of 25.1% on a reported and 22.7% on a currency-neutral basis. The performance of our business particularly our core, gives us comfort to reaffirm our fiscal 2021 guidance ranges which include currency-neutral revenue growth of 10% to 12% and adjusted EPS guidance of $12.75 to $12.85, up 25% to 26% on a year-over-year basis. Turning to slide 9. As I discussed before, we are proud to play such an important role in the COVID-19 pandemic response, across the continuum of care, from diagnostics to treatment and now prevention. As vaccination campaigns continue to progress, I am pleased to announce, that we now have cumulative commitments for over 1.7 billion injection devices to administer COVID vaccines globally. These commitments will stretch through our fiscal 2022 period. And therefore, we now see higher demand in our MDS hypodermic business, as being durable into next year. We also see potential opportunity for our prefilled business in the future, and are now working with several partners at various stages of formulation testing on possible pre-filled COVID-19 vaccines. Turning to slide 10. I will provide an update on our COVID-19 Diagnostic Testing business. We recently announced several emergency use authorizations or EUAs from the FDA. We received EUAs for our combination COVID flu assays for both BD Veritor and BD MAX and we believe combination tests are going to be important in the next flu season. Next, we extended our EUA for the BD Veritor COVID-19 test to include a claim for screening asymptomatic individuals by serial testing. Several peer-reviewed publications have supported the benefits of serial rapid antigen testing, and we are continuing to develop our BD Veritor at-home test. Our test is designed to deliver a clear, digitally displayed record of test results on a smartphone to eliminate the reading guess work, and we also designed it to allow the data to be digitally shared by the user to eliminate errors and report sharing. Our BD Veritor at-home antigen test is also expected to have some other features that we believe will further differentiate it versus others on the market. Our antigen tests will all be manufactured on the same production lines to leverage economies of scale and our capital investments. Turning to slide 11. Growth through innovation is central to our BD 2025 strategy. We are advancing our R&D pipeline across all three of our segments. And as you can see on this slide identified by the green circles, several products have launched or achieved clearance since the beginning of the year. I've already covered our regulatory clearances related to COVID Diagnostics, and I'm happy to share that we've made steady progress in our medical segment, with a healthy cadence of relevant portfolio expansions and extensions across the MDS portfolio, such as the broadening of our leading peripheral IV catheter position with the introduction of our first passive safety catheter in the United States, the BD Cathena IV safety catheter. We launched a new catheter stabilization solution for peripheral IV catheters with the BD Secura stabilization device and further advanced the safety of the BD PhaSeal optimal product family with a locking injector. In interventional, we're launching Sensica, a smart connected Foley catheter, which can be an important tool for the ICU. It provides weight-normalized urine output data that is one of the early parameters used by clinicians to help identify acute kidney injury. BD Sensica can wirelessly transmit this data to the hospital's electronic medical record. We're also looking forward to launching Pristine later this quarter. Pristine is our new long-term hemodialysis catheter with unique side hole-free symmetric wide tip distal lumen design. The design of the product is intended to help minimize thrombus adhesion, facilitate blood clot aspiration prior to hemodialysis treatment and help minimize recirculation rates in both forward and reverse. Turning to slide 12. As I have often said over the last year, Alaris was my number one priority and last week, we announced a very important milestone. We submitted our 510(k) premarket notification to the FDA for our BD Alaris system. I am extremely proud of our MMS regulatory affairs, quality and R&D teams for their dedication and hard work, to ensure a comprehensive submission. We're also very appreciative of the FDA's collaboration. We recognize this is one important step and we look forward to working with them through the FDA review process to obtain clearance for the updated BD Alaris system. Just to give a sense of what is included in the submission and how comprehensive it is. The 510(k) submission is intended to bring our file up to date for all changes to the pump, since the last 510(k) was cleared. We are also implementing updated features and addressing open recall issues, including through a new version of the BD Alaris system software that will provide clinical, operational and cybersecurity updates. These updates are part of our overall commitment to safeguard infusion programming. And included in the software will be updates to our BD Alaris Guardrail Suite and BD Alaris EMR interoperability, including cybersecurity updates, network security and advanced data encryption. From a hardware perspective, our submission includes updated PCU, LVP, syringe and EtCO2 modules, as well as our existing PCA module. We plan to continue to advance the BD, Alaris system with future updates and subsequent submissions. We filed a substantial amount of data to support the filing. This is a complex and comprehensive submission. Therefore, we would expect that the FDA review process will take some time to complete. And while we're not intending to predict the FDA-specific time line, we certainly recognize that our stakeholders would like to have some input for modeling purposes and we believe it would be prudent to think about Alaris' clearance sometime during the second half of our fiscal year 2022. We plan to update you if there are any significant developments. And for now, we expect to continue to ship to our customers who qualify under medical necessity. We've learned a lot of valuable lessons and gained insights during this journey that we're applying to our ongoing next-generation pump platform programs as well as our quality and risk management systems. Turning to Slide 13. We are making significant progress with our tuck-in M&A strategy. Year-to-date, we've closed five acquisitions and we have a robust funnel of opportunities at various stages. We continue to exercise financial discipline, in addition to ensuring deals meet our strategic and operational criteria. This includes them being accretive to our growth profile, supporting our key innovation themes, advancing our strategic positions, meeting our financial hurdles and creating shareholder value. As part of building a more holistic approach to expanding our inorganic growth funnel, we also expanded our evaluation and selective investment in early-stage strategic opportunities. On Slide 14, we highlight our key innovation themes and with some of our tuck-in acquisitions and R&D products across our three business segments that align to these themes, some of which I've already highlighted. So within this theme of applying smart devices, robotics, analytics and artificial intelligence to improve care processes, I've already discussed our Smart Foley catheter Sensica. We also continue to develop new modules of Kiestra, our total lab automation system. Kiestra as you know can improve standardization, significantly enhance lab efficiencies and staff productivity. Within Medical, our health site platform is designed to continue to support enterprise-wide medication management. We continue to evolve our capabilities with health site diversions, which was originally launched in fiscal 2019 for Pyxis. We have scaled tremendously over the last year in terms of our commercial sites and we have plans to expand into the OR, followed by integration of infusion data and central pharmacy. Within this theme of enabling new care settings, you've seen us acquire Med Bank and GSL Solutions to expand our medication management offering into the faster-growth non-acute settings and strengthen our existing dispensing leadership position. Our PureWick dry dock urine collection system has been helping women with urinary incontinence outside of the acute setting and contributing to the strong growth in our UCC franchise. And I've already talked about how we're excited about the upcoming launch of our BD Veritor at-home COVID-19 test that enables the expansion of testing into everyday settings. Lastly our third theme is improving diagnosis and treatment of chronic diseases. I already mentioned Pristine and I've talked about in the past our BD Oncology HPV assay, which offers extended genotyping that supports risk stratification. And we look forward to launching this assay on our BD core system in the United States later this year. One other product that we haven't talked a lot about is our BD Libertas subcutaneous drug delivery system for the administration of viscous biologics. Our Pharmaceutical Systems business is excited to offer this option to our biopharmaceutical partners as a combination product. These products not only add value to our customers, patients and health care system but they add to our confidence in a sustainable, durable, mid-single-digit growth profile. Now turning to Slide 15. As I've described so far on this call, we are making substantial progress in advancing our BD 2025 strategy, which is about unleashing the growth potential of BD, delivering innovation to our customers, empowering our associates and creating value for our shareholders. And I'm really excited today to announce a bold step in our BD 2025 strategy. Our intention to spin-off our diabetes business to our shareholders which we believe is a value-creating transaction. Our Diabetes Care business generated $1.1 billion of revenue in fiscal 2020, is a global leader in insulin injection devices. Consistent with our continuing focus on delivering shareholder value, we undergo strategic reviews to identify ways to create value and determine that the strategic priorities of BD have diverged from those of our Diabetes Care business. We believe a spin-off will position both companies for long-term growth and success by allowing both to focus on their respective core markets, innovations and customer outcomes. Each company will be able to more efficiently allocate its resources and capital, best positioning the respective companies for their success and value creation. We see tremendous potential to create value for our Diabetes Care business ahead. And let's turn to slide 16, to dive into some of the benefits in greater detail. We see the spin-off as an operating catalyst for our Diabetes Care business. As an independent public company, NewCo will be able to more effectively allocate its human, operational and financial resources to implement a refined growth strategy that will allow it to focus on innovation, and improving the care of patients living with diabetes. Being a separate entity, will also better enable NewCo to attract and retain talent, align management and employee incentives, and have a stock currency that it can use for future acquisitions. For RemainCo BD, we expect the spin-off to strengthen our mid-single-digit FX-neutral revenue growth. We estimate the uplift to our revenue growth rate to be about 30 basis points. And see this as strengthening our double-digit total return growth profile. The spin-off will allow RemainCo to focus on our R&D tuck-in M&A and customer growth strategies, simplify our overall focus and maintain financial flexibility. Considering all of these benefits, we believe this transaction has the potential to create value for our shareholders, which will be owners of both companies. Slide 17, provides an overview of the relevant transaction details. And I've already covered many of these topics. The spin-off is expected to be implemented by a means of a distribution of 100% of the shares of a newly publicly traded entity to BD shareholders, and is intended to be tax-free for U.S. federal income tax purposes. Over the next several months, we'll be filing our Form 10, which will include the carve-out financial statements. Again, we expect the spin-off to be completed in the first half of fiscal year 2022, subject to market, regulatory and other conditions, including final approval by the Board of Directors and the effectiveness of a Form 10 registration statement that will be filed with the SEC. Turning to slide 18, NewCo will be led by an experienced management team. And I am very pleased to share that Dev Kurdikar, who joined us earlier this year, as the Worldwide President of Diabetes Care will be the CEO of NewCo. Dev has a long history, in the medtech sector, most recently serving as the CEO of Cardiac Science. Dev has been engaged with the business now for the last few months and will share some of his preliminary thoughts in a moment. I'm also very happy to announce that Jake Elguicze, the Former Treasurer and Vice President of Investor Relations of Teleflex, has joined BD and will be the CFO of NewCo upon spin. Jake brings extensive experience, in treasury, financial planning, reporting and analysis and investor relations. We're confident that Dev and Jake are the right team, to lead NewCo as they embark on this journey that we believe will create value for all stakeholders. So with that, I want to turn it over to Dev to provide his perspectives on today's announcement, Dev?

