美國雅培 (ABT) 2004 Q4 法說會逐字稿

Good morning and thank you for standing by.

Welcome to the Abbott Laboratories fourth quarter 2004 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 a question by pressing star 1 on your touch-tone phone.

Should you become disconnected throughout this conference call please dial 312-470-7334 and reference the Abbott Laboratories call.

This call is being recorded by Abbott.

With the exceptions 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 express written permission.

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

Sir, you may begin.

Good morning and thanks for joining us.

Also on today's call will be Miles White, Chairman of the Board and Chief Executive Officer, Tom Freyman, our Executive Vice President of Finance and Chief Financial Officer, Rick Gonzalez, President and Chief Operating Officer of our Medical Products Group, and Jeff Leiden, President and Chief Operating Officer of our Pharmaceutical Products Group.

Miles is going to make some opening remarks and Tom will review the fourth quarter and year-end financial results and provide more financial detail regarding our outlook for 2005.

Rick will cover the Medical Products Group, and Jeff will discuss performance of the Pharmaceutical Products Group.

Following our comments we'll take any questions, of course, that you may have.

Some statements made today may be forward-looking 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 in the forward-looking statements.

Economic, competitive, governmental, technological, and other factors that may affect Abbott's operations are discussed in Exhibit 99.1 of our Securities and Exchange Commission Form 10-Q for the quarter ended September 30th, 2004, and are incorporated by reference.

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

Today's conference call, as in the past, non-GAAP financial measures will be used to help 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.

In accordance with the SEC's Regulation G and in line with Abbott's standard reporting practices these non-GAAP financial measures are reconciled to the comparable GAAP financial measures in our earnings news release and Q&A issued this morning and available on our website at www.abbott.com.

And with that I'll turn the call over to Miles.

Miles?

Thanks, John.

Good morning.

I hope you've had a chance to review our earnings news release.

Today we reported revenue growth of more than 15% in the fourth quarter and 14% for the full-year supported by strong double-digit sales growth in both our Medical Products Group and in our Pharmaceutical Products Group.

And consistent with our previous forecast we met our EPS commitments for the quarter and for the full-year.

The performance generated by our major operating businesses was impressive.

We continued to see strong double-digit growth in our pharmaceuticals business, while our medical product group delivered its best results in 10 years, including strong double-digit growth in Adult Nutritionals, Abbott Vascular Devices, and Abbott Diabetes Care.

We expect these businesses to grow at similar rates in 2005.

I'm particularly pleased with the performance and the outlook of our Abbott Diabetes Care Business.

The integration of our TheraSense acquisition into our existing MediSense Business has exceeded our ongoing projections.

The Team has executed flawlessly and we're seeing that reflected in higher sales growth, increased market share, better mix, and considerable margin leverage.

In fact, we now project that our diabetes business will be among 6 Abbott products or businesses that approach or surpass $1 billion in global sales in 2005, the others being Humira, Kaletra, TriCor, and, of course, Depakote and Biaxin which already are.

I'd also note that today we confirmed our 2005 sales and earnings guidance that we first provided in December.

We expect to deliver sales growth of 10 to 12 percent this year with ongoing EPS of $2.47 to $2.53.

Our 2004 performance and our outlook for 2005 reflect the actions that we've taken over the past 5 years to build and transform Abbott for higher growth, better balance, and more consistent performance.

We proved that last year as we managed through several difficult situations, some expected, like the entry of generics to Synthroid, and some unexpected, like the disappointing performance of the TAP joint venture.

Yet despite these challenges we achieved a level of performance that met our expectations and in a number of categories exceeded them.

And from what we can tell they met or exceeded yours as well.

And that was our top priority for the year as I indicated on this call 1 year ago.

Our focus for 2004 was winning in the marketplace.

By most measures we're achieving that goal.

Where we need to win, we're winning.

I expect more of the same in 2005.

I'm confident that Abbott can continue to deliver steady, consistent results this year and into 2006, for that matter.

I'll give you 3 reasons why I'm confident in our continued success.

One, is our broad-based model.

Two, is our late-stage pipeline, and three, is our experienced Management Team.

These 3 key advantages differentiate us from our peers.

Tom, Rick, and Jeff will fill-in the color around these points, but let me give you my overall perspective.

First, let's talk about our broad-based model which has been in existence at Abbott for more than 70 years.

Five years ago we were committed to a diverse business approach as we are today.

The difference then is that we weren't satisfied with our mix of businesses and we needed to restock our pipeline in both medical products and pharmaceuticals.

We also had certain businesses that didn't fit our long-term strategic goal to build a broad-based model that was powered by science, innovation, and technology.

Today we're beginning to realize our goal.

Our scientists and engineers are doing pioneering work in the discovery and development of small molecules, biologics, and advanced medical technologies.

We've taken action to build our broad-base of businesses from diabetes care, to vascular devices, to immunology and oncology among many others with a focus on science and innovation first in the most promising new markets with the greatest potential for positive medical impact.

We've also used our strong financial position to add new legs of growth and strengthen our business mix.

We pursued targeted acquisitions in high-growth segments with businesses that compliment our existing market leadership positions.

And we spun off a $2.5 billion hospital products business creating 2 more focused companies for our shareholders.

As an independent company, Hospira has done extremely well both as a public company and as a separate investment.

Of course, that's no surprise to us.

It's a solid steady business.

Today our profile includes 2 large and growing businesses, our Medical Products Group and our Pharmaceutical Products Group.

Each group has clearly defined and complimentary growth strategies that offer one of the broadest and most stable business bases in the health care industry.

It's a unique platform that gives us the ability to deliver steady sales and earnings growth like the numbers we reported today and the numbers we expect to deliver in 2005 and beyond.

It also generates healthy cash flow, which continues to grow at an accelerating rate.

The second point of differentiation is our late-stage pipeline of new products.

In both medical products and pharmaceuticals we've restocked our pipeline to ensure a steady flow of new technologies and new treatments for patients.

I'll let Rick and Jeff cover their respective businesses, but to some of the parts is a deep and diversified pipeline that's being recognized as among the best in our industry, and rightly so.

We've worked hard as an organization to drive greater productivity from our internal science, as well as our newly acquired technologies.

We still have some work to do, but the heavy lifting is over and the results are tangible.

In our pharmaceutical business alone we completed 7 regulatory submissions in the second half of 2004 and we expect this momentum to continue into 2005 as we anticipate a total of up to 10 approvals and filings.

As Rick will explain in his remarks we also have some substantial new development programs under way in our medical technology businesses.

This level of R&D productivity doesn't occur over night.

As you know, we started our work on the pharmaceutical side of the business 5 years ago when we acquired Knoll for $6.9 billion.

In hindsight, it's proven to be worth every dollar and then some.

Humira alone will exceed $1.3 billion in global sales this year and should become a legitimate multibillion-dollar biologic within the next few years with an increasingly attractive profile.

We took a lot of other actions along the way to increase our focus on science, you'll hear meaningful updates on our progress throughout our comments this morning.

The bottom line is that we've seen outstanding results from the work we've completed or initiated on both sides of our business.

In our Pharmaceuticals Business you can see results in the transformation of science, in the productivity of our pipeline and our scientists, and in the consistency of our financial performance, which now includes double-digit sales growth for our U.S. pharmaceutical business in 17 of the last 18 quarters.

In our Medical Products Business you can see results in the improved mix of our med-tech businesses and the new R&D programs that have true blockbuster potential, and in the consistently higher growth we're delivering every quarter.

The third point of differentiation is our Management Team.

