美國雅培 (ABT) 0 Q0 法說會逐字稿

Good morning and thank you for standing by.

Welcome to Abbott's second quarter 2005 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 keys on your touch-tone phone.

Should you become disconnected throughout the conference call, dial 1-312-470-7334, and reference the Abbott 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 express written permission.

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

Sir, you may begin.

Thanks.

Good morning, and thanks everybody for joining us.

Also on today's call will be Tom Freyman, our Executive Vice President of Finance and Chief Financial Officer.

Tom will review the second quarter financial results and I'll cover the operating highlights in the Pharmaceutical Products Group, and the Medical Products Group.

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

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

We caution that these forward-looking statements are subject to risk 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 quarterly report for the period ended March 31, 2005, on Securities and Exchange Commission Form 10-Q and are incorporated by reference.

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

In today's conference call, as in all calls, 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, SG&A, and R&D, each excluding one-time items.

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

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

Tom?

Thanks, John.

And good morning, everyone.

Regarding second quarter EPS we reported diluted earnings per share from continuing operations of $0.58 within our previous guidance range of 56 to $0.58.

Sales increased 17.5% driven by strong performance across our businesses including double-digit growth in both our Medical Products and Pharmaceutical Products groups.

Foreign currency favorably impacted corporatewide sales by 2.3%, and acquisitions favorably impacted sales growth by slightly more than 1% as a result of EAS sales within Ross Products.

The strong sales performance exceeded our original forecasts and led to a higher than expected gross margin contribution of more than $2.9 billion in the quarter.

The higher than expected sales growth was primarily driven by the lower margin BI products, Mobic and FlowMax.

While these sales led to a higher absolute dollar level of gross margin they also had a dilutive effect on the gross margin ratio which was 52.9% in the quarter.

Strong performance of Mobic, which increased more than 200%, as well as double-digit growth in FlowMax contributed to the difficult ratio comparison.

In addition, while foreign exchange had a positive impact on revenue growth, there was a negative impact on the gross margin ratio in the quarter.

As expected lower sales of Synthroid also affected the ratio comparison to 2004.

Given the strength of Mobic, which is on track to exceed our previous full-year expectations, and the exchange effects seen today, we are now forecasting a full-year 2005 gross margin ratio of approximately 53%.

As detailed in our earnings news release today, we're taking actions to reduce costs and improve gross margins, which I'll discuss in a moment.

SG&A expense this quarter grew double-digits which exceeded our previous forecasts.

This was driven by continued investment in new and ongoing promotional programs associated with many of Abbott's major global brands, including the launch of Zemplar capsules which was approved in May.

R&D investment this quarter reflected high single-digit increase within the Pharmaceutical Products Group, partially offset by lower Medical Products Group R&D which largely reflects the timing of program spending.

Looking ahead to the second half of the year, total R&D investment is expected to accelerate, particularly in the third quarter, where we forecast a double-digit increase.

For the full-year, we expect R&D investment to increase in the high single-digits, as previously forecast.

Income from the TAP joint venture this quarter was $107 million, slightly ahead of our previous forecast.

We expect continued sequential growth in this income over the remaining two quarters of 2005.

We continue to forecast income from the TAP joint venture in the range of 425 million to $450 million for the full-year 2005.

Tax rate for ongoing operations this quarter was 24%, consistent with previous guidance.

During the quarter we sold the remaining portion of our Rapid Diagnostics Test portfolio, a non-strategic asset to us, resulting in an after-tax gain of $32 million.

Approximately half of this gain supported the additional investment in SG&A previously mentioned, while the other half supported earnings per share performance at the high end of our guidance range.

As mentioned earlier, we have initiated further actions to reduce costs and improve gross margins.

Upon full implementation, these actions are expected to yield annual pre-tax savings in excess of $200 million, the majority of which will benefit gross margin.

These efforts began in the first and second quarters, as we consolidated certain aspects of our global manufacturing operations, and also initiated selective reductions in staffing.

The second half of 2005, we anticipate approval of plans to further realign our global manufacturing operations.

As a result of product reregistration time lines required under manufacturing regulations in a number of countries, this manufacturing realignment will continue into 2006.

We forecast one-time after-tax charges associated with these initiatives of $215 million in the second half of 2005, and $60 million in 2006.

Regarding guidance for the full-year 2005, we are confirming our ongoing earnings per share guidance range of $2.47 to $2.53.

For the first time, we're providing earnings per share guidance for the third quarter of 56 to $0.58, which reflects double-digit increases in both R&D and SG&A, as well as continued double-digit sales growth.

Finally, looking ahead to the fourth quarter of 2005, I'd remind you that earnings per share is expected to be positively impacted by a favorable comparison to 2004 in the TAP joint venture income, which is forecasted to nearly double from the fourth quarter of 2004 contribution of $68 million.

With that, let me turn it over to John for a review of the business operating highlights.

John?

Thanks, Tom.

Our Pharmaceutical Products Group in the quarter delivered another strong growth quarter up 18%, with both our Abbott international and U.S. pharmaceutical business contributing strong reported sales growth.

In our immunology franchise, HUMIRA worldwide sales were $320 million, up nearly 60%, and on track to reach our 2005 global sales forecast of more than $1.3 billion.

There are now more than 110,000 patients who are benefiting from HUMIRA including those in our patients assistance programs.

This is a 60% increase in the number of patients from a year ago.

In June, the EMEA issued two positive opinions recommending the approval of HUMIRA for early rheumatoid arthritis and psoriatic arthritis.

Our early RA clinical data has shown that early, aggressive, intervention with HUMIRA provides the most favorable outcomes when compared to conventional therapy.

We look forward to educating physicians about the clinical and patient benefits of using a biologic earlier in the treatment path.

Psoriatic arthritis represents the first new disease state indication for HUMIRA outside of rheumatoid arthritis indication, and allows our commercial organization to expand in the dermatology segment.

These positive opinions were received earlier than anticipated, and the EMEA is expected to issue final approval at the end of September.

We'll launch these indications across Europe beginning later this year.

