美國雅培 (ABT) 2007 Q1 法說會逐字稿

Welcome to Abbott's first-quarter 2007 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 participants' questions asked during the question and answer session the entire call, including the question and answer session, is material copyrighted by Abbott.

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

I would now like to introduce Mr.

John Thomas, Vice President, Investor Relations.

Good morning, and thanks for joining us.

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

Tom will review the first-quarter results and I'll discuss the business operating highlights.

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

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

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 item 1A, Risk Factors, to our Annual Report on Securities and Exchange Commission Form 10-K for the year ended December 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 in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance.

These non-GAAP financial measures are reconciled with the comparable GAAP financial measure in our earnings news release and regulatory filings from today, which will be available on our website at Abbott.com.

With that, I will now turn the call over to Tom.

Tom?

Thanks, John, and good morning.

For the first quarter, we reported diluted earnings per share excluding specified items of $0.55, including the contribution from discontinued operations, ahead of our previous guidance range of $0.51 to $0.53, which also included discontinued operations.

Higher TAP joint venture income impacted earnings per share by $0.02, resulting from a favorable outcome in a patent dispute.

As a result, we're raising our full year 2007 guidance, as I'll discuss in a moment.

Regarding the P&L, as we mentioned last quarter, and in accordance with GAAP, financial results from the core laboratory and Point of Care diagnostics businesses have been reclassified as discontinued operations due to the pending divestiture.

As a result, the line items of the consolidated statement of earnings are on a continuing operations basis and are comparable between 2006 and 2007.

Sales this quarter increased 15.5%, above our previous guidance range of 13 to 15%.

Results were broad based, with both pharmaceuticals and medical products reporting double-digit growth.

There were a number of factors that impacted the year-over-year sales comparison this quarter.

Exchange was favorable, 2.5%; and acquisitions resulted to sales performance as anticipated in our original guidance.

Comparisons were negatively impacted by the completion of co-promotion of Synagis in the U.S.

in 2006, generic competition for Biaxin XL in the U.S.

in the first quarter of 2007 and nonrecurring BI revenue in the fourth quarter of 2006.

Adjusting for all of these factors, sales growth in the quarter would have been in the high single digits.

The adjusted gross margin ratio in the quarter was 60.4%, in line with guidance provided last quarter, and reflecting the positive impact of the pending divestiture.

Comparison to the prior year was negatively impacted by the reduction in the contribution from Synagis in the U.S., as well as lower U.S.

Biaxin XL sales as previously forecasted.

Both R&D and SG&A showed strong increases in the quarter as we continued to invest in a number of growth initiatives across our broad-based pipeline, as well as promising product launches.

As a reminder, the reported levels in each category included the impact of the Guidant Vascular and Kos Pharmaceuticals acquisitions.

Excluding the impact from acquisitions, R&D increased in the low double-digit range.

As expected, we saw a relatively higher rate of SG&A increase in the first quarter, but as we indicated on the fourth-quarter call, we expect to see leverage in the SG&A ratio in the second half, particularly in the fourth quarter, as strong sales growth continues and we realize synergies from the Kos acquisition.

Interest expense of $125 million was in line with our previous forecast, up over the prior year due to incremental interest associated with acquisitions.

Income from the TAP joint venture of $147 million was ahead of our expectations, reflecting a favorable outcome reached in the quarter in a Lupron patent dispute.

Our ongoing tax rate in the quarter was 20%, a reduction from previous guidance.

The tax rate this quarter reflects favorable trends and the mix of income across the various tax jurisdictions.

We expect to sustain this lower tax rate throughout 2007 and going forward.

The benefit of the lower tax rate helped offset strong investment spending and a higher share count in the quarter.

Now let's turn to the outlook for the remainder of 2007.

As I noted earlier, as a result of the higher than expected TAP joint venture income this quarter, we're raising our full-year guidance for earnings per share to $2.79 to 2.85 from our previous guidance range of $2.77 to $2.83, both excluding specified items.

