美國雅培 (ABT) 2002 Q2 法說會逐字稿

Please stand by, we're ready to begin. Welcome to Abbott Laboratories conference call. This call is being recorded by Abbott. With the questions and answers it is materially copyrighted by Abbott. It cannot be recorded or rebroadcasted out Abbott's permission. If you become unintentionally disconnected, please dial back in. For opening remarks and introductions I will turn the conference over to John Thomas, divisional vice-president of investor relations.

Thank you, good morning, thanks for joining us. Also on today's call will be Tom Freyman, our chief vice-president and chief financial officer and Cathy Babington, vice-president investors relations and public affairs. Tom will review the first quarter financial results and provide the financial outlook for 2002. Cathy will discuss performance of the pharmaceutical products group and I will discuss the group. Some of the comments that will be made today are forward-looking statements for purposes of the private securities litigation reform act of 1995. We caution these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements due to factors that we have identified in Exhibit 9.1 of our 2001 form 10-K. In our periodic reporting on form 10-Q that Abbott files with the Securities and Exchange Commission. We undertake no obligation to release any provisions to forward-looking statements as a result of subsequent events or developments. With that, I will turn the call over to Tom. Tom.

Thank you, John. Good morning, everyone. Regarding second quarter results diluted earnings per share were 49 cents excluding the impact of one time charges meeting first call analysts consensus estimate, sales increased 5.3% in second quarter. Foreign currency had an unfavorable impact of 1% so sales were up 6.3% before exchange. Worldwide sales of pharmaceuticals and strength in the U.S. and hospital products division drove the increase. During the quarter we reported two previously forecasted one-time charges. The first charge of 108 million dollars or five cents per share reflect [inaudible] research and development related to the acquisition in the biocompatible business and electronic alliance. Second charge of 129 million dollars or six cents per share is associated with the consent decree. This represents a significant portion of the estimated 140 million dollar charge related to the consent decree that we previously forecasted and it's consistent with our previous guidance. The remainder of the estimated charge will be incurred in the second half of 2002. Excluding one-time charges gross margin was 52.8 percent this is .9 percentage points lower than 2001, also adjusted to one-time charges due primarily to sales mix in pharmaceutical business. R and D declined 4.5%. This resulted primarily from the timing of spending programs in pharmaceuticals. For the year R and D expense is projected to increase in the mid single digit and be at least 9% of sales. SG and A was up more than 3% overall and was up more than 5% excluding one-time charges for the 2001 base. This was due to impact of strategic initiatives such as increased marketing and promotional spending and sales force expansion programs across the division. Net interest expense of 52 million dollars compared to 68 million dollars in 2001 was down due to debt repayment and lower interest rates. Our share of the TAP joint venture income was 177 million dollars, up 11 percent. Solid growth of Prevacid and Lupron contributed to this increase. Tax rate was 24.5%, consistent with previous guidance. We project the same tax rate for the remainder of the year. Excluding one-time charges net earnings were 771 million dollars, up more than 9% from the prior year also excluding one-time charges. We had strong cash flow in the first six months of the year. Pre-cash flow defined as operating cash flow less capital expenditures and dividends was more than 900 million dollars before funding acquisitions. This includes the fact that our quarterly dividend rate increased 11.9 percent and dividends paid of 694 million dollars, increased 12% in the first six months compared to 2001. In the second quarter we funded acquisition of the biocompatible stent business and the purchase of most of the remaining outstanding shares of Okoriku utilizing around 500 million dollars of this cash flow for these transactions. The remainder was used to pay down the debt and build cash reserves. For the full year 2002 we anticipate sales growth in the low double digits. We're confirming full year diluted earnings per share guidance of $2.06 to $2.10, excluding one-time charges. If we were to achieve in the middle of this range, this would reflect double digit growth in ongoing earnings compared to 2001. We plan to continue to pay down debt and build cash reserves with pre-cash flow. We're providing for the first time earnings per share guidance for the third quarter of between 37 cents and 39 cents for ongoing results. We're projecting a pickup in sales growth in second half of the year with third quarter growth in the mid to upper single digits and double digit growth in fourth quarter. This is driven by underline growth in pharmaceuticals including Kaletra, Tricor, Volmax, Advocateria, Placeltaxels as well as the launch of new products. We have added almost 900 sales reps in our domestic pharmaceutical business since last year. In summary I know investors are disappointed with our change in earnings guidance last month. However to put our performance in perspective, based on our forecast we will be achieving record sales, earnings and cash flow from operations in 2002 with double digit growth in sales and earnings. Cathy and John will now cover the business and operating highlights.