And in the U.S. we continue to plan for a fourth quarter launch of early RA and psoriatic arthritis.

The U.S. dermatology market has been a new growth segment for anti-TNF and self-injectable therapies providing an opportunity to allow patients to benefit from HUMIRA's exceptional efficacy data in diseases that affect the skin, such as psoriatic arthritis and psoriasis.

Moving on to anti-virals, worldwide says for Kaletra were flat in the quarter and up 11% through the first half of the year.

Kaletra remains on track for full-year double-digit growth and we continue to forecast global sales of Kaletra that will approach a billion dollars this year, growing double-digits worldwide, with stronger growth expected outside the U.S.

During the quarter, we received FDA approval for once daily Kaletra, offering patients improved dosing convenience.

In addition, we submitted a supplement the NDA to regulatory authorities for the approval of Kaletra tablets.

These are a new, more convenient formulation of Kaletra, which allows patients to take fewer tablets per dose as part of their treatment regimen.

Importantly, Kaletra tablets will not require refrigeration.

The FDA recently assigned priority review status to Kaletra tablets moving our approval expectation up to the fourth quarter of this year, which is ahead of our original time line.

And our global anti-infective franchise which includes both Omnicef and Biaxin, sales grew 10% in the second quarter.

Omnicef in particular had another outstanding quarter with sales growth of more than 60%, which is its 16th quarter of double-digit growth.

Regarding Biaxin, global sales through the first half of the year were more than $600 million, and that's well on track for our full-year expectation of approximately a billion dollars in global sales.

In the U.S., prescription trends were in line with our expectations.

Regarding Biaxin XL, on June 3, the U.S.

District Court in Chicago granted Abbott a preliminary injunction against Teva.

The court ordered injunction prevents the sale of their proposed generic XL product until a verdict is reached in the patent infringement trial which isn't likely to begin until sometime in 2006.

And as reminder, our patents on XL extend until 2017, and we obviously plan to vigorously defend our intellectual property.

Preliminary injunction hearings with two other generic companies are scheduled for September.

As a reminder, Biaxin XL remains the preferred form of Biaxin and accounts for approximately 70% of Biaxin prescriptions in the U.S.

Moving on to Synthroid.

Synthroid sales of 113 million in the quarter were consistent with our previous forecasts.

We continue to anticipate that U.S. sales of Synthroid will exceed $400 million this year.

With regard to TriCor, underlying prescription demand was strong again this quarter with sales up more than 20%.

The launch of new TriCor has exceeded our expectations with 99% of TriCor patients now prescribed the new tablet.

As a reminder, our new TriCor tablet brings additional patient benefits including its ability to be taken with or without food, increasing convenience for patients.

And we continue to expect full-year sales of TriCor will approach a billion dollars.

Longer-term, we believe TriCor will have a unique role as a combination product, and we've initiated several studies to evaluate the significant market opportunity.

In our neuroscience franchise, Depakote sales for the quarter were up roughly 4%, consistent with our forecast for modest growth.

Later this year, we anticipate hearing back from the FDA regarding approval of our new indication for Depakote ER for bipolar disorder.

Depakote ER now accounts for approximately 45% of total Depakote prescriptions.

In our renal business, in May we launched Zemplar capsules.

The oral formulation of Zemplar IV, which is our leading Vitamin E therapy for treating a complication of kidney disease called secondary hyperparathyroidism.

Zemplar capsules received approval for both treatment and prevention of secondary hyperparathyroidism and pre-dialysis kidney disease patients.

It's the first oral therapy approved by the FDA for this broader claim, and this product has a very clean side effect profile helping to expand its reach to pre-dialysis patient population.

We continue to forecast that total Zemplar franchise sales will reach a billion dollars over time.

In our anesthesia business, worldwide Ultain or Sevorane sales were up nearly 18% for the quarter.

U.S. sales were up nearly 30% based on strong underlying demand for the product as well as favorable comps to the second quarter last year.

So for the overall U.S.

Pharmaceuticals business, our performance remains on track to achieve double-digit growth this year with double-digit growth projected in the third and fourth quarters, as well as full-year.

In our Abbott International Division, International Pharmaceuticals reported high teens growth this quarter, including the impact of exchange.

This was due to the continued successful global launch of HUMIRA and continued strong growth of claithromycin or Biaxin as well as Sevoflurane.

International nutritionals contributed mid teens growth in the quarter with continued strong performance in both pediatric and adult nutritionals especially in Asian countries.

In looking ahead to the remainder of the year, we expect Abbott International to deliver double-digit growth for the third quarter and for the full-year.

Taking a look at TAP Pharmaceutical products in the quarter, sales this quarter were consistent with our expectations with slightly better-than-expected Prevacid volume offset by some pricing pressure in selected segments of the PPI market.

And as expected, Lupron sales were down modestly.

Lupron continues to gain market share, up roughly 7 share points to nearly 64% over the past year, further strengthening its position as the market leader.

However, market growth in the urology segment has declined compared to the prior year, due to the impact of changes in physician reimbursement as we discussed on the first quarter call.

TAP continues to expect a modest decline in both Prevacid and Lupron sales for the quarter.

And as Tom stated, our forecast for income from the TAP joint venture in the range of 425 to 450 million for full-year '05 remains unchanged with a particularly strong quarter in the fourth quarter due to the favorable year-over-year comps.

Now, let's briefly turn to our pipeline in pharmaceuticals where HUMIRA follow-on indications continue to track on schedule.

In addition to the expected fourth quarter launch of two new indications, psoriatic arthritis and early RA, HUMIRA development is progressing for four additional indications.

Psoriasis, Crohn's disease, ankylosing spondylitis and juvenile rheumatoid arthritis.

Of these four, we plan to file for ankylosing spondylitis and possibly JRA by year-end as well as RA in Japan.

In the 2006/2007 time frame, we expect to file for both Crohn's disease and psoriasis indications.

In Crohn's disease, we recently presented Phase III data that showed nearly four out of five patients treated with HUMIRA experienced a sustained and significant disease improvement, with one out of three achieving remission.