In a sector as competitive as ours a company such as Abbott needs a seasoned leadership team with a strong will to compete and win.

Our Company, like our industry has seen its share of challenges, but our people have always responded by taking the actions necessary to defend and grow and adapt our business and increase our market value.

You can expect the same approach going forward.

So in summary I'd say we had a great 2004.

We delivered on our EPS commitments and we surpassed our growth projections in most of our major businesses, as well as the majority of our major branded products.

We expect continued positive momentum in 2005 where we see a number of catalysts throughout the year, including regulatory approvals for 3 new drugs, and several important new indications for our major branded pharmaceuticals.

We'll also introduce a number of new medical technologies which Rick will detail in a moment.

Along the way we'll continue to focus on execution, on science, and on delivering on our financial commitments.

Tom?

Thank you, Miles.

And good morning everyone.

For the fourth quarter we've reported ongoing diluted earnings per share from continuing operations of $0.67, consistent with our previous guidance range of 66 to $0.68.

Sales increased 15.5 percent in the quarter driven by solid growth across many of our businesses.

Growth of 14.4 percent in the Medical Products Group was led by Abbott Vascular Devices and Abbott Diabetes Care, including sales from the acquisitions of TheraSense, as well as EAS.

Sales in the Pharmaceutical Products Group grew almost 17 percent, as a result of strength in a number of products, including Humira, TriCor, Kaletra, Omnicef, and Mobic.

Foreign currency favorably impacted corporate-wide sales by 2.5 percent.

Comparison of the gross margin ratio this quarter to the prior year was impacted by lower margin, Mobic, and Flomax, products co-promoted or distributed under our agreement with Boehringer Ingelheim (BI).

Sales of co-promoted Mobic increased more than 175 percent in the quarter to $258 million.

As indicated on the second quarter call, Flomax transitioned from co-promotion to a distribution arrangement at a lower margin in August 2004.

Excluding this BI effect the underlying gross margin improved slightly over 2003 for the fourth quarter and around 80 basis points for the full-year 2004 reflecting execution of our strategy to focus on higher margin products and businesses.

SG&A increased 7.5 percent in the quarter, and increased more than 14 percent for the full-year driven by the continued spending on major global brands to support future growth.

Full-year increase in R&D reflects our previous mid single-digit forecast.

As previously forecasted TAP sales in this quarter were down from the prior year from an expected decline in Prevacid due in part to reduced purchases by a particular wholesaler as discussed in our third quarter 10-Q.

Lower Prevacid sales reduced our income from the TAP joint venture accordingly.

I'd note that strong performance across our pharma business offset TAP's performance and that in recent weeks we've seen a modest improvement in Prevacid script share.

The tax rate for continuing operations this quarter was 24.2 percent, consistent with previous forecasts.

Turning to the outlook for 2005, as Miles mentioned we expect continued strong growth with EPS guidance of $2.47 to $2.53, and topline growth of 10 to 12 percent.

We're forecasting another year of solid investment in programs to drive future growth.

We project increases in R&D and SG&A in the high single-digits.

Regarding the 2005 gross margin ratio, we anticipate that the ongoing transitional affects of the BI agreement related to lower margins, Flomax, and Mobic will continue to mask the underlying improving gross margin of the business.

As previously discussed Flomax moved to a lower margin distribution arrangement in August 2004, and Mobic does the same in April 2005.

As a result of this transition, and an expected strong Mobic sales contribution of approximately $1 billion in 2005, our overall full-year gross margin ratio is forecasted to be 1.5 below 2004 levels.

This reflects a blended gross margin ratio for the total sales of all 3, BI products, including Flomax, Mobic, and Micardis of approximately 10 percent for 2005.

In fact, to help you better understand how the BI transitional effects are distorting the underlying ratio, I would note that if the BI products were fully excluded from our sales and gross margins the projected 2005 ratio would be almost 59 percent.

Regarding the remainder of the 2005 P&L we're forecasting income from the TAP joint venture of between 425 and $450 million.

Net interest expense somewhat above 2004 and a tax rate of around 24 percent.

We expect operating cash flow to continue to be strong in an excess of $4 billion with free cash flow in excess of $1.8 billion.

Finally, I'd note that our EPS forecast for 2005 excludes the following -- First, to the expensing of stock options that Abbott plans to initiate effective July 1, 2005, now that the FASB has finalized new accounting rules.

By our second quarter call we will provide an estimate of the impact of this accounting change on future reported earnings.

Second, our guidance excludes one-time charges of approximately $0.02 per share.

And finally, it does not reflect any potential future decision to repatriate foreign earnings for purposes consistent with the American Jobs Creation Act of 2004.

If we were to make a decision to repatriate foreign earnings under the provisions of this act, at this point we estimate we could repatriate an excess of $4 billion to the U.S. subject to a one-time tax cost.

Providing today for the first time ongoing EPS guidance for the first quarter of between 57 and $0.59.

Midpoint of this range reflects EPS growth of more than 9 percent.

Looking ahead to the remainder of 2005 we expect mid single-digit EPS growth in the second quarter and double-digit EPS growth in the third and fourth quarters.

With that I'll now turn the call over to Rick who will discuss the performance of the Medical Products Group.

Thank you Tom and good morning everyone.

Let me begin with a year-end review of our 2004 accomplishments in the Medical Products Group where we [achieved 11.3 percent] growth for the year, including acquisitions, and delivered our consecutive quarter of high single-digit to low double-digit growth. [With the strategic] actions taken over the last [couple of months] Abbott is now participating in many of the most attractive medical products segments with a mix of businesses that can consistently drive higher growth over the longer term.

In fact, the average growth of 6 of the 8 MPG businesses exceeded 35 percent for the year.

Our new [decentralized structure replicates the] focus and agility of stand-alone businesses with the advantage of operating under a single company umbrella.

Significant investments in R&D and SG&A have allowed Abbott to build infrastructure and take advantage of our scale and our diverse technical capabilities.

As Miles noted in his remarks our performance in MPG over the last 5 quarters is the best performance we've seen over the past 10 years in our Medical Products Businesses.

At the beginning of 2004 we had 6 strategic imperatives in the Medical Products Group.

In each case we achieved and even exceeded our internal goals.

We significantly improved the revenue growth rate in MPG [and achieved] double-digits while enhancing our operating income profile from the fourth quarter of 2003 of approximately 15 percent to the fourth quarter of 2004 of approximately 18 percent through better business mix and manufacturing cost improvements.

We stabilized and accelerated our U.S. immunoassay business, returning the Diagnostics Division to normal operations, and maintaining our worldwide immunoassay market share above 30 percent, nearly three times that of our nearest competitor.

We completed 80 new diagnostic product launches and placed nearly 1,000 new ARCHITECT Systems worldwide taking our total immunochemistry placements to greater than 50,000 globally.

We expanded ADD operating margins from the mid single-digits into the low double-digits with margins expected to continue to improve over the next few years as we increase manufacturing capacity in Europe, and we reduce our overall manufacturing costs.

We completed a number of strategic acquisitions that strengthened our position in key growth segments of our Diagnostic Device and Nutritional Businesses, including TheraSense and i-STAT.

In the acquisition of EAS, a leader in the U.S. nutritional industry, expands our presence in the Healthy Living Nutritional Category, an important future growth driver for our Ross Business.

We initiated ZOMAXX I, our ex-U.S. drug-eluting stent trial, currently enrolling right on schedule.

Finally, we successfully integrated TheraSense into our Abbott Diabetes Care Business, beating all of our integration objectives, including retaining more than 90 percent of the key personnel, and accelerating the growth of our combined businesses.