Thanks Tom, and hello to everyone listening to today's call. I'm incredibly excited to embark on this journey. I see a tremendous opportunity to build shareholder value and advance care for patients who suffer from diabetes. I'm also very humbled, to be leading this amazing organization. The Diabetes Care business has a long history of caring for patients living with the disease, dating back to BD's introduction of the world's first specialized insulin syringe, almost 100 years ago in 1924. Since then, BD has played a leading role in the delivery of insulin, including helping to drive the adoption of insulin pens, which utilize our pen needle technology, as a leading modality for insulin injection. Our Diabetes Care business now reaches more diabetic patients, than any other medical device company in the world today. We manufacture eight billion devices per year and are the global leader in insulin injection devices. As Tom mentioned earlier, the business generated nearly $1.1 billion in revenue in fiscal 2020, derived from the sale of insulin injection devices such as, pen needles and insulin syringes as well as other accessories. One factor that attracted me to this opportunity was the global breadth of the business with 48% of the revenues generated outside the United States, including 17% in emerging markets. And why is this important? As you can see on slide 21, diabetes is a growing chronic condition across the globe, with some of the higher prevalence rates expected to be in the emerging market regions. The International Diabetes Federation estimates that the number of adults living with diabetes is expected to grow from 463 million in 2019 to 578 million in 2030 and 700 million by 2045. Most of these patients will likely continue to rely on traditional injection devices for their insulin needs. The rapid growth of the disease will likely place a significant burden on healthcare systems around the world, as patients with diabetes are often afflicted with multiple co-morbidities like cardiovascular disease, hypertension, diabetic retinopathy and lower limb complications. While I've only been with the company for a few months now, I can assure you that my passion and vision for NewCo is one of growth. Injection devices like pen needle and syringes are likely to remain a key part of their treatment paradigm for people with diabetes on a global basis for the foreseeable future. We will look to leverage our global footprint to capitalize on these demographic trends. However, we'll also look to invest in novel insulin delivery technologies, including our internal type 2 patch technologies. We also plan to supplement our internal R&D product development efforts more broadly and accelerate our growth profile through strategic M&A to broaden our product offerings and enter adjacencies on new growth categories. Let me end by saying how excited and humbled I am to have this opportunity to lead NewCo. I am confident that our team will work tirelessly to advance care for our patients while building shareholder value. With that I'll turn it over back to Tom.