For the second quarter, we're confirming our earnings per share guidance of $0.67 to $0.69, also excluding specified items.

For the second quarter, we expect sales growth of 13 to 15%, consistent with previous guidance; sequential improvement in the gross margin ratio, above 61%, also consistent with previous guidance; and continued strong increases in R&D and SG&A, although less than the first quarter, since we will have largely lapped the Guidant Vascular acquisition.

EPS guidance for the full year and second quarter reflects the announced sale of Abbott's core laboratory diagnostics business, and includes both the results of this business while owned by Abbott and the redeployment of proceeds after closing the transaction.

Our EPS guidance for 2007 now includes the lower forecasted tax rate of 20%, which also included a more conservative financial planning assumption for Omnicef in 2007 and beyond, accounting for the possibility of an at-risk generic launch.

This does not reflect a change in our legal position regarding intellectual property around Omnicef, which we will continue to vigorously defend.

If sales of Omnicef exceed our forecast, it would provide either additional spending capacity or the potential for additional earnings.

So in summary, we're very pleased with the performance of our business this quarter.

We reported strong double-digit sales growth, higher investment in R&D and SG&A, along with an improved tax rate going forward.

We've now taken a more conservative financial planning approach to Omnicef, while raising our earnings guidance for the full year to account for the first-quarter results for TAP.

We've also made tremendous progress with a number of key growth drivers, including Humira and Xience, which John will discuss in his review of the business operating highlights.

John?

Thanks, Tom.

As Tom indicated, in the first quarter we reported strong results across our broad base of businesses.

In medical products, global sales increased nearly 14%, led by Abbott Vascular, as well as continued double-digit sales growth in international nutritionals and molecular diagnostics.

In our worldwide pharmaceuticals business, sales increased more than 16%, including acquisitions and the continued strength of Humira.

Let me start with medical products and our emerging vascular business.

Worldwide sales for Abbott Vascular were $420 million in the quarter, up significantly on a percentage basis over last year, and on track to reach our target of at least 60% growth for the full year.

In our coronary business, the international launch of our drug-eluting stent Xience V is performing well.

Physician feedback has been encouraging, as interventional cardiologists continue to favor the deliverability of the Xience V platform.

As you know, last month at ACC, we presented results from our large U.S.

pivotal trial SPIRIT III.

These data demonstrated for the second time the superiority of Xience V over Taxus on the primary endpoint, showing a 50% reduction in late loss compared to Taxus.

For the first time in a clinical trial, we demonstrated superiority on a clinical endpoint, MACE, or Major Adverse Cardiac Events, an important endpoint for clinical efficacy and patient safety.

Both nine-month SPIRIT III and our one-year SPIRIT II results demonstrated superiority of Xience V over Taxus, showing a statistically significant 44 to 71% reduction in MACE respectively.

The body of clinical data on Xience V continues to demonstrate that it's arguably the best drug-eluting stent on the market today.

In the first quarter, we continued to expand our global presence with approvals in Australia and Hong Kong.

We also launched Xience V in Belgium in February upon reimbursement approval.

We're capturing a majority of new accounts, as they become available through the hospital tender process, and remain on track to exit 2007 with overall market share expectations for Xience V alone in the mid to high 20s.

We're also in the unique position to participate in both the drug-eluting and bare metal stent segments of this market.

In both segments, we've seen a market preference for the best technology, which has also been illustrated by our overall stent growth in Europe, not only with Xience, but also with our bare metal stent franchise.

We remain the global market leader in bare metal stents with MULTI-LINK VISION, where we continue to see strong growth.

Total coronary stent sales, which include bare metal and drug-eluting stents, were $160 million in the quarter, up strong double-digits sequentially.

Our global DES franchise sales, which include Xience as well as other DES product revenues, were in excess of $60 million.

As a reminder, our international business reports on a one-month lag, and so for this quarter includes sales from December, January and February.

We continue to view the drug-eluting stent market as a substantial and significant growth opportunity, particularly over the next several years, as we launch Xience V in the U.S.

and Japan.