Most recently we received conditional approval from the FDA to initiate ACT 1, our asymptomatic carotid stent trial.

We also completed the work on our StarClose PMA, which will be submitted for approval very soon.

As we move into 2005 we plan to build on these accomplishments with the Medical Products Group delivering another year of double-digit growth and with bottom-line growth expected to exceed top-line growth again.

I'll now provide a brief review of our performance in each of the Medical Products Businesses and our expectations for 2005.

In the fourth quarter worldwide diagnostics, which as a reminder includes our Diagnostic Division, Abbott Diabetes Care, Point-of-Care, and Abbott Molecular Diagnostics delivered 15 percent growth, and 11 percent growth for the full-year, reaching $3.4 billion in sales.

In 2005 growth in our worldwide diagnostic segment is expected to be in the low double-digits driven by continued strong growth across most of our Diagnostic Businesses.

For the full-year our core Immunochemistry and Hematology Business delivered low single-digit growth with immunochemistry growth in Europe nearly 10 percent offsetting U.S. declines due to unfavorable comparisons to 2003.

In 2005 we expect this business to deliver mid single-digit growth benefiting for more than 80 product launches and accelerating ARCHITECT placements.

As the U.S.

ARCHITECT menu reaches critical mass it will gain even greater traction in the U.S. market driving increases in U.S. diagnostic market share.

Outside the U.S., as I mentioned earlier, we're expanding our manufacturing facilities to better serve our international customers, the largest and fastest growing geographic segment.

This move is expected to positively impact gross margins, reducing cost of goods.

So in 2005 we expect sales in our core Immunochemistry and Hematology Business to grow in the mid single-digits.

Our Ross Nutritional Business grew nearly 9 percent for the year.

Its best performance in the past 10 years.

Pediatric nutritional performance was driven by market share gains in the non-WIC segment.

In the adult nutritional segment a reinvigorated Ensure brand continued growth in Glucerna and ZonePerfect, and the incremental sales from EAS drove performance in 2004.

In 2005 in our U.S.

Nutritional Business growth will be driven by our Healthy Living Category.

With ZonePerfect and EAS to compliment strong brands like Ensure and Glucerna, Abbott has a commanding market presence in this highly fragmented category.

And we are, in fact, the only category participant that represents all 4 segments; weight loss, balanced nutrition, sports enhancement, and specialty nutritionals.

As the leader in the category Abbott has an opportunity to shape the market as it develops and grows.

Our increased focus on the Healthy Living Category and a more consumer-driven approach to nutritional science is expected to result in strong double-digit sales growth for our Adult Nutritional Business in 2005 with Pediatric Nutritionals delivering mid single-digit growth.

Abbott Diabetes Care delivered more than 45 percent growth in 2004 with strong growth in both the MediSense and TheraSense product lines, and benefiting from the incremental sales in growth of TheraSense acquired in the second quarter of 2004.

The combined U.S. market shares increased nearly 2 points since the acquisition and the sequential quarterly growth is further evidence of our strong momentum.

In 2005 we will continue to drive that strong momentum of the TheraSense FreeStyle Products, leveraging our MediSense international infrastructure to deliver strong growth with the FreeStyle product line globally, as well as the MediSense platform in key market segments.

In late-stage development we continue to advance the Navigator.

Based on our current clinical data we believe that Navigator correlates well enough with traditional finger stick results to justify a replacement claim.

Currently this would be the only continuous glucose monitor to achieve that status.

Continuous monitoring without a replacement claim is estimated to grow to approximately 10 percent of the market or 5 to $600 million.

However, with a replacement claim we believe that continuous monitoring could be a 1 to $1.5 billion market.

Because of the significant incremental sales opportunity we have decided to conduct additional studies to further support that claim.

That decision puts us in a position to launch Navigator early in 2006 supported by the appropriate reimbursement.

So in 2005 even without any Navigator sales Abbott Diabetes Care is expected to deliver 30 percent growth and achieve sales of more than $1 billion with strong [bottom line] performance.

Abbott Vascular Devices delivered nearly 20 percent growth for the full-year, with strong performance in the Coronary and Endovascular Technology Businesses.

The outlook for 2005 is double-digit growth driven by our endovascular technologies and our Vessel Closure Business.

In endovascular the EmboShield PMA, for embolic protection device and carotid stent was filed in September 2004 and is currently under review.

Assuming a normal review timeline Abbott could be second to the market with a self-expanding carotid stent and embolic protection.

Potential market size for the high-risk patient population is approximately $300 million.

The security EmboShield trial dated demonstrates that carotid stenting can be performed successfully in high-risk populations offering a minimally invasive alternative to surgery for these patients.

We're currently planning for a second quarter approval and launch of this product.

In the first quarter we will also be initiating a landmark trial to investigate carotid stenting in patients with carotid disease who have not displayed symptoms, but are at risk.

An indication in this asymptomatic population would expand the market 3 to 4 fold to greater than $1.5 billion.

In Vessel Closure we completed our U.S. pivotal trial for the StarClose Clip-based Closure Device and we will be submitting our regulatory package in the first quarter.

Launched in Europe StarClose is performing extremely well in accounts using competitive systems.

In fact, on a run rate basis our Vessel Closure Business in Europe has grown more than 50 percent since its late 2004 launch.

In the U.S. our StarClose approval and launch is planned for the third quarter.

With regard to our drug-eluting stent program ZOMAXX 1 enrollment is projected to be complete by the end of second quarter.

To date we have enrolled more than 60 patients outside the U.S. and enrollment is on track and accelerating as we add more sights.

The early feedback from clinicians is positive.

They are impressed with the attributes of the TriMaxx stent and its ease of deployment.

Regarding ZOMAXX II, our North America drug-eluting stent program, we have filed our IDE with the FDA and are in discussions.

We now expect to begin ZOMAXX II sometime in the first half of 2005.

Moving on to our Point-of-Care Business, the i-STAT Business returned more than 20 percent growth for the full-year driven by increased penetration of the blood gas market.

We are also focused on the opportunity to provide STAT cardiac assays to the emergency room.

In the first half of 2005 we will launch a companion marker to our i-STAT's [respondent] i-ASSAY, CKMB.

The i-STAT's CKMB assay is a critical cardiac marker that aids in the diagnosis of myocardial infarction.

And later in the year we will launch our third cardiac assay, i-STAT BMP to differentially diagnose heart failure.

Additionally, an i-STAT Chem 8 panel is also in development with plans to launch it in late 2005.

Targeted at the emergency room and the physician office laboratory market the Chem 8 panel will measure 8 key analytes from a single cartridge.

The i-STAT System with its expanding menu provides physicians with the information they need to make rapid diagnose and treatment decisions.

In 2005 we expect to increase sales by more than 25 percent.

Final concepts posted strong growth for the full-year driven by surgical share gains with Fusion Products and Pathfinder, our minimally invasive pedicle screw system.

We also completed the Spine Next acquisition giving us some unique technology in the emerging non-fusion segment of the spine market.

We're particularly interested in dynamic stabilization, which we believe could be 3 to $400 million market.

We recently received conditional approval to initiate our pivotal study on the Wallace Device, our dynamic stabilization product.

We plan to initiate enrollment in the first half of 2005.

The Wallace System has already been successfully implanted in thousands of patients outside the U.S.

Longer term we plan to add to our non-fusion portfolio with 2 artificial disk programs that are currently under development.

In 2005 the Spinal Concepts Business is expected to continue to grow at 2 to 3 times the market rate delivering 40 to 50 percent growth.

Abbott Molecular Diagnostics achieved more than 11 percent growth for the full-year, driven by PathVysion and UroVysion.

