美國雅培 (ABT) 2006 Q3 法說會逐字稿

Welcome to Abbott's third quarter 2006 earnings conference call. [OPERATOR INSTRUCTIONS]

With the exception of any participants' questions asked during the question and answer session, the entire call, including the question and answer session, is material copyrighted by Abbott.

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

I would now like to introduce Mr. John Thomas, Vice President of Investor Relations for Abbott.

Good morning and thank you all for joining us.

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

Tom is going to review the third quarter financial results, and I'll discuss the business operating highlights.

Following our comments we will take questions as usual.

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 our Securities and Exchange Commission Form 10-K for the year ended December 31st, 2005 and the 10-Q for the quarter ended March 31st, 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 in the past, non-GAAP financial measures will be used to help our investors understand Abbott's ongoing business performance.

These include such things as earnings per share, gross margin, R&D and SG&A, each excluding specified items and including stock compensation expense.

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

With that let me turn the call over to Tom.

Tom.

Thanks, John, and good morning, everyone.

As you may have seen from today's earnings news release Abbott delivered another strong quarter with double digit sales growth adjusted for BI, double digit investment in R&D and SG&A, and significant improvement in the Company's gross margin ratio ahead of our expectations which I'll discuss in a moment.

During the quarter we also achieved a number of important milestones.

Including the approval and regulatory submission of new Humira indications as well as the international launch of our next generation drug-eluting stent, Xience.

In addition, the integration of the Guidant Vascular acquisition is progressing rapidly, with the majority of key functions fully integrated.

And, as we announced this morning, the Abbott Board of Directors has approved a $2.5 billion share repurchase program.

John will provide additional business highlights in a moment.

Total sales this quarter increased nearly 15% when adjusted for BI including a favorable 0.9% effective exchange rate.

Accounting for the BI effect, reported sales were $5.6 billion, up 3.5%.

Results this quarter were led by outstanding performance in our U.S. pharmaceuticals business with sales growth of nearly 17% adjusted for the BI agreement, while strength across a number of our major brands including double digit growth in Humira, Omnicef, TriCor, Depakote, and Kaletra.

Globally, our top four pharmaceutical brands combined increased 30%.

Our medical products business also had a strong quarter with reported sales up 20% including more than $350 million in sales from Abbott vascular and double digit growth in International Nutritionals.

Third quarter ongoing diluted earnings per share were $0.58 in line with our previous guidance range of $0.57 to $0.59.

We're also very pleased with our continued progress on the gross margin ratio which, on an adjusted basis, improved 540 basis points from the prior year to 58.8%.

Year-over-year margin expansion includes the positive effect of the amended BI agreement, our ongoing efforts to streamline operations and reduce costs and product mix.

Gross margin ratio this quarter exceeded our previous expectations, driven by a better than expected contribution from the Guidant Vascular business, better product mix.

Regarding investment spending this quarter, both R&D and SG&A showed strong increases.

Even after excluding the impact of the Guidant acquisition and stock compensation expense from reported amounts, both categories posted strong increases as we made investments in key programs that will drive future growth.

Income from the TAP joint venture this quarter was $121 million, meeting our expectations.

Our forecast of full year income from TAP of 450 to $475 million remains unchanged.

The ongoing tax rate this quarter was 23.8%, a modest improvement from the prior year and also in line with previous guidance.

For the first time we're providing ongoing earnings per share guidance of $0.73 to $0.75 for the fourth quarter.

As a result our ongoing earnings per share guidance for the full year 2006 is now $2.50 to $2.52, within our previous guidance range.

Sales growth in the fourth quarter adjusted for the BI agreement is forecasted to be in the low double digits.

We expect the ongoing and gross margin ratio in the fourth quarter to be somewhat higher than third quarter, R&D around 9.5% of sales and SG&A in the mid 20s as a percentage of sales.

In summary we're very pleased with our performance this quarter, particularly the strong sales growth and continued progress in gross margin ratio.

With that let's turn to the business operating highlights.

John.

Thanks, Tom.

As Tom indicated, our third quarter performance was driven by strong results in our major growth businesses.

In medical products sales increased 20% including a full quarter of Guidant product sales.

Our emerging medical products businesses including vascular, International Nutritionals, molecular, and point of care each posted double digit growth.

So I'm going to walk you through this quarter's business performance highlights beginning with our pharmaceuticals business.

Our U.S. sales increased by nearly 17% adjusted.

So, let me begin with Humira which had another particularly strong quarter with worldwide sales up more than 50% to 541 million.

International sales were up 66% and U.S. sales were up 43%.

Based on Humira's performance year-to-date, we now anticipate full-year Humira worldwide sales to approach $2 billion, ahead of our original guidance of more than 1.9 billion.

Humira's growth continues to exceed the growth of self-injectable anti-TNF market which, based on the latest rolling quarterly data, is estimated to be growing close to 20%.

During the quarter, we accomplished a number of important goals as we worked to demonstrate the therapeutic benefits of Humira for patients in new disease states.

