Baxter International Inc. (BAX) Earnings Call Transcript & Summary

Okay. Good morning, everyone. It's Amit Hazan from Goldman Sachs again with Jamie Perse and Phil Coover from my team as well. And we are off to the next presentation. We've got Baxter International here with us for the next 40 minutes. We've got Jay Saccaro, the Executive Vice President and Chief Financial Officer; and Clare Trachtman, Vice President, Investor Relations, as always. So first and foremost, Jay and Clare, I know these are very busy times for you, so we're grateful you could join. Thanks for joining us this morning.

Yes. Amit, thank you for the invitation to the conference. We appreciate it. Obviously, it's a different format, but certainly appreciate you inviting us to participate as always.

Yes. And what I'd like to do is maybe stay high level for a bit, and then we'll get to all of the fun recovery questions. And so let's start with thinking through the medium-range plan, the next 2 or 3 years. And I'm curious, it's been a few months now, and I would love to know what, if anything, has changed in your strategy or plans as a result of COVID?

Sure. I think there will be a couple of fundamental changes as a result of COVID, both to end market dynamics. But then also to how we operate as a company. As it relates to end market dynamics, I think the biggest long term -- mid, long-term factor that we will see relates to the desire of patients to stay in the home. We're seeing that around the world. We're seeing that as regular consumers, but then certainly as consumers of health care systems around the world, the notion of if you can conduct therapy in the home, it's something that patients will opt to do with higher frequency than perhaps previous. And so for us, that means a big structural tailwind for our renal business over the long term. Now how that shakes out in the short term, that's a different question. But longer term, this desire of patients to conduct therapy in the safety of their own home, I do believe this will be a prominent factor as it relates to our renal business at PD specifically. And so I think that's one element that we've kind of factored into some of our thinking. That's the largest long-term trend, I would say, that's sustainable. As it relates to how we operate, look, we have offices around the world and have gone, generally speaking, from 100% utilization or 90% to perhaps 5%. And so the adoption of technology to support that is something that we've really accelerated. I think, frankly, one of the things we're focused on is the digital transformation of our company, thinking about the back office, thinking about how we interact with customers using technology to facilitate those interchanges. All of this has been accelerated as a result of COVID. And so I think we'll look at the real estate footprint of the company. We'll look at our processes to see which are more conducive to automation and digitalization. And then also as we think about our sales processes, visiting hospitals has been obviously challenging for sales reps under the circumstances, and we've been forced to rethink some of our go-to-market model. So all of those things, I think, will feature prominently in perhaps some modifications to our long-term operational approach.

So we'll get back to a couple of these things. From a manufacturing perspective and supply chain, obviously, we've gone through the tariff now and now we get the buyers. Is Baxter evolving in the way you're thinking about regionalization or even domestication of the supply chain?

We will -- so we always look at the supply chain and we always look at optimizing our footprint. Now there are certain constraints in place where you want to have facilities located in the markets that they serve. And because otherwise, shipping costs become prohibitive, especially when you have lower revenue per pound products, many of which we have in our portfolio. And so there's always going to be some level of regionalization versus globalization of our manufacturing footprint. Having said that, look, we regularly evaluate. And yes, there may be some further opportunities to consider as a result of the pandemic, as a result of hurricanes. As we think about new lines and adding capacity, places like the United States are very interesting. We've talked about expanding PD capacity in the United States but certainly would look at other things as it relates to that.

And Jay, does that -- from a P&L perspective, does that necessarily imply an incremental cost factor that will play out or not necessarily?

Not necessarily. I think it will depend on the facility, depend on the product portfolio and depend on what you're trying to achieve with it. So it's really difficult to say whether that would carry a differential margin. Remember, U.S. is one of our highest profit markets because while we do have higher manufacturing costs serving this particular market, we are also seeing slightly different pricing and slightly different product profiles that allow for sort of some of the highest margins that we have at the company coming from the United States.

So you've got, obviously, prior to COVID, that you have this LRP out there of margin and EPS targets through 2023. Then we have the situation here in the current environment where visibility is more limited. Are you able to say whether those LRP targets where you thought you would be in '23 are still achievable in the right view right now?

Yes. We’ve said we've stopped commenting on the LRP. We stopped commenting kind of the middle of last year, in part because a lot of time had passed since we originally put out those targets. I think in light of COVID, it would be really premature to comment on anything further on the 2023 targets that are currently sitting out there. What I would say is we'll go through our long-range plan process. We had previously considered hosting an Investor Day in September, but we've canceled that. So we'll think about whether there's an opportunity at some point to share with investors updated long-term views. But at this point in time, I don't have any comment on the 2023 targets.