In 2005 we expect AMD to deliver nearly 20 percent growth supported by the launch of a real-time PCR platform and continued growth in our devices product line.

We will launch our new real-time PCR platform this summer in Europe with assays, such as HIV, HCV, chlamydia, and gonorrhea.

Real-time PCR is less-labor intensive and offers improved precision and accuracy when compared to conventional PCR.

So in summary the Medical Products Group collectively is projected to deliver another year of strong growth.

We expect increase momentum from the integration of a number of strategic acquisitions that support our strategy of participating in the highest growth segments of the medical product field.

In 2005 we expect mid-teens growth in Ross, including incremental sales and growth from the EAS acquisition.

We expect double-digit growth in Abbott Diabetes Care, Abbott Molecular Diagnostics, Abbott Vascular Devices, and Spinal Concepts as we execute against our plan to build billion dollar businesses in these attractive market segments.

We are encouraged by our progress to date and confident that we can continue to deliver strong growth in 2005 and beyond.

I'll now turn the call over to Jeff for a review of the Pharmaceutical Products Group.

Jeff?

Thanks, Rick.

As you know over the past 5 years we've transformed our global pharma business into one that is focused around two critical attributes.

First, superior science, and second, commercial execution.

In so doing we've built a strong and balanced pipeline, launched several blockbusters, including Humira, Kaletra, and TriCor; diversified our sales across 12 to 15 global brands, many with sustained double-digit growth; and recruited and developed world-class scientific and commercial talent.

In 2004 we focused on 5 critical success factors and we delivered on each of them.

First, we continued the successful worldwide launch of Humira more than tripling sales from 2003, to 852 million this year.

Second, we faced the challenge of generic Synthroid and performed better than our expectations in retaining approximately 70 percent of our original total prescription share.

In fact, 2004 Synthroid sales were 13 percent higher than 2003.

Third, we successfully launched our new TriCor tablets with improved bioavailability and a no-food effect formulation.

Fourth, we executed on our strategy to defend our Biaxin XL intellectual property in the U.S.

We expect to have news on this in the coming weeks.

And finally, we made significant progress in advancing our late-stage pipeline by delivering 7 regulatory filings by year-end.

Despite disappointing performance of TAP and a weak flu season we continue to deliver industry leading results.

In both the fourth quarter and the full-year we delivered strong double-digit sales growth in our pharma products group, which was up 16 percent for the year.

That ranks us among the top of our peers over the past 2 years with one of the fastest growing pharmaceutical businesses in the industry.

For the first time we finished the year with more than $7 billion in sales in our domestic pharma business and our international division surpassed the $6 billion sales mark.

Sales in these businesses are now both double what they were just 4 years ago.

Going forward our story is one of numerous opportunities.

We base much of this optimism on the productivity of our pipeline, which includes both biologics and small molecules, and is balanced between lower risk late-stage opportunities, such as the following indications for Humira, Zemplar capsules, and TAP's febuxostat.

And earlier stage opportunities, such as ABT-874 and Phase II for MS, and ABT-894, an innovative medicine for pain relief.

As you know our clinical strategy is to develop new chemical entities and biologics that address large unmet medical needs, focusing on specialty therapeutic areas.

In 2004 our R&D productivity was evident in the 7 regulatory applications we submitted to FDA.

And in 2005 we look forward to at least 10 new filings or FDA approvals, including the filings of Simdax, Humira follow-on indications, including ankylosing spondylitis, and TAP's asoprisnil for fibroids.

With that let me walk you through the performance of some of our major products in 2004 and provide you with a brief overview of our late-stage pipeline.

Humira achieved full-year 2004 worldwide sales of approximately $850 million.

Several factors drove our success, including the successful international launch of Humira, in which we aggressively captured RA share from our competitors.

We also benefited from the continued growth in the biologics market, which grew more than 30 percent last year and expected to grow at a similar rate in 2005.

In the U.S.

Humira prescription share continues to steadily increase within the self-injectable market for Rheumatoid Arthritis.

We continue to evaluate Humira for the treatment of several other autoimmune diseases that I'll discuss in a moment.

Moving on to TriCor, as expected we received FDA approval of a new and improved TriCor at the end of 2004.

This new TriCor tablet brings additional benefits to patients, including improved bioavailability, offering the same effectiveness at a lower dose than our previous tablets.

Most importantly, TriCor can now be taken with or without food, increasing convenience for patients.

In addition, the new TriCor label includes data from 2 studies in which TriCor was administered in combination with 2 of the leading statins, providing additional information for physicians and patients who are considering combination therapy.

Patient and physician demand for this new product is proceeding well ahead of our expectations.

Longer term we continue clinical trials to research TriCor's benefits in combination with existing lipid-lowering therapies, and we expect to see the results from these trials in the second half of this year.

These possibilities give us confidence that TriCor will remain a valuable therapy for patients for years to come.

Anticipate continued strong double-digit growth for TriCor in 2005.

Regarding Synthroid as we anticipated a generic competition of Synthroid emerged in 2004.

Despite the availability of generic therapies though the vast majority of patients and physicians continue to choose Synthroid.

Full-year sales were up nearly 13 percent reflecting the strong patient loyalty to the brand, unprecedented support from physicians, and the outstanding execution by our sales and marketing team.

After nearly 30 weeks of generic competition Synthroid brand retention remains approximately 70 percent well ahead of a typical generic incursion.

So for 2005 our plan calls for full-year U.S. sales in Synthroid to exceed $400 million.

We certainly hope to beat that forecast, we're just not going to plan for it.

Now on to Mobic.

Sales increased dramatically up more than 175 percent for the fourth quarter and more than 85 percent for the year following the market withdrawal of Vioxx.

In fact, new prescriptions share for Mobic is nearly the highest among branded products, and total Mobic prescription shares have more than doubled since September.

Given recent trends in market share gains we now expect sales of Mobic to be approximately $1 billion in 2005.

Tom indicated Mobic is scheduled to transition to a distribution arrangement in April and this transition is fully reflected in our guidance.

In our anti-infected franchise sales, have by accident, in the U.S. were down compared to the prior year when the flu season got off to a strong and early start.

Omnicef continues to perform exceptionally well, as a result sales growth in our total anti-infected franchise was roughly flat despite the decline in Biaxin.

In 2005 we anticipate a similar situation.

We are forecasting global clarithromycin sales of approximately $1 billion, reflecting the likely entry of generic competition for Biaxin immediate relief tablets in the U.S. after the compound patent expires in May of 2005.

This also reflects the ongoing impact of generic clarithromycin in certain European countries.

In the U.S. to date, as you know, the flu season got off to a mild start, but now appears to be trending upward.

Due to this trend we anticipate relatively strong growth for Biaxin in the first quarter of this year.

This sales guidance assumes no generic competition for Biaxin XL, our once daily version of Biaxin, which has patent protection until 2018.

As we have said we expect to have new information regarding the intellectual property estates surrounding Biaxin XL in the coming weeks.

Biaxin XL, which has an improved side-effect profile over Biaxin currently has approximately 65 percent of our U.S.

Biaxin Business.

And we hope to improve the rate of conversion to XL during this year's flu season.

Omnicef in 2005 we're again expecting strong double-digit growth, offsetting the decline in Biaxin sales.

The remainder of our major pharmaceuticals also performed very well for the fourth quarter and for the full-year.

Kaletra maintained its market leadership position, as the No. 1 protease inhibitor in the world.

We presented unprecedented data that showed HIV patients, new to therapy taking a Kaletra-based regiment did not experience resistance through 6 years of therapy.