We also presented psoriasis data earlier in the year that continues to demonstrate HUMIRA's significant benefits in diseases that affect the skin with clinical data superior to other self-injectable anti-TNF therapies.

With regard to Xinlay during the quarter, we received permission from the FDA to initiate an expanded access program in men with metastatic, hormone-refractory prostate cancer.

That program will begin later this summer.

In September Xinlay will be discussed at the Oncology Drug Advisory Committee, known as ODAC, with an FDA decision expected in the fourth quarter of this year.

Simdax, our treatment and development for acute heart failure, has two Phase III pivotal trials that are now completed.

We hope to share data from the revised trial, our signs and symptoms trial, and possibly the survived mortality trial before year-end.

We also expect to file an NDA for Simdax by year-end.

Finally, TAP is gearing up for a fourth quarter launch of febuxostat for gout, the first new treatment for gout in 40 years.

TAP continues to forecast market potential of more than $500 million for febuxostat in part due to the fact that there's been no innovation and no promotion in this market for decades.

TAP's compound for fibroids is [OPRIZNAL], is in Phase III development.

So our pipeline remains what we think is one of the most productive in the industry.

Our focus on science has turned our R&D investments into significant pipeline opportunities that will continue to sustain our business for the long-term.

In addition, we continue to see outstanding commercial execution from the sales and marketing teams within our Pharmaceutical Products Group, which by the end of this year will have grown six products into billion dollar drugs over the last five years.

We expect that same level of execution as we launch more than 10 potential new drugs and indications over the next coming several years.

With that, let me move on to our Medical Products Group where we reported double-digit growth again this quarter.

In our worldwide diagnostic division, sales were up 13%, including outstanding performance from Abbott Diabetes Care, where Abbott continues to gain market share with its FreeStyle and MediSense glucose monitoring products.

In Abbott's core diagnostic business, which includes immunoassay, clinical chemistry and hematology, global sales this quarter were up mid single-digits, with high single-digit international growth, offsetting the expected U.S. decline, which was in line with our forecast.

The U.S. business improved sequentially from the first quarter and is now improved sequentially in each of the past six quarters.

ADD continues to generate positive momentum with new product launches, accelerated placements of new systems, and new customer contracts.

To that end, ADD has completed more than 20 new product launches in the quarter, and submitted a 510(k) premarket notification to the FDA for the CELL-DYN Sapphire, an automated high volume hematology instrument.

Sapphire's international launch has exceeded our expectations with placements tracking ahead of plan.

Also during the quarter, ADD placed more than 450 ARCHITECT systems worldwide.

That's in the second quarter alone.

The division has now placed more than 800 ARCHITECT systems in the first half of this year, and we're on track to surpass ADD's goal of 1500 placements this year alone for a total of, right now, 3300 ARCHITECT placements around the world.

Abbott recently secured three long-term diagnostic contracts for immunoassay and clinical chemistry systems.

These multi-year deals include placements of more than 80 new ARCHITECT modules as well as AxSym instruments and TESS clinical chemistry assays and lab automation solutions.

The combined sales of the agreements which range in term from five to nine years is projected to exceed $120 million over the life of the contracts.

In addition, China's Ministry of Health agreed to purchase 550 of Abbott's CELL-DYN 1800 hematology instruments as part of China's investment in upgrading its network of 1,000 hospitals and clinics to treat infectious diseases.

As we've discussed in the past, the diagnostic division continues to streamline its global manufacturing with the construction of two new manufacturing plants and the expansion of other facilities in Europe.

These efforts will help ensure continued margin expansion in ADD.

And of course later this month at AACC, the meeting in Orlando this year, will be showcasing a number of systems including the ARCHITECT ci8200 and the i200SR as well as the new CELL-DYN hematology analyzers.

We'll also feature the prototype for our newest integrate immunochemistry analyzer, the ARCHITECT ci16200 designed for the high volume lab, and the i1000SR, which is our newest immunoassay analyzer in the ARCHITECT family.

We plan to launch these new ARCHITECTs in the second half of 2006.

In Abbott Diabetes Care, sales grew more than 30%, almost 35%, as the business continues to gain even greater momentum, driven by new product launches, excellent execution, which has led to continued U.S. market share gains.

At the recent Abbott American Diabetes Association meeting, Abbott introduced its FreeStyle Freedom glucose meter.

The new meter features a larger screen display and a fast five-second average test time requiring just 0.3 micro liters of blood.

FreeStyle Freedom will officially launch in August.

Also at ADA, Abbott features its G3C Precision strip which allows Precision Xtra Exceed users to achieve an accurate glucose reading in just five seconds.

In addition to these 2005 product launches, our Navigator continuous blood glucose monitoring program remains on track to launch in the first half of 2006.

During two recent diabetes meetings, data from a head-to-head study of continuous glucose meters, monitors, demonstrated that Navigator was superior in terms of readings in the critical hypoglycemic range.

In our molecular diagnostic business, sales in the quarter grew more than 35%, driven by sales of PathVysion and UroVysion.

During the quarter, Abbott and Solera Diagnostics announced CE Mark certification for a realtime PCR test for monitoring HIV-1, viral load in patients.

The test, which was designed for use on Abbott's automated m2000 system, which also launched this quarter, can rapidly detect an HIV viral gene sequence.

We plan to launch a realtime PCR test for HCV in Europe during the third quarter, and we expect to launch realtime PCR assays in the U.S. in the first half of 2006.

Turning to our point of care business, sales in the quarter grew more than 20%, driven by i-STAT's continued penetration of the blood gas market and the growth of troponin, an assay that allows physicians to diagnose myocardial infarction at the patient's bedside.

Later this month, Abbott will launch two additional cardiac assays.

The i-STAT's CK-MB assay helps physicians determine if a patient has experienced a heart attack. i-STAT BNP helps diagnose the presence of heart failure.

This quarter we'll launch the FreeStyle connect, the hand-held point of care blood glucose testing system, which features outstanding analytical performance, requiring the smallest sample size and the quickest result.

We'll also feature FreeStyle Connect at the upcoming AACC meeting.

