美國雅培 (ABT) 2004 Q2 法說會逐字稿

Welcome to the Abbott Laboratories 2004 second quarter earnings conference call.

All participants will be able to listen-only until the question and answer portion of this call.

During the question and answer session you will be able to ask your question by pressing the star, one key on your.touch-tone phone.

Should you become disconnected throughout this conference call please dial 1-630-395-0026 and reference the Abbott Laboratories call.

This call is being recorded by Abbott with the exception of any participants questions asked during the question and answer session the entire call including the question and answer session is material copyrighted by Abbott.

It cannot be recorded or rebroadcast without Abbott's expressed written permission.

I would now like to introduce Mr. John Thomas, Divisional Vice President, Investor Relations.

Thank you, sir, you may begin.

Good morning and thanks for joining us.

Also on today's call will be Tom Freyman our Executive Vice President-Finance and Chief Financial Officer and Cathy Babington, Vice President, Investor Relations and Public Affairs.

Tom will review the second quarter financial results as he always does, Cathy will discuss performance of the pharmaceutical products group and I'll cover the medical products group and both of us will talk about some of the key growth drivers as well that we see over the near and mid term.

Following our comments we'll take any questions that you have.

Some statements made today will be forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995.

Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated.

Economic, competitive, governmental, technological and other factors that may affect Abbott's operation are discussed in exhibit 99.1 of our 2003 annual report on Securities and Exchange Commission form 10-K and are incorporated by reference.

We undertake no obligation to release publicly any revisions of forward-looking statements as of results of subsequent events or developments.

In today's conference call as we do in the past non-GAAP financial measures will be used to help our investors understand Abbott's ongoing business performance.

These include such things as earnings per share, gross margin, and SG&A each excluding one-time charges as detailed in our earnings news release.

Unless otherwise noted and in the remarks that we make.

In accordance with the SECs regulation G and in line with Abbott's standard reporting practice these non-GAAP financial measures are reconciled with the comparable GAAP financial measure in our earnings news release and Q&A that we issued this morning and it's available on our website.

Also as a reminder the spinoff of Hospira, Abbott's former core hospital products business was completed this quarter.

Results of Hospira's operations through the date of separation are reflected in Abbott's financial statements as discontinued operations.

So with that I will now turn the call over to Tom.

Tom.

Thank you, John and good morning, everyone.

Regarding second quarter EPS, we reported diluted earnings per share from continuing operations of 54 cents within our previous guidance range of 53-55 cents.

Sales increased 14% driven by strong broad based performance across our businesses including double digit growth in both our Medical Products Group and our pharmaceutical products group.

Change favorably impacted sales by 3.4%.

This was the first quarter in which HUMIRA sales exceeded the $200 million level, with better than expected performance in both domestic and international markets.

Given the strong HUMIRA performance in the first half of the year we have raised our full year 2004 worldwide sales estimate for HUMIRA from more than $700 million to more than $800 million.

Also this morning we announced our intention to file an NDA for our Phase III compound atrasentan now known by the brand name Xinlay for hormone refractory prostate cancer.

We intend to file the NDA before the end of this year, ahead of our previous expectations.

Atrasentan is one of five regulatory submissions planned for the remainder of 2004.

The others are oral Zemplar, the TAP compound Febuxostat for gout, Kaletra once daily dosing, and the psoriatic arthritis indication for HUMIRA.

Cathy will provide more details on these filings.

I'll spend a few minutes reviewing the remainder of the P&L next, but before I do this I would like to point out that all comparisons are on a continuing operations basis that is excluding Hospira from both years.

I would note that the P&L reflects profile improvements that we forecasted to occur when Hospira results were removed.

For example we are seeing the gross margin profile improve by around 300 basis points compared to the ratio with Hospira included to 57.1% in the second quarter of 2004.

This ratio reflects an improvement of 170 basis points over the comparable ratio of 55.4% last year due to an improvement in margins in the global pharmaceutical business.

R&D investment increased more than 14% this quarter in support of key pipeline programs including the late stage follow on indications for HUMIRA, other late stage clinical programs and pharmaceuticals and programs in vascular devices and molecular diagnostics.

Second quarter SG&A also increased significantly up nearly 19% driven by continued investments and the global launch of HUMIRA, promotional spending on other marketed pharmaceutical products as well as higher spending supporting U.S. nutritionals.

Our share of the TAP joint venture income was $120 million up from the first quarter but a decline from last year due to lower sales of Prevacid and Lupron.

Cathy will provide further details on the TAP business but as a result of TAP's revised expectations for Prevacid, Abbott is adjusting its forecast for the full year income contribution from the TAP joint venture to approximately $500 million.

This forecasted level of TAP contribution reflected in our earning's per share guidance range to be discussed in a moment.

The tax rate for continuing operations for the first half of the year was 24.2%.

This is a change from previous forecast due solely for the reclassification of Hospira's operations to discontinued operations.

As the Hospira results were taxed at a higher rate than the pre spin corporate average.

Our ongoing earnings per share guidance from continuing operations for the full year 2004 is $2.25 to $2.30.

We have tightened our previous guidance range based upon greater certainty regarding the earnings outlook.

I'd note that this is not a revision to guidance but only a tighter range.

The mid point of the range is unchanged from previous guidance.

For the first time we're providing guidance for earnings per share from continuing operations for the third quarter of 51 to 53 cents.

In the context of our full year performance the mid point of the full year guidance range would represent double digit growth in earnings from continuing operations reflecting solid actual and forecasted revenue growth throughout the year and significant investments to support future growth and momentum.

Specifically regarding the third quarter guidance I would note a few points.

First, Synthroid sales of over $160 million in the third quarter of last year reflected the strongest quarter of 2003, setting up a potentially difficult sales comparison in 2004.

Second, we are forecasting continuing strong increases in R&D and SG&A.

And finally, the removal of Hospira from the prior year quarters resulted in some unusual quarterly comparisons on a continuing operations basis.

As we look at the third quarter we view it as a timing anomaly wedged between very strong first half and a fourth quarter forecasted to be on our trend line.

I'd note that our sales momentum is expected to continue as we forecast sales growth in the third quarter in the high single to low double digit range despite a much lower foreign exchange head wind -- or tail wind.