Before we begin reviewing the operating divisions, I would remind you the key product sales numbers are now in earnings release and I will not reiterate those. Also as we've done in the last few quarters we will discuss each Abbott international operating business with the related U.S. operating division. So with that let me begin with the pharma business from U.S. Domestic pharmaceuticals delivered another good quarter. Second quarter sales increased more than 11% largely as a result of strong growth in many of our core therapeutic franchises. I will cover HIV and anti virals first and that continues to be driven by strong sales of Kaletra. Kaletra continues to gain market share and is on track to become the number one prescribed pronase inhibitor in the United States by the end of the year. In our U.S. and Tai franchise Omnicef performed very well in the quarter with growth in excess of 50% for the ninth consecutive quarter. This makes Omnicef the fastest growing oral suspension on the market, and we believe it has the potential to become the No. 1 prescribed oral suspension. Biaxin's sales were down during the quarter due in part to the moderate flu season and continued competitive pressure from quinoline class. We continued to work on a number of strategies to enhance the Biaxin brand. In our U.S. neuroscience franchise it continues to be led by Depakote. Sales are down this quarter compared to last year but year-to-date total prescriptions are up about 4% indicating increased demand as we head into the third and fourth quarters. Depakote continues to be a leading in neuroscience. At American Psychiatric Association meeting in May new data was presented on Depakote's use of bipolar disorder as well as in the new growth areas of schizophrenia and borderline personality disorder. In June we received approved for Depakote ER 250 milligram formulation which in combination with the previously approved 500 milligram strength allows physicians to increase flexibility and improve quality of patient care. In addition, we recently submitted the ER formulation for an adult epilepsy indication, and we continue to look at an indication for bipolar disease in pediatric patients. These are areas of new potential for Depakote. In the U.S. cardiology and neurology franchise sales of Volmax, market leading BPH drug increased more than 45% during the quarter. Volmax continues to gain share of the PBH market and now accounts for nearly 50% of total prescriptions. Tricor continued to perform well with sales up nearly 50 percent in the quarter. Conversion from the capsule to new tablet formulation we launched in fourth quarter last year is now at nearly 100% and just as a reminder, the tablet has an indication for raising HDL or good cholesterol as well as indications for lowering triglicerides and LDL and with better bio availability at the lower dose. With Tricor's unique cholesterol reducing profile we expect sales to grow in excess of 50% for full year 2002. [Inaubidle] inhibitor continues to become one of the fastest pharmaceutical sales in the quarter grew more than 70% compared to the second quarter a year ago. In U.S. metabolic disease franchise, Synthroid's sales declined more than 7 percent this quarter versus last year in line with our expectations based on FDA mandated phased-out distribution schedule. On the regulatory front our expectation continues to be at 12-month review for our Synthroid NDA and we expect to have adequate supplies of the drugs to meet patients' needs during the remaining review process. Let me also give you an update on Meridia. As you are aware at the end of June Europe CPNP issued a positive opinion reaffirming the favorable risk benefit profile of sebutramine for the treatment of obesity. We believe CPNP conclusion should reassure physicians and patients around the world that the product is safe and effective when used as directed.