This year we expect to improve Kaletra's convenience with approval of once-daily dosing.

Further improved convenience we will file an SNDA this year for a formulation of Kaletra with a reduced pill count, that was developed using our proprietary polymer technology to create a novel tablet formulation. 2005 we expect worldwide Kaletra sales to grow in the low double-digits.

Depakote sales increased more than 10 percent in 2004. 2005 we expect modest growth from Depakote.

So for the overall U.S. pharmaceuticals business, given our momentum, including the continued worldwide launch of Humira and the strength of TriCor, Omnicef, Mobic, and Kaletra we expect our U.S. pharma business to deliver double-digit sales growth.

In our international division sales increased at double-digit rates in the fourth quarter and the full-year.

Pharmaceuticals led the growth, including Kaletra, Clarithromycin, Sevorane, and the additional launch -- and the international launch of Humira.

Also in 2004 we began to launch Zemplar IV in European markets.

In addition, we began the process of submitting Zemplar capsules for approval in European countries.

Zemplar franchise represents a new growth opportunity for the international division that could exceed $300 million long term.

International nutritionals also performed well, up double-digits for the quarter and for the year reflecting a Nutritional Revitalization Program that we put in place in 2003. 2005 we expect the international division to deliver mid to high single-digit growth.

Pharmaceutical and nutritional business components are both expected to deliver sales growth in a comparable range.

Taking a look at TAP pharmaceuticals for 2004, it's expected Prevacid sales were down in '04 as a result of last year's introduction of OTC Prilosec.

In addition, one of TAP's major wholesalers reduced purchases of Prevacid in the fourth quarter, significantly reducing sales as we had discussed previously.

This was a one-time event and was more than offset by the better-than-expected performance of our Abbott Pharmaceutical Business.

For 2005 TAP anticipates a modest decline in Prevacid sales.

Lupron sales were up 3 percent this quarter, the growth seen in the second half of the year was aided by improved year-over-year comparisons, and continuing improvement in Lupron's urology market share.

Modest Lupron sales growth is anticipated for 2005.

Finally, I'd like to review some of the key components in our late-stage R&D pipeline.

First Humira, which we consider a relatively low-risk late-stage opportunity with 6 possible new indications.

These following indications represent an incremental $1 billion in peek-year sales.

Last year we submitted applications to U.S. and European regulatory authorities for approval of 2 of these indications, psoriatic arthritis and early RA.

We're already preparing for Humira's launch in psoriatic arthritis where the Humira data has clearly demonstrated a best in class profile.

This new indication will allow our commercial team to expand its presence in the dermatology market segment, which has been a rapidly growing segment for other anti-TNF self-injectable therapies.

We remain on track with our clinical trial plans for Humira's other indications.

Late last year we started our Phase III clinical trials for psoriasis and we look forward to sharing impressive Phase II clinical data next month.

In 2005 we expect to file applications for ankylosing spondylitis and a rheumatoid arthritis education in Japan, and possibly JRA toward year-end.

In addition, we're on track for an '06 submission for Crohn's disease with a submission for psoriasis expected in '06 or early '07.

Another compound expected to launch this year is Zemplar capsules or oral Zemplar for the treatment of secondary hyperparathyroidism in chronic kidney disease patients who don't require dialysis.

Unfortunately, chronic kidney disease is a rapidly growing epidemic in this country and physicians today have limited options to treat these earlier stages of the disease.

Zemplar capsules is an oral formulation of our IV Zemplar product making it another lower risk opportunity in our late-stage pipeline.

In 2004 we submitted a new drug application for Xinlay for the treatment of men with advanced or metastatic hormone refractory prostate cancer.

A disease where there have really been no new classes of drugs approved in 60 years.

Our second Xinlay trial, Trial-244, studying Xinlay in men with non-metastatic prostate cancer is ongoing and expected to conclude around year-end.

Levosimendan or Simdax continues to progress in Phase III development of chronic heart failure or CHF.

Simdax is a calcium sensitizing agent with vasodilating properties, and the first therapy with a truly novel mechanism action for the treatment of chronic heart failure in more than a decade.

We currently have 2 pivotal trials under way, [Revive II] is a U.S.-based trial assessing the signs and symptoms of CHF.

We completed enrollment of this trial at the end of last year and anticipate having results in the next few months.

Our second trial known as Survive is a large ex-U.S. trial setting the effects of Levosimendan on mortality due to CHF.

We've recently completed enrollment of Survive and hope to share data in the second half of this year.

We expect to submit an NDA for Levosimendan in the U.S. by year-end.

As a reminder, Simdax has already been granted fast-track approval status by FDA.

Our TAP joint venture pipeline has 2 promising late-stage compounds.

TAP filed the NDA for febuxostat for the treatment of gout at the end of 2004.

If approved febuxostat would provide a meaningful improvement for patients, as there's really been no innovation in the treatment of gout in 40 years.

In head-to-head trials febuxostat was found to be more effective than the current standard of care.

Asoprisnil is TAP's compound for fibroids and endometriosis.

Asoprisnil is an oral medication that could change the way that women are treated for uterine fibroids, where today surgery is the standard of care.

TAP's Phase II data has been very impressive and we look forward to the Phase III pivotal trial data that will be presented this year.

TAP expects to submit an NDA in the second half for the fibroids indication.

In addition, TAP is pursuing a number of options with regard to a Next-Generation Prevacid product and we hope to be able to share more information on this development program later this year.

Further back in Abbott's pipeline there are several interesting mid-phase compounds that we plan to move forward this year.

ABT-874 is the second major new biologic developed by the Abbott Bioresearch Center.

It's a fully human anti-interleukin-12 monoclonal antibody that we're evaluating for the treatment of autoimmune diseases, including Crohn's disease, and MS or multiple sclerosis, where it is in Phase II development.

Anecdotal evidence has shown 874 also has impressive efficacy in psoriasis and we expect to begin Phase II studies in psoriasis by year-end.

We plan to move this compound forward in all 3 of these diseases and are currently prioritizing our efforts as we wait for our Phase II results.

Our 2 oncology compounds in Phase II development include ABT-510 and ABT-751.

In pilot studies ABT-510 has shown impressive efficacy in slowing the progression of sarcoma.

We hope to move forward into Phase III trials of this disease late this year.

We have several other innovative therapies in early development resulting from breakthrough science at Abbott and the excellent productivity of our discovery program.

So for our Pharmaceutical Products Group in 2005 we're looking for another strong year.

We expect our U.S. pharma business to deliver double-digit growth, which would be our fifth consecutive year.

And we anticipate a number of new drug launches, a new regulatory submissions, including some exciting new data on many of these compounds.

We look forward to discussing these results with you throughout the year.

With that I'll turn it back over to John.

Thanks Jeff.

We will now open the call up for questions, Operator.

Thank you. [OPERATOR INSTRUCTIONS].

Our first question comes from Larry Keusch.

You may ask your question and please state your company name.

It's Goldman Sachs.

Couple of just quick questions.

First for Tom.

I know that the guidance for 2005 doesn't include any of the options of expensing.

But could you just talk a little bit about any thoughts about using RSU's or accelerating options expense?

Larry, I can't provide too much color there.

I think what you're going to see when we ultimately come up with a number which, as you know this is a pretty complex standard and we really need to study more exactly how to come up with a computation required by the FASB.

But I think you are going to see a number somewhat in the range of what you've seen in our historical footnote disclosures and, of course, we'll only see about a half year of whatever number we end up with.

So I don't think there's anything particular in any of those areas that you cited that are going to drive an unusual result here.