Additionally, we're on track to launch the i-STAT Chem 8 panel by year-end.

This is targeted at the emergency room and physician office laboratory where the Chem 8 panel measures eight key analytes from a single cartridge.

Looking forward to the third quarter in our worldwide diagnostic division, we expect continued double-digit sales growth led by strength in diabetes care, molecular and point of care, as well as improving trends in our core immunochemistry business, particularly in the U.S.

Now turning to our Abbott Vascular business which grew nearly 20% in the quarter, enrollment in ZOMAXX I, our 400-patient ex-U.S. drug-eluting stent clinical trial, is proceeding as planned with approximately 360 patients now enrolled.

ZOMAXX I enrollment should be completed within the next 30 days, on track for CE Mark in the second half of 2006.

This quarter, we began enrolling patients in ZOMAXX II, which is our U.S. trial.

This is a non-inferiority trial comparing ZOMAXX stent, the Taxus Express stent with the primary end point of nine-month TVR.

Our ZOMAXX stent platform features our differentiated bare metal trimax stent, which was recently launched in Europe.

We've received very good feedback from physicians.

They find the stent very flexible and deliverable.

Preliminary data at PCR showed good clinical and stent performance.

In our endovascular business we continue to expect final FDA approval for the Exact carotid stent and EmboShield filter.

Both products are under FDA review for the treatment of carotid artery disease and patients at high risk for developing stroke.

We expect an FDA approval very shortly, making us second to market with our carotid platform.

StarClose is our clip-based vessel closure device that gives physicians a fast and secure close in less than 30 seconds.

StarClose has been used in more than 35,000 patients, and continues to gain market share internationally.

We anticipate an FDA approval and launch of StarClose in the U.S. in the third quarter.

So looking ahead to the third quarter, we expect continued double-digit growth from Abbott Vascular.

Finally, turning to our Ross Nutritional business, sales this quarter were up 13%, driven by strong performance in our adult nutritional segment, where sales were up more than 30% including double-digit growth in Ensure and incremental sales from EAS.

Pediatric sales growth was roughly flat, due in part to a difficult comp to the prior year, but it was up sequentially from the first quarter.

And Pedialyte and PediaSure sales grew double-digits.

Looking ahead to the third quarter and full-year, Ross Products expects to deliver high single-digit sales growth.

In Abbott Spine, which is formerly known as Spinal Concepts, sales grew more than 45% in the second quarter, driven by continued success of PathFinder and our growing international presence.

We anticipate similar sales growth going into the third quarter.

So in summary, in our Medical Products Group, we remain focused on delivering consistent, reliable sales growth while also advancing a strong, late stage pipeline that includes many significant new product opportunities.

We expect to launch these new products over the next several years, beginning with the launch of StarClose in the U.S., and our carotid stent platform, both expected in the second half of this year.

So with that, we'll now open up the call for questions.

Thank you.

We will now begin the question-and-answer session. [Operator instructions] Our first question comes from Katherine Martinelli.

You may ask your question.

Great, thank you.

With respect to gross margin, in the fourth quarter result, you guys provided some really helpful detail regarding what your margins, gross margins would have looked like if you exclude the impact from the BI drugs.

I wonder if you could give us something similar which could help us with the modeling as those drugs continue to have an impact at the gross margin line?

This is Tom.

As we've indicated and pretty consistent with the pattern, the majority of both the below expectation gross margin in the second quarter, as well as the lower margin compared to the prior year is due to this mix effect of BI, as we've talked about previously, not only are we selling a lot more of those products, we're shifting from co-promotion agreements which have low margins, to distribution arrangements that even have lower margins and that's really having a major impact.

So the majority of the impact is that.

We also are seeing some degree of unfavorable fall-through on exchange while we're seeing revenue pickup there, things like country mix are contributing to some pressure on the gross margin ratio, due to that, and when you look at comparisons to the prior year, as you know, Synthroid is performing quite well given that it has generic competition, but sales are down to the prior year and that's a product that is causing some comparison issues relative to 2004.

So if we were to adjust for the BI in both this quarter and the comparable quarter, you still would have been down year-over-year on gross margin given the impact on Synthroid, Biaxin and currency is that fair?

That's fair.

But again, the majority of this thing is BI.

Yes.

I understand.

Thank you.

And just with respect to the guidance for the second half of the year, are you planning on any additional asset sales that would impact the guidance for either Q3 or Q4?

There's no plan for that.

We, you know, our group is constantly evaluating the portfolio, and so I can't guarantee that things like that won't happen.

If they do, just like the Determine sale, we would call those things out.

Okay, but at this point there's nothing expected as we try to put the numbers together for the second half?

Right.

Great.

Thank you.

Okay.

Thank you.

Our next question comes from Glenn Reicin.

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

Morgan Stanley.

Good morning, folks.

Good morning.

Two questions.

One product, one financial.

On the product side, can you just give us a greater sense of what the future holds for the entire AIDS franchise?

For example Norvair had very good script growth, I don't think it really showed much in the way of revenue growth.

Maybe just give us in total what you expect of those franchises, you know, the second half of this year and then moving out into next year?

And then the financial question was, with respect to the restructuring, how much of that is cash outlay as opposed to non-cash charges?

Thanks.

Let me -- Glenn, let me take the first question, the product question, this is John, on Norvair and Kaletra.

Norvair, for the full-year that's obviously a modest sized product but should grow in the high single-digits, we expect double-digit growth for Norvair in the third and fourth quarter in particular, so it's done very well, as you know, it's carved out its niche as a boosting agent for many other products in the category, which wouldn't have near the efficacy that they have if they weren't boosted with Norvair, including the new products like Lexiva and Rayataz and so forth.

So our expectations there are that it will continue to do well.

Kaletra, we talked about, obviously we're pleased with the once a day approval which gives us more parity in terms of the new products that are out there, with convenience of once a day dosing, but we're particularly excited and focused on the expedited review that we got from the FDA to look at Meltrex which takes the pill count down significantly and will be an extra advantage, additional advantage for patients, so we think that will help as we get into next year.