At the start of the year we had high growth expectations for Meridia globally. Due to negative publicity prescriptions and sales slowed substantially during the second quarter particularly in U.S. As a result as many of you know we recently tempered our growth expectations for worldwide sales to just about 300 million from the nearly 400 million we had originally projected. I will give you an update on a few compounds in our development pipeline. First, I would like to cover a final decision we made on ADT 773, our Kedolyte antibiotic in phase three development. As a result of concerns with competitive Kedolyte antibiotic product it has become very clear to Abbott that very significant additional clinical work would be necessary to successfully complete development of this compound. Although clinical data completed to date on 773 are encouraging, we've evaluated the magnitude and duration of the additional work necessary as well as the additional investment required and we've concluded that the return on investment in the U.S. and Europe was higher in other late stage drugs such as Atroset as well as expanded indications for D2E7 and we remain confident that ADT 773 is a viable and new effective antibiotic treatment, we will seek a licensing partner in the U.S. and Europe, although we will not independently advance the compounds in these regions of the world. In Japan where phase two clinical industrials on ADT 773 are in progress we will continue to support the development of the drug by our partner Taisho. Recent decision does not at all change Abbott's long-range growth forecast for global pharmaceuticals. Lastly, I comment that we remain committed to the infectious marketplace where Abbott has been a leader for 50 years. We continue to develop new strategies for renewing growth of Biaxin and Biaxin XL and we're extremely pleased with the rapid growth of Omnisef, one of the leading world's suspension products on the market. For the future we continue to be encouraged with the development of ADT 492 which is our quinoline antibiotic which is in phase two development as well as early developmental programs and HCB and HIV. Now I will turn to a couple of other updates with some other important pipeline products. As you know, we've committed D2E7 for regulatory approval earlier this year and our application has been officially filed for review by the FDA. Behind the rheumatoid arthritis indication D2E7 holds great promise as a treatment for other conditions as well. We expect to begin phase two trials for Crohn's disease and juvenile rheumatoid arthritis in the next few months. We're also testing D2E7 for psoriasis and psoriatic arthritis and expect to begin enrollment for these indications by the end of this year. In addition, we presented data at the recent ASCO, American Society of Clinical Oncology, on Atroset and our phase three prostate cancer treatment and in addition to prostate cancer preclinical studies August that Atroset may be able to play a role in other cancers including ovarian, renal, lung, colorectal, brain and breast cancers. Phase two trials in these cancers as well as studies of Atroset in combination with other agents for advanced prostate cancer are in the process of being initiated. Next I will turn to international pharmaceuticals. Sales grew more than 7% before exchange and 4.5 percent after exchange compared to the second quarter of last year which included a full quarter of noel. An anti ineffective, clarithromycin sales were up more than 2% before exchange. We continue to launch our once daily XL formulation into new markets including most recently Spain and Italy. Conversion to the once daily formulation has gone well in the countries where we've launched it. In anti viral Kaletra has strong international sales during the quarter and it's become the number one pronase inhibitor in many countries in Europe and throughout the world much faster than projected. Our international rollout continues to proceed on schedule and we just recently launched in Australia. Percentages: International sales were up slightly for the quarter with year to date sales up more than 40% before exchange versus the first half of last year. In addition Synalgos received approval in Canada during the quarter. Although the drug has been available in Canada since 1998 under a special access program, the approval will now allow us to more market the drug and expand our reach within this country. With the approval in Canada Synalgos is now available in virtually all major markets worldwide.

Then I just wanted to comment on Reductal and take a few minutes to discuss how the CPNP opinion in Europe impacts this drug which is sold as Reductal internationally and Meridia in U.S. CPNP positive opinion represents the outcome of a rigorous scientific review of data by 15 European member states. The decision was supported by an extensive analysis of data provided by Abbott that included more than 100 clinical studies dating back to 1989. As a result of the analysis, the committee concluded that the risk benefit profile of Sibutramine remains positive and unchanged from its original assessment. As this outcome is binding for all members, Abbott is working with the Italian ministry of health on a timeline to return Reductal back to this market. In addition, we continued to expand Reductal presence internationally with successful in launches in several countries in the Asia Pacific region. CPNP positive opinion is consistent to the conclusions of Abbott's top scientists as well as industry experts. It also helped to underscore that obesity is a serious medical condition and that this drug is a safe and effective treatment. Clinical studies indicate that Sibutramine in combination with diet and exercise have proven effective in producing and maintaining weight loss of 5 to 10% in the majority of obese patients studied. Obese patients throughout the world who have been unsuccessful with diet and exercise alone can continue to depend on this drug to help them lose weight and maintain their weight loss.

Now, I will turn to TAP. TAP sales increased during the quarter positively impacted by mid single budget growth in both Lupron and Prevacid. I will cover Prevacid first. Pronase inhibitor market has been exhibiting strong prescription growth this far. As we announced last quarter Prevacid remains the most PPI for new prescriptions as well as total prescriptions and despite increased pressure from competitive products, Prevacid has been able to maintain its market share during the quarter. Prevacid is the PPI with the broadest claim structure, highest healing rates, fastest on-set of action and more administrative options including an oral suspension and a pediatric indication, which is now under fast track review with FDA. TAP expects that the pediatric indication and Prevacid's unique ensid induced ulcer indication will each have the potential to provide good sales growth opportunities. In addition, TAP will begin conducting two head to head studies this year comparing symptom relief and healing rates between Prevacid and Nexium. We anticipate that the studies will confirm results from previous studies, that is, that Nexium offers no clinical benefit over Prevacid. TAP continues to aggressively market Prevacid in addition to adding more wrap to the product, TAP has become a target direct to patient advertising campaign on television and is currently running in [inaudible] markets. New studies, any indications, additional sales rep and direct to patient campaign are all expected to help drive growth for Prevacid in the coming quarters. Regarding Lupron sales were solid during the quarter and it continues to maintain market share. To summarize current projections for pharmaceuticals for the year 2002, we continue to project that our U.S. pharmaceutical business will grow in the low teens with sustainable double digit sales growth expected over the next several years. We also project that our international pharma business will continue to experience strong, double digit growth sustainable over the next several years. For TAP we continue to project that Prevacid will grow in the mid single digits this year and that Lupron will grow in low to mid single digits. Now John will review our medical products business.