Our earnings per share guidance ranges reflect the accelerated growth in HUMIRA global sales to more than $800 million.

A range of possible outcomes from the potential impact of a generic Synthroid.

And the lower expected level of TAP income contribution in 2004 discussed earlier.

For the second half of 2004 we expect the tax rate for continuing operations, that is excluding one-time items, to be similar to the first half rate.

In summary, Abbott reported another strong quarter.

We are extremely pleased with the performance generated by our businesses.

This reflects the changes we have made over the past several years to strengthen our broad based business model.

Our long-term strategy is working and as Cathy and John will describe next we have a number of new growth drivers that are just now coming to market or will in the next 12-24 months and with that we will begin with the business operating highlights in the pharmaceutical products group Cathy.

Thanks Tom.

I'll start with our U.S. pharmaceuticals business which delivered double digit growth in sales for the 15th time out of the last 16 quarters.

So I'll walk you through the major franchises with immunology going first.

The worldwide launch of HUMIRA continues to exceed our expectations.

Global sales in the quarter reached $203 million and as Tom mentioned we've raised our forecast for '04 now for global sales to more than $800 million.

In the U.S.

HUMIRA share of prescriptions for the rheumatory arthritis indication continues to climb.

Our estimates suggest that we are now capturing more than 30% of the new self injectable prescriptions for RA.

HUMIRA is clearly proving to be an enormously valuable asset both as our rapidly growing on market product as well as a promising low risk late stage pipeline opportunity.

Next I'll cover HIV.

Kaletra remains the number one protease inhibitor in the world.

Global sales this quarter grew nearly 18%.

U.S. sales were down slightly due to an unfavorable year-over-year comparison to last year when sales were up nearly 30% in the third -- or second quarter.

Ax, U.S. sales were up nearly 40%.

We continue to anticipate double digit global sales growth for Kaletra for the full year '04.

In the anti infectives area Omnicef grew 20% this quarter.

New quality of life data demonstrate that children taking Omnicef for ear infections are more compliant than those taking Augmentin due to Omnicef's superior taste and tolerability profile.

Omnicef was also shown to be effective as I've mentioned in half of the number of days.

Biaxin sales declined in the quarter due to an unfavorable year-over-year comparison when Biaxin was up more than 25%.

Our once daily formulation of Biaxin, Biaxin XL with an improved side effect profile over Biaxin now has approximately 65% of our U.S.

Biaxin business.

And as a reminder, we have a comprehensive patent estate on Biaxin and Biaxin XL as well as other intellectual property that we are pursuing.

Next, I will move to the neuroscience franchise where Depakote had another good quarter with sales up nearly 12%.

We continued to anticipate mid to high single digit growth for Depakote this year.

In the metabolic disease area U.S.

Synthroid sales were up from the prior year, primarily driven by increased market share.

We do plan to continue to actively promote Synthroid despite the entry of generic competition.

Next, I'll move on to cardiology and urology.

TriCor continues to expand market share reporting more than 30% growth this quarter.

TriCor remains on track for strong double digit growth for the full year.

Global sales of target this quarter grew more than 50%.

As a reminder, we recently acquired the remaining global, commercial, and manufacturing rights from Aventis for both Tarka and Mavik.

I'll cover the three BI products, Mobic, Micardis, and Flomax and they were also up double digits.

Regarding Flomax, our contract terms with BI call for a transition from Abbott's active co-promotion to a sales and distribution arrangement at the end of August.

In addition, Mobic will transition from active co-promotion in the second quarter of '05 at approximately the same time it's scheduled to lose market exclusivity.

And Micardis will transition in the second quarter of 2006.

As we've indicated previously we've contemplated this transition in our planning assumptions for this year and beyond.

As you know, the margins on these products are much lower than other Pharma products in our portfolio so we will continue to book revenue on the BI products until the end of 2007 as part of our distribution arrangement.

So for the overall U.S. pharmaceuticals business we're extremely pleased with its performance and continue to forecast double digit growth for the full year with high single digit to low double digit growth anticipated for the third quarter.

With respect to pharmaceuticals sales within our Abbott international division with the continued successful global launch of HUMIRA and strong growth of Kaletra international pharmaceuticals reported nearly 20% growth and we remain on track to deliver double digit growth for the full year.

Next, I'll move on to TAP.

Regarding Prevacid.

The entire prescription PPI market is down approximately 7% year to date.

As a result, year-to-date market growth is now trailing TAP's original expectations.

But given the current market dynamics, TAP is adjusting its Prevacid forecast for the second half of 2004 and now expects full year 2004 Prevacid sales to decline by approximately 10%.

TAP has a number of plans in place to refocus its efforts on improving Prevacid's performance.

This includes the launch earlier this week of Prevacid solutab, an orally disintegrating tablet.

This new tablet provides flexibility and convenience especially in children and other patients who have difficulty swallowing.

In addition, last month TAP received approval for Prevacid IV which should improve Prevacid's utilization in the hospital market.

These recent approvals enhance Prevacid's position as the leading PI with the most indications and the most administration options of any PPI on the market.

Regarding Lupron.

TAP anticipates significantly stronger growth in the second half of this year aided by improving year-over-year comparisons and improved -- continued improvement in the overall urology market share.

So now I would like to focus on what we view as some of the key growth drivers in our global pharmaceutical business over the next few years.

Let me start with a review of the near term opportunities for several of our on market products and then review several late stage pipeline opportunities.

With regard to the on market products let's look at Omnicef first which is one of the fastest growing antibiotics in what is now a $6 billion market.

Omnicef should benefit from many competitors going generic over the next few years in a market that responds extremely well to branded promotion.

We anticipate strong double digit growth for Omnicef again this year and peak sales potential of more than $700 million.

Kaletra is another global product with strong growth potential.

We're working to expand first-line use of Kaletra by simplifying dosing.

In fact, we plan to file for a once a day dosing indication this summer.

In addition, Kaletra has shown potential in some early small studies for monotherapy treatment and that is a prospect that could dramatically change the paradigm of HIV therapy.

Next I will that talk about our lipid lowering drug,TriCor.

We feel extremely confident about our strategy to manage TriCor for the long-term.