Okay, and then just a quick second question.

Prevacid, I know that talking about some modest declines, could you just talk about whether you believe share will be maintained and declines will be largely just driven by the overall market contracting or any other dynamic there?

This is Jeff.

As you've seen during this last quarter, what's happened is the market has actually started to grow again, so if you looked at the first 3 quarters the market was down in '04 in the range of 8 to 10 percent.

In the fourth quarter it actually grew 4 to 5 percent and we anticipate single-digit growth like that continuing in 2005.

That's consistent with what we've seen with other products during these OTC kinds of launches.

You also probably have watched -- seen if you've watched the script trends that for the last 8 weeks or so Prevacid has stabilized their share in the 28 percent range or so which I think reflects a lot of the efforts that TAP put in place beginning to mid last year.

We anticipate that to continue in 2005, and then that will be somewhat offset by some price decreases with respect to pricing to managed care organizations, et cetera.

So when you take all that together modest single-digit, market growth, share stabilization, and some small price decreases you get the mild to modest decrease in Prevacid sales that we're projecting.

Okay.

Great.

Thank you.

Thank you.

Our next question comes from Glenn Reicin.

You may ask your question and please state your company name.

Good morning, folks.

Bunch of questions.

I'll just throw them out and you can pick out which ones you want to answer here.

Firstly, can you give us a little bit of color on the EPS progression throughout the year?

Why has it bounced around in terms of growth from mid single in the second quarter to I guess double-digit in third and fourth?

Second question, you've been talking about a turn around in the diagnostics division for the first time in a long time you gave us an idea of placements.

Can you give us a sense of growth in placements year-over-year for ARCHITECT in the entire business so we can get a better taste of sort of how secure the growth projections are for this coming year?

And then lastly can you give us a little bit of a sneak preview what in fact you intend to do with Biaxin and what your strategies are to keep generics off the market given the fact that this is not at all protected under the Hatch-Waxman rules?

Glenn, I'll take the quarterly question.

Basically you're looking at fairly stable quarterly activity, a little stronger in the second half, a little weaker in the second quarter.

The second quarter we're really running into some pretty tough comps.

As you recall Synthroid went generic at the beginning of the third quarter and our strongest sales quarter of the entire year for Synthroid was the second quarter.

That's really the main driver for a somewhat softer second quarter than the average trend for the year.

Also, TAP, we do expect some pretty tough comps in the first year, our first half of the year compared to the second half.

And I think as you know TAP had a very difficult quarter in the fourth quarter from a reported earnings perspective and, you're going to see better TAP second half and a little tougher comps in the first half.

Those are really the main reasons for the movement in the quarters.

Glenn, it's Rick.

Let me maybe walk through a little bit of 2004.

Our objective in diagnostics in 2004 was to basically stabilize the U.S. business and I think we've accomplished that if you actually look at the quarter-to-quarter rates you'll see that the decline has basically flattened out, and then in 2005 start to see growth in that business.

And part of that is driven by the fact that we need to expand the menu on ARCHITECT, and as I mention, we've launched now about 80 different products in the diagnostics business primarily on the ARCHITECT platform.

Placements are up worldwide about 25 percent year-over-year and accelerating.

We're winning about 50 percent of the head-to-heads that we get into in the marketplace, which is down probably 10 points from our peak which used to be around 60 to 65 percent.

So I think we're making very good progress there.

In 2005 as we said we're projecting mid single-digit growth and it basically ramps from the first quarter more like low single-digit growth to higher single-digit growth by the end of the fourth quarter, and there are really several elements of that.

First, is the menu in the United States expands to the point by the second half of '05, we have a very competitive menu on ARCHITECT versus the competition that's out there.

Secondly, the launch of Prism will occur and have the majority of its impact in the second half of the year.

And third, we're launching 3 new hematology systems in the second half of the year.

So those 3 elements come together to create the growth that we're expecting in the second half of the year.

And the 25 percent growth those are ARCHITECT placements you're talking about, correct?

Yes.

So what would total immunoassay placements be growing year-over-year with all platforms?

I'm sorry Glenn can you say that again.

If the growth was 25 percent in ARCHITECT, if I added up all the placements among your immunoassay systems, what was the growth year-over-year?

We'll I will tell you Glenn, we will have to get back to you on that.

I don't have that number with me.

Okay.

Glenn, this is Jeff.

On the Biaxin XL question, as you know the composition of matter patent around by Biaxin will expire in May 2005.

But as we have said before we have a very extensive IP portfolio around by Biaxin XL, more than 15 patents in 4 different areas.

And in addition, we have some additional IP that has not yet published, and when we take all together we're very confident that we can defend Biaxin XL.

We'll have some more news about that I think in a few weeks, but I can't say -- give you much more news today.

Can I just push you on that a little bit?

Given the fact that it's not protected by Hatch-Waxman something has to happen in the courts or a generic has to be sort of afraid of, violating the patents that are going to be issuing.

Because so far, obviously, they feel comfortable with the current patent position.

So can you give us a little bit about what to expect mechanically over the next 4 or 5 months, in terms of legal maneuvering?

Well, first of all I can't comment on whether they feel comfortable or not with the existing patent.

I mean I can only comment on where we feel, which is we think that it presents a pretty -- the current patent states presents a pretty formidable barrier to entry, and additional IP that hasn't published presents an even more formidable barrier to entry, and we plan to defend that vigorously as we have all along.

All right.

Thank you.

Next question.

Our next question comes from Mike Weinstein.

You may ask your question and please state your company name.

Thank you.

JP Morgan.

Can you hear me?

Yes.

Okay, great.

Can we just talk for a minute on the BI deal and Mobic?

Mobic was such a big driver this quarter for you guys.

I'd like your thoughts in terms as we look at the next couple of years, particularly post-April when the agreement for Mobic changes hands.

How do you think the street should be looking at this?

Because you're going to have, obviously, this very strong top-line, but it's going to be putting some pressure on the gross margin.

And how should we be considering that difference between the top-line performance and the gross profit performance?

And should we be at this point looking out to what it's going to look like in '08 when everything is gone and stripping that out?

Just want to get your thoughts on that.

Well, Mike I think that's a really good point.

And that's exactly the way -- I mean I think if you want to understand Abbott and where our margins are heading you really need to strip it out and that's why we have tried to provide as much information as we can to day about where we're heading with and without BI.

And I think that's the way you're going to have to look at it.

We'll try to continue to provide that color going forward.

And the overall deal basically is structured to have a gradual decline over the next several years.

As the -- we move to distribution and the arrangement changes over the years.

So I think it's going to be a very manageable situation going forward.

Jeff, if you took BI out of the picture this quarter U.S. pharma was up 7 to 8 percent for the quarter, close to 8 percent.

Would you have a thought without having done the numbers properly on what you think the growth would look like for U.S. pharma ex-Mobic in 2005, just to make sure we understand the guidance?

I'll have to get back to you with the numbers, but I would point out to you that if you look back over the last 5 years, and as we look forward we've produced double-digit growth that was dependent on 12 to 15 brands all growing double-digits not on any single brand.

And so Mobic, I think although it was clearly part of the quarter is by no means the cornerstone of the growth of our pharma business.

Last question for Jeff is, the commentary on Xinlay, when you ran through the Company's late-stage products Xinlay was a little bit further back in the mix than I would have thought it would have been given the --?

It's alphabetical order.

It was alphabetical?

I'm kidding.

There were no apparent order.

I just listed them.

There are so many of them that we had to go through them and put them in some order.

There's not any significance.

They're not set right, Mike.

See we can't figure out, those are those type of patterns we just can't figure out here.