Obviously, it's a little early to forecast sales in particular for one product, but I think overall, you know, the market growth, and the fact that we're coming to market with better convenient products to compliment what is superior efficacy and viral suppression with Kaletra, should portend good things for the product going into next year, and obviously the back half of this year looks good as I mentioned.

We expect it to approach a billion dollars in sales with double-digit growth.

Can I push you on that a little bit?

Maybe make the distinction between unit growth and dollar growth?

I mean if you look at Norvair scripts, they're really doing quite well, whereas you're not showing that kind of growth in revenues.

Is this something that's just an adjustment --

You got to remember, too, that the dosage as a boosting agent, it's at a lower dosage.

Okay.

Okay.

So that's probably impacting that dynamic.

Okay.

And then in context of the Brazilian agreement, should we just expect flat pricing, down pricing going forward on a worldwide basis for Kaletra?

Well, that's a unique situation.

You know, maybe Tom can comment on that as well.

But I think, you know, the main thing there is that we were able to provide access to patients there who need the drug, come to an agreement with the Brazilian government.

There's not a per capsule price on it, it's really based on volume.

So it allows us to expand access to more patients in Brazil and continue to supply that product for many years to come, while preserving our intellectual property which was something we were obviously in no way going to compromise.

Tom, do you have any--

I mean I'd just say the other thing about Brazil, as John said, it's an unusual, and I would say isolated situation, and the sales levels in that country are really not that significant relatively to the overall franchise.

So even as new patients come into the pool there, I don't think you're going to see any significant margin impact on the Kaletra franchise.

Okay.

So I just want to clarify.

You think you can continue to grow at a double-digit rate going forward for the entire franchise?

Well, certainly for this year.

We haven't given any forecast going into '06, but we expect healthy growth with the addition of the Meltrex more convenient dosing for Kaletra, yeah, we expect good growth, whether it's double-digit or not, it's a little early to give a specific forecast.

That's fair.

Thank you.

Okay.

And then on the restructuring.

Yeah, Glenn, as we indicated in the release, we're anticipating some plans in the second half of the year, so there's a bit more work to do, I'd say of the charges we put out there, ballpark, maybe half is cash and half is non-cash.

But that's still got to be refined.

Okay.

Thank you.

Okay.

Thanks.

Thank you.

Our next question comes from Rick Wise.

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

Good morning, everybody.

First, can you help us understand what benefits sales had from channel restocking for products like TriCor and Similac, which I think I had some destocking, if I remember, in the fourth quarter.

And just in general, channel restocking, the impact.

And second, you talked about your cost reduction programs.

Can you be a little more specific, Tom, about the implications for how we think about folding the benefits of that cost reduction into our EPS forecasts?

I mean is this, if we look at consensus numbers, is this incremental to consensus numbers starting in '06 and '07?

Is this supported?

Does this accelerate, this year you've guided us to sort of a 9 to nearly 12% year-over-year growth range.

Does that accelerate that range, maybe by '07 to a, you know, slightly higher range?

Again, how do we think about it?

I guess I'll --

Well, let me take your first question, Rick and then in terms of Similac, TriCor, you know, overall, I'd say for Pharmaceuticals we feel very good about our inventory levels, we're very comfortable with those.

TriCor was a unique situation because of the launch of the better new TriCor product that came out and, you know, that distorted the whole data and information available on TriCor as patients switched to, you know, the better products.

So we're starting to see that normalize.

We expect much stronger growth in the second half on TriCor, which is why, as I mentioned in my remarks, that we will approach a billion dollars in TriCor sales this year.

And with Similac, we have not seen a restocking, if you will, in the channel of any magnitude, from the first quarter.

They are carrying, it seems, at retail lower inventories, particularly in one or two of the major retail players out there.

That hasn't happened yet.

But they're starting to see some signs that that's beginning to happen.

So we could so that impact perhaps in the third or fourth quarter.

Regarding your second question on how does the restructuring, the cost reduction programs play out.

You know, this, as we indicated in the release, among the things this is going to provide is additional capacity for R&D, and you know, this is all part of the mix as we weigh the sustainable growth rate of the business against, you know, the investments needed for the long-term, and the ultimate potential of accelerating operating margin, so you know, it's pretty, it's a little too early to say how that's going to play out, Rick, and as you know, we'll just be going into our planning process fairly soon, and we'll have better answers to that by the time we do the guidance for '06.

So at a bare minimum, we should feel in general more comfortable, and I do want to put in your mouth, and possibly this could accelerate, you know, have some acceleration benefits for EPS further out?

I mean just again conceptionally.

Again, it's too early to talk about what the '06 impact is.

I think the key message here is that, you know, this is going to improve gross margins.

That's the largest piece of this benefit.

And you know, that has a lot of good things associated with it.

And that allows both reinvestment in the business and the potential for acceleration and that's something we're just going to have to, you know, these savings are not going to all materialize by 2006 anyway, so we're going to have to factor that all into our planning.

And I'm going to sneak in a gross margin question since you raised it there.

Your first quarter guidance, if I recall correctly, was 54% year-over-year, now it's 53.

Right.

Is all of that Synthroid?

Is all of that, I mean you can help us understand the difference?

Thank you.

Synthroid is performing according to our expectations.

What is different than our expectations is the higher level of BI product sales, Mobic and FlowMax as well as exchange fall through being different than what we forecasted.

And those are the reasons for the change from the previous forecast.

Synthroid is the factor that just analytically when you're looking at the variance to the prior year, which we have been planning and anticipated in our guidance all along, that's just one of the analytical components and we laid that out for you.

Okay.

Thank you.

Thanks.

Thank you.

Our next question comes from Mike Weinstein.

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

Thank you.

Can you hear me?

Yes, hi, Mike.

I apologize.

I'm not on a great connection here.

We're now, it's like we're at this point because of having tougher comparisons on Synthroid and Biaxin and the changeover of some of the BI agreements that you're feeling a little bit more pressure on the pharma business and it might have been a couple quarters ago.

As we look out over the balance of this year and into next year without incorporating some of the new pipeline approvals that you might get over the next couple of quarters, are there products that this, [inaudible] currently start to do better over the next couple of quarters that will help start to offset that?