In fact, we expect TriCor to reach a billion dollars in peak sales.

Let me give you our rationale for that thinking.

One, we have four formulation patents on the current tablet form that extend until 2018.

We plan to vigorously defend our intellectual property in this area.

Two, we have a an improved formulation of TriCor, we hope to share new information with you on this formulation by the end of this year.

And finally, we believe TriCor could have a unique role as a combination product.

In fact, we have a study underway looking at this right now and we anticipate sharing data from this trial next year.

Of course, the biggest opportunity in our market of product portfolio is HUMIRA.

As we've previously indicated we expect global sales in 2005 to be greater than $1.2 billion as the $5 billion self-injectable biologics market continues to expand.

And then before I review some of our most promising late stage opportunities in our pharmaceutical product pipeline I wanted to briefly mention that we've entered into a mutually beneficial agreement with J and J for dialotted CR, also known as dialotted oros.

Under the agreement Abbott receives a royalty stream and the action to co promote the product when it comes to market.

J and J will complete the products's clinical development.

We continue to have significant interest and investment in our neuroscience and pain therapeutic area.

Vicodin CR remains in late Phase II development and represents a promising opportunity in a broad acute and chronic pain market.

In fact we plan to share Phase II Vicodin CR data later this year.

Now there are also a number of additional opportunities in our pipeline that I'd like to spend a few minutes on.

We continue to look forward to the potential of HUMIRA's follow-on indication which offers significant growth potential with a lower risk profile given that HUMIRA's safety and efficacy have already been established in RA.

HUMIRA's follow-on indications include psoriasis, psoriatic arthritis, Crohn's disease, juvenile RA, and ancholising spondylitis.

Combining these indications could add more than a billion dollars in incremental sales to our long-term HUMIRA forecast.

In psoriasis we presented compelling date early this year indicating that HUMIRA was nearly twice as effective as Embrol.

Phase III trials in psoriasis will begin later this year.

In Crohn's disease we shared Phase III results of the digestive disease week meeting which showed HUMIRA had strong efficacy in this indication.

Convenience is an important factor in this young active patient population and we believe HUMIRA which is given by self injection at home will be seen as a benefit over (INAUDIBLE) which must be infused at the physicians office.

We are on track with clinical trials for HUMIRA's other indications and at UR we shared data on two smaller Phase II trials for psoriatic arthritis and and ancholising spondylitis.

We plan to share Phase III psoriatic arthritis trial results later this year.

Finally and importantly we now expect to file for the psoriatic arthritis indication later this year and that is ahead of our original expectations.

Zemplar, I'll cover next which is the oral formulation of Zemplar for the treatment of early stage chronic kidney disease.

It is another significant opportunity in our late stage pipeline.

Our leading position and established presence in this category with the current IV formulation of Zemplar gives us the unique ability to further penetrate this vast market.

Zemplar IV is currently a $350 million product and it's the most widely used vitamin D therapy in the U.S.

Zemplar capsules have the potential to dramatically change the treatment of secondary hyperparathyroidism in treating patients earlier in the disease before they require kidney dialysis.

We've completed our Phase III pivotal trials for Zemplar capsules which were the largest ever in chronic kidney disease.

We plan to share results of these trials this fall and we remain on track to file for approval this summer and project a mid-year 2005 launch for the Zemplar capsules.

We do hope to significantly expand the current chronic kidney disease market with the capsule formulation and estimate peak year sales for capsules of more than $500 million so this will expand our total Zemplar franchise to greater than $1 billion.

Another significant late stage opportunity is Atrasentan which is our oral once daily treatment for prostate cancer in Phase III development and as you heard earlier we have now named the brand Xinlay.

As Tom mentioned, we announced this morning our plans to submit a new drug application to the FDA before the end of this year.

We made this decision based on our meta analysis data that we shared at the American society of clinical oncology meeting in June.

We also continue to move forward with completing the 244 trial.

And as a reminder Atrasentan was previously granted fast track review status by the FDA and this submission will be part of our rolling submission process.

We also issued a news release this morning that shares some additional detail about the compounds.

Another intriguing therapy that we haven't talked about very much is Symdac (ph) which is a calcium sensitizing agent in Phase III development for congestive heart failure.

This category hasn't seen any new treatment options in more than ten years.

Our current Phase III studies are designed to show symptom relief and the hemodynamic benefits of Symdac in Stage three and Stage four congestive heart failure patients.

However, Symdac also has the potential to provide a mortality benefit which could significantly expand the product's longer term opportunity.

As you'll recall in underscoring our commitment to this product we recently expanded our licensing agreement for Symdac greatly enhancing our global commercial rights and control over existing and prospective R&D activities.

We expect to file in late '05 or early '06 and the project's already been granted fast track review status by the FDA.

Peak year sales potential including the possibility mortality claim could exceed $1 billion.

And then finally we have two significant near-term opportunities in TAP's late stage pipeline.

Febuxostat and Asoprisnil.

First I'll cover Febuxostat which is a compound for the treatment of gout which will represent a new choice in a vastly under served market as the currently available treatment options have a number of limitations.

TAP has completed Phase III studies which were the largest controlled clinical trials to date in patients with gout and will serve as a basis for the NDA submission.

Overall results from these pivotal studies have exceeded TAPs expectations and TAP looks forward to submitting the NDA in the fourth quarter of this year.

Febuxostat's peak year sales are expected to be in excess of $500 million.

And Asoprisnil also in Phase III has the potential to change the way women are treated for uterine fibroids.

TAP has plans to submit a new drug application to the FDA in 2005 for the fibroid indication.

TAP expects peak year sales of more than $500 million for asoprisnil.

So in conclusion these are just a few of the promising compounds in our internal pipeline and it's by no means a comprehensive review of the entire pipeline.

What it does show, however, is, that we have assembled one of the most productive R&D pipelines in our industry which is said to deliver more than ten new products or new indications over the next 2-3 years.

So this year alone we will have five regulatory submissions.

Xinlay, Zemplar capsules, Kaletra once-daily dosing, and HUMIRA for psoriatic arthritis, and Febuxostat.

So with that I will turn the call over to John for a review of the Medical Products Group.