We remain on track to submit Xience V for U.S.

approval in the second quarter of this year.

And as we indicated at our ACC investor meeting, our manufacturing yields are highly competitive.

We're ahead of schedule to reach our year-end target to supply more than 50% of the international market while at the same time building for our U.S.

launch in the first half of 2008.

In our vascular pipeline, we continue to advance a number of next-generation DES technologies, including our bioabsorbable drug-eluting stent.

We presented six-month data at ACC that continued to demonstrate good efficacy and safety with no thromboses and very low MACE rates.

In our endovascular business, we're the only company with two carotid stents on the market, providing a choice to physicians.

We also presented late-breaking data at ACC that demonstrated patient outcomes are improving over time with increased use of carotid stenting.

We continue to enroll patients in our long-term carotid stent trials to obtain an expanded indication for our carotid platforms.

And in vessel closure, we anticipate launching a new easier-to-use version of StarClose, called the StarClose SE, later this year.

So looking ahead to the second quarter, we again anticipate continued very strong growth from added vascular with sales well in excess of 60% in terms of growth.

In diabetes care, global sales increased mid-single digits in the quarter, reflecting modest growth in the overall blood glucose monitoring market.

As we announced on Monday, we received FDA approval for the FreeStyle Lite system, a new blood glucose meter, which requires no coating and offers automatic calibration.

By eliminating this manual step required by most meters, the FreeStyle Lite system makes the testing process easier for people with diabetes.

Neither of the two leading blood glucose monitoring companies currently offer a meter with automatic calibration as does FreeStyle Lite.

Our FreeStyle Navigator continuous blood glucose monitoring system remains under active regulatory review and we expect to receive FDA approval and CE mark in the coming months.

Beyond the FreeStyle Navigator system, we're developing a fully integrated blood glucose monitoring system that combines a meter, test strips and lancing capabilities in one device, enabling simple point-and-click testing.

With the launch of FreeStyle Lite and additional new products throughout the year, we anticipate stronger growth in Abbott Diabetes Care for the second quarter and a return to double-digit growth for the business in the second half of 2007.

In molecular diagnostics, sales growth was more than 25% in the quarter, as this emerging business continues to outpace the overall growth of the market.

We recently received approval in Europe for our realtime PCR hepatitis B assay expanding the m2000 system's growing menu of tests and rounding out the menu for infectious disease assays in Europe.

We're awaiting FDA approval for our realtime PCR HIV viral load assay, which will trigger the official U.S.

launch of our m2000 realtime PCR system.

As a reminder, the m2000 reduces the manual procedures and hands-on time required to prepare patient samples for molecular testing by as much as 75%.

Moving on to global nutritionals, international nutritional sales grew double digits again this quarter.

We continue to see strong demand for pediatric and adult nutritional products in emerging markets, such as China and Southeast Asia.

In the U.S., sales of both pediatric and adult nutritionals increased, led by growth in infant formula and our new PediaSure NutriPals product line.

However, as expected, sales in the division in the quarter declined, impacted by the completion of the U.S.

co-promotion of Synagis during 2006.

Excluding Synagis, U.S.

nutritional sales were up in the mid single digits.

Looking ahead to the second-quarter nutritionals, we expect continued double-digit growth internationally, with sales in the U.S.

down on a reported basis mid-single digits, again due to Synagis.

Adjusted for Synagis, U.S.

nutritional sales in the second quarter are expected to be roughly flat.

Moving on to our pharmaceutical business and Humira, which had another strong quarter and remains well on track to exceed our goal of $2.7 billion in global sales this year.

Global Humira sales were $571 million in the quarter, with international sales up more than 60%.

Humira U.S.

prescription trends remain very strong, up more than 40% year-over-year and growing approximately twice the rate of the self-injectable biologics market.

The latest prescription data suggests this trend is continuing early in the second quarter with continued Humira market share gains.

Humira continues to take share from the competition, particularly as we demonstrate the advantages of self-injectable dosing over IV dosing.