Let me begin with the review of U.S. hospital business where strong second quarter performance was driven by double digit increase in sales across major business segments. In addition, HBD delivered on a number of key commitments that will continue strength in the business and a stream of innovative products for the future. In peri-operative pharmaceutical franchise strong Ciba fluorine sales were partly due to lower demand in the second quarter of 2001 following the first quarter 2001 launch of Voltane or Ciba fluorine in the new pen container. Base demand for the product remains solid with double digit growth expected for the full year. In cardiovascular pharmaceutical and devices segment, we're preparing for the launch of abbokinase. Our expectation continues to be a reintroduction this summer. Also in the quarter we successfully completed a strategic agreement with Metronics, that provides us with access to the company's full suite of stent delivery systems including its novel delivery system. We now have cost effectively assembled all the core elements necessary to compete in the 2.3 billion dollar coronary stent market. Under a co-exclusive agreement Abbott agreed to outlicense ABT 578 a proprietary rapamyacin analog to Medtronics for royalty stream on future sales of medtronics drug alluding coronary stents that use ABT 578. This deal with Medtronics further validates our position that 578 may be one of the only few drugs that is efficacious in the innovation of post angioplasty retinosis. We're encouraged by the progress of our internal drug alluding program and continue to expect clinical trials in the second half of this year. In vascular device franchise sales were down slightly due primarily to the fact that for the last four quarters the market for arterial closure devices has been relatively flat. Growth, however, is expected to rebound with the introduction of new products that simplified a closer procedure, reduce complications or reduce time per closer, the per close AT which stands for auto tie, previously named the closer AK is in the final stages of reliability testing and is scheduled to launch in early fall. The product features a pretied knot in the barrel of the device enhancing ease of use and time to close. With the launch of the per close AT we expect an increased market acceptance of closure devices as well as increased market share. We continue to receive positive physician feedback on our bio SV stent, small vessel stent, the only coded stent specifically designed for small vessels. In our oncology franchise in May we launched pacotaxol injection, our generic form of Paxil. It remains on track to achieve 30 to 50 million dollars in sales by the end of the year. For the rest of 2002 we expect our U.S. hospital business to report strong double digit growth in sales in the third and fourth quarters. In international hospital products overall sales were up 7% on a performance basis with Ciba fluorine marketing programs continuing to resonate with the anesthesiologists. Growth in international anesthesia franchise will continue to deliver strong sales. On a performance basis, Ciba fluorine was up 17% in the quarter. For the rest of 2002 we continue to expect high single digit sales gross on a performance basis in international hospital products.

