美國雅培 (ABT) 2006 Q2 法說會逐字稿

Welcome to Abbott's second-quarter 2006 earnings conference call.

All participants will be able to listen-only until the question and answer portion of this call. (OPERATOR INSTRUCTIONS) This call is being recorded by Abbott.

With the exception of any participant's 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, Vice President of Investor Relations for Abbott.

Good morning, everyone, and thanks for joining us.

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

Tom will review the second-quarter financial results, and I will discuss business operating highlights.

Following our comments we will take any questions you 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 March 31, 2006, 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.

In today's conference call, as we have done 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, R&D, and SG&A, each excluding specified items, and stock compensation expense.

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

And with that, I will turn it over to Tom.

Tom?

Thanks, John, and good morning, everyone.

As you can see from our earnings release, Abbott's second-quarter performance was strong across our broad base of businesses.

As a result of our performance, as well as some tax rate favorability in the quarter, this morning we're raising our full-year sales forecast as well as our ongoing EPS guidance range.

I will discuss this more in a moment.

Results this quarter were led by outstanding performance from Medical Products, which increased 18%, including sales growth of more than 50% in our base vascular business and growth of nearly 20% in our International Nutritionals business.

We also saw double-digit sales growth in our Molecular and Point of Care businesses.

The Guidant vascular acquisition also benefited Medical Products in the quarter.

Our U.S.

Pharmaceuticals business had a strong quarter as well, with sales growth of 12% as adjusted for the BI agreement, including global HUMIRA sales of nearly $500 million.

Combined sales of our top four pharmaceutical brands increased 27%.

John will provide additional business highlights in a moment including a brief review of our late-stage broad-based pipeline.

Total Abbott sales this quarter grew double digits, increasing 12.3% when adjusted for BI and before an unfavorable 0.9% effective exchange rate.

Accounting for this BI effect and the impact of foreign exchange, reported sales were $5.5 billion.

Partial quarter from the Guidant vascular acquisition included 10 weeks of domestic sales but only five weeks of international sales, based on our practice of reporting international results on a one-month lag.

Our double-digit sales performance in both Pharmaceuticals and Medical Products helped us to report second-quarter ongoing diluted earnings per share of $0.62, exceeding our previous guidance range of $0.56 to $0.58.

A favorable tax rate this quarter contributed approximately half of the $0.05 of ongoing earnings upside versus our previous guidance.

Today, we're raising both our sales and earnings guidance for the full year.

For sales, we are now expecting low double-digit growth for the full year, adjusted for BI and including guidance.

This is an increase from our previous forecast of high single-digit sales growth as adjusted for BI.

For ongoing earnings per share, today we're raising our full-year guidance range to $2.49 to $2.53, an increase from the previous range of $2.44 to $2.50.

We are also pleased this quarter with our steady progress on the gross margin ratio, which improved 520 basis points from the prior year to 58.1% before stock compensation expense, in line with our forecast.

Also in the quarter, both SG&A and R&D investments increased double digits, including the addition of the Guidant vascular business.

Our portion of the TAP joint venture income of $135 million was in line with our expectations for the quarter and included a new product development milestone.

We continue to forecast full-year income from TAP of 450 to $475 million.

John will cover developments in the TAP pipeline in his remarks.

As I indicated, the tax rate in the second quarter was lower than our forecasted rate for the full year as a result of the favorable tax events in the quarter.

We forecast the tax rate to normalize in the third and fourth quarters.

Regarding the third quarter, for the first time we are providing ongoing earnings per share guidance of $0.57 to $0.59.

Sales growth in the third quarter, adjusted for the BI agreement, is forecasted to be in the midteens.

We expect the gross margin ratio in the third quarter to be roughly in line with the first half of the year; and as I have indicated before, we expect sequential improvement in the fourth quarter.

Regarding investment spending levels in the second half of the year, our guidance assumes R&D in the range of 9.5% to 10% of sales and SG&A in the mid to high 20s as a percent of sales.

So in summary, we're very pleased with the strong overall performance this quarter.

Our stable base businesses and emerging growth businesses continue to perform well as we focused on balanced, sustainable, double-digit EPS growth driven by our platform of Medical Products, Pharmaceuticals, Diagnostics, Biologics, and Nutritionals.

With that, let's turn to the business operating highlights and the pipeline review.

John?

Thanks, Tom.

As Tom indicated, during the second quarter we saw strong performance across our broad base of businesses, with the results led by Abbott Vascular, Global Nutritionals, and our U.S.

Pharmaceuticals business.

Combined, as Tom mentioned, sales of our top four pharmaceutical brands increased 27%.

In Medical Products, our core businesses, which include Diagnostics and Ross U.S.

Nutritionals, met our expectations; while our emerging businesses, which include such things as Vascular, International Nutritionals, Diabetes, Molecular, and Point of Care, delivered combined sales of more than $1 billion, with combined growth of more than 40%.