We did see some modest de-stocking in the quarter in the U.S.

similar to the trend we saw in the first quarter of last year.

During the first quarter of this year, we achieved a number of important milestones, as we continue to advance additional indications for Humira.

Among these accomplishments was the U.S.

approval to treat Crohn's disease, the fourth major disease state indication for Humira.

Our Crohn's launch, while still early, is off to a very strong start.

As you'll recall, this approval followed an expedited review by the FDA, and provides a much-needed treatment alternative for patients.

By offering self-administered dosing, Humira also provides Crohn's patients, who are primarily young adults, a distinct convenience advantage over infused therapies, which must be administered by a physician in a doctor's office.

Humira remains under active European regulatory review for the treatment of Crohn's disease and we expect an approval in the coming months.

We also recently submitted Humira for psoriasis, which is a painful, chronic autoimmune disease that causes skin to crack and bleed.

It's estimated that psoriasis affects 125 million people worldwide.

Our global submission includes data from our two Phase III pivotal trials.

The results show that nearly three out of four Humira patients experienced a significant reduction in their disease and one out of five patients achieved complete clearance.

We plan to begin clinical trials of Humira in children and adolescents with psoriasis later this year.

In addition to Crohn's and psoriasis, we continue to study Humira for ulcerative colitis, and plan to submit Humira for juvenile rheumatoid arthritis in the second quarter of this year.

In the first quarter, we opened our state-of-the-art biologics manufacturing facility in Puerto Rico, where production of Humira began in February.

This new 330,000-square-foot site will serve as our main production facility for the long-term supply of Humira, as well as large-scale production of future biologics in our pipeline, such as ABT 874, our anti IL-12, anti IL-23 biologic in Phase III development for Crohn's disease and psoriasis.

Humira continues to represent a major growth driver for Abbott over our five-year long-range plan, with more than five different autoimmune disease indications expected to be approved by next year.

In summary, we remain well on track to exceed $2.7 billion in worldwide Humira sales this year.

Moving on to our cardiovascular franchise, where our cholesterol and triglyceride therapy TriCor achieved sales of $223 million in the quarter.

The integration of the Kos commercial organization into our pharmaceutical products business is essentially complete.

We are completing sales force training and later this month will have a combined fully-trained primary care sales force who will begin selling our diverse suite of cardiovascular products.

This of course includes Niaspan, the HDL-raising treatment we acquired through Kos.

Niaspan is the leading therapy for raising good cholesterol and is the only drug capable of increasing HDL, with proven outcomes of 25 to 35% on average.

We recently received FDA approval of our new film-coated Niaspan extended-release prescription niacin tablet.

The new tablet features a 1000-milligram dosage form with an optimized dissolution profile that allows for slower absorption of niacin in the body so patients receive a steady stream of medication.

It's also bioequivalent to two 500-milligram tablets, adding convenience, improving patient compliance and easing drug dosage titration.

As you know, Kos previously published studies on reduced flushing associated with the new Niaspan tablet.

We will expand upon these studies and will initiate two well-controlled clinical trials to further support these encouraging results.

We achieved sales of Niaspan of $142 million in the quarter and remain well on track to exceed $600 million in full-year Niaspan sales.

We also have one of the leading pipelines in cholesterol management.

This year we plan to file ABT 335, our next-generation fenofibrate, for regulatory approval later in the year.

We continue to work with AstraZeneca on a fixed-dose statin and fenofibrate combination therapy that targets all three lipid parameters, HDL, LDL, and triglycerides.

The fixed-dose product will combine Crestor with either TriCor or ABT 335 and we'll determine that this year.

We're also on track to submit Simcor for approval in the second quarter of this year.

Simcor is a fixed-dose combination of Niaspan and simvastatin.

Abbott's growing cholesterol franchise has the potential to include at least five unique patient therapies by 2010.

Moving on to Kaletra, where during the quarter worldwide sales were up 7%, driven in part by continued market share gains across Europe, following the international launch of the more convenient Kaletra tablets last year.