Yes. So one of the other things that caught our attention on the Q1 call was about hospital or customer changes in behavior towards inventory management given the current pandemic. And Joe had said that he expects stockpiling to happen in either by hospitals or maybe even governments. How much can you say qualitatively on what you're already experiencing or what you're expecting with regard to that?

Look, certainly, in March, there was some prebuying or sort of mini stockpiling taking place by hospital systems in advance of the pandemic. And I think -- look, I think governments over time, and I would say in the coming years, will really thoughtfully consider preparedness for the next pandemic, and that involves a number of the products that we sell. But it's very early days in terms of anything substantive on those discussions. As it relates to hospitals, it's a little different because hospitals are currently really stretched, economically speaking. And so the notion of adding large inventory levels to hospitals or hospital systems in light of the pressures that they're under, at least in the short-term, is unlikely. Now maybe that changes over time. But again, in the short term, I think hospitals are really trying to optimize cost structure and cash flow, which is something that they'll probably have pressure for the coming 6, 12 months before they could consider things like broader stockpiling.

Okay. So one of the other things that struck us on the call is you guys always sound extremely thoughtful in how you're thinking about probabilities for how outcomes might turn out. And so I thought I'd ask you a downside case scenario because it seems like you've got at least 6 scenarios, as you guys had mentioned that I know other companies probably do the same. But maybe just talk through your preparation for a downside case where we get something like a second wave of infections in the fall? And then just what incremental actions you as a management team would plan to take in that scenario?

Sure. There are really just a few different buckets of preparedness. First, you're right in saying we have looked at a lot of different scenarios. And frankly, given our approach, most of them are kind of downside scenarios, we've done that because, for us, we want to make sure that the operation continues to move forward in the right manner with no disruption under all different scenarios that we can imagine. So it's not like we spent a lot of time kind of modeling this whole thing goes away very swiftly, which we certainly hope it would. But as it relates to these downside scenarios, there's basically 3 areas of focus. One is the -- do we have adequate liquidity? Two is, do we have adequate inventory? And three is, have we thought carefully about the cost structure? Those are really the 3 levers to address as you think about preparedness for different negative scenarios that could emerge. As it relates to liquidity, look, we have ample liquidity and the balance sheet is very, very solid. I think -- but one of the things that we did in the first quarter was we did a bond issuance of $1.25 billion, just to shore up, really as an insurance policy, against a downside case. And this would be an extreme downside case where it would be necessary to access some of the funding that we raised. But we just felt it was prudent to be prepared for those kinds of scenarios. Now it's expensive insurance in the sense that the rates were a little bit higher than and what we would have done had we raised money a year ago. But like I said, we thought it was really the smart thing to do. A lot of companies are issuing equity in this time, I think, for very similar reasons. We chose not to do that. Equity felt more expensive than raising some 5- and 10-year debt. The second piece relates to supply chain. And so for us, there are critical products where, in a wave 2 pandemic or, by the way, in a hurricane season, we will want to ensure that we have adequate supply of in our warehouses and often time -- many of those warehouses are in the U.S. And so with respect to inventory planning, we will be carrying higher levels of inventory than we might normally carry going into the second half of this year. In areas like our acute business, that will be a key one. Some of the premix injectable drugs, we want to make sure we have adequate supplies of. So we will go through. And for those areas where the utilization in the pandemic would be highest, we will make sure that we have as much as we can, recognizing that, as we commented previously, in the first quarter, we were seeing some levels of demand that were unprecedented. And unfortunately, we could not fulfill those levels of demand fully. So we'll try to do the best we can on that front. And then third is cost structure. And I think as we think about rolling into the second half of the year, we'll be very cautious with discretionary spending. We'll be very cautious with travel and consulting and all of these different categories of spending to ensure that we have enough support and an efficient enough cost structure that supports us as we move forward, recognizing that in some of the scenarios, you obviously can't fully offset the negative cost impact that will materialize. You want to be thoughtful about being as efficient as you can be. So those really are the 3 planning areas that we've been working on in relation to some of the downside scenarios that could emerge.

Just following up on that, on the first point, so yes, you've got one of the cleaner balance sheets in med tech. You've now strengthened your position, but obviously, you kind of described what the environment was probably like for you as executives back in February and March. So I'm wondering, and this will get us into some of the recovery aspects. But I'm just wondering if kind of a strategic standpoint at this point, now that we're a few months forward, how much visibility do you need to start to allocate capital to either M&A or share repurchases?