Thanks Dev. We see this as a great opportunity for those BD associates that will be part of NewCo and we're happy to have you and Jake on board. Turning to slide 25. I'd like to provide an update on our ESG initiatives across BD. Over the past quarter, we continued to advance our company-wide ESG initiatives, including our recent commitment to be carbon neutral across direct operations by 2040. We also continue to make progress towards identifying our 2030 goals and we look forward to sharing more details behind our 2030 sustainability plan with you in future engagements. Before turning it over to Chris, I want to say again how proud I am of the organization for the progress we've made in advancing the BD 2025 strategy. We are purposely shifting our focus to growth opportunities. Simplifying the organization to remove complexity as I firmly believe complexity gets in the way of growth and we're empowering our associates with a growth mindset. We are committed to doing the right things, the right way and fulfilling our purpose of advancing the world of health. I also want to reiterate how excited I am for what's ahead for both RemainCo BD and NewCo. BD's Board of Directors and management team believe our plans to spin-off the Diabetes Care business will create value for all stakeholders. With that, I'll turn it over to Chris.

Thanks Tom. And before I turn to the results, let me also share my enthusiasm for the spin-off of our Diabetes Care business. I see the transaction is a win-win for all stakeholders, our shareholders, our employees, our customers and our patients. I'm confident that we have the right leadership to navigate NewCo on this exciting journey ahead. Now let me turn to the second quarter financial results. Slide 27 summarizes our high-level revenue performance. Our revenues came in just over $4.9 billion, up 15.4% on a reported basis and up 12.2% on an FX-neutral basis. As Tom mentioned, we were very pleased with our results. Our core segment results excluding COVID-19 diagnostic testings were ahead of our expectations across all segments. Now turning to slide 28. Our medical segment delivered 4.7% FX-neutral revenue growth led by our market leading BD Pharmaceutical Solutions Systems business, which continues to deliver robust revenue growth of nearly 10%. We are proceeding with our capacity expansion to support the future growth of this business unit. MDS grew a solid 8.1%, which included $43 million from COVID-19 vaccination injection device revenues. We also benefited from higher patient acuity and higher utilization internationally particularly in China where we anniversaried the impact of COVID-19. Now turning to slide 29. Our Life Science segment delivered revenue growth of nearly 38% on an FX neutral basis. Our COVID-19 diagnostic testing revenues totaled $480 million and are included in our Integrated Diagnostics Solutions business. While BD Veritor ASPs were as expected in the low to mid-teens, the market's overall demand for symptomatic COVID diagnostic testing was lower. Looking at our IDS business excluding COVID testing, our routine diagnostic testing has not yet fully recovered to pre-COVID-19 levels. There was virtually no traditional flu this year, so we did not have our usual flu test revenues and this impacted our IDS growth rate by 540 basis points and our BD Life Sciences growth rate by 410 basis points. The impact to our overall BD growth rate was 110 basis points. Our Biosciences business unit delivered strong growth of over 12% as research lab activity has recovered nicely. We are seeing strong demand for research instruments and reagents as well as from biopharmaceutical companies for vaccine research and development. As shown on slide 30, the BD Interventional segment was flat this quarter, which was better than expected given the COVID-19 resurgences. The performance in surgery and PI reflected the early impact from the COVID resurgence. However, we did see recovery in elective procedures as the quarter progressed and this trend has continued into April. Our urology and critical care franchise continues to deliver solid growth led by our Purewick and targeted temperature management product lines. Turning to our results by geographic regions on slide 31. In the United States, revenues were up 1.9%. As we had discussed on our February earnings call, we did see some early impact from COVID-19 resurgence, which waned as the quarter progressed and we exited March with improved momentum and this continued in April. International revenues were up 25.7% on a currency-neutral basis as we begin to anniversary the initial impact of COVID-19, particularly in China where our revenues were up 62%. We also benefited from our COVID-19 responses, our diagnostic testing and vaccine injection delivery device revenues. Now turning to the P&L on slide 32. As expected our gross margin was sequentially lower as compared to our first quarter. Our gross margin was 53.8% driven mostly by the lower COVID diagnostic testing revenues. On a year-over-year basis, the gross margin included a 70 basis point negative impact from foreign exchange and 70 basis points from reinvestment initiatives. Favorable impacts from our continuous improvement initiatives were offset by product quality-related expenses. Our SSG&A spending rose 9% year-over-year on an FX-neutral basis, including a 380 basis point impact from deferred compensation, which as you know is fully offset in other income expense. The remaining increase in SSG&A is primarily related to higher shipping costs and investment spending as part of our BD Veritor profit reinvestments. Our R&D spending ramped sequentially as planned as we reinvested some of the BD Veritor profits behind new pipeline innovations. R&D increased 18.7% year-over-year on an FX-neutral basis to $295 million, representing 6% of our revenues. Our operating income grew 14.3% on a year-over-year reported basis and 13% on an FX-neutral basis. Our operating margin was 24.5%, up 20 basis points on an FX-neutral basis. Deferred compensation was an 80 basis point headwind. Our interest and other expenses totaled $111 million versus $170 million in the year ago period. The reduction of interest other net on a year-over-year basis, primarily reflects a decrease in deferred compensation offsetting increases in SSG&A as previously mentioned. It also reflects reduced interest expense due to debt repayment and refinancing activities and lower interest rates. Our tax rate was 12% lower than expected due to discrete tax items that occurred this quarter. Our adjusted EPS increased 25.1% over the prior year to $3.19 on a reported basis and were up 22.7% on an FX-neutral basis. The