So let me walk you through this quarter's business performance highlights, and I will close my remarks with a brief summary on the progress we're making advancing and strengthening our broad-based pipeline.

In our Pharmaceuticals business, HUMIRA continues on a strong growth trajectory, growing faster than the market and gaining share in both RA, rheumatology, and dermatology as we began to expand into the treatment of new diseases with powerful new data supporting additional regulatory indications.

In the second quarter, worldwide sales for HUMIRA increased 53% to $491 million, with U.S. sales up 50% and international sales up 64% before the impact of exchange.

We remain well on track to meet our full-year global sales forecast of more than $1.9 billion.

In rheumatoid arthritis, patient demand for HUMIRA remains very strong, as HUMIRA's prescription share of the anti-TNF self-injectable market continues to outpace the overall market.

New prescription share in RA is now approximately 35% in the United States.

In dermatology, our worldwide psoriatic arthritis launch is also proceeding well.

Our best-in-class skin data has helped grow our share of new prescriptions in the derm segment to more than 10%.

During the second quarter, we were very pleased to receive European approval for HUMIRA to treat ankylosing spondylitis, also known as arthritis of the spine, the third major disease indication for HUMIRA.

We anticipate U.S. approval for ankylosing spondylitis here in the third quarter; and progress continues with five additional indications for HUMIRA in our pipeline.

Collectively, our follow-on treatments for HUMIRA represent significant incremental peak year sales opportunity beyond our base RA business.

Also this quarter, the FDA approved our new, more convenient HUMIRA Pen delivery device, further simplifying the self-administration of HUMIRA for patients.

HUMIRA Pen is easy to grasp for patients and features one-touch activation.

This new device, the HUMIRA Pen, will be available for patients beginning July 31.

With regard to TriCor, our cholesterol and triglyceride therapy, it continues to perform well, with sales this quarter up nearly 15% as growth in this particular product also outpaces the overall market.

We continue to expect strong double-digit sales growth for TriCor for the full-year 2006.

With regard to Kaletra, it continues to perform also very well in the U.S. since the launch of the new tablet formulation, with sales growth of 24% this quarter.

Kaletra tablets were approved in Europe on July 3.

The new reduce pill count tablet form, which requires no refrigeration and can be taken with or without food, allows added convenience for patients without compromising efficacy.

Worldwide Kaletra sales in the quarter were $265 million.

Depakote sales growth in the quarter was up double digits.

Depakote ER, our once-a-day version of Depakote, now accounts for approximately 50% of total Depakote prescriptions.

Synthroid in the U.S. this quarter, sales were $112 million; and brand retention remains north of 50% now, two years after generics were approved.

In our anesthesia business, our sevoflurane market share in the U.S. has increased modestly over the last two quarters.

However, U.S. sales were down this quarter as a result of price considerations we proactively initiated with customers earlier this year.

In general, we maintained a very strong presence with major U.S. commercial accounts, and we remain very committed to this important brand.

In antiinfectives, Omnicef sales this quarter increased 18% as it remains one of the fastest-growing antibiotics in the U.S.

And as expected, Biaxin sales in the quarter declined.

In summary, adjusting for the BI agreement, we expect double-digit sales growth for our U.S.

Pharmaceuticals business again next quarter, with International Pharmaceuticals expected to be up modestly.

So let me turn now to our Medical Products businesses, which collectively had a very strong second quarter, with sales growth of 18% combined, including a partial quarter of Guidant which, as Tom indicated as a reminder, includes 10 weeks of domestic sales and only five weeks of international sales.

In vascular, excluding Guidant, our base Abbott Vascular business was up more than 50% in the quarter as a result of strong sales of vessel closure and endovascular products.

In our endovascular business, following the Guidant acquisition we now offer a full product portfolio, including carotid stents, embolic protection devices, and a broad range of peripheral stent balloons and wires.

Both of our carotid platforms performed well.

In vessel closure, the U.S. launch of StarClose continues to exceed our expectations.

Since its introduction last December, our U.S. vessel closure market share has increased by 9 share points to more than 30%, matching the strong performance internationally, where Abbott's European vessel closure market share has nearly doubled since the launch of StarClose.

Looking ahead to the third quarter, we anticipate our Abbott Vascular business will again deliver strong double-digit growth.

In our reported global Diagnostics business, sales this quarter increased 5.2%.

Abbott Diabetes Care delivered double-digit sales growth worldwide, before the impact of exchange, outpacing the growth of the overall glucose monitoring market.

Our FreeStyle and Precision brands continued to perform well, with the launch of FreeStyle Freedom expected to build momentum in the second half of this year.

FreeStyle Freedom is a blood glucose monitor that provides patients with the results in an average of five seconds, requires the smallest blood sample size, at 0.3 microliter, and features a large, high-contrast display that is easy for patients to read.