These milestones reinforce Humira's potential as the best in class anti-TNF therapy.

Among these accomplishments we received approval in the United States for Humira to treat ankylosing spondylitis, also known as arthritis of the spine, the third major disease indication for Humira.

We launched Humira for the treatment of AS in Europe last quarter and physician feedback and patient response has been very favorable.

We also filed for U.S. and European regulatory approval for Humira to treat Crohn's disease.

In clinical trials, Humira Crohn's patients through one year were three times more likely to achieve and maintain clinical remission through one year than patients on placebo.

And by offering self-administered dosing, Humira will provide Crohn's patients a distinct convenience advantage over infused therapies which must be administered by a physician in a doctor's office.

In dermatology, we recently shared positive Phase III trial results from our Psoriasis Champion Study.

The results show that Humira is the first biologic treatment for psoriasis to demonstrate superiority over Methotrexate, a current standard of care.

In this study, 80% of Humira patients achieved at least a 75% improvement in disease severity.

This was more than twice the rate of patients treated with Methotrexate and four times the rate of patients on placebo.

We remain on schedule to file for psoriasis indication for Humira in early 2007 in both the U.S. and Europe.

In addition to Crohn's and psoriasis, we continue to study Humira for juvenile rheumatoid arthritis, ulcerative colitis, and asthma.

Our follow-on treatments for Humira represent a multi-billion dollar peak-year sales opportunity beyond our base RA business.

Let me now turn to TriCor, our cholesterol and triglyceride therapy.

TriCor performed well again in the quarter with sales up 18% as growth once again outpaced the overall cholesterol market.

We continue to work with Astra-Zeneca, to develop the first ever statin fibrate fixed dose combination product.

And as a reminder this new product will combine into a single pill, either Abbott's TriCor or our proprietary next-generation fenofibrate ABT 335 with Astra-Zeneca's Crestor.

This fixed dose combination will target all three key blood lipids, LDL, HDL and triglycerides.

Separately, Phase III trials for ABT 335 as a stand-alone next-generation fenofibrate are also continuing to progress.

With regard to Kaletra, that product also continued to perform very well in the U.S. with sales growth of 28% in the quarter.

In Europe Abbott has gained market share in both Germany and the United Kingdom since the international launch of Kaletra tablets in July.

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

With regard to Depakote, sales are up double digits in the quarter.

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

U.S.

Synthroid sales in the quarter were 130 million, up nearly 10%.

In our anesthesia business, sevoflurane market share and volumes have remained steady as our commercial team continues to actively promote Ultane.

As a result, we have maintained a strong relationship and leadership presence with major U.S. commercial accounts, and we remain very committed to active commercial efforts around this important brand.

In anti-infectives, Omnicef continues to perform well.

Sales increased more than 50% as Omnicef remains one of the fastest growing antibiotics in the U.S.

As expected, Biaxin sales in the quarter declined, in line with our previous forecast.

Looking ahead to the fourth quarter in pharmaceuticals and adjusting for BI, we expect mid single digit sales growth for our U.S. pharma business with international pharmaceuticals increasing in the mid to high single digits.

In our TAP joint venture, the contribution from total TAP sales were in line with our expectations.

Prevacid sales were up, partially offset by a decline in Lupron sales.

Clinical trials for TAK-390MR, TAP's next-generation PPI in Phase III development, continues to enroll rapidly and ahead of schedule.

TAP plans to file for FDA approval of TAK-390MR by early 2008.

Let me turn now to our medical products business, which collectively had a strong quarter as well.

In our reported global diagnostics business, sales increased nearly 9%.

Within this reported business, our base immunochemistry and hematology business had a particularly strong quarter.

Global sales were up nearly 8% including exchange led by growth in the U.S. resulting from increased PRISM placements and expanding test menus on both architect and [axom].

In blood screening, under our new agreement, the American Red Cross purchased 20 PRISM instruments for its five national blood testing laboratories, which screen nearly 7 million donations each year.

Also, as we announced this week we signed an agreement for PRISM with Blood Systems Laboratories, the second largest blood screening system in the U.S..

Due to its unique automation capabilities, PRISM improves the blood screening process, enhancing the safety of the world's blood supply.

In immunochemistry, we continue to steadily place architect systems throughout the year and the quarter.

In fact, our diagnostics business placed its 5,000th architect installation in July.

The FDA recently approved three more automated hepatitis assays for architect and four hepatitis assays for axom.

The architect approvals represent the highest volume hepatitis assays and support our plans to complete the acute hepatitis panel for architect in 2007.

Our clinical chemistry business also performed well again this quarter, up more than 30% worldwide.

So, in summary, we continue to make consistent progress in our core diagnostics business, the strength in our leadership position.

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

In the first quarter of next year we expect to penetrate the high volume market segment with the launch of two new architect systems as well as the launch of an additional system targeted at smaller volume laboratories.

In Abbott diabetes care, sales in the quarter increased mid single digits worldwide.