Thanks, Cathy, the Medical Products Group collectively in the quarter delivered growth of more than 12%, continuing the momentum we've seen from recent quarters in fact most of the Medical Products Group's businesses in the new model delivered double digit growth.

So as a review of the first quarter performance in our Ross U.S. nutritionals business had another outstanding quarter with double digit growth in both pediatric and adult nutritionals.

The U.S. infant nutritional business grew more than 12% with increased penetration of Similac Advance.

Ross continues to achieve strong market share gains across all age categories.

In fact, we've gained in the 1 to 12 month category about 2 share points year to date and in the 1 to 3 month category about 5 share points.

The strong growth in the adult nutritionals business was driven in part by incremental sales of ZonePerfect and more than 20% growth in Glucerna.

For the second half we expect the momentum to continue in the Ross U.S. business with high single digit growth albeit somewhat lower growth in the third quarter as a result of comparisons to last year.

I now want to turn to our worldwide diagnostic business where we reported sales growth of more than 12% including incremental revenues from the TheraSense acquisition and strong growth in point of care.

Sales in our U.S. immunoassay business declined as we had previously forecasted.

However, performance is improving and did improve sequentially from the first quarter as we expected and we continue to expect performance to improve as we go throughout the second half of this year.

Since January ADD has launched 35 assays for both ARCHITECT and AxSYM systems and has placed more than 300 ARCHITECT systems worldwide.

Demonstrating both the competitiveness of the system and increased customer confidence.

During the quarter the division issued a unique sales and marketing campaign to bring the ARCHITECT ci8200 which is our integrated immunoassaying clinical chemistry analyzer directly to our customers.

With a large mobile demonstration that showcases ARCHITECT it's touring the U.S. and giving personalized demonstrations of the system and its performance attributes.

We call it Architour and it's already reached more than 1,000 customers representing more than 400 accounts and we will have that at AACC as well.

In molecular diagnostics normalized growth excluding the previously announced withdrawal LCX products as more than 15% for the quarter.

And quarterly growth in the third quarter in molecular is expected to exceed 20% with continued penetration of the LCX HCV and HIV viral lode assays outside the U.S.

In Abbott diabetes care sales growth of more than 50% included incremental sales from the TheraSense acquisition.

The sales performance was supported by three product launches, the European and Canadian launch of the FreeStyle mini, known as the FreeStyle Flash in the U.S. and a new strip for the precision glucose monitor.

Also contributing to the sales growth is more than 60% year-over-year increase in the FreeStyle user base.

We also launched the Coz monitor powered by FreeStyle which integrates the FreeStyle technology with a deltech CozMore insulin pump to provide a single user interface for personal diabetes management.

As I'm looking forward to the third quarter we project sales growth in Abbott diabetes care of more than 40%.

In our point of care business sales in the second quarter grew more than 20%.

We completed the integration of i-STAT, filling key sales management positions and hiring new sales reps.

We are focused there on a successful launch of Triponen (ph) a cardiac marker used as an aid in the diagnosis of myocardio infarction.

And so looking to the third quarter we expect continued strong double digit growth in this business as we execute on the Triponen launch increase manual utilization and accelerate the rate of i-STAT placements.

In the third quarter for our total diagnostic division which as a reminder for reporting purposes includes our base ADD business, point of care, Abbott diabetes care and molecular diagnostics we expect to deliver double digit growth.

In our vascular devices business for the second quarter sales grew more than 30% including incremental sales of JOMED.

At PCR, as many of you know, we unveiled the latest addition to our vessel closure portfolio called the Star close.

This is a clip-based vessel closure device that ensures a secure reliable close while significantly easing device developed deployment and reducing the time to close to less than 30 seconds.

Feedback has been very positive regarding both the ease of use and the time to close aspects of the device.

A full-scale international launch is planned for the fourth quarter followed by a U.S. launch in 2005.

In our coronary business we introduced Trimax our new proprietary coronary stent, the stent is made of stainless steel and tantalum composite that features extremely thin struts while maintaining radial strength and optimal radial passivity.

This unique design offers flexibility, conformability, trackability and in fact the losing crossing profile facilitating navigation through tighter lesions and tortuous vascular anatomy.

So looking forward to the third quarter Abbott vascular is expected to deliver sales growth of more than 10% from the impact of two new vessel closure products.

Star close and the perclose proglide we've talked about before as well as growing endovascular sales.

Spinal concepts in the quarter which wasn't part of Abbott until June of 2003 grew more than 50% and for the third quarter should deliver similar type growth.

So in summary, the Medical Products Group overall turned in another very strong quarter for the third quarter momentum is expected to continue with double digit sales growth and as you can see the spin off Hospira and the restructuring of our Medical Products Group is allowing us to devote more focus and resources to higher growth, advanced technology medical devices.

And so I want to take just a moment here at the end to highlight a few key opportunities much as Cathy did on the Pharma side which will help fuel future growth for this division.

In our diagnostics business we intend to increase our immunoassay share by continuing to launch new products, placing new systems, and expanding menus on AxSYM and ARCHITECT.

More than 20 U.S. and international launches are planned for the third quarter including key hepatitis, cancer and cardiac assays.

The ARCHITET ci8200 allows Abbott to leverage our immunoassay leadership to increase share of the chemistry market where today we have a much lower market share.

And at the upcoming American Association of Clinical Chemistry, AACC, meeting as I mentioned earlier we will feature a number of products that will improve the work flow efficiency of the clinical laboratory.

In molecular diagnostics we are developing assays that will enable earlier diagnosis, allow physicians to monitor therapies and determine predisposition for various diseases.

The top development programs include real time PCR infectious disease assays, test for breast, bladder, lung, and cervical cancer and advanced DNA microassays to detect abnormalities associated with mental retardation and developmental delay.

Our collaboration with Solera diagnostics is focused on myocardial infarction risks and early detection of breast cancer and rheumatoid arthritis.

In the second half of this year we anticipate approval for an expanded claim for eurosvision which will double the size of the market that's already available.

Allowing for use of the tests in any patient presenting the symptoms of bladder cancer.

And in Abbott diabetes care we plan to deliver new products to market supporting both the precision and FreeStyle brands and expand TheraSense' product presence internationally.

We're encouraged by the prospects of the FreeStyle navigator for continuous blood glucose monitoring.