We also continue to expect FDA approval this year for our Continuous Glucose Monitoring System, FreeStyle Navigator, which I will discuss in my pipeline summary remarks at the end.

Looking ahead to the second half of the year, Abbott Diabetes Care forecasts low double-digit growth in the third quarter and midteens growth in the fourth quarter.

In our core immunochemistry and hematology Diagnostics business, global sales this quarter were up approximately 3% before the impact of exchange as we continue to place ARCHITECT systems and expand our test menu on both ARCHITECT and AxSYM.

During the quarter, we achieved several key customer wins, placing 400 new ARCHITECT analyzers for a total of approximately 750 placements in the first half of 2006.

We continue to anticipate a higher rate of ARCHITECT placements in the second half of this year, adding to what is now our base of nearly 5,000 ARCHITECTs worldwide.

During the quarter, the FDA approved two automated hepatitis assays for ARCHITECT and two hepatitis assays for AxSYM.

We anticipate FDA approval of four additional hepatitis assays by year-end.

In addition, we launched ARCHITECT ferritin and AxSYM folate assays in the U.S.

Our clinical chemistry business also performed very well this quarter, up more than 20% worldwide.

In blood screening, the U.S.

PRISM launch continues to progress.

As you may have seen in a news release yesterday, the FDA announced the approval of another PRISM assay, hepatitis B surface antigen.

This approval further improves the blood screening process, helping to make the nation's blood supply safer.

With the second-quarter assay approval, we anticipate PRISM uptake to accelerate as blood banks add this new best-in-class technology.

In hematology, we launched the CELL-DYN Ruby platform internationally in the second quarter.

We are pleased today to announce the U.S. approval and launch of the Ruby, which is ideal for medium-volume laboratories.

So as you can see, we continue to make consistent progress in our core Diagnostics business, strengthening our leadership position as we enter the second half of this year and into 2007 and beyond.

In addition to menu expansion, our Diagnostics business is working to broaden our line of next-generation analyzers.

Next year, we expect to penetrate the high-volume segment with the launch of ARCHITECT c16000 and ci16200, as well as to offer another option for smaller labs with the launch of the i1000SR.

So looking ahead to the second half of this year, our base immunochemistry business is forecasted to achieve mid single-digit growth globally, with improving U.S. sales performance as we go through the third and particularly the fourth quarter.

In Abbott Molecular, sales grew more than 25% this quarter as we continue to strengthen our presence in the rapidly growing molecular diagnostics markets, following the international launch of HIV and HCV real-time PCR tests and the recently launched real-time test for chlamydia and gonorrhea.

Point of Care sales this quarter grew nearly 20% driven by sales of our i-STAT troponin and CKMB cardiac assays and the recently launched CHEM 8 cartridge.

We expect approval for an i-STAT BNP test in the second half of this year.

In global Nutritionals, international nutritional sales were again very strong this quarter, with sales up nearly 20% before exchange.

We have seen explosive growth in developing markets, particularly China, driven primarily by strong demand for Pediatric Nutritionals products including our brands Similac, Gain, and PediaSure.

In the international Adult Nutritionals, our brands Ensure and Glucerna were especially strong in both Latin America and the Asia-Pacific region.

Ross U.S. nutritional sales this quarter were up about 5%, driven primarily by Ensure, PediaSure, and Glucerna.

Infant nutritionals continue to gain market share during the quarter.

So looking ahead to the third quarter in our nutritional business, we expect continued double-digit growth internationally with modest growth in the U.S.

So now, before we take your usual questions, I would like to spend just a few minutes reviewing a number of attractive late-stage opportunities across our broad-based pipeline.

This includes pharmaceuticals such as HUMIRA, which is a lower-risk, high-yield, late-stage opportunity, as well as some higher-margin Medical Products such as our two drug-eluting stent programs.

With one of the broadest late-stage pipelines in the industry, we expect a steady flow of new products in 2007 and beyond.

So let me start with our Medical Products or med tech pipeline.

In Abbott Vascular, we have seven major development programs underway, including XIENCE and ZoMaxx, our late-stage drug-eluting stent programs;

Zodiac, our dual-drug stent program; a bioabsorbable drug-eluting stent program; two carotid programs; as well as a vulnerable plaque development program.

Regarding XIENCE, today we announced the submission of the first module of our FDA, premarket approval application, which represents a significant milestone in our drug-eluting stent program.

XIENCE has already obtained CE Mark, as you are aware; and we recently initiated a program to make XIENCE available in a select number of locations as part of a real-world prelaunch evaluation of XIENCE.

We look forward to launching XIENCE and ZoMaxx in Europe later this year and to presenting clinical data this call at both ESC and TCT.

In the U.S., enrollment in [ZoMaxx II] also continues to increase at a more rapid pace recently, and we're now approaching 600 patients in that program.

Beyond XIENCE and ZoMaxx, we're also making progress with our innovative mid-term pipeline.