I will turn now to our U.S. nutritional business or ROSS where we achieved modest gross in adult segment resulting from new products in both consumer and institutional markets. In particular Glucerna continues to exceed our expectations. Retail shipments are nearly double shipments a year ago and sales growth is exceeding 65% year-to-date. Our continued success with Glucerna part of a broad we are medical nutritional strategy to focus our efforts on disease specific formulations with high growth potential. Along these lines later this month we will launch another disease specific nutritional Prosure. Prosure was developed to specifically address tumor induced weight loss in oncology patients improving their strength and quality of life. Similar to Glucerna launch Prosure through the institutional channel to achieve a high level of acceptance and awareness prior to a future retail launch. As part of this marketing approach in May, Prosure quality of life data demonstrating an association between weight gain, grip strength and quality of life was presented at the American Society of Clinical Oncology. Longer term, we continue to evaluate other disease specific product options that are consistent with our proven institutional first, retail second approach to product introduction. Also this quart we launched ensure with Lutein, first adult nutritional beverage with Lutein. Lutein is believed to play a key role in eye health. We also added Lutein to Glucerna formulation which launched in June. In our base U.S. pediatric nutritional business although sales were flat, they reflect a continued recent improvement in share position. As you may recall, beginning last year our main competitor dramatically increased promotional spending. We have since implemented strategies to drive growth and build our market share physician back in the retail segment. Our marketing actions to date have yielded positive results as we continue to hold the leadership position in the retail segment and focus on actions to further increase our retail market share. The launch of Similac advance supplemented with DHA and ARA is proceeding well. Pedialyte and Pediasure, once again exceeded expectations for the quarter. We would anticipate given our current share position that for the rest of 2002 we should see accelerated growth in U.S. pediatric nutritionals due to the continuing growth in market share as well as some favorable comparisons in third and fourth quarter. Our U.S. pediatric pharmaceutical segments Synalgos sales in the quarter were strong, up significantly all it be a small basis. Overall for the 2001, 2001 RSB season Synalgos sales again exceeded our expectations. Our partnership with Menumen continues to be one of the most productive in the industry. In this segment of our pediatric business we plan to continue to seek new opportunities to leverage our position in the pediatric channel through the selective in licensing or co-promotion of profitable Synalgos like pediatric pharma products. For the rest of the pharm our total U.S. nutritional business is projected to deliver low to mid single digit sales growth with progress active increases over the next two quarters. In international nutritionals first quarter sales were up nearly 8% on a performance basis. International pediatric grew double digits reflecting a return to more normalized growth rate after a slower first quarter. Formulas Pediasure and Pedialyte continues to be the driver of growth internationally. International medical nutritionals sales were up nearly 8% on a performance basis. So for the rest of 2002 we project our total international nutritionals business will deliver high single digit growth on a performance basis driven by on going strength in pediatric nutritionals. Let me now turn to worldwide diagnostic business where despite the recent disappointment with the FDA determination about the consent decree ADD reported growth of [inaudible] percent on a performance basis with international diagnostics turning in a solid quarter with performance up more than 6%. In addition, we're obviously optimistic about a recently announced alliance with Salera Diagnostics to further expand our presence in the billion dollar molecular diagnostic market, the fastest growing segment in diagnostics. This collaboration to develop and market novel molecular diagnostic products will leverage the combined scientific and commercial strengths of both of our companies. The Salera alliance in combination with our acquisition of Vices and our internal molecular diagnostic programs position us now to gain significant share in this attractive market in the coming years. Also in the quarter we entered into a co-exclusive agreement with Orasure Technologies to distribute oraQuick rapid HIV test in the U.S. upon FDA approval. The test is a simple, accurate and provides results on a whole blood sample. In the future this test has the potential to use saliva sample. A simple rapid minimally invasive HIV 1 test will facilitate the immediate counseling of HIV-affected individuals by medically trained personnel upon receipt of a positive result. Regarding recent major contract activity in the diagnostic segment we're pleased to have been selected to participate on the premier contract for hematology, immunoassay and blood glucose monitoring products. Premier by the way, represents 30% of all U.S. hospitals and historically has ensured strong compliance of its member hospitals. With respect to the FDA consent decree we're in the process of selecting a new third party consultant, as we mentioned on our call several weeks ago, who will assist us with meeting our obligations under the terms of the consent decree. We expect a final decision on this new third party within the coming weeks. I would now like to turn to our blood glucose monitoring business where worldwide sales were up more than 17% on a performance basis and sales in the U.S. were particularly strong with growth exceeding 25%. Our glucose monitoring business experienced solid growth benefiting from the recent ADA physician statement on the effectiveness of blood ketone testing over urine ketone testing. As you know, Precision Extra is the only home glucose monitor that allows people with diabetes to test their blood for ketone levels which when elevated can signify a risk for developing diabetic ketone acidosis, a life-threatening situation to the acute insulin deficiency. In general the Precision Extra and G 3 strip are gaining favor in the marketplace and building momentum with solid double digit growth expected through the second half of this year. Looking to the year ahead for the remainder of 2002 we anticipate modest revenue growth in diagnostics for the longer term we continue to focus on three key segments to drive our growth.

By far the largest and most profitable segment in diagnostics is still the immunoassays segment where we enjoy the leadership position with 32% market share. In fact our immunoassay business is still three times larger than our nearest competitor. In addition to immunoassay we will focus our efforts on closing our share in glucose monitoring where we forecast growth to continue with 10 to 15 percent a year and molecular diagnostic where our recent alone with Seleria defined with our viruses acquisition puts us as a significant player in this emerging segment. That concludes our contractor review. As Tom indicated, performance is expected to accelerate in the second half of the year driven by underlying growth in pharmaceuticals. We also look forward to several positive upcoming catalysts including the Synthroid NDA probe, the reintroduction of abbokinase and the presentation of new phase three data to D2E7 this fall. We'll now open the call for questions to accommodate as many participants as possible and as a professional courtesy we would ask you to try to limit your questions to one subject each. Operator, we'll now take questions.

Thank you. The questions will be conducted electronically. If you would like ask a question, you may do so by pressing the star key followed by digit one on your touch tone phone. We will come to the order that you signal and we'll pause for one moment to assemble the roster. First yes comes from Bruce Jacobs.

I will ask on abbokinase. I guess you've been labeling discussions for some time. Are there any [inaudible] at all of significance there? Related to that, without speaking on the specific label, is there any belief on your part that the market opportunity will be different in any way given the labeling that you get versus what you had early on?