average diluted share count used to calculate our EPS in the quarter was $293.6 million. Now turning to slide 33, I'd like to provide an update on our capital allocation priorities, but first I want to update you on the great progress we made with our cash flows and balance sheet on a year-to-date basis. For the first half of the year, our cash flows from operations have more than doubled growing from $1.2 billion to $2.8 billion, driven by the improvement in our net income as well as working capital. We ended the quarter with $3.7 billion in cash and equivalents and our net leverage ratio was 2.4 times, a full turn lower than a year ago. Going forward our capital allocation strategy will be more balanced than it had been in the past as we were paying down our debt. Now more of our cash can be deployed to support our growth strategy, tuck-in M&A, maintaining a competitive dividend and returning capital to our shareholders through share repurchases. As a reminder under the existing share repurchase authorization plan, we have just under 7.9 million shares or roughly $2 billion remaining. Also note that we would expect BD's dividend to be unaffected by the diabetes spin-off and therefore would increase BD's payout ratio. Next I want to address our fiscal 2021 guidance and provide some general commentary on our overall outlook, which you can see on slide 34. From a reporting perspective, we will continue to report our diabetes business with our BD results until the spin-off of the diabetes business is complete. We're very pleased with the results for the quarter how we are building momentum in our core, advancing our pipeline and achieving critical milestones. We are also pleased with the early progress we see from BD Veritor profit reinvestments. We believe these projects should begin to provide incremental growth beginning in late 2022. We are reaffirming our fiscal 2021 financial guidance ranges. We continue to expect reported revenue growth of 12% to 14% for the full year 2021. This reflects FX-neutral revenue growth in the range of 10% to 12%. BD Veritor revenues towards the higher end of the $1 billion to $1.5 billion range and foreign currency adding approximately 200 basis points. We also continue to expect adjusted EPS in the range of $12.75 to $12.85, which represents growth of 25% to 26% year-over-year. Now we wanted to give you some color as you consider your models for the back half of the year. We continue to reinvest some of the Veritor profits to fund projects in line with our BD 2025 strategic pillars of growth simplify and power. Our investments continue to put temporary pressure on both our gross and operating margins in 2021. As we mentioned last quarter, we continue to expect our operating margins in the second half of the year to be in the low 20s, reflecting our reinvestment initiatives as well as higher raw material costs. As a reminder, we expect the reinvestment pressures that you're seeing on our margins to lift next year. As you've seen in the past from time to time there can be some volatility in our tax rate. We now expect our FY 2021 tax rate to be slightly lower than FY 2020's tax rate. This helps to offset some gross margin pressure from the lower ASPs from Veritor as pricing is now approaching compared to our flu test price a bit faster than we originally anticipated. Regarding 2022 given the momentum we are seeing our progress with our R&D pipeline the reinvestments of our BD Veritor proceeds and our tuck-in acquisition strategy we have increased confidence in our core outlook. In fiscal 2022, excluding COVID-19 testing and Alaris 510(k) clearance, we expect our revenues to grow solidly in the mid-single digits. As you heard Tom mention, while we're not intending to predict the FDA's timeline we recognize the desire to have some input for modeling purposes. We believe it would be prudent to think about Alaris' 510(k) clearance sometime during the second half of our fiscal 2022. We believe it would also be prudent to model both our revenues and our margins gradually ramping as we scale our selling and manufacturing efforts. In conclusion, we are really pleased with our second quarter results and the momentum across our businesses. We are excited about our plans to spin-off of the diabetes business and see this as an important opportunity to create value for our shareholders. With that, Tom, Alberto, Simon, Dave and I are happy to take any questions you have. Operator, please open up the line for Q&A.

The floor is now open for questions. Our first question comes from the line of Bob Hopkins with Bank of America.

Hi, Bob. Good morning.

Good morning. Boy a lot to unpack here. So I'll just ask kind of two straightforward questions. First is kind of a housekeeping on the diabetes side. You told us it was roughly 67% of revenues in fiscal 2020. I'm just curious what rough percentage of operating profit it was in that year? And then I've got one follow-up. Thank you.

Yeah. On that first one Bob, we'll be clearer on that as we do the carve-out financial statement. So you can expect to see that going forward. But as you know, we don't break it out at that level at the operating basis – on an ongoing basis. But as we do carve-outs that will be clearer.

Any rough sense though just as I'm sure it will be –

Too early to say right now as we're still going through the midst of that.

And Bob – Bob just to note so maybe what we can say is that the Diabetes Care business it certainly is profitable and the gross and operating margins are above our corporate average. Certainly, the business is positive cash flow which is going to allow it to pursue the growth agenda that we discussed, and then again as we file the Form 10 later this year the more detailed carve out financials will be available then.

Okay. Great. And then one quick follow-up. So many things we could ask about 2021, but you offered a few little comments on 2022, so I'll skip right over to next year for a quick second. What do your comments suggest about the – kind of the outlook for operating margins next year relative to where you're ending in the back half of 2021?

Yes. So as you can see this year, we're spending and investing to drive future growth from the Veritor proceeds. And so that will be something that does not reoccur next year so you will see a lift. And clearly, you would get a lift from Alaris coming back because that was a drag on our operating margins as well. And I would also add the – in terms of FX you see some FX pressure that we pointed out this year. We'll continue to see some of that rolling through our inventory for the remainder of this year. That should turn around next year as well.