And I'm thinking specifically, I mean, we saw a pretty good quarter here from TriCor and you did an excellent job of transitioning that but Glenn was focused on the HIV drugs.

Are there any other products that we should be thinking of in the pharma business specifically that might offset some of the pressure you'll feel over the next couple of quarters in pharma?

Really, HUMIRA should continue to grow well above the average growth rates and, you know, that's certainly a contributor to the margin.

You cited TriCor.

I mean we see pretty significant acceleration in the second half on TriCor.

It's been going very nicely in the first half and we, that is going to be one of the items that should help the gross margin.

Launched Zemplar capsules, as you know, that's all internally developed product, positive to gross margin ratio, so those are things, Omnicef is another one, while, you know, Biaxin IR has been subjected to generic competition, Omnicef is just going through the roof, and that's another nice contributor to gross margin.

So there are a number of things that we are now selling that are on the market that will help offset the couple of the items we talked about and then as you alluded to with the additional pipeline approvals including indications for HUMIRA, you should see even more of that as we go into '06 and '07.

Let me switch quickly to TAP.

I had a couple of questions there.

One was on Prevacid.

Prevacid RXs were up according to IMS about 8% in the first two months of the quarter and you end up with revenues down 8% in the U.S.

Is that an accurate picture of what's playing out in terms of pricing on, as you guys are trying to, you know, maintain and grow your share within its formularies?

Well, Mike, it's John.

Yeah, there is a little bit of a disconnect there because as you probably know, it's become a bit more price sensitive in general in the PPI market, particularly in certain segments of that market.

Hospital segment in particular and Medicaid as well has had an effect, so although the market share and the script growth is stabilizing in fact the last week, we looked at, was up nicely for Prevacid, there is some price sensitivities there that are having that effect.

But for the full-year, I think the main point is that, you know, it will be in line with TAP's exceptions, down slightly, and they're seeing better performance out of Lupron and net-net, you know, the bottom line impact is the TAP joint venture income is right where we think it's going to be with a big fourth quarter planned.

And just with the timing, I understand the easy comp in the fourth quarter, with the febuxostat there isn't any major launch spending anticipated in the second half?

That would offset the easy comp?

That's already factored into that forecast.

It is.

And there will be some febuxostat sales in the fourth quarter as well.

Okay.

Perfect.

Let me just, one last one or maybe two last ones.

With TriCor, which you just touched on briefly, when do we get some visibility on your plans for combination products and can you give us any today?

That's an excellent question.

I wish I could.

But I think what I can tell you though is that we are working on some combination products, a co-formulated product, not just in combination with statins, which as some people are aware, but I don't think everybody fully appreciates, there's been a fair amount of data in the past on TriCor's use with a number of different statins.

There was a Safari trial done, sponsored by Merck on its combination with Zocor, we've seen data on TriCor with Zetia, there's Pravachol and Lipitor combination data that's now included in our TriCor label.

We've also been doing our studies of TriCor with Lipitor and TriCor with Crestor, those studies and ongoing.

And we could have data from those in the back half of the year.

And then separate from that, which by the way, all of that data looked very good and we can certainly share that, what we have with anybody who's interested, but it definitely demonstrated that TriCor has a very good potentiating effect in combination with statins and lowering triglycerides and raising HDL better than pretty much anything out there.

But separate from that, we do have a strategy to develop a combination/co-formulated product.

One thing I could tell you is that I think we think that the timing on that will be very competitive with what you may have heard from Pfizer about their combination product, and we'll see what happens.

But that's, you know, that's obviously a couple years out.

John, just the last follow-up.

Are we correct in assuming that the field study, and maybe just want to give people a background of the field study would make it to AHA for a late-breaking session?

It's possible.

There's a good chance that we could have a late-breaker at AHA in November, yes.

Okay.

Great, thanks.

Okay thanks.

Thank you, Our next question comes from Glenn Novarro.

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

Sure, it's Glenn Novarro with Banc of America Securities.

A couple of questions.

One, for 3Q guidance, you talked about higher SG&A spend.

As I look out to the fourth quarter, you know, you'll be launching two new indications for HUMIRA.

There's a chance you could be launching Xinlay.

So are those expenses also built into the fourth quarter and your guidance?

I just want to make sure that we don't arrive three months from now and we talk about higher SG&A spend for 4Q, and potentially, you know, the low end of your EPS guidance for the full-year.

As we forecast out, if you look at SG&A spend, the stronger of the two quarters is the third quarter, Glenn.

Okay.

But you are baking in some good SG&A spend in the fourth quarter, too, with respect to your range?

Yeah, there's decent SG&A growth.

I'd characterize it at this point as more trend line.

Okay.

Let me follow-up then on the diagnostic business.

You know, sales were up, and I'm talking about specifically immunoassay, sales were up sequentially, but we have yet to see a significant pickup in this division, and I'm wondering given some of the new contracts and the new products that you've been approved, is it just the nature of this business that the ramp up of sales is always going to be slow?

I'm wondering is it potential that you're facing pricing pressure or a need to lower prices to gain share?

Maybe just give us a little bit more in terms of the dynamics of what you're experiences in the immunoassay business.

And then how should we think about this business in terms of sales growth going forward given the new contracts and all the new product flow?

Thanks.

Okay.

All right.

Glenn, I'll try to address that.

I think the key here is this business, as you probably know, to our detriment and to our benefit at the same time, is a very slow-moving business, which is why we're still the market leader by a factor of 2.5 times, even though we had the quality initiatives and things that set us back over the past few years.

You know, we're through all that, as you know.

We're back to normal operations.

As I mentioned in the remarks, we're very pleased with the number of placements that we have.

They're on track to exceed 1500 new ARCHITECT placements in '05. 450 in the quarter. 800 in the first half.

This is a business that when you drive placements, you drive through-put, and reagent trail, and that follows.

So it's not at a light switch concept, it does take time, but the trends are all very positive.

I can tell you that, you know, ADD tracks these things very closely and they're winning a considerable amount of new business.