Business continues to gain end-user market share, however, sales growth this quarter reflects modest growth in the overall blood glucose monitoring market.

In discrete monitoring, we recently launched our new Freestyle Freedom glucose meter which provides patients with results in an average of five seconds, requires the smallest blood sample size at 0.3 microliters and features a large high-contrast display for easy-to-read patient results.

Our Freestyle Navigator system remains under active regulatory review.

In Abbott molecular, sales grew 40% in the quarter as we continue to strengthen our presence in the rapidly growing molecular diagnostics market.

Growth was driven by international sales of our realtime PCR test and continued strength of our UroVysion and PathVysion products.

We look forward to the 510 K clearance and U.S. launch of the M 2000 instrument later this year.

Coronary care sales in the quarter grew more than 25% driven by sales of our i-Stat chem 8 cartridge and cardiac assays including the recently launched BNP test.

So for our reported global diagnostic business we expect mid single digit sales growth going into the fourth quarter.

In global nutritionals, international sales were again very strong this quarter, up approximately 19%.

We continue to see strong demand for pediatric nutritional products in developing markets around the world.

In adult nutritionals Ensure and Glucerna sales were strong in both Latin America and the Asia-Pacific region.

Ross U.S. nutritional sales declined in the quarter due in part to difficult year-over-year comparisons.

Looking ahead to the fourth quarter in nutritionals we expect continued double digit growth internationally with low to mid single digit growth in the U.S.

And finally in our emerging vascular business, we reported sales of $351 million this quarter, including the Guidant contribution, strong sales of endovascular and vessel closure products.

In our endovascular business, both of our carotid platforms continue to perform well.

In Europe we launched our next-generation embolic protection device Emboshield PRO which is designed to be more radiopaque providing better x-ray visibility.

The design also allows it to cross tighter blockages and be delivered more easily to patients with challenging anatomies.

In vessel closure, sales this quarter increased strong double digits with StarClose continuing to gain share globally.

In drug-eluting stents, earlier this month we did begin the international launch of our next-generation drug-eluting stent platform Xience V. The launch marks an important milestone for Abbott as we strengthen our position in the vascular market.

Early clinician feedback has been very positive.

We remain extremely optimistic about the commercial potential for Xience.

Last month we presented positive clinical results in the spirit two trial.

In this trial Xience demonstrated superiority to Taxus with respect to the primary endpoint of in stent late loss at six months.

Early physician feedback indicates that Xience can meet critical next-generation drug-eluting stent needs for both physicians and patients.

In preparation for our future Xience launches in the U.S. and Japan we're expanding our drug-eluting stent manufacturing capacity in Ireland to complement our existing manufacturing facilities for Xience in Temecula, California, and Clonmel, Ireland.

Looking ahead to the fourth quarter, we anticipate that our vascular business will again deliver very strong sales performance.

As many of you know next week is the TCT meeting in Washington, DC.

Abbott will be hosting an investor meeting beginning at 12:30 p.m.

Eastern Time this coming Monday, October 23rd.

The purpose of this meeting is to provide investors with an update on our overall vascular portfolio capabilities and pipeline, as well as developments related to the international launch and manufacturing of Xience.

In addition to Rick Gonzalez, John Capek, Chip Hance, and other Abbott Vascular management, we're pleased to have two experts in the field of drug-eluting stents who will join us that day.

Dr. James Hermiller who is Director, Cardiac Catheterization Labs, The Care Group, St. Vincent Hospital in Indianapolis as well as, many of you know, Dr. Renu Virmani, who is Medical Director for CV Path and as many of you probably also know, a leading expert in the field.

If you're attending the TCT meeting we do encourage you to join our investor event.

If you can't, a live web cast will be available as usual through our web site.

So, overall we're obviously very pleased with the third quarter performance across our broad portfolio of businesses, including the strong performance of our major pharmaceutical brands, particularly Humira, which continues to exceed our expectations.

We're also pleased with the performance of our key high growth businesses and medical products, particularly International Nutritionals and Abbott Vascular.

Finally, as Tom indicated, we are very pleased with the significant improvement in the gross margin ratio as well as our strong levels of investment spending in the quarter.

And so with that, operator, we will open up the call for questions.

Thank you.

At this time if you would like to ask a question please press star-one on your touchtone phone.

You will be prompted to record your name.

To withdraw your request star-two.

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

Please lift the handset prior to asking your question.

One moment please for the first question.

Our first question today is from Rick Wise, please state your company name.

Good morning.

Rick, Bear Stearns.

A couple questions, if I could follow up on your gross margins comments, Tom.

It sounds like mixed Guidant and cost reductions helped gross margins.

I think you said steady improvement from here.

Where can we go from here with gross margins, and how do we think about it going forward, is there kind of a metric we could think about?

I think the key word you mentioned there, Rick, is steady.

I think as we execute the remaining cost reductions, continue to do the things we do in the normal course of the business, and as our sales mix continues to improve.

Because as you know our sales growth is in areas of higher gross margin.