Any sense for what that roughly sums to though just directionally?

Yeah. We're not going to give 2022 guidance this early. A lot of that will be impacted as you know by what happens to COVID testing. And we're pulling all the levers we can to make COVID testing more sustainable as we think about the combined COVID and flu assay and we're also – we're working on the at-home test. So that should have some ability to have sustainability in COVID testing. But clearly, it will come down. And where that goes will have a big impact on operating margins and gross margins in total as you would know.

And Bob, just as a reminder, we've said we expect to reinvest about $200 million of Veritor profits back into the business this year. These are one-time expenses hitting the R&D line as well as the gross profit line, as we discussed, and will come out next year, which will obviously be a tailwind. The expected re-launch of Alaris, also next year, would be a margin tailwind as we start getting absorption back in that plant, and it tends to be a higher-margin item. Those are all positives, as is continued volume returning as we think about the recovery post-pandemic, particularly in areas like BDI, which we saw and can talk about later. We saw good continued recovery, particularly in the back end of the quarter in March, and we continue to see that strong momentum; Simon can comment on that later as we look at April procedure volume recovery. So thanks for the question, Bob.

Yes. Thanks.

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

Hey. Good morning, Robbie.

Good morning, Robbie.

Good morning. As Bob said, there's a lot to unpack here. Maybe I could ask about some of the base businesses here, particularly maybe the Interventional business seemed a bit weaker than expected and the Medical business continues to benefit from COVID. So, I was wondering if you could tease out some of what's impacting interventional? And how do you expect that to recover? And then, on the flip side within Medical, how much of that is benefiting from COVID here and should start to come out over the balance of the year?

Yes. I can start with some comments on Medical and then turn it over to Simon on Interventional. In Medical, a couple of things are happening. First, we continue to see durable growth in Pharmaceutical Systems. You saw it again in the quarter; it was more than 8% growth last year, and we expect it to remain durably higher than average company growth. We also communicated, I think last quarter or the quarter before, that we plan over $1 billion, about $1.2 billion, of incremental capital investment in that business to support the long-term growth outlook. We also reaffirm that we are in discussions and have collaborations with several pharma companies about putting COVID vaccines in prefilled syringes, which is another long-term opportunity for that business. In MDS, about a year ago we discussed the ability to produce up to one billion syringes to help with COVID vaccination. Today we announced we have orders and commitments in hand for 1.7 billion syringes that span well into fiscal 2022. So while we had wondered if there would be a cliff in syringe demand into 2022, we now see demand in our MDS business as durable into 2022. Potential additional demand from booster shots would make that demand even more durable. Overall, the business continues to do well, taking share in the catheter space and rolling out a series of new innovations. It has benefited from higher-acuity ICU patients who may use products like midlines or PICCs, which have higher average selling prices than peripheral catheters for shorter stays, and there are strong durable trends in MDS. In MMS, we look forward to bigger growth opportunities following the submission of the 510(k) as we look ahead to 2022. I'll turn it over to Simon on BDI. For BDI, the impact from the pandemic was very minimal in the first two months of the quarter last year, so you see that comparable effect given our product mix. We also saw strong trajectory and uptake in March that continued into April. Simon.

Yes. Good morning, Robbie. It's Simon. Let me add that UCC had a really strong quarter, driven by double-digit growth in PureWick and TTM, and it will continue to be a mid- to high-single-digit performer for us this quarter. Peripheral, as Tom mentioned, did see impacts early in the quarter, particularly in the ESKD business, and that should not be a surprise based on what you’ve likely heard from others in that space. However, we saw sequential improvement through the end of March and into April, and the outlook remains positive. With Surgery, there is no great surprise. Two factors are driving that. First, hernia repair is not an emergent procedure—patients often have hernias for years, so those cases are typically postponed first during a resurgence and treated later when recovery begins. Second, Q2 of last year had unusually high growth in ChloraPrep, which creates a bit of an offset as we move into this quarter. The sustainability of our business is demonstrated in China: we were significantly impacted in Q2 last year there, and it rebounded strongly in Q2 of this year. We remain confident in our ability to recover our business as the resurgence abates.

I would just add two comments. In terms of Interventional it actually exceeded our expectations in the quarter, because we had seen January and the resurgence from COVID and we had seen that going into the February call. And that did turn around in March and happy to see it turn around in April. But I'd also take a step back in terms of the core momentum and point to the fact that we see that improving. It's helping us with the outlook for the remainder of this year. And I would also point to the fact that we showed that confidence in what we said about 2022 by moving the core guidance for 2022 from low single to mid digits to solid mid-single digits. And that's reflective of the momentum across the business that we see as sustainable.

Great. And I realize you're not going to be able to comment on COVID testing or Alaris sales necessarily for next year, but maybe if we think about the balance of fiscal 2021 here. I just want to make sure I have some of the data points right. One is that, at the high end of Veritor testing, that implies another $250 million or so in each of fiscal 3Q and 4Q. And as we think about a second half approval next year for Alaris, just maybe remind everyone about the process of how long it takes from order to delivery to booking revenue, just so we can appropriately scale up our sales and the models for next year? Thanks.

Robbie, on the Veritor question, as a reminder we've always used and emphasized the phrase "towards the high end," not "the high end" exactly, which is what you just calculated. So if you are thinking about per-quarter amounts, it may be a little less per quarter than you estimated to get towards the high end of the range. To your point, we ended the first two quarters at almost $1 billion of revenue on Veritor, so we're roughly two-thirds of the way to that number halfway through the year, which gives us confidence in reiterating that we expect to be towards the high end of that range. As you noted, the quarterly split may be a bit different than you indicated. On Alaris, we have a backlog of orders we can ship initially, and upgrades have shorter install times than Pyxis, so it typically takes a couple of months from order to implementation for Alaris.

Great. Thanks.

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

Good morning, Vijay.