We will need a few more months clearly before we think about share repurchase. We'll need some real signs of stability. On the M&A front, when you -- the assets that we are primarily focused on are assets that are accretive to ROIC in the very short term. And so there are strategic tuck-in acquisitions that really take advantage of a real capability that we have or a sales force that we have or a manufacturing facility. And so if you're doing those kinds of transactions, you can be confident that by deploying a few hundred million dollars, it will start to cash flow relatively soon. So we have not hit the brakes on M&A, particularly M&A of that nature. Now under the circumstances, we would be harder pressed to do a larger sort of third leg-type transaction because the returns on those are more difficult, more challenging, and the risk profile when you deploy that level of capital and that level of coordination and intensity is certainly different. And so on the M&A front, we would do some M&A, probably smaller things, in the few hundred million dollar range. And I think we have adequate confidence that we can support that. But on the share buyback side, look, there will be a time for share buyback. But it's not this moment in time. We'll want to see because, frankly, there is still a lot of volatility in the market today and a lot of uncertainty around how things could emerge. So for those reasons, I think we're being really cautious about how we deploy capital.

Okay. In terms of the interest level in different adjacencies, if you will, just given your answer to my question about the 2- to 3-year outlook, is it fair to say that your interest level in products or categories that involve patients moving to the home is higher than it was at the beginning of the year?

Certainly, as we think about M&A targets, I think that that's definitely a factor. It's a macro trend, I think, we'll experience for many years to come. And so this movement to the home definitely accentuates that as a focal point for therapy. So we'll continue to look at targets in that area and perhaps have some more confidence in their ability to grow when we put together the financial models.

So let's get a dive into the divisions. It's, I think, what a lot of people are hoping to hear an update on. And let's start with Renal, your biggest division, and PD at home, if we maybe start there. In 1Q trends, you saw good growth, up 13% in the U.S. But you cautioned that that's going to slow due to some challenges around the catheter insertion during the lockdown. And maybe just if you can, give us an update on how meaningful that pressure has been? And if you can give us a qualitative sense of whether new starts have recovered at all?

Look, I think in terms of sort of mid-quarter updates, it's something that we always avoid doing just because we give guidance 4x a year to give guidance 12 or 14x year in terms of how things are going. And I think it's just -- it's a challenge for us to do that. What I would say is, look, Renal, this is a steady dynamic over the long term. And so we have seen -- at this point, I can't point to a changing dynamic in terms of broad new groups of patients choosing to elect to conduct therapy in the home. But I can tell you that this will be something that will really be thoughtful about marketing and working closely with nephrologists for a lot of different reasons. I think this will be a macro trend that we see. But look, there's choppiness in all parts of the portfolio in the short term, good or bad, as a result of coronavirus. And the signal-to-noise ratio is very challenging to ascertain. So I don't really have anything further to comment. Clare, do you want to add anything in terms of what you said about catheter insertions?

No. I mean, I obviously -- as you said, Jay, this is something that, in the beginning, there was a little bit of confusion around whether it was elective or nonelective. It was deemed that it was a nonelective surgery. But beyond that, there's also just the impact of patients potentially delaying seeing their doctor. And so a delay on new patient starts. Longer term, we do think that COVID actually, as Jay referenced earlier, will support the shift of patients towards the home. But in the near term, as we mentioned on the first quarter call, this could impact just overall patient volume growth. But longer term, it will support growth ahead of ESRD patient growth overall.

And just to put some context behind this, understanding you don't want to comment into quarter. In terms of just how much growth in home PD is actually driven by new patient adds, if I'm not mistaken, the average therapy time is maybe 2 or 3 years. And that statistic alone would suggest that there's a pretty healthy percent of the total population that are new patient adds on an annual basis. Am I thinking about that right that way?

No, you are. I mean, the patient population is replaced every 2 to 3 years. So you have maybe a little north of 10% perhaps coming on, on a quarter and a similar amount dropping off, maybe slightly less than that, given the consistent growth that we've seen in patients over the last several years.

Okay. Let's move over to the dialyzer side and production capacity. You've talked about adding dialyzer capacity. Are you able to give us a sense of how much incremental supply you plan to bring online and when that would be available in terms of time lines?