Let me address your second part of that question first. We think the relevant market for this product is about 200 million dollars. As you know when the product came off the market in 1998 peak sales for this product were 277 million dollars. But we think with the indication that we're likely to get in the labeling that we're likely to get, it is probably more in the line of 200 million dollars. We've had no significant issues from the FDA. As we said we're in final label discussions and as you might imagine this is a 20 plus year old product, so basically we need to modernize the label and we're working with the FDA on that front. This is also a bit of a unique situation. We're not talking about a new drug, as you know here. We're talking about a drug that's been on the market before, so it is a little bit different. It is more of a chemistry control and manufacturing approval than a new product approval. But everything seems to be going along well. We still expect the product to be reintroduced this summer and so far so good but obviously it is up to the FDA.

We'll take next question. From Neil Slight with Folcumb Partners.

There seemed to be an inference within the listed question for Synthroid that if the approval to stay on the market extended, let's say, into the fourth quarter that you would be low on inventory out there because of the phasing down of production. Maybe I misinterpreted this. If for some reason it just has to go into the fourth quarter versus the August 1 user fee date or into '03 will there be enough product out there to keep the product going?

I would be glad to answer that, we have anticipate supply based on the current situation in the phase down that we're supplying with the FDA to meet patient demand all the way through the end of this year and probably into early part of next year. So even if we were not to get an approval of the product, we could meet patient demand all the way through the end of this year for sure. As we said, we're still expecting a normal 12-month review time frame. As you probably are aware the data on this drug is August 1st.

Next question comes from Glenn Riven of Morgan Stanley.

A couple of financial questions. Firstly, you mentioned on the gross margin line that gross margins were down due to the mix. I think you meant lower margin partner products brought down the mix year over year. What about just total operating profit at the division? Last year we were sort of at the bottom. That's one issue. Second issue I would like for you to share your purchases, it would have to be created at these levels what stops you from doing that. Third, can you give us an update on Red Cross contract for diagnostics business is that not going to go into effect because of the consent decree? What impact is that going to have? Thank you.

You have interpreted the pharmaceutical correctly. We've had higher growth in the partner products and that's taken the gross margin down somewhat in the pharmaceutical division. We do expect that to develope later in the year as we look at the forecast and fix of mix of products we'll be selling over third and fourth quarter. From operating perspective this will have some impact. At least in the first couple of quarters in this year in a pretty heavy investment mode with SG and A area with back end payoffs in pharmaceutical division in the third and fourth quarters. We're in an investment mode and we will take a little time to see it expand later in the year. The purchases at these prices and low interest rate and dividend yield it is very tempting proposition but we're very focused on debt repayment right now. And that's the way we're looking at things going forward and I think John is going to take the Red Cross question.

We're obviously pleased to have recently won the exclusively American Red Cross contract for six vitoe assays that are used to screen donated blood. We have talked to the American Red Cross and we've discussed things with them and as of today they are aware of the situation with the consent decree and they are planning for implementation upon the FDA approval. So nothing has really changed and again as we mentioned before, it is a five-year contract, most of which is incremental for us.

It sounds like either FDA has to make some sort of special exception on Prism or the contract doesn't really go into effect until Prism is released.

Prism is the bulk of that contract. Right, we wouldn't derive the majority of the benefit from the contract until prison is out on the marketplace and that's obviously up to the FDA

Has the FDA shown any flexibility on that one product line?

We're not going to get into discussions, sorry, about Prism or anything else having to do with the consent decree. We're getting out of that business.

Thank you.

Another question?

Next question comes from Dia Kiatson with Bairds Sterns.

ABDs and V 773. I know that is no longer a focus area in the terms of R and D spending. I wonder what could benefit from the freed up investment dollars and whatever that product might be, would that product be expedited in terms of clinicals, just separately on pharmaceutical products any update on how you might be doing in international markets? Thank you.

Let me just cover the first part on 773. Obviously as we mentioned in our lease this is a resource allocation decision and based on the magnitude and duration of time to do the additional clinical work that would need to be done for the FDA because of this new class of drug, although we've seen no issues with 773, it really became an opportunity cost issue and because of some of the more promising late stage products that we have, particularly D2E7 and the other indications that we want to pursue, Crohn's, as you know is one we recently started. Juvenile RA is another one that's just getting underway and of course psoriasis and psoriatic arthritis are two more indications that we intend to start at the end of this year. So there's a lot of opportunity and the return on investment looks a lot more promising in things like other indications for D2E7 swells our promising oncology pipeline. As you may know we've already been granted fast track review use on Atroset continue as Cathy mentioned end stage prostate cancer drug in phase three. But this particular drug also shows promise in other cancer types and we are and have started initiating pilot studies in brain, breast, ovarian, renal cell and there may be a couple more that we're looking at as well. So that's pa big opportunity for us too. As you know, over the last couple of years mild has done quite a good job in stocking and restocking the pipeline in and Jeff too so now we've got a lot of things we want to invest it. We have to be careful and obviously prudent about where we put the investment dollars to make sure we maximize the return. We think we've got some great opportunities with those two products as well as some of the earlier stage compounds that we have in analogy in particular where outside experts have told us we have one of the best, if not the best and deepest oncology pipeline in the industry. What was the other question?