Hey, guys. Actually, I have a couple of questions on the spin itself. I guess the base business is now going to accelerate by 30 basis points. So, given the prior guidance of 5% to 6% top line, are we now looking at the base being north of 5.5%? And regarding the spinco, I heard some comments on patch pump. What should the growth rate for the spinco be? Is that going to accelerate north of 5%?

Yes. Let me take the first one. You're absolutely right. We built in growth of 30 basis points. Think of that as about $1 billion of revenue, which has been relatively flattish compared to the rest of the $17 billion that is growing in the mid-single digits. If you do the math, you can see the drag of those 30 basis points. I would remind you that our guidance is for recurring mid-single-digit growth, and so that 30 basis points gives us greater confidence in our ability to achieve that on an ongoing, sustainable basis. So that's a positive. We haven't addressed the growth rate of spinco going forward. You heard Dev say that his emphasis is on growth. We think that, as a separate public company, it will be able to unleash that growth potential, because right now spinco, or diabetes care within BD, is competing for investment against other items that we feel are more strategic. As a separate company, it can invest more internally in R&D or pursue M&A. More to come on the growth profile of spinco as a separate entity, but that's directionally how to think about it.

And, Vijay, you did ask about the patch. So that does continue in our pipeline with external development partner, as we've shared in the past. And certainly, as we approach the actual timing of the spin, you can expect that there will be further discussions on the strategy of the diabetes business and updates on that and other products within our R&D pipeline and on Dev and his team's vision for the business post spin. But those discussions as is typical in these situations wouldn't happen until we get closer to the spin.

That's helpful, Tom. And maybe a follow-up. I think the press release noted the transaction to strengthen the mid-single top-line and double-digit TSR profile. Just wanted to clarify are there any dissynergies? I'm assuming there are some. I know in the past you had spoken about double-digit EPS. Is that still intact on an underlying basis? Perhaps parse out the double-digit TSR versus what it means for EPS.

Yes. As we said, this strengthens; the spin actually strengthens our position and gives us more confidence in both the top line and the bottom line. That will be clear when we discuss operating margins from the SpinCo. So this increases our confidence and supports that effort.

There is no change from prior LRP correct?

You did mention Vijay that the stranded cost there would be some stranded costs in any transaction like this. We feel good about the fact that we can address those stranded costs. And obviously, we'll have a couple of years of TSA agreements that will mitigate those for a couple of years. So we're not concerned about stranded costs having an impact.

And Vijay as a reminder we've been reaffirming ever since I've been in the role mid-single-digit revenue growth double-digit TSR and reaffirming that this actually strengthens our position on both of those. So the Diabetes Care was growing below the company on revenue and on operating income.

That’s helpful. Thanks, guys.

Your next question will come from the line of Larry Biegelsen with Wells Fargo.

Good morning, Larry.

Good morning. Thanks for taking the question. One on the diabetes spin, one on the underlying growth assumed in the guidance for fiscal 2021. Just to start with the diabetes spin. Tom diabetes is seen as a high-growth area. It did grow 3% before 2020 for a few years. Why not invest in it? I mean the slide presentation suggests that this is an attractive area.

Yes. That's a great question. When we think about other opportunities across the company, whether in our Interventional segment, the technology opportunities in BD Medical, the future of medication management, or the non-acute space, the ability to apply automation and informatics across our Interventional, Medical, and Life Science businesses is significant. We see very attractive opportunities in those areas. The diabetes business, however, has a more unique profile relative to our other franchises. For example, it has very distinct patient, physician, and distribution channel dynamics compared with our other businesses. BD Medical excluding Diabetes, our Interventional, and our Life Science franchises have significant overlap in call points — they all call on health care systems, which is where we sell the majority of our Life Science products, Interventional products, and our BD MMS and MDS products. That is very different from diabetes. The digital footprint we've been building, leveraging data and connectivity into electronic medical records across segments, is a different dynamic than in the diabetes care business, which does not connect into EMRs in the same way and is more directly outbound to the patient. Future technologies like patch pumps or other options will also require a very different commercial channel than what is inherent in the rest of the BD businesses, whether life sciences or the remainder of Medical. We believe there are tremendous opportunities for the BD Diabetes Care business, which is why we are excited that spinning it off will allow it to unleash that potential, avoid competing with other programs in the company, attract the best talent, reinvest profits back into its strategy in a very focused way, and enable RemainCo BD to be more focused in executing our strategy. That is why we continue to be very excited about this being a tremendous opportunity for the business, our shareholders, and our associates.

That's helpful, Tom. And Chris, what are you assuming for underlying growth ex-COVID testing in fiscal 2021? I'm getting about 4% at the high end. If I'm doing the math right, this implies roughly flat sequential underlying sales in fiscal Q3 and Q4, about $4.4 billion. But your sales typically increase in fiscal Q3 and Q4 based on historical seasonality. So is this math right, and is this just conservatism given the recovery we're seeing? Thanks for taking the questions, guys.

Sure. The core is actually accelerating, so the growth rate in the core will be ramping and we now expect to end the year at mid-single digits in the core. A couple of things as we think about the remainder of 2021: core momentum is increasing. Veritor remains toward the high end of that 1% to 1.5% range, but it has moderated slightly as volumes have come down a bit since the last guidance, which offsets the growth a little. In pure dollars, Veritor testing and COVID testing are what’s impacting the totals. The bottom line is the good news is the momentum in the core, with COVID testing moderating slightly as we look into the second half of the year. When you put all those factors together, we are right where we said we would be on both the topline and the bottom line. On profitability, we are seeing some impact on Veritor as prices move more rapidly toward typical flu pricing, but that impact is being offset in the second half of the year. We remain within the guidance range on both top and bottom.

And keep in mind, Larry, that in Q3 there is a large amount of revenue associated with medical necessity in MMS, so that does create a small uptick.

On a year-on-year basis. Last year there was a very large amount, yes.

And stronger revenues for the second half of the year in MMS too for the pump revenues.

That's when pandemic was in its peak. Yes.

Thanks for the question. Next question.

