The operator welcomes listeners to BD's Third Fiscal Quarter of 2023 Earnings Call and informs them that the call is being recorded and will be available for replay. Francesca DeMartino, Senior Vice President of Investor Relations, then provides additional information about the call and directs listeners to the press release and presentation on the Investor Relations website. Tom Polen and Chris DelOrefice will provide highlights of BD's performance and updated guidance, and will be joined by the segment presidents for a Q&A session. Forward-looking statements will be made and listeners are encouraged to read the disclaimer in the earnings release and SEC filings.

Tom Polen discussed the 510(k) clearance from the FDA for the updated BD Alaris Infusion System, which has been a priority since launching BD 2025. He highlighted the product's features such as its ability to connect all patient modules into one integrated system, its medication safety software, and its integration into BD HealthSight. It also has enhanced cybersecurity protection, the latest wireless capabilities, and new features that enable various aspects of medication management.

Alaris is proud to have received clearance for their medication management system and are now focusing on bringing the updated system to the market. They have already taken action to contact their customers and have a dedicated team with daily stand-ups to ensure their customers get the best service. They have also invested in and developed plans to increase operational capacity and strengthen their supply chain. Finally, they are engaging with the FDA on how to execute their remediation plans and thank their customers for their loyalty and patience.

The BD leadership team expressed their appreciation for the BD associates who worked hard to bring the updated BD Alaris system to market with quality and in line with their values. They also thanked the FDA for their rigorous review. The strategy and purposeful investments in innovation are driving strong results and momentum, with 7.9% base revenue growth and double-digit adjusted earnings growth. They have also made strong progress in improving on-time milestones and launches. As examples of their recent launches, they introduced the BD Prevue II System, which magnetizes the tip of certain existing BD catheters and allows them to be seen under the preview ultrasound device, and the BD FACSDiscover S8 cell sorter.

This quarter, BD has launched several new products in the fields of flow cytometry, single-cell multiomics, clinical flow cytometry, and oncology. These products, such as the BD Rhapsody HT Xpress and the BD FACSDuet Premium Sample Preparation System, enable customers to uncover previously invisible information about cells and their interactions. Additionally, BD achieved several development milestones, including the 510(k) submission of the Site-Rite 9 Ultrasound System.

In the IDS and PI businesses, BD is expanding their BD Onclarity HPV franchise and TIPS-Venous Stent Graft respectively to promote health care equity and better clinical outcomes for patients. The company has also completed the divestiture of their surgical instruments platform and is reducing 20% of their SKUs by 2025, which strengthens their cash and net leverage position and supports their tuck-in acquisition strategy.

The macro environment is in line with the expectation that challenges will persist, but with uncertainty remaining. Inflation is moderating, and the supply chain has stabilized, allowing for a focus on reducing raw material and finished goods inventory. Procedure volumes are healthy, and the company's portfolio has been more durable. The 15th annual ESG report highlights progress in energy and waste reduction, health care access, and diversity. Achievements include a reduction in greenhouse gas emissions, an increase in the use of renewable energy, product recycling pilots, and a baseline assessment for Scope 3 emissions.

This paragraph highlights BD's commitment to health equity and creating an inclusive culture, which has been recognized through awards and recognition. They are continuing to focus on their BD 2025 goals, which are driving consistent performance, innovation, and growth. They are confident in achieving their FY 2023 guidance and their long-term targets for organic revenue growth and double-digit adjusted EPS growth.

BD reported strong base revenue growth of 7.9% or 6.3% organic in Q3, with growth across BD Medical and BD Interventional of 12.2% and 8.1%, respectively. COVID-only testing revenues were $8 million, and Life Sciences base revenues grew approximately 4%. Total company base revenue growth was strong in the U.S. and internationally, with high single-digit growth in the U.S. and double-digit growth in China. This growth was driven by investments in high-growth areas such as Vascular Access Management, Medication Management Solutions, and BD Pyxis.

Pharm Systems is experiencing 13 consecutive quarters of double-digit growth due to their capacity expansion investments and pre-fillable solutions. The Life Sciences base business is approximately flat, but the IDS business is having double-digit growth. Biosciences has high single-digit growth due to their clinical business and cancer reagents, while Research Solutions has strong growth in research reagents. Interventional segment is also experiencing strong growth due to their newer innovations in high-growth areas.