In fact, the analysis that I've seen is that we're winning the vast majority of the new business that we go after, upwards of 80 or 90% of all the new accounts we go after, and that's after, that's against all the major competitors including those in the U.S.

So as we place these new systems, which we're doing, and as we launch the new tests that go with those systems and expand the menu, we expect continued acceleration.

I realize it's been a long process and people have been very patient.

We are on the cusp of breaking through the negative U.S. sales growth barrier into positive territory and we expect that to happen in the third and fourth quarters.

And that it should continue as we go into next year, 2006 and beyond.

And more importantly, I think, is also the bottom line impact, where you've seen sequentially improvement in division margin.

There's concerted effort to continue that expansion of the margins in ADD and we expect that to continue with these cost containment efforts and manufacturing changes and efficiencies that we've undertaken in the past, you know, couple of years, and have also been announced today.

This is just a follow-up.

In some of these new contracts that you are winning, have you been compromising on price or have you lowered, have you had to really win business because of price?

You know, price is always a factor in the market but I wouldn't say it's a main driver.

You know, we are winning and people are locking up long-term contracts with us, as I mentioned, you know, we won three major new contracts head-to-head with some of the primary competitors here in the U.S. and ex-U.S.

Those are long-term deals because obviously customers feel confident now that we can continue to supply and that we're going to be around and our systems are best in class systems.

Otherwise, they wouldn't do it.

Is price a factor in some markets?

Sure, I mean we're going to be competitive but the bottom line here is the bottom line and that's profitable growth.

And that's what the division is focused on, profitable growth so we're not going to do anything foolish to win business.

Okay.

So no unusual pricing out there.

One last, just on pharmaceuticals.

Were there any price increases on any of the pharma products in the quarter?

You know, we had very minor price increases on a few selected products.

There was a couple that we took but net-net it was less than 1% in terms of impact on the quarter and each of those that we took, which were only two or three, were in the low single-digit range.

Do you remember which products they were?

Not off the top of my head.

I can get that for you, though.

Okay.

Thank you.

Sure.

Thank you.

Our next question comes from Sara Michelmore.

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

Sure, it's Sara Michelmore from SG Cowen.

Hi.

Hi.

Thanks for the pipeline update.

John, can you give us an update on the timing of the 244 trial for Xinlay?

244 continues to progress and we should be complete here around the end of the year.

And so really there hasn't been any change in the forecast there.

Okay.

And that's the premetastatic patient population for those who don't know, we're talking about the Xinlay men who have not advanced to metastasis in the bone.

And John, on oral Zemplar, I know that long-term you guys think this will be a big product.

Can you just talk a little bit about the market development efforts you're going to have to go through?

It is relatively unchartered territory.

So how should we think about the time line that it will take for to you get that market developed and when we can actually see some nice incremental growth contribution from oral Zemplar?

Yeah.

We're obviously very pleased to get the approval and to launch the product in the second quarter.

It was a little bit ahead of our expectations.

The market I'd say is ripe for favorable uptake there.

You know, Zemplar IV has been the gold standard, standard of care in that market with nephrologists for many years and still considered that way.

We have excellent clinical data and a clinical profile that's superior to anything else that's out there, which is why it has, you know, the lions share of the market.

Zemplar capsules obviously allows us to expand on that opportunity.

We're very pleased with the label that we got because it was for the prevention and the treatment of secondary hyperparathyroidism and stage three and four chronic kidney disease patients which is something that the competition that's out there does not have.

It's also a third generation product versus some of the older first generation products that are out there that have issues with hypercalcemia and hyperphosphatemia.

So it's a market that is ripe for the taking.

We'll go first, as I mentioned before, into the specialist community with nephrologists and endocrinologists and that's where we can drive adoption early and they're familiar with the disease.

We'll go there to more of a primary care launch.

That will happen next year, and we'll give you an update on that later in the year as we formulate the plans on how we're going to execute on primary care.

But that's a unique opportunity, the one you're talking about, to really expand the opportunity beyond a 500 million upwards of a billion, you know, if we can get into that primary care market, it is going to take some physician education, it's something that we're focused on.

We do have some assistance here with some of the communities and guidelines that have been issued recently.

The National Kidney Foundation, as you probably know, a year and a half or so ago, issued some recommendations on earlier diagnosis of PTH and pre-dialysis patients with Vitamin D treatments, and so there's been some favorable things done in that regard, and certainly with the Kidney Foundation as well.

So the market is there.

It will take some time.

It will be a phased launch plan but one that we think will have, you know, significant advantages versus some of the competition that are out there that have some real, you know, side effect issues and down sides in terms of their clinical profile versus Zemplar capsules.

Okay.

That's helpful.

And on HUMIRA in Crohn's, I had expected that we would get some maintenance data from one of the trials this fall.

Just wondering if you can confirm that that's still on track to get some data on maintenance this fall?

You know, that's probably going to be more like the first half of '06 for maintenance data.

Okay.

And lastly, John, I appreciate the update on ZOMAXX I enrollment.

I know it's early, but any timing update on ZOMAXX II?

Well, that's, you know, the U.S. trial, where we're going to initially roll up to 250 patients, we're on track for that, it's very early, we just started in the quarter.

I think a more meaningful update in terms of specific patient numbers will be probably be better to give in the fall time frame, but so far where things are going well, and you know, we'll go from there.

We're obviously very pleased with the fact that we've made a significant advance in the number of patients enrolling in ZOMAXX I, which started somewhat slowly and then ramped up quickly, and we're almost done with that, hope to be complete here in a couple of weeks.

Great.

Thanks so much.

Okay.

Thanks.

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.

John, just to go back to TAP for a second.

Can you just go through a couple of things with us.

I mean profitability seems to recover or it did recover I think quite dramatically from Q1 on slightly better sales.

So I'm just wondering, is it fair to assume that you've pulled the plug somewhat on promotional activity in the quarter?

And if so, is that kind of the way the year goes?

In other words, down year-over-year revenues with up year-over-year profitability and is that sustainable?