Yes. So maybe I'll make some comments and then turn it over to Clare to add a little bit to this. One of the real exciting areas for us in relation to hemodialysis relates to the THERANOVA dialyzer. This is one where we're excited to hopefully get approval and differential reimbursement starting in 2021. And what that would allow us to have is differential reimbursement for a 2-year period. And so in support of that, we've talked about adding some capacity for THERANOVA dialyzers and perhaps converting some capacity. And then longer term, the real question will become what do we -- what kind of data can we generate to support long-term adoption of this therapy and long-term differential reimbursement? Because the window that we're talking about is 2 years, potentially, there's a third year that's added on. But for us, we are very excited about the outcomes that can be generated by THERANOVA and how it can make a real difference for ESRD patients. And so in that context, we think there's a great long-term opportunity. But you can't build against that until you have data and line of sight that says long term, you think that it's a very substantial market opportunity. In the meantime, you have to be more measured in terms of the amount of capacity that you add for this important new therapy. Clare, do you want to add anything in terms of specific amounts that you've communicated?

So yes. I mean, this will ramp over time. And in the near term, Amit, as Jay was saying, we aren't actually adding any incremental capacity. What we're doing is just shifting capacity from our Revaclear dialyzers over to THERANOVA. We're going to do this in a measured pace. And as we get more data to support it and more of a clear path on what the future holds from a regulatory and reimbursement standpoint, then we will then look to add incremental capacity, whether it's aligned within an existing facility or something beyond that. But in the near term, we're just talking about converting over existing capacity to THERANOVA, which we'll start to do in the second half of this year.

Are you still expecting the add-on payment decision to come through this year?

Yes. I mean, we are anticipating that it comes either as part of the proposed rule, ESRD annual rule, which comes typically in the July time frame or as part of the final rule, which is typically issued in November for implementation in January of the following year.

Okay. Just -- let's move on to the AAKHI proposal. And first, if you want to tell us about any progress or momentum that you're seeing, we'd love to have it. But I'm also kind of even more curious about your preparation in Phase I, how much your -- how much more capacity you're planning for next year already and kind of the Phase II demand 2 to 3 years down the road? What you're thinking about capacity needs there and what you might already be investing for?

Sure. So there is -- it's really -- you framed it well because there are a couple of different -- from a capacity standpoint, there are a couple of different phases for this in the sense that there is some reallocation of capacity that can take place from other markets. But then also, there is some additions to existing facilities that can take place to support continued patient growth over time. Now you got to this a little bit earlier on in terms of new patient starts as a percent of total. The nice thing about Renal is it's a fairly steady growth business even if you are going to meaningfully increase penetration. And we've talked doubling penetration levels over 7 years. And who knows, it could be -- that could be conservative in light of the pandemic that we've seen here in terms of patients' desire to stay home. And it could be aggressive. It remains to be seen. But we are really optimistic about this area. The -- so in that sense, what we want to be able to do is support continued steady growth of patients over time. And so what that means is, for the coming several years, additions to existing facilities and reallocation to support that patient growth. And that's really what we've earmarked in our 2020 capital budget to support that kind of patient growth in existing facilities with investments. And then over time, as we see line of sight to these solid cases in terms of number of new patients emerging, then you start to put together the plans for an additional facility in the United States. So that's not something that we're really spending on to date. Some design thinking, some thinking about where you put it, when and so on. But we have -- we will have capacity in existing facilities with capacity expansion within existing facilities, I should say, to support continued patient growth for the coming years.

So let's move on to medication delivery, and let's start with IV Solutions. And this was -- it's still on protective allocation for the first quarter, and I recognize you don't want to give inter-quarter updates. So maybe the way to ask this question is to just think about utilization, generally, and how correlated IV Solutions are as purchases with hospital utilization, generally, if you've got a sense whether it's impacted by underlying utilization and maybe that will help investors think about how to properly anticipate the next few quarters for IV Solutions?

Sure. There definitely is a relationship between utilization of hospitals and our medication delivery and specifically, the IV portfolio. To the extent that people are not in hospitals or to the extent that people are not conducting elective surgery, there's some IV utilization associated with elective surgeries and there certainly is IV utilization with actually patients being in hospitals. So that's one. As we look at modeling out the next couple of quarters, that's one important element that we consider and we carefully sort of assess and predict as we think about our internal modeling.

Are you able to give us a sense, from a proportion standpoint, just likely, roughly speaking, IV Solutions associated with elective procedures?

Clare, have we said anything about that publicly?

So we have not said specific to IV Solutions. What we've said is about, if we look across the Baxter portfolio, it's probably 10% to 15% of our portfolio is tied to elective surgeries. I would say, with respect to IV solutions, it's probably slightly towards the high end of that range, maybe even a little bit higher, maybe 15% to 20% or somewhere within that range.