Other question was on Uprema.

Uprema internationally, it is doing all right. It is off to a modest start. We've kind of refocusing our efforts on the three milligram dosage. As you may recall we launched the product with a two and a three milligram dosage and we're kind of in the throws right now of in the markets where we haven't launched or we're in early stages of launching focusing more on the agree milligram. That seems to be going fairly well. So overall the feedback is good. Rampup is probably a little bit slower than what we had originally anticipated but not materially. This is a fairly modest size product for us obviously in international markets. So going well but we think we can do more. We're initiate some new programs and then, of course, on the TAP side we have completed their 750 patient additional phase three trial. It is completed in Roman on that and they hope to be submitting that to the FDA by the end of the year, early next year.

Thank you, John.

Next question comes from Michael Weinstein with J. P. Morgan.

Thank you. Let me ask a few short questions, I will try to make it one topic in pharmaceuticals. First, the 300 million dollars Meridia, I assume that's still reason in light of what you saw at the end of the quarter? Then second could you comment on your thoughts on generic competitions from Synthroid if you assume you do get the approval in the 12-month time frame, when would you expect to see generic competition come in directly for that product?

We're still on line for Meridia about 300. That's still very doable. Based on current projections and trends we see in the marketplace, you know we're right on track for that. We're obviously very pleased with the CPNP decision and we're working with Italy to get the product back initiated from the suspension of marketing so the international front looks good. And obviously we're right now waiting for a reply from the FDA to the citizens petition that was filed by this public citizen organization and we hope that that will come in the fall. But obviously that's up to the FDA and that might help us as well. But irregardless of what happens there, we still think 300 million is very doable. With regard to generic competition for Synthroid, you know, that's obviously a product that has been on the market for 42 years, as you know, used by 8 million patients. We still have 58% or so market share and there have been other products that have come on to the market and have not taken much share away. We've been able to maintain that share because of the loyalty the patients and physicians have and the difficulty in switching patients and retitrating patients and so forth. So once we get an approval of an NDA for Synthroid which we obviously hope will be coming soon, that's up to the FDA, there would possibly be generic competition in some time frame of 12 to 18 months. However, as I said, you know, this is a product that has a lot of loyalty where other products have not made significant in-roads. Frankly, a product that economically is very inexpensive relative to most drugs. You are talking about 10 to 12 dollars for a scrip. So there's not the similar dynamics you would find in a traditional situation with a generic product. I would also tell you that we do have a life cycle management prom with Synthroid that obviously we can't talk much about for competitive reasons. But it is something that we think about and we're working on as well for the longer term growth of the product. But any product that would try to file against Synthroid would obviously have to prove equivalence do the studies, get them into the FDA and FDA would have to agree those sides that it is bio equivalent, it would take some time. We've obviously factored that into the long term forecast for that division and it doesn't change our forecast in anyway.

Next question comes from Ted Hugher with Bank of America Securities.

Thanks. On international side of the business, could you, Tom, just let us know what your currency assumptions are in the revenue target growth you gave for third and fourth quarter and also on the international pharma piece, Cathy in your review of that business it wasn't clear to me what cause the acceleration of revenue growth in the second half. You are talking about four and-a-half percent revenue growth in second quarter yet rates perhaps double that in the second half. I would love to get a better sense of what really drives that.

We don't really usually share our specific assumptions, planning assumptions, it is fair to say that in our forecasts we have not contemplated, you know, a Euro for example to 99 rate. If these rates were told the rest of the year I think there's some positive news on the upside on sales. As we mentioned at the last conference call we had, though, on the income side, you know, we're pretty well hedged on this Euro and even the yen, even in 2002 if the rates stay strong as they have been you are not going to see much impact in this year. If they were to hold in 2003 that obviously is a positive.

Positive, is that second half '03 positive or could you see any upside in the first half of '03 on the income side?

I don't want to go into a lot of specifics but we do modest hedging out beyond the year, if any. So, you know. Most of the change rate effects start up in the new year.

In terms of your question on international pharma, I think what you are looking at there is a couple of different drugs in particular, Kaletra which started to ramp up at the end of last year. As you know, we're quickly incoming the number one PI in each of the countries where we've launched it and that's ramp is expected to continue going into the third and fourth quarter. Obviously Reductal has done pretty well and the decision by CPNP should help us out in continuing that projected growth ramp which again year over year would be a positive and then, of course, Uprema. So you have Chlolectral, Udrugta and Uprema which were getting out of the ground in the second half of last year which have a much healthier growth rates in the third and fourth quarter and by action clithromyacin outside the U.S. would go into a more seasonal growth rate where we expect an up-pick.