Recent clinical data demonstrate accuracy comparable to traditional glucose monitors.

And in Abbott vascular devices we expect to initiate enrollment in Xomax one which is our Ax US drug eluting stent clinical trial and we'll do that in the third quarter.

Xomax one is a 400 patient randomized non inferiority trial with an angiographic end point and attacks the stent as the comparator.

At PCR we had a presentation comparing the drug eluting profile of Xomax stent versus the Cypher stent, the date demonstrated the Cypher and Xomax have a similar elution profile and the drug on both stents took approximately 30 days to fully elute.

In addition, Xomax had a higher concentration of drug in the arterial tissue with less drug loss into the blood stream.

So in summary to sum up the quarter for Abbott overall, we had a very strong second quarter, we tightened the guidance range as you know for the year based on greater certainty of the earnings outlook.

We plan on filing five new drug applications by the end of the year which includes Atrasentan as we announced this morning and finally we see very good momentum on both sides of our broad-based business with improving trends on the top and the bottom line in our global diagnostic business.

Of course we're very pleased with the performance of HUMIRA which continues to outperform and exceed our planning expectations as well as the external estimates we've seen on the street.

With that we'll now open the question -- the call up for your questions and as a matter of courtesy we'd ask that you try to limit your questions to one or two topics.

Thank you and you can now open the call please.

Thank you.

At this time, if you would like to ask a question please press star one on your touch tone phone.

You will be prompted to record your name.

To withdraw your request press star, two.

When asking your question please use your hand set as opposed to your speaker phone.

Once again if you would like to ask a question please press star one.

Our first question today is from Glenn Novarro and please state your company name.

Hi with Bank of America.

Can you guys hear me okay?

Yes.

Hi, Glenn.

Two quick questions.

One on HUMIRA, sales much better than expected in the last quarter we saw positive Crohn's and psoriasis data presented.

So is there any off label usage driving the better than expected sales on HUMIRA?

Sure.

I'll take that question Glenn.

Thats a very good question.

Actually, we are seeing very little, if any, off label use for HUMIRA.

The growth that you're seeing and the outperformance that you're seeing is based on the rheumatoid arthritis indication alone.

We do have as you mentioned positive date that we presented earlier in the year on psoriasis and then more recently on Crohn's and I think we have got some excitement built up in the clinical community on both fronts but, of course, we can't promote those indications and we wouldn't because we don't have approved indications so we're not seeing much use there.

And don't expect and don't have planned into our modeling for HUMIRA very little off label type use of the drug.

It is being driven by RA.

All right.

Just a quick one on atrasentan.

The FDA has often been reluctant to approve drugs without favorable Phase III trial date.

What has changed at the FDA that gives you the confidence that the FDA will approve atrasentan based on a Meta analysis.

If they do require the ongoing 244 study for final approval when will that data be available?

Okay.

That is a good question.

Both those are good questions, Glenn, thank you.

The 244 study which is the study that's ongoing the second Phase III pivotal study in non Meta static prostate cancer patients that's been continuing on it was fully enrolled in the middle part of 2003 and we expect it will finish up based on the end points and timed disease progression.

We are more than halfway through that now we expect that would finish up sometime next year.

With regard to what the FDA may or may not do with our package and our submission, I can tell you that we had discussions with the FDA surrounding what we wanted to do here and submitting with the meta analysis the center piece of that filing but I would also keep in mind that this is a rolling NDA.

We have been submitting data for some time now we've had preclinical and CMS -- CMC data submitted already.

So we talked to the FDA.

They were in agreement and willing to accept our filing with the meta analysis.

There is some historical precedent for the FDA being somewhat more flexible when it comes to cancer filings just because of the life and death situation that is presented here and when they evaluate oncology applications at least if you look historically, they have tended to be more flexible.

We obviously are not presuming anything and wouldn't presume to speak for the FDA in our case and in this regard.

But based on the discussions that we had we feel very confident with the data that we submitted and I think what more importantly has changed maybe not from the FDA's perspective but from the market perspective is the fact that there really hasn't been any improvements in this area in 40 or 50 years.

This is a huge leap forward in terms of a targeted therapy that is a non chemo, non cyto toxic agent.

That's an oral once daily, easy to use therapy that is a, you know, there is certainly great need in the marketplace and great unmet need and this is an area where obviously there is life and death at stake so we would hope that that would weigh in the decision.

Do you expect an FDA advisory panel on this drug?

You know, Glenn, that is hard to predict.

It wouldn't surprise us if there was one but we have no confirmative information at this point that there is going to be one but there could certainly be one and we welcome that.

Okay.

Great.

Well. great quarter, guys, thanks.

Thank you.

Thank you.

Our next question is from Glenn Reicin.

Please state your company name.

Good morning.

Glenn Reicin, Morgan Stanley.

Hi.

Two questions.

First real simple, on Kaletra once a day.

Is that a new indication or a new formulation?

The Kaletra once a day would be basically, well let me back up, right now you have BID or twice a day therapy with Kaletra which is three pills twice a day.

The once a day that we presented earlier and you may have seen was the six pills once a day, our hope would be and as we've talked about before to eventually get that once a day therapy down to a lower pill burden and that would be the next advance that we would be working on but the once a day would be the six pills once a day.

Okay.

And do you think there is any use and in that once a day indication today off label?

I can't speak to that.

I don't have that information.

I'm not aware.

I no he there is some trials ongoing in that area and, you know, the results have been good, you know, the earlier date that we presented was comparable to the BID data, actually was a little bit better in terms of viral suppression.

But in terms of off label use I just don't have that information.

I could try to get that for you later.

Okay.

And also I want to push you a little bit on the teasers you gave us on the BI agreement.

You were a little bit more explicit than you have been in the past so I want to ask some fairly explicit questions and maybe I will try to ask in a way where there is some flexible here.

Trying to understand a little bit about the gross margin impact.

Firstly, you mentioned that Mobic was no longer exclusive in the second half.

Is that the same as saying it is going to go generic in the second half of next year?

Well, the marketing exclusivity on the drug expires about the same time and that's why that deal structure is set up that way.

We knew that going into it and so the switch from or transition from active co-promotion to sales distribution was timed according to that market exclusivity.