I think just very steady we would hope quarter-to-quarter progress in the margin.

Quarter-to-quarter means sequential or year-overyear, how do we think about it, Tom?

Each quarter is a little different.

The mix of the businesses is a little different.

So I think it's important to look at each quarter relative to the prior year.

Okay.

And just one other point, question.

It sounds like you're getting better Xience yields, it sounds like that's helping gross margins.

Can you help us understand, get some perspective on current Xience yields and again maybe, I'm trying to think, how does this give us some perspective on how it's affecting gross margins and again going forward, thanks so much.

Sure, I'll take that.

Yes, we are very pleased, as I mentioned in the comments, with the progress we're making on Xience on a number of fronts.

In particular, we have seen steady and significant progress in our manufacturing yields for Xience, which we now consider highly competitive.

So we made good progress on our manufacturing efficiencies in the quarter with Guidant.

That does have an incremental positive impact on the gross margin among other things.

So we're very pleased with the yields, we think we have sufficient capacity to meet what we believe will be optimistic demand expectations for Xience going into not only this year with the international launch, but more importantly '07 and even more importantly '08 and '09 with the U.S. and Japanese approvals and launches where there's obviously a much bigger overall opportunity and significant demand.

We think we have the product demonstrated by Spirit 2 data as well as the delivery system which, as you know, the Vision System is extremely well known and very preferred and liked by physicians.

It's the most broadly used delivery platform.

So all the components, and we will get into this at our TCT meeting, make us very optimistic about the long-term potential for the product.

Thanks very much.

Thank you.

Thank you.

Our next question is from Mike Weinstein, please state your company name.

Thank you, it's J P Morgan.

First question in the pharmaceutical businesses it looks like there was product that came in above what we were forecasting a couple that came in below, but by in large above.

Was there any inventory stocks and benefit that might have helped any of the individual products or hurt?

Hi Mike.

No, there wasn't.

We're very comfortable with our inventory levels.

We did see good script growth and demand with a number of products like Kaletra, which has gained share and, you know, we continue to see nice double digit increases based on the overall primarily script growth for most of those products.

Thanks.

Let me turn to Humira.

John, can you give us some flavor right now for the percentage of Humira usage that's occurring in RA, and then how much we're seeing early on with some of the new indications.

Last October you got psoriatic arthritis, a couple months you got ankylosing spondylitis, you have got obviously some very strong psoriasis data you just showed, you're about to show Crohn's data.

How much right now are you getting in some of these other indications outside of RA, and then maybe just update us as well on approval expectations for Crohn's which you just submitted and then psoriasis, which I think you're expecting to submit in the first half of next year, thanks.

Sure.

Well, we obviously get the bulk of our prescriptions from the RA indication, I would say about 90%.

We have about 10% from the dermatology market.

And that's how it breaks out.

We're still, we're at about 35% of the self-injectable RA market new scripts.

We have seen steady rolling quarterly data that shows that we continue to outperform the growth of the market, which, as I mentioned, is closing on about 20%.

So that's kind of where we're at.

The other indications such as, ankylosing spondylitis, it's so early in that launch that I don't have good data, it's very early, so there's obviously a lot of opportunity there to treat patients as we go throughout this year, but more importantly into next year and the year beyond.

John, real quick you didn't mention the GIs the gastroenterologists, are you seeing any usage there for Crohn's.

We are seeing some, but not the kind that we would see once we get approval.

Because obviously we can't promote it until it gets approval.

You mentioned time line for approval of Crohn's, we are anticipating for planning purposes that we will get that some time next year.

We have been asked before if there is an opportunity for expedited approval.

That's up to the FDA.

We do have the gain study that shows very good data and Remicade failures.

But it would be up to the FDA whether, that kind of data is sufficient to get expedited review.

If that were to happen then obviously we would be out the first part, first quarter or early second quarter with Crohn's.

So we're looking forward to that.

All the other indications are moving along at or above time lines in terms of progress and phase three.

We had the psoriasis data presented here recently, a European conference, which also demonstrated superiority over standard of care as a mentioned, and we're on track to file that in the first half of 07.

We're also moving forward with UC and asthma and juvenile RA.

So a lot of opportunity there, obviously RA in Japan is another one that we filed in late '05.

You know, it appears that the Japanese regulatory authorities are taking a little bit longer than normal to approve products, but that still, pending approval and we would expect, you know, that that would be coming some time probably later this year into next -- excuse me later next year into early '08.

That's a great wrap-up, one question and I'll drop.

Could you just give us an update on Febuxostat if I missed it on the call go ahead and pass, thanks.

Okay.

Yeah, Febuxostat, which is TAP's product for gout got a second approvalable letter as you may recall in August.

TAP is in active discussions with the FDA, so it wouldn't be appropriate for me to comment much beyond that.

We're still, you know, optimistic about Febuxostat's potential to treat patients in what is a disease category with very few options other than an older first line product that's been around for 40, 50 years as you know Allopurionol So they're working with FDA to determine next steps.