Phasix's hernia resorbable scaffold, Rotarex, and PureWick solutions for incontinence drove double-digit growth in the Surgery, Peripheral Vascular Disease, and UCC business units, respectively. Q3 adjusted diluted EPS was $2.96, including a gross margin of 52.6% and operating margin of 23%. Operating margin improved 100 basis points year-over-year, excluding an unfavorable 100 basis point impact from an employee benefit-related item. Foreign currency was a 50 basis point headwind to both gross margin and operating margin. SSG&A expense increased 4% year-over-year, and is expected to drive most of the full year margin improvement.

In Q3, the company drove 150 basis points of leverage in SSG&A, and R&D was normalized back to its expected full year average of 6%. Operating margin improved excluding the employee benefit item, and other income offset the employee benefit-related expense. In terms of cash and capital allocation, the company repaid over $1 billion in debt maturities, and ended the quarter with a net leverage ratio of 2.9 times. The company expects more progress in Q4 and is committed to enhancing their cash conversion and net leverage positions. They also expect to benefit from the net proceeds from the divestiture of their Surgical Instrumentation Platform.

The company is raising its base revenue guidance by 25 basis points to a range of 6.8%-7.1%. This includes increases in both organic and inorganic revenue growth. The Surgical Instrumentation divestiture is expected to adjust the updated base revenue growth guidance by 20 basis points to a range of 6.6%-6.9%. The company's segment-specific growth assumptions have not changed, and for COVID-only testing, the guidance only includes year-to-date revenues of $56 million. The company expects reported revenues to be approximately $19.3 billion, and regarding the Alaris 510(k) clearance, no changes have been made.

Alaris expects to ramp up their infusion business over time and begin recognizing revenue in FY 2024. Margins are expected to improve by at least 100 basis points for the full year and the effective tax rate guidance has been lowered to 13-13.5%. Adjusted EPS guidance remains unchanged, but there is a $0.02 negative impact from the divestiture of their surgical instrumentation platform and a $0.05 negative impact from the latest FX rates. The strong third quarter performance has raised the base business earnings forecast by $0.07.

The company is expecting double-digit earnings growth of 10-11.5%, driven by mid-teens base business growth of 14.5-16%. This includes absorbing another year of outsized inflation and the loss of COVID-only revenue. For Q4, they are expecting organic growth of 6%, SSG&A expense leverage, slight improvement in gross margins, and significant year-over-year margin expansion, which has been de-risked by 75 basis points.

Q4 operating margin is being driven by expense leverage, inflation mitigation actions, SSG&A expense reductions, and R&D moderation. For FY 2024, BD is confident in its ability to deliver against its BD2025 goals and has a strong portfolio and innovation pipeline to help it remain resilient. The clearance of Alaris has increased BD's confidence in executing its targets and, while it is too early to provide an expected revenue range for FY 2024, BD is excited to reengage with customers.

The company expects to ramp revenues back to $400 million over time, with a focus on replacing and upgrading pumps for existing customers. Alaris revenue is expected to be around $100 million, with a modest level of revenue above that, resulting in a 6% base growth. There will be a headwind of 30 basis points due to the lack of COVID-only revenue, and a 75 basis point impact due to the sale of the surgical instrumentation platform. The company is confident in its double-digit earnings growth profile of 10% currency-neutral EPS growth, with a reduction to earnings associated with lower COVID-only testing revenue and the divestiture impact, worth 125 basis points. The company is on track to reach its 2025 margin goal of 25%.

Tom Polen thanks the team for their efforts in bringing Alaris to a successful milestone. He then explains that Alaris is expected to contribute 50 basis points to growth in fiscal 2024, which would imply total Alaris revenues of $200 million. He then asks the operator to assemble the queue for the Q&A session.

BD 2025 has been the company's top priority since its launch. The feedback from customers has been positive since the clearance process began two weeks ago, and the company has been in contact with the majority of customers. The company expects to reach the $400 million mark over time, and has pre-bought materials for the clearance process. There are no near-term supply chain constraints, as the company is scaling up manufacturing to meet the market's needs. Finally, the company sees GLP-1 opportunities within its pharma portfolio.

Tom Polen and Dave Hickey comment on the performance of Biosciences and Pharma Systems in the third quarter. They note that Biosciences has seen strong growth and Pharma Systems has seen a phenomenal quarter. They also mention that they have added five to six times more capacity than their nearest competitor, which gives them an advantage in the large molecule markets. They mention that Biosciences has a broad range of customers, including academic research, biotech, pharmas, CROs, and hospitals.

Tom Polen answers a set of questions from Larry Biegelsen regarding the Alaris remediation and replacement plan. He explains that the 510(k) clearance replaces the CMN process and that the FDA will allow commercialization above $100 million for medical necessity. He also talks about the pent-up demand and the impact of removing Alaris from the market on earnings.