Market exclusivity meaning patent expiration?

Yeah, more or less.

Okay.

Secondly, can you maybe in your internal sort of projections if you can sort of help us quantify what the impact on the gross margin line of that step down is, say over the next 12 months and 24 months and if you're unwilling to do that maybe you can do it in the context of the deal you recently signed for Tarka just to try to understand the give and takes?

Obviously you benefit from getting manufacturing margins and maybe if you're not willing to give us explicit guidance on the gross margin line on the PI agreement would you be willing maybe to net out the effect of both those agreements?

I think that is a valid point when we did the-- This is Tom Freyman.

When we we did the Tarka deal to basically buy out the manufacturing rights, we definitely will be seeing gross margin improvements from that product and, you know, that product, by the way, is on a nice growth trend and we are putting a lot of promotion behind it and it is a high margin product to start with so that will definitely be a positive to the margin equation.

The BI going to distribution will put a little pressure the other way.

The margins will come down a little bit.

But hopefully between that and the other internally developed products which as you know have much higher margins we will be able to get the whole thing more or less stabilized over the next year or two.

But the BI change will put a little pressure on it.

Are you willing to quantify what the current operating margins are on that?

Yeah.

You know, we talked about that Glenn and actually what we announced today is very consistent with what we have been saying all along in that the margins are far lower than, you know, the rest of our Pharma products and this is a step down process with distribution and, you know, very, very manageable situation when we put together our outlooks going forward.

So as a division, do you have Pharma gross margins going up next year?

Yeah, I haven't looked with that degree of detail.

You know, we're just into our planning process and we haven't looked at their buildup yet.

There will be give and take on it that's for sure and obviously the goal of that division longer term is to increase that gross margin ratio and there will be puts and takes because of the issue you raised there.

Thank you.

But HUMIRA obviously is a positive that we hope can drive it our way.

Thank you.

Thanks.

Thank you.

Our next question is from Rick Wise.

Please state your company name.

Rick Wise.

Bear Stearns.

Good morning, everybody.

Good morning.

Let me start off with a big picture question, following a little bit what Glenn said.

Can you maybe help us think through a little bit the '05 guidance?

I mean clearly the flow of new products seems to be accelerating.

There are some offsets that you were just talking about.

Spending, you know, SG&A spending, R&D are high.

Can you help us in some sort of general term this early on I know you're usually reluctant to talk a year ahead but can you help us think through some of the larger trends in thinking about, I mean, the possibility of double digit topline or, you know, low teens, bottom line, sort of directional as we try to put our post despair models together?

Yeah, Rick, this is Tom.

I would be glad to take that question because a lot of the noise that has been created by some out there on 2005.

So I think it is probably a good time to give you, you know our perspective on it at least as we stand right now.

As you indicated and clearly in our press release we haven't provided 2005 guidance today and it is far too early for that.

But we are pretty deeply into our planning process and I guess the color I could provide you and really as Miles has indicated many times in the past as we go into that we definitely target double digit earnings growth and that is our goal and that goal really is not changing at all.

You know, there have been issues raised.

Many of these things we don't think are significant.

The others we think are manageable.

And, you know, I think we are planning appropriately for all that.

I guess as I think about this I would add a couple of more things.

I think as we look at '05 we are a little more optimistic on the revenue side than some of the people out there.

You know, we have seen a lot of broad-based momentum in '04 and clearly as you know we are a broad-based company, we're not a one-product company and we have got a lot of things clicking here.

Now, there are upsides.

I think we see, for example, more upside on HUMIRA than we would see a downside on TAP because we think TAP is going to be managed in the right direction as we and our partner focus on that business.

And I think the point you raise about R&D and SG&A investment is really a good one because if you look back over the last four or five years and some of you have struggled with this but it has been the right thing for the business.

You know, we've invested a heck of a lot in our R&D and SG&A base and we really have built this up, you know, significantly over the last four or five years.

So that has been a good thing because it's really -- it's really fueled a lot of our momentum but I think as you look at '05 and beyond it certainly lessens the need for significant incremental spending.

So I think that is a very valid point and obviously, you know, I think it is important as you look forward not to take management out of the equation.

You know, when we look at the spending we're going to prioritize very carefully.

And when you add that all up I think we're pretty optimistic about our business going forward.

That's very helpful.

A couple of quick smaller follow-ups.

First, you said oral Zemplar I think you -- if I heard you correctly, second half filing.

I think you always said previously mid-'05 as opposed to second half.

Is that getting delayed?

And two other quickies you can just add these.

Growth in diabetes and devices X the respective acquisitions of TheraSense and JOMED if possible.

Just some sense of the growth there, thank you.

Rick, this is John.

I'll take those, thanks, those are good questions.

Let me clarify because there has been no change in our oral Zemplar timing.

It is still this summer.

Sometimes we say second half.

Sometimes we're summer.

You know, and people get caught up on that stuff.

Let me tell you it's going to very soon.

Okay.

So let me be clear about that.

And we are very excited about that product.

You know, that is one that we really, we've talked about but I don't think it has got as much attention as it probably deserves.

We have as many of you know a solid franchise there in the IV form where there is no other product that suppresses PTH better than the IV form of Zemplar.

You know, we have an opportunity to expand that franchise considerably into what could be a billion dollars franchise with an oral product that is an easy product to take that gets into space, you know, early stage patient population where there is a great unmet medical need and there really are no good therapies for Stage III and IV categories.

So, you know, there has been a lot of buzz and some noise about some other products in that category, but really, you know, vitamin D therapies in general Zemplar is the gold standard by far.

There is nothing that can compete with it in terms of suppressing PTH and the other products have issues with hypercalcemia and hyperphosphotemia that are pretty well known.

So that's oral Zemplar, we're excited that's going to be very soon so stay tuned on that front.

And in terms of TheraSense, MediSense we look at that as a global diagnostics or diabetes care business right now.

It's all integrated.

We don't even run the numbers separately any more so I couldn't even give it to you if I wanted to.

Obviously TheraSense was a nice contributor but we also saw very good growth in the base MediSense business from what we can tell in terms of the product distribution and demand and so forth but we are going to be reporting that as a global integrated business and that is the way we look at it.