At this stage, you know, it's always possible that there could be the requirement for an additional study.

And we don't know that yet for sure, so obviously they will be working with them.

Either way, though, I think for Abbott at least because of, the way the TAP structure works and how it falls through to us, next year would be a launch year, so it's not a financial benefit either way.

But we're still encouraged and optimistic that this product will come to market, it's a question of working through the final plans with the FDA.

Great, thank you.

Thanks.

Thank you.

Our next question is from Glen Reicin , please state your company name.

Glen Reicin, Morgan Stanley, good morning everyone.

Morning.

Can you just go over, just clarify the adjustments you're making the BI to, give us the numbers you're assuming for Q3 and Q4.

For?

If I just take [Mobiton] and Flomax out, I'm getting roughly 510 million in sales, and I know this is nit-picky, but to mid teens increase year-over-year in pharmaceutical, not upper teens.

I first want to get sort of an apples to apples what adjustments you're making.

You know, I don't know that I have all the details in front of me.

The third quarter impact of BI was pretty much in line with what we expected.

So fourth quarter, you know, I don't have specifics since we don't promote those products any more.

I just need last year's numbers, the adjustments you are making in these calculations.

Can I get back to you on that?

Yes.

I don't have it in front of me.

I would be glad to call you after this call is over.

Okay.

And this is what I'm getting after, why would you have a dramatic deceleration in growth in domestic pharmaceutical from the strong performance you gave in Q3, in other words you're saying upper teens growth this quarter then you're saying, what, mid single next quarter.

Yes, and I think that's pretty much in line with some of the models that we have seen.

There's obviously difficult comparisons in the fourth quarter year over year for products like Biaxin, products like Flomax which we don't promote any more.

That's the adjustment.

Sevuflorane.

Right.

We talked about adjusted, we're talking about adjusted sales that are still going to be very strong.

So, you know, it's really a comp issue year over year.

And I think it's pretty consistent with most expectations.

Which products did you take price increases on in the quarter.

There were actually only a couple that we took.

One was Tarka which I think was about 2% and Mavik was about 2%.

I think there was one other as well and that was Depakote which was less than 3%.

Those were taken I believe in July.

Okay.

Can you talk a little bit about the specialty business and what happened there?

Which you don't really talk about ever in your press releases.

Really not much.

That's a pretty small segment for us, you know, there's noise in that that goes up and down, it's animal health and contract manufacturing, I think that's what you're referring to.

And spine.

And spine, which, you know, spine was not quite as robust as it has been in the past, but it's so small that, you know, it doesn't have much of an impact.

So, you know, that nonsegment sales category was pretty much the same as it was a year ago, maybe slightly up.

Do you have those final numbers?

Final?

Yes.

Let me see here.

I'll get you something on that.

It was down modestly and it was primarily due to a comp issue.

Okay.

Thank you very much.

Okay, thanks.

Thank you.

Our next question is from Glenn Novarro, please state your company name.

Hi, Glenn Novarro, Banc of America.

As I look out to 2007, it looks like the fundamentals of the pharmaceutical business always in the pharmaceutical business are going to remain very strong.

The only thing that concerns me is the potential generic risk to Omnicef.

Is it possible, one, to quantify what Omnicef means to your bottom line, and then, second can you remind me when the patent expires and what kind of strategy are you putting in place to try to keep generics off the market on Omnicef?

Because I believe I have seen tentative approvals now on that drug, thanks.

Yes, Omnicef, obviously it's a pharmaceutical product so it has pretty good margins.

The composition of matter on that product extends until May of 2007.

We also will have a crystal form A patent that we talked about in the past that extends to 2011.

And that's an anhydrate crystal form that we believe is the most stable form of a molecule and thus it will be difficult, we believe, for generics to try to manufacture a stable product and get around that crystal form a patent.

Without getting into our proprietary legal strategy, which probably wouldn't be a good idea competitively, we will defend as appropriate on that product, and I'm only aware thus far of one company, an Indian company, that has gotten an approval of a capsule, not the same milligram as ours, and a suspension that is, I believe, not the same as well.

And so there's a strategy and timing around these things.

I don't think it would be appropriate to comment on it.

But I think the main point is, whether it's this or anything else, when we look -- and maybe Tom could chime in on this as well -- when we look out over our long-range plan, I think we have been very realistic about accounting for a basket of products, and the opportunities on the up side with the height growth products like Humira and Xience and Tricor and some of these other products, as well as the potential downside risk, if you will, for some of these, you know, a generic like Omnicef if that were to occur.

So, I think we have accounted for all that in our planning, we're very realistic about that and that's how we approach it.

Yes, I think John captured it pretty well.

Obviously we have a lot of good things going on, and we're planning to offset some of these risks even if we're not successful in defending our intellectual property, that being said we're obviously going to do that.

For 2007 we will be looking very closely at the adalimumab assumption we made in light of the intellectual property position we have on that product.