Okay. That's helpful. And on the pumps and the sets, you saw strength in the first quarter. And here, it'd be great to just hear your kind of reaction to what the hospital purchase environment is like and how hospitals are viewing pump purchases right now inside of their capital budget?

Sure. I think pumps are an important part of hospital capital budgets. So I do think this is a bit of a differentiated capital spend relative to other areas. So that's a good thing. At the same time, though, I think one of the big wildcards we're looking at over the course of this entire year is what kind of pressure do hospitals come under? I mean, really, there's 2 factors, right? In the early days, it was the pandemic burden and the preparation that hospitals were undertaking. And -- because, frankly, if you're preparing for a pandemic, unless you need a pump for an incremental bed, you're certainly not going to swap out your pump fleet to upgrade as you prepare for pandemic. So that's piece one. And that was early days, and that's a wave 2 consideration as we think about if there is a resurgence in the fall, what kind of impact that could have. I think the broader issue for hospital capital suppliers and the good news for us is it's not an enormous part of our portfolio. And I do think our capital is a bit differentiated. What happens in the second half of the year related to hospital capital budgets? How intense is the pressure? How -- what is the economic strain that these institutions are under and how do they respond? I don't have an answer at this stage. And nor do I have a good line of sight. And I think we're going to have to look at this under a whole host of scenarios because there's a lot of different ways this could manifest itself. If the recovery is a sharp tick back, it's very different than a sustained slower recovery for hospitals. And I think their approach to capital spending will vary depending on the pace of that recovery, how many patients return, how many elective procedures return. I think those all become critical inputs to the economic vitality of hospitals around the United States and into other markets.

The other aspect of this that's quite interesting and continues to evolve is the competitive landscape. When you actually came into the year and we were thinking of you as a share taker with your competitor having some issues and you having a broadening portfolio. And then COVID happens. And so I'm interested to hear how much you can talk to whether that competitive aspect is now off the table for some time? Or whether your position still that you feel you'll be able to take more share than whatever it is that you were pre-COVID in releasing new products?

I don't know that our perspective on the opportunity has changed that much. At the beginning of the year, we felt really good about the pump platform that we've put together, the large volume pump, the syringe pump, we're targeting approval in the second half of the year. And we're excited for the first time to have a consolidated offering for our customers that allows them to solve multiple problems with 1 platform, from 1 company, from Baxter. And so we're really excited about that opportunity over the long term. And I think we've seen some share gains over the last several years, and we will expect to continue to share gain for the coming years as a result of the strength of that platform. There were 2 things that kind of sort of changes the view. One is you have a competitor that has some challenges. And one is that you have this pandemic. I think both of those are kind of short-term factors, and we'll see how long the challenges for our competitor persists. But at the end of the day, this is going to be -- it's a long-term sell for hospitals. They're willing to be patient with respect to making this critically important decision. And so like I say, our perspective on this over the long term really has not changed because of the strength of the offering that we have. And yes, maybe you didn't get into hospitals like you hoped perhaps in March of this year, and maybe hospitals have some capital pressure that forced them to slow decision-making a quarter or two, fine. The reality is we think this is a great long-term opportunity for the company, and there will be some perhaps noise in the short term.

So let's talk about acute for a minute. Obviously, extremely strong because of COVID. And you talked about demand being multiple times what you can produce, I think, is what you guys said on the last call. And so maybe some clarification on whether that's actually on the machine side or the filters in the set? And then more importantly, how fast have you been? Or are you able to expand manufacturing to meet that demand?

Yes. So clearly, we've seen substantial uptakes in terms of order patterns in this area. And why is that happening? Well, there were some studies indicating that 15% to 30% of COVID patients in the ICU required some form of CRRT or emergency dialysis. And so in that context, this is a great therapy. And we're seeing -- like we said, we've seen 5x orders for new machines for solutions, really, in different areas in the portfolio. And so what we've done is we are running as fast as possible. We set up a sort of air freight opportunity. We established that a little while ago to get -- while the crush was on in the United States to make sure that we were getting adequate product to the U.S. And so we've been able to address some of that. But it's -- when you have facilities that are running pretty much at 90-plus percent utilization, your degrees of freedom in terms of supporting and addressing a market need, the likes of which we experienced, are to some extent limited. Now what you can do is you can build and prepare for a wave 2 in the fall so that perhaps you have a little more inventory at hand. But like I say, when you run -- the vast majority of our manufacturing network is running in the 90-plus percent range. And so in that context, it becomes challenging to really support some of these crucial and critical and acute needs that emerge.

