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

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