I think the final thing I would add there, Glenn, if you look out historically for what that's been worth, we have been very successful with respect to protecting our intellectual property and asserting it at the appropriate times and defending franchises, you know, Synthroid, Tricor, Biaxin, etc., so, you know, we will see what happens.

But we have accounted for those things.

Would I be far off if I assumed that the EPS contribution is between 5 and 10 cents?

I'm just trying to figure out what the worst case would be next year, and it sounds like, you know, with the Guidant acquisition now the impact of Omnicef if it were to go generic, is clearly less than what we would have thought just a year ago.

You know, Glenn, we don't share margins on our products, and I think that would only be significant in the event we made some assumption that would affect our 2007 guidance.

So at this point, that's something we're not prepared to talk about.

This has margins similar to Depakote and Humira, correct?

Is that a correct assumption?

Pharmaceutical product.

All right, thank you guys.

Thank you.

Thank you our next question is from Larry Biegelsen, please state your company name.

Hi, thank you.

Prudential.

Tom, could you tell us about the SG&A and R&D levels going forward, you know, it was relatively high in this quarter, how should we think about those numbers going forward?

Obviously in the fourth quarter we will continue to be impacted by the stock compensation and the addition of Guidant, and as you saw in the third quarter and in the second quarter, those do add substantially to the R&D and SG&A growth rates.

In the third quarter, and we have been giving guidance all year long of mid to upper, this was really prior to any of these items, mid to upper growth in both of those items.

In the third quarter we were above that.

I think in the fourth quarter I think that would normalize back into that as kind of a core growth in those two line items.

So it would be that kind of growth plus Guidant and plus stock comp.

The stock comp obviously you have details on in the releases we have issued.

For Guidant we're -- really for competitive reasons we're not going to be real proactive about exactly what those spending levels are.

Thank you.

And for the Zinlay 244 data, can you give us an update on when we're likely to see that data.

Yeah, hi Larry.

We said by the end of the year, so we're accumulating that data and studying it and we will let you know by the end of the year, thereabouts, what goes on with 244.

I think I would remind you there, as far as I know, and the last time I checked, everyone had taken Zinlay out of its model, so the expectations are low regarding that product based on the previous studies.

We would like to keep them low for now.

Thank you.

Thanks.

Thank you.

Our next question is from Bruce, please state your company name.

Good morning.

It's Leerink Swann.

Hi Bruce.

Hi guys.

I guess first off, John, just on Humira, quickly, you mentioned -- or maybe it was Tom talking about some pricing.

I seem to recall you got pricing last August for Humira, did that not happen again this August?

No, I don't believe that there was anything that was taken in the quarter.

There was something earlier in the year I think it was around 4%.

Okay.

And have you guys been able to gauge at all what the impact of Part D has been this year on Humira sales.

You know, we have seen some, you know, modest move over on that, but not, not huge.

It's obviously something that ourselves and, you know, other self-injectable competitors believe was important for leveling the playing field and expanding access for patients to these important therapies.

So we were glad that that was part of it, but it's limited and so the benefit from that has been pretty modest overall.

Kind of a tailwind for all players, not so much --

I'm not so sure I would call it a tail wind.

Then is it possible for you to give us the actual dollar contribution from Guidant to the vascular business in the quarter.

Yes, we haven't broken that out specifically.

We gave the total Abbott Vascular sales of 351.

Yes.

Both of those, the base Abbott Vascular business I would tell you that grew at a similar rate that we have seen in the past.

You know, access of 50% if that helps you.

Okay, yes, that gets me there.

Last question, which I know it's a little bit kind of down in the details, but you mentioned chemistry strength in the quarter.

I think you said 30% or something.

Right.

Which strikes me, I seem to recall it was a big number last quarter too, maybe not quite that strong.

I know it's somewhat of a small base, can you, I guess, provide any color as to what's going on there to put that kind of growth in a segment that I would typically characterize as being fairly moribund?

Well, yes.

It's such a small base, your point, it's not a huge driver for us.

But obviously because of the new architect system that's integrated as a immunochemistry system, that's helped, you know, as we have talked about in the past we have been a leader and continue to be in immunoassay, and with the architect system we were able to expand our footprint and get into chemistry in a more meaningful way.

We're obviously pleased with the progress that we are making, and we continue to place systems, and the more systems that we place, we're obviously driving through more assay, and chemistry is part of that.

It's been part of the strategy of that division to expand our presence in chemistry and going from, what you noted was a very small base, gives us a lot of opportunity.

So the growth is very good.

The base is small.

The progress is good.

So that's overwhelmingly skewed toward reagent revenue off architect?

That's right.

I'm sorry, I did have one more.

You mentioned core rates of growth in the quarter for, I'm sorry core diagnostics, somewhere I think you said maybe 8% or something.

Right.

Can you just give us a sense how that broke out, U.S. versus OUS.

U.S. growth in the core immunochemistry business was in the high single digits.

Kind ever both the same then, OUS, U.S.

Roughly, yes.

Thank you, very much.

Thank you.