Okay.

Thank you very much.

All righty.

Thank you.

Our next question is from Dan Lemaitre and please state your company name.

Hi.

It's Merrill Lynch.

Jut one follow-up.

Did you give the combined benefit of all the acquisitions in the quarter?

No.

We didn't.

Probably around in the 2% range.

2%.

Okay.

That's fine, thanks.

And then on the TriCor I think Cathy used the term that your next generation formulation will be shared with us or you'll be sharing that with us by the fourth quarter.

Is sharing a euphemism for launching?

Dan, this is John.

Thanks.

That is an interesting question.

I think we're going be purposefully vague on that one.

We do have the product, we've talked a lot about it, it does have unique patient benefits.

It's part of of our overall strategy as you know to grow that franchise into what we think will be in the not too distant future a billion dollars franchise.

We have a legal strategy, we have a commercial strategy in which the next generation product is the linchpin of that strategy and then of course we have the potential for the combination use of TriCor longer term.

I think all of those things you're going to be hearing a lot more about.

On the next generation product I would just say that we are going to be in a much better position some time during the second half of this year to give you guys more visibility.

How is that?

Okay.

Then just one little follow-up then on the Flomax if the BI sales force takes over promotion here in the second half of the year, will there be a disconnect as they start to crank up so should we calibrate something different in the Flomax sales numbers since you'll still be recording the full Flomax sales?

You know that, hat product is -- we won't see the kind of growth that we saw in the past just because of the market dynamics and the effort that we are putting behind it.

I don't want to speak for BI and what they can do.

You know, clearly, it is a competitive market where our sales force has done a very good job and I think they would agree in over achieving on this.

We will see what they are able to do with it.

I don't think it would be fair to, you know, extrapolate out the trend line on growth like we had it over the last couple of years but again, you know, we will see what they are able to do with it.

But your sense is they are good to go?

As far as I know but again, you know, that's really their call.

Okay, thanks.

Okay.

Thank you.

Our next question is from Mike Weinstein.

Please state your company name.

J.P. Morgan.

Thank you very much.

Just a couple of follow-up questions.

First on the -- with giving back the co-promotion on Flomax could you talk a little bit about what you think you will be doing with that sales force?

What of the reps move to which products?

Yeah, Mike, we haven't given a lot of color on that yet.

We have, you know we have a very it's such a competitive issue.

We have a whole strategy around our primary care sales force and the specialty sales forces in terms of secondary and tertiary details.

We'll employ them on other products and it's, you know, it's likely they will go behind some of products that we have talked a little bit about but not in great detail that are on-market products that have a lot of legs of growth left.

You know, without being specific, but, you know, obviously this are products that are smaller that can grow a lot more rapidly products like Tarka and Omnicef and things like that so we will have to evaluate where we put those reps to maximize the revenue on those products.

We just don't want to get into it too much.

Okay.

That's fine.

With atrasentan the 244 trials with that to the analyst meeting last year which I think was May, I forget, with the conversation there on 244 with the expectation relative to when that trial would wrap up was going to be a lot sooner than what we are talking about today.

I guess you were suggesting earlier that will be sometime in 2005.

Could you maybe just give us some hint as to what's been going on with that trial and why it is taking a lot longer to complete?

Yeah.

Let me just remind people the 244 is our second Phase III pivotal study in nonmetastatic hormone refractory cancer -- prostate cancer patients.

This is a study that we did fully enroll the last patient went in I believe it was around June of 2003.

And at one time, you know, we had early in the process I think at the R&D meeting a year and a half or two years ago, we thought we could get done sooner than we -- you know, than we have more recently talked about and that is -- you know, there is good explanation for that.

We've been discussing it as a 2005 completion.

Not specifically at any time in 2005 because it's hard to predict.

It's a time to disease progression, which means that the longer it takes that is obviously good news for patients.

So it is a very hard thing to predict.

As I mentioned, I think or Cathy did that we have, you know, we are more than halfway through the required number of patients for that trial which is about 650.

We're halfway through that.

We are getting to the point where, you know, we are getting more clarity but again it's a good -- it's a good news thing.

Because the longer it takes the better the drug is working and the more beneficial impact it is having for patients.

Has there been any issue with -- with patient crossover?

Is that allowed or is there a trial design issue that has led to delay?

No, not that I'm aware of.

Okay.

And then the last question just relative to Rick's question on '05 guidance.

Sounds like you guys are still reluctant.

Tom, you were saying the company's goal is double digit earnings growth?

Is that what you guys think you can deliver in 2005?

Is that what you're saying?

I just want to be clear on your comments?

Well, I'm not giving guidance, you're right about that.

But what I'm saying is we go into our process we know what our target is and we are working towards that and we are considering everything in the business from the growth products that are -- that we talked a lot about today to dealing with the issues that have been raised and managing the issues as we are very confident we can do and that is the way I would characterize it.

Mike, I would add in to that that we are not reluctant to give guidance.

It is just not our practice to give it this early in the year.

We traditionally give guidance on the fourth quarter call as do most of our peer group.

Okay.

But you do have guidance next year for HUMIRA.

Correct?

Yeah.

On select big products that people are very interested in we provided certain guidance and we've done that broadly in the appropriate forum.

Okay.

And so just to make sure I'm understanding, so at this point do you think the street should be assuming or thinking about '05 as a double digit year?

I'm telling you what we are targeting and that that is what, you know, we are working towards.

And you all have to make your own forecasts.

Very fair.

Thank you very much.

Okay.

Thank you.

Our next question is from Sara Michelmore.

State your company name.

Yes.

SG Cowen.

Cathy mentioned that the Biaxin XL franchise was 65% of the current Biaxin sales can you just comment on what that percentage is internationally and then also what the international patent expiration situation looks like for next year?

Okay.

Yeah, I would be glad to, Sara.

This is John.

We do have about 65% of the business right now in the U.S. that is in the XL form.

We hope to get that number up to probably 75% by sometime in the first half of next year as we convert over to what is, you know, not only a more convenient form of the drug but also, frankly a better drug that has got a better side effect profile.