This includes our dual-drug stent [Zodiac], our bioabsorbable drug-eluting stent, as well as research in vulnerable plaque.

At TCT we plan to present early data from our bioabsorbable stent program, ABSORB, as well our vulnerable plaque PROSPECT trial which recently completed enrollment.

Our Zodiac dual-drug stent is slated to begin trials in humans early next year.

In our endovascular pipeline, we have a number of large-scale trials underway to expand access to carotid stenting to a broader patient population as well as next-generation devices in peripheral stenting.

In our Diabetes pipeline, it remains our goal to build a market-leading, continuous blood glucose franchise with the launch of FreeStyle Navigator.

We presented best-in-class accuracy data at the American Diabetes Association meeting in June, and we continue to expect FDA approval for FreeStyle Navigator in the second half of this year, with [initial injunctive] claiming.

We intend to submit for a reportable indication in the post-approval time frame, supported by this leading accuracy data.

In addition to superior accuracy data, FreeStyle Navigator also has a number of additional competitive advantages.

Our second strategy in Diabetes is to extend our technology leadership position to discrete testing by introducing a steady stream of new products to make testing easier and less painful for patients.

More details will follow in the future on those programs.

Finally, as I mentioned earlier, in our core immunoassay clinical chemistry Diagnostics business, we have an active development program for next-generation systems, including the c16000 and the other instruments that I mentioned for next year.

So this gives you a sense of some of the products in our Medical Products development pipeline.

Now let me turn quickly to our Pharmaceutical pipeline.

HUMIRA -- in the second half of this year, we look forward to a number of new product developments for HUMIRA.

This includes the expected FDA approval for our third major disease state indication, ankylosing spondylitis, as well as the global regulatory submission for our fourth major indication, Crohn's disease.

We shared strong results from our Phase III maintenance trial for HUMIRA and Crohn's at the Digestive Disease Week meeting in May and, by offering self-administered dosing, HUMIRA will provide Crohn's disease patients with a distinct convenience advantage over the only available therapy, which is administered by IV.

We expect to file for approval in the coming months.

In addition to RA, ankylosing spondylitis, and Crohn's, we continue to move forward with another four additional indications including psoriasis, JRA, ulcerative colitis, and asthma.

TriCor is another product with recent late-stage development activity.

As we announced earlier this month, we entered into a development collaboration with AstraZeneca for the first-ever statin-fibrate fixed-dosed combination product.

The collaboration agreement recently received Hart-Scott-Rodino U.S. antitrust clearance.

This new product will combine into a single pill either Abbott's TriCor or our proprietary next-generation fenofibrate, ABT-335, with AstraZeneca's CRESTOR.

The pill will be designed for complete cholesterol management by targeting all three key lipid parameters, LDL, HDL, and triglycerides.

Based upon data generated from initial studies, we will select one of the two programs for development and commercialization, allowing us to further expand our presence in the large and rapidly-growing $17 billion U.S. cholesterol market.

An application for FDA approval of the fixed-dose combination is now targeted for 2009.

Separately, we continue with Phase III trials for ABT-335 as a stand-alone product and a next-generation fenofibrate therapy for patients.

Vicodin CR.

In our neuroscience and pain therapeutic area, Vicodin CR is our late-stage compound for chronic and acute pain and is progressing in Phase III trials, on track for FDA approval submission in 2007.

We also have a number of earlier-stage compounds in development to treat both pain and cognitive diseases, such as schizophrenia.

In biologics, beyond HUMIRA we expect results by year-end from our Phase II multiple sclerosis trial for ABT-874, our anti-IL12, that is also in development for Crohn's disease and psoriasis.

In oncology, we will have results from our 244 study for Xinlay in the second half of this year.

We continue to advance a number of promising earlier-stage cancer compounds in Phase I and Phase II including programs of PARP inhibitors, multikinase inhibitors, and BCL-2 inhibitors.

Finally, in our TAP pipeline, febuxostat, TAP's compound for the treatment of gout, as you may recall received an approvable letter from FDA last October.

TAP anticipates a response from FDA on febuxostat in the third quarter of this year.

Febuxostat clinical data showed promising results that indicated three times the efficacy of allopurinol, which as you may know is a 40-year-old treatment and currently the standard of care.

TAK-390MR is TAP's next-generation proton pump inhibitor in Phase III development.

TAP's clinical trials are now enrolling ahead of schedule, giving TAP increased confidence in its target of filing for FDA approval by early 2008.

So in summary, we look forward to multiple new product launches, new regulatory approval submissions, and important new data presentations in the third and fourth quarter of this year and into 2007 and 2008.

Our collective broad-based pipeline, including the recent additions from Guidant and our collaboration with AstraZeneca for a fixed-dose combination of CRESTOR-TriCor, now includes 15 to 20 relatively lower-risk, high-impact clinical programs, 13 of which are in late-stage development, Phase III or the equivalent on the Medical Products side.