Thank you.

Our next question is from Matthew Dodds, and please state your company name.

Great.

Citigroup.

Just, quickly, a question for Tom.

On your guidance for the fourth quarter on some of the growth outside the U.S. like high single digit growth for pharmaceutical does that include foreign exchange or is that organic.

Foreign exchange in the fourth quarter we think will be going to be very modest, slightly positive, under a percent, all of our numbers would include foreign exchange, but it's pretty small, less than 1%, overall.

And, again, that's based on current exchange rate.

Then one more quick housekeeping.

The product discontinuation you charge in Q3, that's Zomax?

That's correct.

Okay.

And then --

that's consistent with what we previously announced about our intent to put all of our efforts commercially behind Xience because it's a superior product.

We will talk a lot about that at out TCT investor meeting.

I hope you can be there, Matt.

I'll be there, John.

I'll save those questions for that.

One more question on pharmaceutical, on Ultane (sevuflorane) you said the volumes were relatively consistent, it did drop a lot.

One more question on pharmaceutical, on Ultane (sevuflorane) you said the volumes were relatively consistent.

It did drop a lot.

Is that just the pricing when you tried to lock in a lot of your customers?

That's correct.

We talked about that in the last couple of quarters.

We took some proactive pricing initiatives the end of last year, early this year, and it's related to that.

The overall share and our commercial presence is pretty much the same outside the U.S.

We're actually up low single digits, and U.S. we're maintaining our leadership position and we're very interested in continuing to do that and actively promote the product.

Thanks John.

Thanks.

Thank you.

Our next question is from Sara Michelmore, and please state your company name.

Yes, Sara Michelmore from Cowen, good morning.

Tom, I was hoping, could you give us an update in terms of where we are on the cost curve for Humira?

Just give us the sense in terms of the gross margin for that product, and also the operating expenses for that product.

Where are we in terms of getting the theoretical profitability out of that product that you guys had been targeting.

The good thing about Humira, I have mentioned this a few times, this product, because of the relatively low SG&A investment required to sell it was profitable in its second year.

It continues to be very profitable for us because, really, it's a pretty efficient product from an SG&A perspective.

You know, the cost, we continue to manage down costs.

Obviously a fair chunk of what we have in our gross margin is the various royalties that are required under these products, so obviously there's not much you can do on those.

But we have attacked the pure manufacturing costs through this new plant in Puerto Rico.

I think the real potential additional profitability, at least from a margin perspective going forward, is not so much in the gross margin area but more in the tax area where, as we have indicated before, as we go into production in Puerto Rico in 2007 for Humira, and our other biologics, we will be getting some meaningful benefits down there.

We work on it all the time, but that's, really, probably the biggest incremental driver other than our volume obviously.

Okay.

In terms of the R&D investment in that product in clinical trials, are you over the hump in terms of the clinical data costs associated with the new indications that you guys are planning to roll out the next couple years?

There's still steady investment in that whole immunology area from an R&D perspective.

As John indicated we have other indications that we're starting to explore and certainly as some of these trials wind down we will be increasing spending in other areas.

So I think between that and 874, our anti-aisle 12, you will continue to see very strong investment in that area, it's a key growth area for us going forward.

Okay, great.

Can I follow up John, with a question on diabetes care.

I'm sorry if I missed this, why was the performance in that product line not as good this quarter?

And then if you could follow up in terms of Navigator, I know you said that it's still under active review.

I think you guys had targeted a year-end launch for that product.

Is that still on target or are we looking something more like early 2007 for that product?

Thanks.

Okay.

On diabetes care, it's really overall market modest growth that is the result of our mid single digit performance.

They have gained, as I mentioned, end-user market share and have done very well with, their meters because they are the best product offering out there in terms of smallest size, fastest test times, smallest blood samples.

So the free style freedom launch is still pretty early, and we're not seeing the full benefits of that yet.

But I think as another competitor noted yesterday, the overall market growth is fairly modest and, that competitor noted I think that most of their growth came from an acquisition.

So relative to that we're doing, you know, decently.

We expect better growth going into 07, but probably still some fairly modest mid single digit type growth in the fourth quarter.

With regard to Navigator, as I mentioned we are still under active review with the FDA, and we're still hopeful that we can get approval by the end of the year or thereabouts.

But again that's, for planning purposes, it's obviously an important product longer term and one that we're optimistic about in terms of all its benefits which I think you know pretty well and that we have demonstrated with clinical data is superior to competitive products.

From a planning perspective the potential for sales in the first couple of years are very modest anyway, it's a longer curve.

So we will see.

We're working with the FDA and we're hopeful to get it approved.

We will see what happens.

Okay, thank you.

Thanks.

Thank you, our next question is from Catherine Arnold, please state your company name.

Good morning.

I'm from Credit Suisse.

A few questions.

First of all, Kaletra performance for the year seems to be ahead of guidance, and I'm wondering, similar to what you chose to do for Humira, why you may not have increased the guidance for 06.