Thanks, guys.

Scott Wilkin with SU Callin.

I was wondering if you could quantify the impact of Argentina for the quarter. As you went through the P and L you talked about the 18 million dollars loss and I was wondering if this is just hedging impact or is there also a P and L impact that hit the top line in gross margin that is not factored in there.

Are you talking about the exchange line at 18 million?

There definitely is margin impact upstairs in Argentina. When you look at if for the quarter it is about a penny when you add up all the pieces.

So the empire impact of Argentina was a penny for the quarter?

Right.

If I could slip in one other question on Depakote. I think you talked about mid single digit growth and in the scrips. Is that your up-to-date guidance for the growth, expecting mid to single growth for that product?

That's right, Scott. Any more questions?

Next question comes from Dianya Mia with Merrill Lynch.

A follow-up on the pharmaceutical stuff. It sounds like in listening to what you have to say about ADT 773 if it's not a problem with the compound, it is just safety concerns and hurdles that are being out for that class of drug. Should we assume that the Kedolyte backup you had with also going to be shelved as well or part of a licensing agreement?

Dan, this is John. Let me clarify. There are no safety concerns per se with 773. What we're talking about is safety concerns with the other key lied in the class. We haven't seen any of those issues with 773 but that is raised obviously, concerns with the FDA who because of we're in the same class wants additional studies to ensure there are no issues. I just want to clarify that. Any earlier compounds on Kedolyte were very early in development. I'm not aware that we've made any decisions there but, of course, we have 492 in phase three, that's the quinoline from Ocanagua, that looks very promising and we're continuing to push that drug forward as well.

Do you have a sense of the timing for when you might be able - 492 would be your first quinoline or 494, I thought 494 was ahead of 492?

492 is our own quinoline, I believe.

We're looking at something like with '85 so we're looking at clithromyacin franchise which is obviously the biggest drug you have out there is with the sales. Should we just assume that sales numbers continue to drift modestly until '85 when maybe we get first quinoline?

We also have Biaxma XL which we've converted over 50% and Omnicef which is growing in excess of 80 percent for the year. So when we look at our total antibiotic franchise worldwide, we're looking at some modest growth and we have some other initiatives that are underway on the marketing side to try to reinvigorate, as Cathy said, the Biaxin franchise because we do feel that there is the strength of Biaxin in the moderate to severe category and it does have a lot of brand equity and we're going to be doing some things that we're not going to talk about yet. When we get into the flu season hopefully those will start to pay off. With the way the market is going and the effect of the quinolines have had on the market, obviously we feel that advancing 492 would be better for the long term health of the total antibiotic franchise but I wouldn't discount Omnisef either. It is growing obviously very rapidly and expect to continue to grow at that rate.

Great. Thanks.

We'll go now for Bob Goldman with Buckingham Research.

Thanks. My topic is Synthroid. I have got three quick questions on it. First, will you expect with Synthroid that preceding an approval letter you would be receiving an approvable letter? Second, have you received an approvable letter? And third, have you received an approval letter?

Well, I'm going to get confused here. No, we have not received an approvable letter. No, we have not received an approval but yes, we do expect we would get an approval. It is more likely we'll get an approval than we would get an approvable. But obviously it is up for the FDA and every indication there is that we're on track for this 12-month normal cycle review time, which would be August 1st.

Thank you.

Go next to Scott Davidson with Piper Jaffray.

Good morning. John, I think either you or Cathy mentioned having added 900 U.S. pharma reps over the course of the last year or so. Can you talk a little bit about which drugs got the most incremental support? Then related to that, maybe plans for adding further to the sales force into '03?

The bulk of that was the initiative we have from [inaudible] and Tarka. We've also added additional reps for Synthroid as well.

At what point do you start building or have you started building the D2E7 sales force?

Scott, it is early in development and you probably know this. Some may not. These do not require huge sales forces. Industrywide you are looking at two to 300 or so reps sufficient to market the products that are out there now. But obviously we're underway with the building of that sales force has already started. We're in the early stages of that. But we're not getting into details obviously for competitive reasons.

Thanks.

That concludes our question and answer session for today. I would like to turn the conference back over to you.

Thank you. That does conclude our conference call today. A replay of the call will be available immediately by telephone at 719-457-0820. That's 719-457-0820. Confirmation code 608860. That's 608860 after 1 o'clock central time today on Abbott investor relations westbound so the at www.abbottinvestor.com. Audio replay will be available until 5 p.m. on Tuesday, June 18th. Thank you all for joining us.

That does conclude today's conference call. You may disconnect at this time.