Our combined Medical Products and Pharmaceutical products pipeline includes a balance of assets across small molecules, biologics, medical technology, and cardiovascular devices that reflects the quality and strength of our broad-based model.

So with that, we will now turn the call over to the operator and open up for your questions.

(OPERATOR INSTRUCTIONS) Rick Wise from Bear Stearns.

A couple questions.

The XIENCE PMA seems to be -- this first module seems to be slightly ahead of schedule.

Can you just update us again in a little more detail on exactly when you expect to get the launch going in Europe?

Have you resolved all the manufacturing issues that slowed you down in the first place?

So, I will take that question.

Yes, we're obviously very pleased to submit the first module in the U.S. of the approval.

There will be a number of modules, approximately three modules, the third of which should go in, in the U.S. for U.S. approval, by the first half of next year.

With regard to Europe, we are on track, as we said before, for a late third quarter, early fourth quarter launch.

Of course, we're beginning, as I mentioned in my remarks, to give some experience to certain physicians in select markets, experience with the product ahead of schedule, which is something that Guidant has done with other programs on a select basis; and that has proved to be a good strategy for them.

So they are looking forward to that.

Obviously, they have resolved their manufacturing issues.

As you may recall, they addressed that immediately and got back up and manufacturing.

Now they are ramping up for manufacturing to supply clinical trials and to supply the launch, which is expected later in the year in Europe.

Okay.

Two other quick ones.

The PRISM approval yesterday, is that part of your plan?

I know you don't address the half of the market that is not Red Cross.

Perhaps you could talk about that.

Last, many of us heard yesterday from J&J about the prospects for new competition in the RA market from their CNTO 148, talked about better safety, less frequent delivery of the drug.

Can you talk about these two things, both good and potentially competitive, and what you have dialed into your thinking; and whether we should be concerned about the new competition for HUMIRA?

Thanks.

Sure.

Yes, Rick.

So PRISM, obviously we are very pleased now to get the second assay there approved for PRISM.

We have got roughly half of the blood banking business in the U.S.; and we continue to ship instruments throughout the first half of this year.

So we are in a better position now, competitively.

We are hopeful that that will allow us to expand our presence to some part of the remaining 50% of the U.S. blood banking market.

For competitive reasons, I'm not going to tell you whether that is in our plan or not.

But we expect good things for PRISM in the second half of the year.

With regard to HUMIRA, the main thing I would tell you there is that obviously we are very comfortable and very pleased with the progress that we have made on HUMIRA.

This market share growth and the demand has been very strong, as you know.

It has been on the market now for several years.

We have a lot of patient data.

Rheumatologists consider it the gold standard in terms of treating signs and symptoms of rheumatoid arthritis, but I think more importantly, halting disease progression; and that is something that really can only be shown through radiographic studies and radiographic progression data.

So with regard to competitive products and the one you mentioned in particular, we have only seen early Phase II data on that product.

I would say based on those results and the ACR scores -- particularly ACR 70, which is the most important score when you talk about radiographic and halting disease progression -- I would tell you HUMIRA stacks up very favorably.

And our scores were significantly better than what we have seen with that particular product, which still needs to advance through Phase III trials and to really get a handle on safety and efficacy.

So it's got a ways to go.

But we are obviously very comfortable with HUMIRA and have factored whatever competition may be out there, including the other T-cell and B-cell inhibitors into our plan, and that is factored into our expectations for this year and our optimistic outlook for the future.

Thanks so much.

Mike Weinstein from JPMorgan.

A couple housekeeping questions first.

I apologize if I missed this, I did jump on late.

John, is there a PDUFA date for HUMIRA for ankylosing spondylitis?

There is.

We're not in the habit of typically providing specific dates; but I would tell you that we are expecting approval very soon.

Okay.

Then, did you provide any update on the Xinlay 244 trial and (indiscernible) to that data?

Sure.

So for those that are uninitiated, 244 was our second Phase III pivotal trial for Xinlay, our innovative product for late-stage prostate cancer patients.

This was in nonmetastatic patients.

A few months ago, we completed the number of disease progression events that we needed to stop that trial and compile the data.

That process has been ongoing now during the summer.

I would tell you that we should have the data in hand, internally at least, here in the third quarter.

Then there is a number of different pathways that we could go down, depending on what the data shows.

So at some point, we will inform you about how that looks.

I think, based on what happened last year with Xinlay and the other Phase III trial, the expectations are sufficiently low; and I think we would probably like to keep them there for now.

If we can surprise you on the upside with some promising data and a strategy with the FDA, then we would be glad to do that.

So we will keep our fingers crossed.

Okay.

Next pipeline product, ABT-874, do you think we will see [MS] data before the end of the year?

It is certainly very possible.

We, again, have not been specific for competitive reasons on when we are going to have that data.

But we're going to have that data in hand here fairly shortly.

We will see what that data provides, and then think about the appropriate venue for disclosure of that data, whether it's through a scientific conference this year or next year, or some other venue to get that data out.