I was actually to say that the backlog remains very high. And you've kind of -- if we're thinking about kind of where that normalizes or where your manufacturing catches up, it clearly hasn't happened yet or it's -- is it months, quarters ahead of us? How long before we kind of get to more of a normal state of supply and demand?

A lot of this will depend on what happens with the wave 2 and then what happens with preparedness going forward. And so it's really hard to say in terms of predicting inventory levels in this particular product area.

Okay. Let's touch on Advanced. We've got about 5 minutes left. I can hit a couple of other areas and Advanced Surgery is obviously one area where you actually had a headwind. And so here, just maybe to frame it, you talked about Baxter sales, in total, still growing in the second quarter. And Advanced Surgery is, obviously, one of these that are dragging you the other way. And so as it relates to that comment, are you able to talk to the rate of surgery declines that you were contemplating when you made that 2Q comment?

Clare, what do we say in the -- what have we said publicly regarding that?

So what we said -- I mean, that the vast majority of Advanced Surgery products are tied to elective surgeries, and we did anticipate that really for April and most of May, that you would see elective surgeries basically kind of being down significantly, really no elective surgeries during those time periods and then slightly rebounding towards the end of May and into June. So that's kind of what we had based our guidance on at that time with respect to elective surgeries.

So if we take the rest of med tech, really, I mean, it's been almost unanimous. Not unanimous, but almost unanimous, that most companies have come out and said that traction so far this quarter has been better than they expected. I don't want to push you because I know you're more conservative on how do you talk inter-quarter. But if we just take that, is there any reaction that you have to that? Or anything you can talk to from just the recovery of elective procedure perspective?

What I will say is the reason we essentially took guidance off the table is because of the very significant level of volatility we see from week to week, month to month. And for that reason, we basically said, look, it is premature for us to give guidance and there are too many inputs where there's a lot of volatility. Hospital admissions and utilization, elective procedures, pressure on capital budgets. All of these things are complete wildcards and they change substantially on a week-to-week basis. And so what we like to do is look at it over a little more of a trended period of time and gain some confidence before we start making statements around, "Oh, this week is growing. We're seeing surgeries pick up in Arizona." So we think that's a great -- we're -- for us, it's a much more holistic model than that, that we're thinking about. We're thinking about things in terms of what is -- what are some of the markets outside the U.S. doing? What can they tell us about what the future holds for us here in the U.S.? So a lot of different factors in play, which is why we resisted commenting on discretionary procedures in the short term, because while that's a good data point, that's not -- I don't think that's a relevant metric in the sense that I think things like prevalence of COVID becomes one of the more relevant metrics to watch versus whether some hospitals are getting more aggressive about discretionary procedures in the short term. So for all of these reasons, we said, look, guidance is off the table, commentary around short-term dynamics. It's really more noise than signal at this stage.

So 2 minutes left. Let me go to operating expenses. And just to get your thoughts on the $150 million in incremental expenses you're expecting for the year. And maybe the most helpful thing, I think, for investors would be just to hear you talk about the cadence of those expenses potentially coming off. You've expressed a lot of confidence that those can be mitigated when -- as the virus subsides. And so how do we think about just the cadence of that $150 million coming off of your P&L?

Yes. I think it's -- first of all, we have to -- you have -- the virus has to subside. Once that's occurred, then I think you'll have a couple of quarter lag, perhaps 1 quarter lag, something like that, beyond that. And these costs will start to come out of the P&L. Because remember, what do these costs relate to? Well, for example, if a manufacturing employee, we're seeing higher absenteeism as a result of coronavirus. And as a result of that, we've had to hire temp workers to offset. Or we've had incremental payments for manufacturing workers who don't have -- for example, they have kids at home and they have childcare expenses. We have incremental freight costs related to air shipping and expedited shipping. So a lot of these expenses will naturally go away. And then our job is to manage this as close to 0 as we can once we're confident that we're past the peaks and there's no wave 2. And so what I would say is, at some point in 2021, run rate should be addressed such that the majority and perhaps the vast majority of these expenses are no longer resident in the P&L. But some of that will depend on what happens with further outbreaks.

So we are out of time. We're going to leave it there. Jay and Clare, I just want to emphasize again how grateful we are that you're able to join us. I know it's busy times over there. So we wish you all the best today and for the rest of the year here as you work through this stuff. Take care, everyone.

Yes, thank you very much. We really appreciate it, Amit.

Thank you.