Maybe then just give us your thoughts on the submission and when you'll get some better visibility around the FDA's view of the data set that you have in place and what you provided them today?

Thanks.

What we've provided them to date in the submission, as you know, is all of the data from our Phase II trial 594 and our Phase III trial 211, both of which were in late-stage disease, men with metastatic disease, as well as a meta-analysis of those 2 trials.

And the submission is highly based on the meta-analysis which shows a statistically significant slowing of time to progression with 10 milligrams of the drugs.

As you know, that the drug has received fast-track approval status, which means that we've been submitting the NDA in a rolling form actually for about a year and a half now, and completed that submission at the end of the year.

We think it's likely that this drug will go to an ODAC presentation, although, of course, that's up to the FDA, and so our expectation is that we'll have an ODAC review of the drug at some point in 2005, and then, of course, the timing of how the approval process works after that is up to the FDA.

And what are you guys assuming the '05 model is with regard to timing?

Yes, so I would just tell you there is de minimus sales in our '05 plan for Xinlay because it's going to be -- whatever happens will happen relatively late in the year.

Okay.

Thank you.

Thank you.

Our next question comes from Rick Wise.

You may ask your question and please state your company name.

Rick Wise, Bear Stearns.

Good morning everybody.

Follow-up with some additional pharma questions.

Jeff, when will see some additional clinical data this year, next year, what are some of the key clinical milestones?

And maybe you could expand on your tantalizing comments on the Next-Generation Prevacid; what, where, when, and how.

Let me answer the second part first.

We're not prepared to give you any more information on Next-Generation Prevacid except the fact that there is a far amount of activity going on at TAP, and, of course, TAP will make that information available at the appropriate time.

I think you'll hear more about it this year.

With respect to tantalizing data there's so much of it that it will take me a long time to go through it all.

So I'll just give you a couple of expected highlights.

You will see Phase II data on psoriasis, I think within the next several months for Humira, which I think is very impressive.

You'll continue to see more data on febuxostat from TAP, and I think you've seen some of that showing that febuxostat is significantly more effective than the current standard of care for gout.

You will start to see data on ankylosing spondylitis and JRA, both of which will be submitted this year for Humira.

So you'll see more data on those this year.

I think you'll see more -- you may see more data on Xinlay in some of the earlier parts of prostate cancer and other cancer indications this year.

And we hope to be able to show you data on Simdax, which we'll see in a couple of months from our Revive trial here in the U.S. and that eventually it will be part of our submission because that's a pivotal trial for Simdax.

I'm leaving out a number of other earlier projects, but as I said to go through them all would take a fair amount of time.

I think you will see a lot of data this year though from our late-stage pipeline.

Okay, that's very helpful.

A couple more questions.

On the ZOMAXX I and II trials, maybe specifically the ZOMAXX II, Rick, in the U.S., doesn't first half commencement represent a little bit of stretching out, are there -- is there anything taking particularly long at the FDA to work through?

And how long do you think it's going to -- how long should we assume it's going to take you to enroll once you get going?

Well, I think as far as the FDA is concerned, I mean we've put first half because as you know this is a process by which we get questions back and forth between us and the agency.

I think the process is going well.

I think it's a very positive move.

We submitted the IDE, the FDA has given us back their series of questions, there is some additional data that the FDA would like to see.

We have all that data either available now or will have it shortly and so we're collecting that to resubmit back to them, but we've tried to put a broad enough period in here that we make sure that we're within that window.

It could be a little shorter.

I think it's unlikely that it would be longer than that.

It's still, from a timing standpoint, I think, fits in the enrollment schedule that we've built for the product.

And the close-out time that we expect on the trial at the end to summarize the data still puts us in a window that's consistent with what we've communicated before and that's an '07 kind of launch for this product.

In the U.S.?

Yes.

Okay.

And last, maybe just a broader question for Miles.

Miles, obviously you all continue to look at the portfolio, prune the portfolio, spinoff the portfolio with Hospira, given the substantial free cash that Tom was talking about for '05 maybe just update us on your thoughts about the portfolio, where you might head next, continue to fill-in acquisitions and medical devices here is your priority, just give us some perspective?

We would appreciate it.

Thanks.

Well, I'd say, as I mentioned on the call, to the heavy lifting in terms of transforming the mix of our businesses is done and I look now at things more opportunistically.

We're not looking for particularly large or oversized deals, let me say.

On the other hand, we're always studying where opportunities are to either enhance the current mix of businesses or even potentially to add to it.

But I would characterize any of the things that we might be considering or looking at as more modest size and pretty consistent with the way we've built this portfolio.

We have not gone out and put a significant chunk of capital at risk other than Canole to build this portfolio.

We have tended to buy small to medium and I would say that to the extent that we have sort of anything in our gun sights that might add to our business I'd characterize it as more a kin to the smaller to medium size things over time.

And clearly at a slower pace, much like '04.

We had early in '04 the addition of TheraSense and then a couple of other things by the year-end, Spine Next and EAS.

That was a much slower pace for any kind of deal making than in the prior few years and that's actually what I would anticipate going forward, more at that pace.

So if we think about the nearly 2 billion in free cash and the possibility of the 4 billion in repatriation funds, are acquisitions the top priority as opposed to dividend or share right buybacks?

No, Rick, I wouldn't say acquisitions are a particularly high priority.

I'm only going to react to them as opportunities sort of commands.

I wouldn't make it sort of a high priority.

We did announce a share repurchase program on the third quarter earnings call.

We don't forecast our share repurchase intentions, but we've historically completed those programs within a couple of years.

And we've always announced them a little more modest size and so forth.

We certainly will have a fair amount of strategic flexibility in the event that we should choose to repatriate cash.

The cash flow is healthy.

We always look at our mix of debt and equity.

There's lots of possible things to do with cash.

We've got a nice history of dividend payout and so forth.

So we're always looking at the right balance to keep the investor satisfied with the investment.

Thanks, Miles.

Thank you.

Our next question comes from Glenn Novarro.

You may ask your question and please state your company name.

Sure.

Bank of America.

Can you guys hear me okay?

Yeah, we can hear you, thanks.

Just for Jeff, you mentioned TriCor that we're going to see some data later this year.

Can you tell us which statin you're combining TriCor with, and then the data that we are going to see, is this Phase III data that would lead to a filing of the drug, or is this just feasibility Phase II data?

Thanks.

So we're looking at TriCor in combination with a number of other lipid lowering agents.

I think this year you'll see data on Lipitor and Crestor.

And with respect to our regulatory strategy we really haven't talked about that publicly yet and probably this isn't the time to do that.

But we are seeing data that looks favorable both from us, but from others as well.

As you know last year there was data published on the use with Lipitor and Zocor, both of which looked quite promising, and there's some data in the label of the NFE on Lipitor and Pravacol combination use.

So I think we're gaining a lot of experience of the use of this drug, and physicians and patients are with statins, we will also be looking with some other lipid lowering agents.

And we'll see that coming over the next year or two.

And just to clarify this is not 1 pill, but it's 2 separate pills taken together?

Right.

Correct.

Okay.

Thank you.

Thanks.

Thank you.

Our next question comes from Katherine Martinelli.

You may ask your question.

And please state your company name.

Great.

Thank you.

Merrill Lynch.

Just wanted to ask a question on the diagnostics business specifically with respect to the gross margins because -- or the operating margins because that seems to be one of the other moving pieces.

If I'm remembering correctly they had gone down to the single-digits and I think they had rebounded fairly quickly to the low teens in the third quarter.