Outside the U.S. it is a little bit more spotty in terms of, you know, where -- you know, where we are in different markets because there are different big markets and it is hard to know exactly depending on the country and the market how much conversion there is to the XL form but it is not quite as much as the U.S. right now.

But again it depends on the country.

And the patent situation internationally, John?

Patents internationally, again, they vary country to country anywhere from late this year on some markets out to 2016 on other markets.

I can tell you I know that the biggest chunk of international sales ex-U.S. is Japan that's over 20% of Biaxin internationally and generics there are not a big part of the equation as you know so it's really a non factor and then we are also pursuing some further strengthening of the Cleary patent position in the EU which hopefully as we said before we will be able to provide more clarity on as well.

Okay.

And then on Prevacid, you know, obviously there was a little bit of about face for the top folks there.

I have an idea of what is going on in the market but really what changed there to have them back off of their growth forecasts for the year and predict a 10% decline in the business?

Yeah.

Well, you know, the main thing there that TAP is seeing that I'm sure they all are and everybody is seeing is that the overall branded or prescription PPI market is not growing at the level that was anticipated by I think anybody at the beginning of the year.

The OTC impact from a coloxic OTC as you know, was factored in for most of the companies.

It's probably had more of an impact on the branded side than anticipated or at least the impact has laster longer.

So, you know, the aggressive forecast it looks like was aggressive at this point.

TAP has readjusted, we've factored that into the planning for the second half of the year and we believe taken that risk out of the equation for our investors by doing so and TAP is working on a lot of things there.

They do think the market will recover.

It's not going to be as robust as the recovery once was thought to be.

It has take and little bit longer but there is the expectation that the market -- the branded market will grow albeit at a more modest rate in the second half?

Okay.

So it's -- they're looking at it as a volume issue.

Is there any pricing pressure among the branded products that also impacted their forecast?

Well, I can't speak for the other ones.

You know, Protonics is the price play in this market.

Prevacid alone has been and is on formulary and formulary positions were set earlier in the year so that's not really been a factor.

It's really more of a volume story there and you know they are doing a number of things as Cathy said to turn that around and reoptimize their commercial strategy if you will and their commercial efforts and try to maximize some of these new indications.

The pediatric indication.

The IV indication.

Solutab now makes them the only branded PPI with two oral forms.

So they're working on some things related to that.

So I think it is fair to say that they are taking the steps that they believe are necessary.

We are obviously focused on it with the other parent Takada (ph) in actively managing that and it is getting a high degree of attention by both parents.

Thanks, John.

Okay.

Thank you.

We will take one more question.

And our final question is from Larry Keusch.

Please state your company name.

Goldman Sachs.

Hi, guys.

So just maybe for your John or for Tom, you know, the gross margin improvement year-over-year is really impressive and clearly starting to see an impact from the mixed shift to Pharma.

I'm wondering if you can help us understand within that 170 basis points or any way that you can help us understand this: how much of HUMIRA really starting to contribute to the margin?

Because that would certainly seem to be a big growth driver in margin and obviously has, you know, nice implications going forward.

Well, certainly, Larry, it is a big factor because both when you look at the Pharma margins domestically and internationally they are both expanding and obviously with the HUMIRA progress there that is a big driver.

But just very broadly, if you look at products whether it is Ultane in the international market or, you know, the broad range of growth you saw across domestic pharmaceuticals in the quarter, most of those products with the exception of BI products are either higher margin license products or for the most part internally developed products that is just, it's the mix shift we have all been looking for and that is definitely the promotional focus of the organization.

And I think that is a lot of what you're seeing.

And Tom, is there, again, would you be willing or is there any way to just help us understand the margin around HUMIRA, how much that may have impacted that 170 basis point?

I don't have that Larry and probably as you know, don't provide gross margin guidance by product.

You know, that is probably somewhere we probably just couldn't provide the data.

Okay.

And then just one last question because this may come up in some of the Q&A later.

If you just look at the TRX trends for April and May, if you look at what you reported for Depakote in the U.S., TriCor and Synthroid, there was substantially, I think larger growth rates than what the script trends would indicate so I just wanted to just dispense with the question of, you know, was there any change in pricing, or any change in field inventory levels out there?

Yeah.

Hi, Larry.

This is John.

I will take that.

We are very comfortable with our inventory levels.

I can tell you that at the end of the second quarter we were well under one month which throughout our peer group in the industry is probably at the low end of inventory levels.

We did have with Synthroid some favorable year-over-year comps that you are probably aware of since second quarter of '03 was one of our weaker quarters and sequential growth from the first quarter to the second quarter, you know, was pretty good as well.

So we are comfortable with Synthroid as well, at the end of the second quarter.

So I tell you net-net we are very comfortable.

Okay.

And then lastly just in the range of guidance what at this stage of the game now that the Synthroid decision is behind us and the generics are obviously getting out there what is the big swing factor between the 225 and the 230 now?

I will take that Larry.

Obviously, you know, I think that is getting into almost more of a normal range from a guidance perspective.

What you're probably alluding to is earlier this year when we first gave guidance for the year we did have a bit more uncertainty about Synthroid which has been clarified quite a bit in the last couple of weeks so, yeah, I'd say the vast majority of that is just normal fluctuation of the business.

Probably, if we had to say the thing were, you know, high-end, low-end it probably still would be Synthroid but it's, you know, there is a lot of things going on in the business and I think this is a pretty normal guidance range.

And so you would hope as we move into '05 that we will continue to have guidance ranges or do you think you can as some of the stuff goes away really start to tighten that up where there is more of a point estimate?

We won't go to point estimates.

I mean, this is a huge company where, you know, things happen and things go up and town.

So I think relative to your average company we are awfully close to whatever guidance we provide and we have historically been that at Abbott.

So clearly a range even in the type of range we issued at the beginning of this year is awfully darn tight for your average company and I think if we have clarity on everything and, you know, we tend to be a little tighter and if there is a little uncertainty here and there we would be a little wider.

I just think that's appropriate given the size of this business and how things change quarter to quarter.

You know, you can't predict everything.

Understood.

Okay.

Great.

Thank you very much.

Okay.

Thank you.

That concludes our conference call today.

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Thank you all for joining us and please call us if you have any questions.

Thank you.

This concludes Abbott Laboratories second quarter earnings conference call.

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