You know, there haven't been, I think what you're going to see is revenues actually grow in the, particularly in the fourth quarter, and the net for the year is going to be slightly down on TAP, and I'd say that TAP is spending what's appropriate for maintaining and growing its share.

It's just redirecting it to different types of medium than it has done in the past.

Yes, it's really has been, as we talked about earlier in the year, focused more on print than TV, and if you've seen in many major national publications, there's a number of very targeted new print campaigns that appear to be pretty effective, so it's, you know, spending is all, is built into their plan as is, and those are the numbers that we talked about.

You know, how that gates out exactly is, you know, something that we'll have to see, but their spending levels are appropriate for, you know, the marketplace dynamics that exist today.

Okay.

And then just as a couple of follow-ups here.

On the diagnostic side, I think John, your comment was on the U.S. business, better sequentially.

And just so I understand, that's net of [inaudible], correct?

Yeah, we're talking about core, to be clear, when I describe the return of the U.S. business, and that's ex-ADC and any other, that's core immunoassay, [Clen] chem, hematology segment within the Abbott Diagnostics reported division.

Okay.

Thank you.

And then just on Biaxin XL, can you remind us again, I know you've been sort of at the 70% conversion number at the U.S. for a while.

Is that sort of where we go?

Is there a natural resistance there on the part of payors or something?

You know, it's possible that it could move a little bit higher, but I wouldn't expect it will go much more than that because there is a sub-component of physicians that still like to use the older twice daily IR form for various reasons.

Okay.

And then lastly, if I could, would you part with the FlowMax number?

Sure.

Let me see if I can find that here.

It was up double-digits in the quarter to 226.

Thank you.

Okay.

Thank you.

Our next question comes from Matthew Dodds.

Sir, you may ask your question and please state your company name.

It's Smith Barney.

Good morning.

Just a couple of questions, John.

First on Depakote, the standard formulation goes in January '08.

I know it's a ways away, but I'm just wondering do you have any strategies you're planning there maybe on the patent front or for the Depakote ER, are there some more label claims that could take the percentage up for Depakote ER so it's not that big of a hit, first question.

So Depakote currently, the patent extends on the base DR product in January of 2008, that does not include any potential for pediatric extension.

However, there is obviously, as you know, Depakote ER form, which I talked about in the remarks, is now about 45% of the total Depakote franchise.

Those patents extend out to 2018.

And obviously, you know, we're looking forward to getting the bipolar indication for ER which we filed in the fourth quarter last year, which we should get at the end of this year.

So Depakote ER has some advantages, you know, obviously, it's one that's more convenient, and as we get these new indications, we would expect that that conversion of 45% or switch over to the ER formulation should go up over time.

Do have you a time line possibly for mania as a label extension?

Could that occur before the '08 time frame?

No, I don't have any information on that in particular.

I can check on that if there's any update in the future we can give you on that, I will, but I don't know anything at this point.

And one follow-up on the adult nutritional.

EAS, has that rebounded to a level you were thinking more about when you acquired it?

Was that a big part of the reason why adult didn't do much, if you look at the total number with EAS and the base business?

Actually, adult and the base Ensure business grew double-digits or close to it without EAS, it was up in the high single-digits, I think about 7.5 if you took out what is roughly 50 million in EAS sales.

If you recall, the strategy there was to get the channel presence in the healthy living segment with EAS.

Unfortunately, EAS, like all of those barred products, has succumbed to the downward trend in the low carb dieting trend, and so we've seen, you know, lower EAS sales as a result.

Zone Perfect on the other hand has actually done fairly well and continues to grow nicely.

Thanks, John.

Okay.

Thanks.

Thank you.

We have time for one more question.

One last call, please.

Our last question comes from Le Anne Zhao.

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

Good morning.

This is Neil Sweig at [Karras].

Good morning, everyone.

Good morning.

In reference to the EPS guidance range for this year of 2.47 to 2.53, when will the Company narrow this range?

That's first.

Second, on the Xinlay ODAC meeting, do you have the date, if it is September 13 or September 14?

And last but not least, it's unclear if the fourth quarter SG&A and R&D spending trend will be double-digit as is expected in the third quarter.

Thanks, folks.

Okay.

Let me take the first one on ODAC and then I'll let Tom take the other ones.

The ODAC meeting, or Oncology Advisory Committee meeting panel for Xinlay, right now it's scheduled for either September 13th or September 14th, and the way I understand it is that the FDA generally makes an announcement or proclamation on what specific day it's going to be, about 30 days ahead of that regularly scheduled oncology meeting.

So we'll know which day it's going to be, and right now, obviously, we don't expect it to be two days.

It would be one day or a portion of one of those days, so either the 13th or 14th.

Neil, guidance narrowing, I mean we probably wouldn't do that until the third quarter call.

So, and obviously that will be just giving you the fourth quarter guidance.

So I wouldn't expect anything till then.

In the, as we indicated earlier, I think SG&A at least as we look at it now in the fourth quarter would be more trend line which we've defined as kind of this upper single-digit number that we've been talking about all year.

R&D could be a little bit more than that.

And that's kind of what we're looking at at this point.

And Neil --

Thank you.

One last comment I'd make on narrowing guidance range, you know, we didn't feel that it was necessary or appropriate to narrow the range at this point because it is a $0.06 range, so it's pretty narrow to begin with, which is tighter than our range last year, which was a $0.10 range, and we did narrow it at this point, but again, that was a very different circumstance with a broader range.

So we got a pretty tight range, as it is.

We're aware of the midpoint of that range.

And that's about all we could say on that at this point.

So I think that's it.

We will conclude the call now.

A replay of the call will be available after 12:00 Central Time today on our Investor Relations Web site at www.abbottinvestor.com.

And after 12 p.m.

Central via telephone at 203-369-0662.

Confirmation code 2843512.

The audio replay will be available until 5:00 p.m. next Wednesday, July 20.

And with that, thank you very much for joining us.

If have you any follow-up questions, please call me, Larry Pepo or Tina Ventura on our Investor Relations team.

Thanks again for joining us.

And this conclude's Abbott's second quarter earnings call.

We thank you for your participation.