Can you give us some sense where those margins went in the fourth quarter and what you might be thinking about for 2005 as you get more critical mass?

Katherine, it's Rick.

As I mentioned in my comments we were slightly above mid single-digits a year ago in operating income profile and we're roughly pretty close to 12 percent now.

We expect it to continue to improve over the course of the next couple of years as we transfer more and more of the capacity for the ex-U.S. business over to our facility in Europe.

And about a third of it will transfer in 2005 and by the end of 2006 we'll be at about 80 percent capacity being served out of that facility and that gives us a ramp that basically will get us into the mid-teens kind of range over the course of the next of 3 or 4 years.

Okay.

Great.

Thank you.

And then on the Humira number the north of 1.3 billion you're targeting this year, is that assuming just greater market share for the rheumatoid arthritis market or are you now dialing in a little bit more in terms of off-label in terms of the difference between what you were previously targeting?

Either off label or the indications you filed for in the fourth quarter?

The north of 1.3 billion is in rheumatoid arthritis.

As you know we won't have any of our new indications approved until the end of the year in 2005 and so we don't have any sort of significant sales baked in for the other indications until 2006.

Okay.

Great.

And then just one last question on the DES.

I think if I heard you correctly you said you've enrolled 60 patients and I believe that trial was targeting something like 400 with 30 centers currently enrolling.

Just trying to understand the timing for completing enrollment in the second quarter, if that could get pushed off a bit because it seems like it would be a pretty significant ramp from where you are right now.

Kathryn, it's Rick again.

If you look at the ramp we obviously, ramped the sites over a period of time.

We have roughly 10 sites that are up and running right now enrolling patients.

We're slightly over 60 and then obviously, we're ramping more and more sites.

So we're tracking right on the trend line now and we review this obviously, every week to look at where we are and I have confidence that we'll finish the enrollment by the end of the second quarter.

Okay.

Great.

Thank you.

Thanks.

Thank you.

Our next question comes from Sara Michelmore.

You may ask your question.

And please state your company name.

Yes, thank you.

SG Cowen.

Tom, thanks for the BI blended gross margin.

I was wondering if you could give us a comparison for 2004?

And am I right to assume that in 2006 that blended gross margin would be somewhere south of 10 percent?

Regarding 2004 that's an area that because of our contractual arrangement and the services we are providing we've hesitated to provide a lot of detail on that.

And now that we're moving into distribution we're a little more comfortable providing it and that's why we provided it in 2005.

So certainly in 2004 it was a higher percentage and it is going down next year. 2006 I think you'll probably see a slight decline.

And this gets again into the gradual change in BI over the long -- the remainder of the contract period.

So I'd say slightly lower in '06.

Okay.

And what are you assuming in terms of Mobic generic competition?

I know there's an issue with the exclusivity and when people can file ANDAs, but what should we think about in terms of the timing of Mobic generic competition?

Yes, because -- this is Jeff.

Because BI holds the NDA for Mobic, we've been referring all questions about generic competition to them.

It's more appropriate I think for you to ask them.

Okay.

Jeff, just a follow-up on Xinlay.

I'm just wondering, I think the non-metastatic trial is closing a little bit delayed from what I was expecting.

As we think about trying to come up with some sales estimates for Xinlay looking into 2006, 2007 how critical is that non-metastatic data set?

And are there any other Phase II or earlier studies and some other indications that we should be looking out for over the next 12 months?

Yes.

In terms of 244 as I said in my comments we're looking for it to end likely some time late in 2005.

Our current LRP only contemplates sales from the late stage metastatic indication, so we haven't built sales in from an earlier stage disease that would be an upside to our LRP.

And in terms of other indications, I think I've talked before about the fact that we have 3 other tumor types that we're looking at in Phase II, and we have some earlier stage prostate cancer trials going -- likely you can hear about those late -- I would say late this year.

Some of them.

Okay.

Great.

Thank so you much.

Thank you.

And we have time for one more question Operator.

Thank you.

Our next question comes from Bruce Cranna.

You may ask your question and please state your company name.

Hi, good morning.

It's Leerink Swann.

Hi.

Jeff, could you just talk a little bit more about Biaxin?

I think you mentioned a weak start to the flu season this quarter and I'm curious is that the extent of it or do you think there was potentially some destocking in front of the generic launch or if not I guess should we be thinking about perhaps that being a factor in Q1?

Yes, with respect to destocking we haven't seen any evidence of destocking and we're obviously, watching inventory levels there for both the IR and the XL very carefully.

So I don't think that's going to be an issue or a problem.

This was a very weak start to the flu season.

You remember last year in late 2003 we had this very early start which then trailed off very quickly in January, February, and March.

This year January, February, and March look the same, we just didn't have that early start in December.

So it has been a very slow start to the flu season, that's predominantly responsible for what we're seeing with Biaxin.

I guess the only good news, if you want to call it good news, is that we have seen an uptick in the fan data just recently now in the last 7 to 10 days and so that usually indicates the beginning of the flu season.

Of course, we'll have to see the extent and the length.

The only other interesting thing I'd say about that is with respect to Omnicef, what's been interesting is despite the weak flu season we've had a very strong Otitis media season, which is not completely typical in terms of that lack of concordance.

And so our Omnicef oral suspension has actually been doing significantly better than our expectations.

One of the advantages of having 2 different antibiotics in very different categories.

And then in '05 as we go forward as you know both Zithromax and [Sepsil], which compete directly with Omnicef, are likely going to go generic.

And so that Omnicef will really be the only -- a brand that's foreign that will -- being promoted.

But we have -- we're quite enthusiastic about how Omnicef will do.

The final thing that I would say is we launched the new double-strength formulation of Omnicef, the 250-milligram formulation last year and that also has been doing significantly better than our expectations because older parents of older children have really embraced that product even better than we thought that they would.

So I think what you'll see this year is this balance between Biaxin, which will decline slightly and Omnicef, which is doing a little better than our expectations.

And I know you mentioned the conversion number in the U.S.

I think it's around 65 percent or so what are your thoughts about OUS?

I mean, how do you think that conversion number looks in '05?

Ex-U.S. is a much, much more complicated situation and I'm not going to have time to explain it all to you.

But conversion is less of a factor ex-U.S. for a number of reasons.

First of all, we have different formulations, XL and MR is once-a-day in different countries.

But more importantly it really varies country by country as generics come in.

So, for example, we've had generic Biaxin in Spain now for a couple of years and they really haven't picked up much share.

On the other hand, in the U.K. where we just had generic by accident introduced, the generics will pick up, we think 80 percent or so of the share.

So it really goes country by country all of which is factored into our guidance.

But the point is the ex-U.S., it is not really the conversion rate that is as important, it's IP protection, which we have still in the large number of countries until '08 or so.

And then it's how the generics come into the market place.

And in many of these countries as you know they aren't really as much of a threat or factor.

Thank you.

Maybe just a quick one for Rick.

Rick, you mentioned immunochemistry business in '05.

I think your thought was maybe mid single-digit growth for this year.

In terms of geographically do you think it's likely to look similar to this year?

In other words, flattish domestically or still more of a challenge and then the growth predominantly U.S.?

Or is that not a good way to think of it?

I think you'll still see that the international market will grow faster in '05, but the U.S. market will grow more significantly in '05 as well.

So we should be thinking of a positive number on the U.S. side?

Correct.

Okay.

Thank you.

And just to clarify as we end here, when we talk about immunoassay growth we're talking about the segment within the ADD reporting segment.

So ADD reporting segment that you will see in our numbers is growing at double-digit rates.

Thanks for joining us, that concludes our conference call today.

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