But we're going to have it fairly soon.

Then last question and I will jump (inaudible) some others.

This is for Tom; it is a tax question.

The Puerto Rico facility for HUMIRA, that is supposed to come online late this year, early next, correct?

Yes, I would say by the first quarter of '07 we should be online there, Mike.

Okay.

Then without providing -- I know you guys won't provide guidance yet for '07 -- but could you talk about, with that event in particular, what that might have on your tax rate?

Then obviously you have some other manufacturing events happening over the next couple of years, particularly the Nutritionals business; and how we should be thinking about tax?

As you said, Mike, it is awfully early to give you a lot of particulars about '07.

We feel pretty confident at this point in the tax area that that particular plant startup and the impact on our flagship product, which is pretty profitable, will have very meaningful impact on the tax rate in '07.

Meaningful is a lot more than a couple ticks.

So we feel real good about that.

You do allude to other things that are going on that will help us longer-term.

Among the things we are working on -- we really are continually working on our tax planning strategies -- is a plant that was announced earlier this year in Singapore for our Nutrition business.

As you saw in the quarter, we had very, very strong growth in our international nutrition business, driven largely by Asia and Latin America.

That plant is a couple years out, probably 2009, but again will be another opportunity for us to be more efficient in the tax area.

Great.

Thanks, guys.

Katherine Martinelli from Merrill Lynch.

Just wondered if you could talk a little bit more about your combo fixed-dose statin with TriCor.

I believe [Mark] is going to be showing some Phase II data at AHA, which obviously will give us a look at some of the potential safety issues.

Any thoughts you can give us, whether it's with respect to competitive landscape with products?

And also when we might see any data from your program?

Thanks.

Sure.

Yes, so with regards to the AstraZeneca, CRESTOR-TriCor collaboration, we are obviously very pleased to get that done, because it gives us another late-stage opportunity and really two separate pathways there.

One, looking at two potential opportunities on a fixed-dose using either 335 or TriCor NFE; and as well, separately, our ABT-335 program.

I think that is probably where you will see data next.

We have been undergoing studies as you may recall with this next-generation fenofibrate now for some time, beginning last year.

Phase III studies with three of the major statins concomitantly, coadministered studies, not fixed-dose, obviously.

In fact I think some of those trials have been posted to ClinicalTrials.gov earlier in the year.

So that is probably the most likely thing that you will see in terms of next data points for TriCor.

There is always a possibility of looking at some other field slices, if you will, because there were some sub-analyses and secondary endpoint data in that study that look very promising.

So we are looking at that.

We are also doing some evaluation of potential [IVIS] data studies.

I don't have a timeline yet on that.

But as soon as we can update you on that, we will.

I think the most important thing about all of this is TriCor has been a great product for us, as you know.

We have grown it very well.

It is has outpaced the market.

The cholesterol market, as you know, is a huge market with a lot of opportunity, a lot of patient demand for better products to treat a multiple of lipid parameters.

That is where I think TriCor has a unique position, not only in our collaboration with AstraZeneca and CRESTOR for providing a complete cholesterol management and getting at not only LDL through CRESTOR, but triglycerides, which micronized fenofibrate products like TriCor NFE are really unsurpassed in treated triglycerides.

Of course, recently, there has been a lot of attention to HDL and HDL-raising.

Really nothing raises HDL quite as well as TriCor.

So as you look at the combination of those things, it is a very powerful, potential partnership here, to get across all three parameters to address the mixed dyslipidemia patient population that has high LDL, low HDL, and high triglycerides.

So, with the Hart-Scott-Rodino clearance that we got here very recently on that agreement, it is moving forward.

We are going to look at a lot of potential different claims, make a decision on which product we want to move forward here in the near future.

Then hopefully we will have more data to share with you going into next year.

Okay.

Then just secondly, John, any comments regarding the diabetes market backdrop?

J&J's numbers were a lot weaker than expected yesterday.

We saw a weaker market in the first quarter.

Your numbers were just a tad light relative to our thinking.

We're just grappling with what is going in that market right now and any color that you may be able to add.

Yes, sure.

As I said in my remarks, we are pleased with the performance of Abbott Diabetes Care.

They have outpaced the growth of the overall glucose market.

In fact, we have moved up in the last year to gain -- we are close to gaining the number two position in the U.S. and number three worldwide, behind LifeScan and Roche.

So we are pleased.

We are going faster than both of those competitors.

We have close to 20% share of the U.S. market.

We do expect to see -- even though the growth was good in this quarter, at low double digits, we expect that kind of level of growth going into the third quarter, with as I mentioned midteens growth going into the fourth quarter.

That is really driven by a number of things, including, as I mentioned, the launch of the FreeStyle Freedom, which is launching now, is building up as we go through the third and fourth quarter.

Obviously, Navigator approval is an incremental to us in the late third quarter, fourth quarter.