The focus of BD Medical is to prioritize existing customers to update or replace existing devices with the cleared version, with those with older pumps being the top priority. The relaunch of Alaris was a part of the BD 2025 strategy and will help to reach the goal of 25% operating margin by 2025. The margin impact of the relaunch of Alaris was 80 basis points and this will continue to come back as they go through the ramp period.

Mike Garrison and Larry Biegelsen discussed the impact of BD Alaris system on the company's earnings per share. They noted that the system is dilutive to GP at the BD level, but that investments will need to be made to help it grow. They also discussed the company's commitment to 10% EPS growth, which includes absorbing the divestiture and the further headwinds in terms of COVID-only revenues dropping. Finally, they highlighted the importance of taking care of customers and providing them with improvements to the cleared product.

Mike and Tom discussed the importance of upgrading and replacing their existing customers' devices to the cleared version with a focus on the older systems. They also discussed the advantages of interoperability, which can take a bit longer to implement, and the ability to innovate upon the cleared technology. With this new technology, they can continue to be the first in many areas of infusion, such as being the first company with a fully integrated system and the only company with a one system approach.

The speaker is addressing a question from Larry Biegelsen about the backlog of sales in the market due to the Alaris recall. He states that Alaris was doing around $400 million in run rate sales prior to the recall, and analysts have estimated the backlog to be anywhere from a few hundred million to one billion dollars. He suggests that customers have stuck with Alaris due to the value it provides, and the company is working on additional innovations to add to that value. He finishes by asking for a number to level set people on how quickly the backlog can come back into extra sales.

Tom Polen and Chris DelOrefice discussed the outlook for 2024 and the impact of the global pandemic on Alaris, which saw an increase in pump usage. They also discussed the 6% base growth they expect to see in 2024 and the need to replace or remediate some of the existing pumps in order to get approval.

Chris DelOrefice and Tom Polen discussed the process of remediation and replacement of pumps for customers, which is a complex process that needs to be done on a case-by-case basis. They also mentioned that they will be focusing on remediation and replacement of existing customers in the near-term. They also mentioned that they are engaging with the FDA on the combination of upgrades and replacements and will provide more information as they progress.

Tom Polen and Chris DelOrefice discussed the margin expansion they have achieved, with 400 basis points of outsized inflation and nearly 400 basis points of base margin expansion, putting them 70% of the way to their goal of 25%. They are confident in their ability to reach their goal in the next two years, but do not want to share specifics at this time. They want to balance their investment posture with continuing to drive outsized top-line growth while still achieving their margin goals.

Mike Garrison discusses the success of MMS in the quarter prior to Alaris clearance, noting that it is due to the value proposition of patient safety and clinician productivity, as well as the acquisitions of Parata and BD ROWA. He also mentions that they have changed their approach in the past few years to focus on innovation and dispensing, making it more connected and focused on controlled substance management.

Chris DelOrefice discussed MMS's success in the market and the use of flexible models, such as lease agreements, to help customers invest in the long term. He also noted that there are some timing dynamics that affect the exit rate of Q4 margins, and that they have de-risked the Q4 margin compared to the last guide. Mike Sarcone asked if there were any customer-side gating factors that could affect the Alaris remediation process, to which DelOrefice did not respond.

Mike Garrison discusses the key drivers behind the growth of Pharm Systems, which include the move towards biologics and the innovation of pharmaceuticals for treating a variety of conditions. He also notes that the technology is well-suited for the sensitive biological molecules used in treatments. He believes that customer ability to take time out to remediate or replace fleets will not be a significant barrier in the long run, and that the growth in the business should be sustainable through 2024 and the 2025 plan.

The pharmaceutical industry is driving demand for products such as prefilled syringes and self-injection systems due to a growing end-user population with conditions such as obesity, mental decline, and cancer. To meet this demand, the company has invested over $1 billion in capacity and is innovating in the high-pack syringe and self-injection systems markets. This will enable patients to administer medications subcutaneously from home rather than needing a clinician to do so.

BD is doing well in its self-injection business, with new innovations like the Libertas platform, auto infuser, and pen. These products are seeing strong demand, particularly for biosimilar insulins, and are helping to support the BD 2025 strategy. Tom Polen thanked the BD associates for their efforts, particularly with the clearance of the updated BD Alaris Infusion System, and looked forward to connecting with everyone again in November.

This summary was generated with AI and may contain some inaccuracies.