Your next question will come from the line of Richard Newitter with SVB Leerink.

Good morning.

Hi good morning. Just maybe going to the tuck-ins that you've been executing on and I'm sure you'll get a little bit more into this when you have your Investor Day later on this year. But is there any particular asset amongst the five that you did year-to-date and I think you pointed to six last year? Anything that's more needle-moving or that will be contributing in your mind as we head into fiscal 2022? And then also how should we think collectively of what these might be able to add in terms of basis points to growth on top of that mid-single-digit normalized rate in 2022 just ballpark?

Yes. We view that as a form of innovation — both organic and inorganic — fueling the growth profile we’ve defined. Looking at the five deals we’ve done this year, and the six from last year, several are meaningful within our businesses. We’re really excited about the new catheter in BDI’s Peripheral Intervention business; it’s a great product for them, a breakthrough technology in a market that is growing much faster than the company average. The two acquisitions in MMS bring us into the non-acute medication management area, which is growing much faster than acute care medication management. As we’ve been clear in our strategy, enabling the shift of care into the non-acute sector is important to us. We want to continue our leadership in acute care while also leading the trend by building capabilities in the non-acute sector, and I think those two acquisitions will prove to be very strategic in enabling that. Both of those markets are growing in the teens, so they represent very positive growth. There are a couple we haven’t disclosed yet; as you can see on slide 13, we had shared that we have products like an infection prevention product. We haven’t launched a new infection prevention product for a while. Our ChloraPrep franchise and our commercial organization drive that product globally, and this will be a nice new addition to their portfolio. We’ll discuss it forthcoming, just as we did with Pristine — we acquired Pristine last year but didn’t announce it until we were ready to launch. We have a new vascular access product that we closed in the last month or so and we’ll be talking about that soon as we bring it to market. There are a number of different opportunities, all very relevant to driving our business strategy. All of these acquisitions participate in markets where we expect to grow faster than the BD average, and they are a core part of our growth strategy.

That's helpful. And then just looking forward, do we think of now that you're obviously grooming the portfolio a little bit with the diabetes planned spin-off now, do we kind of think of you guys as potentially moving up the size of the kind of the M&A target pool that you'll be willing to do going forward into 2022 and beyond once the spin-off occurs?

Yes. Richard, we're still very focused on tuck-in M&A. Obviously, for us as a company of our size, tuck-in M&A can be probably in a couple of billion-dollar range in terms of deal size, but we certainly are not looking to do anything on the transformational side of like a CareFusion or Bard-type size. And that's very consistent with the strategy that we've communicated. Could you see larger tuck-in M&A deals than what we've done to date? Yes, but they would still be tuck-in M&A.

Thank you very much.

Your next question comes from the line of Josh Jennings with Cowen.

Good morning, Josh.

Hi. Good morning. Thanks for taking the questions. Just one question on Alaris and one follow-up. On Alaris, a lot of focus there some great updates by the Becton team today. I was just wondering if you could help us understand, how much of a drag the Alaris mediation has been on the core business's organic revenue growth? And just thinking about coming back on board in the second half of fiscal 2022 and how to attempt to forecast that return might help just to understand what the drag has been. I mean, may be difficult to parse out just because the pandemic the medical necessity orders et cetera, but any help there would be really appreciated.

Sure. I'll turn it over to Chris to share some thoughts on that element. There certainly has been a drag and we've been investing. As we've shared, we have a team of over 200 people who have been working on that submission. They'll continue to be engaged in responding to any FDA questions, and obviously we'll pivot them toward innovation opportunities as we move forward beyond that as well. Another point on timing: if you look back, factually, over the last few years, how long has the FDA taken to clear pumps? The clearance time ranges from 161 days to 412 days, so call it 5.5 to 14 months. That's a little bit of the logic. While we're not predicting the FDA timeline right now, clearly the timing of approval within fiscal 2022 will have a meaningful impact on how we see the recovery and how much it contributes in 2022. As I mentioned before, as we get further in the review process we'll provide updates as we can. But right now we're saying it would be prudent, based on historical clearance timings as I just described, to think about clearance during the second half of our fiscal year 2022. Chris, maybe any comments on the drag it's been?

Just to give a bit of color on revenues: last year we had about $130 million in medical necessity revenues. We also had some non-medical necessity revenues earlier in the year, so total revenues were roughly $200 million last year. The run rate prior to that was around $450 million, so you can see the step down. This year we saw less medical necessity revenue, a little over $60 million in the first half, and that tails off in the second half. That creates a drag on growth from the step down, partially offset by some medical necessity revenues, but there was a step down in both 2020 and 2021. Looking at next year, we think it’s prudent to model the recovery in the second half of the year. It could happen sooner and we’ll work to make that happen, but prudent planning is to expect it in the second half. There will be some ramping, and the good news is we’ll get the full-year benefit of that in FY 2023; we do expect to see some ramping in the second half of next year.

Great. Thank you, Josh.

Thanks a lot. Pretty helpful.

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

Hey, Matt. Good morning.

Hi, guys. Good morning. Thanks for taking the question. So I just wanted to circle back on the spending comments and see if we could get some help on understanding how you're going to reinvest the Veritor profits over the next couple of quarters, the impact on the margin. So maybe the way to ask this question would be to start with how much of the $200 million have you spent already, or just to ask spending was about flat sequentially. Is that a good way to think about modeling the second half and getting to that low 20s margin?

So we did give some insights into the impact of that spending. We pointed out that many people don't realize some of that actually hits our gross margin, and there was a 70 basis point hit to gross margin in Q2. The way to think about the roughly $200 million in spending is that it is more ratable. We do expect some of that to ramp a bit, and we are not being precise about exactly how much was in each quarter, but there is more to come. That spending is putting pressure on margins, which is why our guidance for the second half is what it is. It’s important to keep in mind that the investment we’re making drives future growth and is not something that will continue to impact margins indefinitely. It is not going to repeat, and as a result it is suppressing both gross margin and operating margins this year.