We are pleased, also, that we have secured four major managed care accounts here recently, and those take effect beginning here in the third quarter.

That helps us as well.

I think we overall expect the market to do better than it has in the first half.

We are going to continue to promote the benefits of our products, which are unsurpassed in terms of size of meter and accuracy of data, and so forth.

We are going to do that through some strong promotional efforts as we had into the back half of the year as well.

Great, thank you.

Glenn Novarro from Banc of America Securities.

One question on pharma and then one on the litigation front.

As it relates to pharma, one, were there any price increases in the quarter?

Then secondly, are trade inventories, particularly for HUMIRA and TriCor, now at more normal levels?

As you know, 4Q we had a big level of stocking; 1Q we had destocking.

So I'm just wondering, 3Q and 4Q going forward, will HUMIRA and TriCor sales more mirror prescription growth from IMS?

Then secondly on litigation, can you give us an update status on Biaxin XL; and if there is anything new going on in the litigation on sevo?

Thanks.

Sure.

Okay, so with regard to pharma inventory levels, I tell you across the Company we are very comfortable with our inventory levels.

As you noted there, we did see a modest increase in the fourth quarter of last year in HUMIRA inventory as a result of those new indications that we got late last year, psoriatic arthritis and early RA.

That has normalized now.

We are at normalized levels with HUMIRA as well as TriCor.

The growth that we are anticipating for the back half of the year and our expectations of greater than 1.9 billion are built on strong demand and our continued share increases and new indications.

So overall, very, very comfortable with that.

In terms of price, we had modest price increases that affected overall sales in the quarter for U.S. Pharmaceuticals.

Any specific drugs that got increases?

You know, I don't have any specifics with me right now.

But overall, I would say price had a maybe 2% or 3% impact for U.S.

Pharmaceuticals in the quarter. (multiple speakers)

On XL, there is really nothing that I can provide that is new today on the current situation with Biaxin XL.

Sevoflurane, there is really no update there.

We continue to be in litigation with one of our competitors there on a number of different patents.

We are on appeal on that case as well, so we have got some things going on there, but nothing new.

Just to clarify on Biaxin XL, what we are waiting for today is for the appeals court to get back to you, to Abbott, on your filing as to why they should overturn the favorable (indiscernible).

Is that correct?

Yes, that is correct.

Beyond that, I cannot provide any details today.

So at this point, the appeals court has not indicated to you when you would get a decision?

No, then have not.

All right, great.

Thanks guys.

Glenn Reicin from Morgan Stanley.

Some housekeeping questions here.

On your Q3 guidance for Nutritionals I think you said domestically it would be up slightly.

You have tremendously tough comparisons on the U.S.

Ross side in Q3.

Did you mean on a worldwide basis or really domestically?

No, I was talking domestically there would be very modest growth; (technical difficulty) flat to slightly up in the U.S.

But international growth very robust, as you know, because of what is going on there.

Sure, okay.

Tom, can you give us a sense of how FX has played into guidance, if you go back 90 days versus today, both top line and bottom line?

I think going back 90 days is not a lot different.

I think the rates are somewhat -- they are about where they were at the end of the first quarter I would say, Glenn.

The guidance we provided today does assume that the rates pretty much stay at the level they are at.

I would say relative to the end of '05, it's a little better than what we thought at that point in time.

Okay, again, two more housekeeping questions.

We haven't talked about oral Zemplar in a while.

How is that launch going?

It is doing modestly well.

It is always looked at it as a long curve of growth, you know, that wasn't going to happen.

It is an education process for physicians in the marketplace.

I'd tell you the overall the Zemplar franchise continues to do very well, and that is part of it.

So we are continuing to work on it.

It is a modest opportunity in the near term, and a potential decent opportunity going forward.

Can you give us an idea what it is going to contribute this year?

I don't have that in front of me, no.

I will ask you that later then.

Zemplar overall is doing well, though.

Okay.

Then finally, year-over-year if we back out everything, we see some steep declines in specialty.

It's always a bunch of miscellaneous items.

Can you just talk through that business?

I think we came up with about $173 million this year, which is down around 20% year-over-year.

Yes, it is down primarily -- as you recall, last year we had a divestiture of the rapid diagnostic business that was in that number.

That is probably what is affecting it.

So do you have any sense of what apples-to-apples growth is?

Pretty flattish.

Pretty flattish?

Okay.

I will get back in line.

Thank you.

Charlie Chon from Goldman Sachs.

First of all, I would like to start out just asking with respect to Kaletra.

The competitive landscape obviously got incrementally crowded with the FDA approval and launch of J&J's Prezista.

Earlier in the year, you guys provided some guidance as to how Kaletra could fare in 2006.

I was wondering if you could provide an update to that guidance.

Yes, well obviously, Kaletra continues to do very well.

We had a great quarter with the launch of the tablet form now.