And the second question I have is could you just give us a sense of the relative complexity in the formulation of your project with faster Zeneca for Crestor.

We have obviously seen some other drugs having some formulation issues, and I wonder if you could give us a qualitative sense of how difficult that will lead this combination?

Okay.

Well, Humira is the one that people like to track, so and we have given a full year guidance in terms of absolute dollar sales on that, so that's the reason why we upped our, raised our guidance on that from more than 1.9 billion to approaching 2 billion.

But, obviously, Kaletra is doing extremely well, and we look at worldwide sales for the full year at the growth rate that we're achieving based on market share gains with the tablet formulation in the U.S. and now more recently ex U.S., well in excess of $1 billion will probably coming in, about a 1.1 billion or so.

We would have given it, we haven't in the past, but that's doing very well.

The data on that drug as you know in terms of viral suppression is out to seven years, naive which is unsurpassed.

It's still considered the gold standard, still a leader, and its cost is relatively less than some of the second, third generation products that have just come on the market.

In fact there is one that I think is the 10th protease inhibitor on the market that just came out that's about twice the cost of Kaletra.

So that's the Kaletra story.

With regard to Crestor and our, either ABT335 or Nextgen NFB product for that situation, we're moving forward and we should be making a decision on which product we go forward on coming around the end of the year, probably more likely in the first quarter of 07.

You know, we're obviously very optimistic about the longer term potential for that, because there really isn't anything that addresses in one single fixed dose all three lipid parameters, LDL, HDL and triglycerides.

Obviously Tricor has its primary niche for dyslipidemia patient in terms of raising HDL better than anything and lowering triglycerides.

We will keep you posted on that.

It's a nice pipeline opportunity for the longer term, 09, 010 and the overall, you know, development efforts continue to move along nicely.

Could you, as a follow up to that, could you share what you think the relative challenge is from a formulation perspective for that project?

That's something that's competitive.

You know, we think that obviously it can be formulated in a way that would make it very effective.

So our scientists have studied that.

We obviously did a lot of due diligence around that before we entered into the agreement with Astra-Zeneca.

So it's something that we think, we have accounted for and that we can deliver on.

So that's about all I can tell you at this point.

But the project and the development is moving along.

Okay?

Thanks.

All right.

Thank you.

Our final question today is from Charlie Shunn.

Please state your company name, sir.

Hi, Goldman Sachs.

Thanks for squeezing me in.

As you know Boston Scientific just received E-mark for the Everolimus Promus stent and they indicate that Promus probably would likely not launch until some time in 2007.

I just want to clarify, does Boston scientific get immediate access to 50% of your volume?

I know you will be providing an update on the ongoing European launch Xience V next week, but could you give us a quick update as to which countries Abbott has begun launching into?

To address your first question Charlie, yes, under the terms of the agreement with Boston Scientific with regard to Promus, they do have access to roughly 50% of our capacity.

And that's the terms of the agreement and that is factored in the equation when we talk about sufficient capacity to meet our market share projections specifically for Xience stand alone, but also to account for whatever Promus may sell in the marketplace.

I can't comment on the timing, that's their product and their time line decision.

I did see what you saw, which is they said that they were going to launch some time in 2007, which is consistent with what we have known about their product in the past.

And your other question was regarding the launch.

I think I'm going to let us wait and save that for our TCT meeting where we have all the experts from vascular who will be there.

I can tell you it's going very well, it's very early, too, it's only been two, three weeks as you know.

We did talk about that at the time in terms of our intent and we're delivering on that to launch in the majority of European countries.

I'm going to save the detail for the TCT meeting.

What I will tell you though, is anecdotally we are getting tremendous feedback from clinicians and physicians who are using the product.

Back to our European sales force.

I've seen some of those directly, and they're obviously very pleased with the deliverability, conformability of the stent, and so we expect that will portend good things as we go into next year.

Okay, thanks John.

If I may, I would like to just squeeze in another question on Tricor.

Tricor for the quarter was slightly softer than what we had been expecting on what seemed to be an easy year-over year-comparison.

And I was wondering if you might be able to speak to what may have happened during the quarter, especially since there's been some sequential lumpiness over the past several quarters.

Should we expect that lumpiness to continue going forward.

I don't know.

I'll take the lumpiness, if that's what you call it, because it continues to grow at double digits rates, it's in line with prescription trends, and it continues to grow faster than the cholesterol market.

I don't think there's much more I can say about that.

It's obviously doing well, meeting our expectations and we're pleased with it.

That concludes our conference call for today.

A replay of the call will be available after 11 a.m. central time on our investor relations web site at www.abbottinvestor.com, and after 11 a.m. central time via telephone at 203-369-0449, confirmation code is 5025507, and an audio replay will be available until 4 p.m. central time on Wednesday, October 25th.

We thank you for joining us today.

And we hope that you can join us either live or via web cast on Monday, 12:30 eastern time, for our TCT analyst meeting, thank you.

Thank you.

That does conclude today's conference.

You may disconnect at this time.