Okay, okay. That's helpful. And then I want to ask one on the guidance slide that you have here saying that, you're assuming that the acute care-oriented businesses do not return to pre-COVID levels. I guess can you talk about how close they're going to get to that, or when you think they will return to pre-COVID levels, or just recent trends it sounds like April was a continuation of March. Anything like that to help us kind of triangulate how the recovery is expected to progress.

Sure. So we have seen some improvement in utilization in March for example and that continue in April. But as we said, we don't expect that to get back to the 100% level. It does get up into the 90s by the back end of the year. We're more in the 80s, high 80s now. So we expect that to start creeping back but not completely get back in the second half of the year.

And there are areas as we look at that maybe Simon – it's something we monitor very, very closely. We feel very good in terms of where we're – in all of our categories, particularly on the – all of our categories overall. But on the procedural side, we feel very good about our share positions and where we're trending there. So maybe Simon to comment what you see from a recovery because it does vary. We do have some areas that are at 100% of prior year today and some procedure areas that just take a little bit longer. Again, I think that's associated with the severity of the condition as it still opened up and it varies on geography as well.

Yes. So obviously, our European business was disproportionately impacted I think in the last quarter. But as Tom alluded to, we do track this every couple of weeks. We've done monthly surveys with customers. And sequentially, as I noted earlier on, it has improved across the two main businesses that are impacted PI and Surgery and some aspects of those businesses or some platforms did strike 100% of pre-COVID levels in March and that continues into April. As I noted earlier, hernia is one of those areas that's severely impacted early and recovers late. So that's a bit of a laggard. But in general, the procedures that are critical to health care are coming back. And not only do we see it in our numbers but the survey data that we gather from physicians and we typically survey about 300 a month, they are indicating that their volumes are rebounding. And obviously, patients that were put on hold are now going to start to come back over the next four to six months as well. So it's – we're in a reasonable spot.

Very good.

Thank you, guys.

Your next question will come from the line of Matthew Mishan with KeyBanc.

Hi, Matthew. Good morning.

Good morning and thank you for squeezing me in. First just a quick clarification. The revenue growth of mid-single digits for FY 2022 excluding Alaris and testing, obviously testing is like the negative. But is Alaris a good guy or a bad guy for next year? Because I think first half would be less medical necessity but then you have the timing of the FDA.

So we would expect that to be a net good guy.

Yes, a net good guy. So when we're doing that we're saying specifically excluding the COVID testing, which will get more clarity on as we go forward. And excluding the come back of the 510(k) from Alaris. So that would be incremental to that mid-single-digit core growth.

Okay. And then just your thoughts on Alaris' impact on the overall portfolio. Think of it like a Pyxis. Did it have a negative impact on the Pyxis? And when it comes back will it have a broader portfolio impact outside of just Alaris?

Yes. We have seen no impact. Of course, the customers have very, very broadly stuck with Alaris. Alaris is the market-leading product for a reason. We've talked about the percentage of infusions, particularly in the US that happened with Alaris and it's a tremendous number. And customers – we do expect the majority of customers to upgrade to the new product as we end up launching that, hopefully in 2022, as we noted is our expectation. So because of that we don't see any impact on Pyxis. Obviously, there is a great value that one gets from having the full BD enterprise medication management suite that allows you to do things like diversion analytics and other parts of our HealthSight platform to use data from not only dispensing but infusion, as well as our software that's in the central pharmacy. And so all of those things remain the case going forward and we think customers will continue to see strong value in that.

Thank you very much.

Operator, we'll take one last question.

Our final question will come from the line of Jason Bednar with Piper Sandler.

Good morning, Jason.

Hey good morning. Thanks for taking the question, squeeze me in. I'll just start with one on the spin and then I'll have a follow-up. Just on the spin what should we be thinking about for the balance sheet for NewCo? You mentioned NewCo has the flexibility to make investments and advance the strategy, but also seems reasonable that maybe some level of debt will transfer over to the Diabetes Care business. So are those decisions made, or will they still be kind of in-process? How to think about that?

Yes. No, those are decisions that will come as we move forward, and we'll provide more details on that closer to the spin date. We expect that the capital structure, together with existing cash profitability, will provide them the flexibility to pursue inorganic growth opportunities. We want to make sure they have that flexibility, and it will factor into the decision about how much debt they will carry.

Okay. Great. That's helpful. And then what's the right time line to think about for the at-home COVID test? I know it's still in development, but just timeline there. And then what's the right way to think about the go-to-market effort? We do have a proxy out there with an at-home offering that has an established price point. So do you come in at a similar level, or do you have a feature set that maybe justifies a higher price point?

As has been our practice, until we have the EUA in hand we do not project a specific launch timing. We have been very active in development on that program and it has been advancing well in our pipeline. Stay tuned; once we receive an EUA for that product you and everyone else will be among the first to know. We are taking actions to prepare for that channel, which we recognize is unique compared with our other channels, and we are preparing for the launch. We expect to be well positioned when we get the EUA and look forward to announcing it.

All right. Thanks so much.

Okay. Thank you, Jason.

I will now turn the call back over to Tom Polen for closing remarks.

Okay. Well thank you everyone for the excellent questions. And before we sign off I would be remiss not to wish, Vince Forlenza a wonderful retirement. And I expect that Vince is listening. Vince's last day on the BD Board was last week and I've mentioned in the past that Vince's leadership transformed BD. And I'm also grateful for the time, I got to work alongside him and for his mentorship. So on behalf of everyone at BD I just want to wish Vince all the best. And lastly, on behalf of the Board and the entire executive team I want to thank BD's 70,000 plus associates around the globe. Your efforts and sacrifices have not gone unnoticed. We are making great progress. We're making meaningful impacts for our customers. And most importantly, we are advancing care around the world. I've never been more excited about what lies ahead for us. For those who remain part of BD and for those that will ultimately become part of NewCo these are exciting times. And I hope everyone stays safe and healthy and thank you for listening today.

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