Outside the U.S. as well as in the U.S., we are looking at continued strong growth going in for the full year.

We are talking about high single-digit type growth worldwide and higher growth in the U.S., double-digit growth.

With regard to new competitive entrants, that is all factored into our planning.

The J&J product is now the tenth protease inhibitor to hit the market.

It is, obviously, important to have new therapies for patients, and that is important, and we obviously support that.

This will be used primarily for deep salvage patients, those that have failed several other HIV drugs.

In that case, that is something -- that dynamic will probably help push HUMIRA -- or Kaletra back down into more earlier treatment path usage, first-time patients.

And that is really the sweet spot for Kaletra as you know, because no other HIV compound, no protease inhibitor certainly, has the kind of sustained, long-term, viral suppression data that we have in naive patients.

In fact, it is out to seven-plus years now.

So that is where we are at.

We are obviously very pleased with the pickup we have seen with Kaletra tablets, which have the convenience advantages that I mentioned before in terms of once or twice a day dosing and less G.I. impact, etc..

We have seen that reflected in the market share.

It is a pretty carotid crowded field, but luckily we have what is considered to the one of the gold standards in protease inhibitors.

We expect to defend our franchise well, and that is factored into our plan.

Thanks.

Just to kind of poke around this high single-digit type growth on a worldwide basis, obviously having posted strong double-digit growth in the first quarter, low double-digit growth here in the second quarter, if we were to stick to that high single-digit type growth for the remainder of the year -- I mean, for the full year, then for the second half are you thinking more kind of mid to high single-digits kind of growth for Kaletra?

High single digit for the full year; yes, that's right.

But how about for the second half of the year, then?

I don't have a blended second half rate.

We are expecting strong, double-digit growth again in the third quarter, I know that.

Strong double -- okay, all right.

I will follow up with you on that off-line.

Second question, just with Abbott and J&J now having reported stronger than expected results for the quarter in the anti-TNF space, could you speak to the dynamics in the marketplace?

Perhaps in your answer could you provide a little more color, or maybe you could characterize the mix of growth for HUMIRA for the quarter, between share gains versus market growth.

Well, the market, we're definitely outpacing the growth of the overall market, which is a little bit misleading.

If you are -- some analysts who follow IMS data look at that, and there are factors in that data to account now for mail-order, which aren't always factored into people's analysis.

But if you look at that, the market has been growing upwards close to 20%, in that 18% to 20% range.

We are obviously growing faster than that.

We are taking share.

It is a combination of multiple things.

It has been great execution by our commercial team.

When you look at HUMIRA and all the various indications, we have hit all of our development milestones and regulatory milestones at or before the time that we said we were going to do things.

So our launches have been on schedule or ahead of schedule.

As we continue to disclose and present best-in-class data, which I think you have seen here not only in RA but in skin and gut data, our data is unsurpassed, stacked up to the competition.

So all these things are helping to build momentum as we get in with -- and just beginning really, to build on the derm side and of course the rheumatology side.

The longer we go and the more experience that rheums and dermatologists have with the product, the more comfortable they are with it.

So it is just a sequence of momentum-building events in terms of data, commercial execution, new pen delivery device that is more convenient for patients, more filings, more approvals.

It is just all of those things.

So we are very pleased with that.

The market growth has been steady, and continues to be strong, and we are benefiting from that as well, obviously.

Thank you very much, John.

Larry Biegelsen from Prudential.

What is your assumption for interest expense in the third quarter and the remainder of the year that is embedded in the updated EPS guidance?

I think if you look at the second-quarter level, that is roughly what we would probably run at over the third and fourth quarter; maybe a little more in the third, a little bit less in the fourth.

Obviously, we have got to now pay for the debt we took on with Guidant.

But we will have -- I would expect some of that debt to come down during the year.

Actually we paid some of it down in the second quarter; and so we will be paying down a little bit and bringing down the fourth quarter over the third.

I have one follow-up.

What do you expect to be the full-year run rate for amortization, specific to the Guidant assets?

You know, we are still working on the valuation and the appraisal with the outside experts on that.

More detail will come out in the Qs as we finalize that information.

So you have not changed your expectations at this time from the expectations you gave at the time when the deal closed conference call?

Right.

Guidant in the quarter is right on what we thought it would be when we provided guidance.

Thank you.

Okay, thank you.

In summary, I would say we are obviously very pleased with this quarter's strong performance.

The sales performance was very strong across the Company, across our broad base of businesses.

We are obviously pleased to have beaten the analysts' expectations and to have raised our full-year forecast for 2006.

So that concludes today's call.

A replay of the call will be available after 11:00 Central today at our investor relations website at www.abbottinvestor.com; and after 11 AM Central via telephone at 203-369-3864, confirmation code 5025490.

The audio replay will be available until 4 PM on Wednesday, July 26.

We thank you all for joining us today.

Thank you.

This concludes today's conference.

You may disconnect at this time.