In the U.S., Kaletra prescription growth was in line with the overall market, up roughly 10%.

Depakote sales were up double digits in the quarter.

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

U.S.

Synthroid sales this quarter were $112 million, and we expect full-year sales for Synthroid to again exceed $400 million this year.

In anti-infectives, Omnicef sales this quarter were $160 million, up more than 12%.

Biaxin sales outside the U.S.

were up nearly 10% due to a stronger flu season, while U.S.

sales declined due to generic competition, which was in line with our expectations for a modest level of Biaxin XL sales in the U.S.

Looking ahead to the second quarter in pharmaceuticals, we expect continued strong double-digit growth in our U.S.

pharmaceutical business, with mid single-digit growth in international pharmaceuticals.

And finally, let me briefly discuss our pipeline starting with TAP.

PAC 390 MR, TAP's next-generation PPI, is advancing through Phase III development.

TAP plans to complete enrollment in its Phase III trials in the first half of this year, on track for an early 2008 FDA submission.

Febuxostat, TAP's compound for gout, also continues in Phase III development.

As we noted in the Q&A portion of our earnings news release this morning, we've seen a steady progress across our late-stage broad-based pipeline.

And the results of our research and development efforts will provide us with a number of innovative and significant opportunities over our long-range plan.

This year alone we anticipate more than 10 regulatory approvals and/or submissions.

In addition, we've seen good activity in our early-stage pipeline.

We also look forward to presenting data from our later-stage programs throughout the year.

This includes Phase II psoriasis data on ABT 874 in May at the Society for International Dermatology Meeting; longer-term data on our Xience V drug-eluting stent at EuroPCR as well as TCT; as well as data on various other programs in the second half of the year.

And we'll obviously keep you updated on venues for these various data presentations as we progress throughout the year.

With that, we'll now open the call for your questions.

Operator?

Thank you.

[OPERATOR INSTRUCTIONS] Our first question today is from Glenn Reicin.

Please state your company name.

Good morning.

Glenn Reicin, Morgan Stanley.

Good morning.

Two questions.

Tom, you mentioned that any upside this year from the lower tax rate and Omnicef staying on patent would either show itself up on the bottom line or increasing, you would be increasing spending above baseline levels.

Which one is it, and what are the priorities for spend right now?

What would you be spending extra dollars on, question number one?

Then question number two is stent revenues, can you give us an idea what the royalties were from Boston and sort of what the ratio is of Xience sales between Abbott and Boston in Europe today?

Glenn, I'll let John take the second question.

We've really changed the way we're looking at the year just in terms of conservatism towards Omnicef.

And we really don't know exactly what's going to happen here, but I think for our investors, we've taken a big step forward just to eliminate that overhang from any concern about our ability to deliver in the guidance range.

So I really think that's the key question.

Before we talk about a lot of what-ifs, I think it's important to get through the next few months and see what actually happens and then we'll be able to talk a lot more about it.

I think that from a -- where we would spend, John talked about the pipeline and really a lot of our products are in Phase III and a lot of things coming to market next year.

And you're looking at filings this year for -- you've already seen psoriasis for Humira, you've got Simcor coming.

Clearly we have Xience in the U.S., plan to file in the second quarter.

So many opportunities which we're planning to fund, but if there was more capacity, we could even fund more than these in a lot of other areas, as well as some R&D opportunities.

Let's see what happens in terms of our assumptions and how they play out before we really get into details about how we'll handle it.

Glenn, to answer your question on DES and Xience and Promus and so forth, it's not appropriate for us to give out information about Promus sales.

That's their product that they're selling for us and distributing for us as private-label Xience, so I don't want to comment on that specifically.

But of the $60 million in DES franchise sales, obviously the bulk of that is either Xience or the private-label version/Promus.

And the smaller portion of that, much smaller portion, would be related royalty revenues, for example, from Medtronic.

I would tell you, though, that as I mentioned in my comments I think we're doing exceptionally well in international markets where the tender process is rolling through.

That's a measured process that takes some time, but we're winning a large, you know, large accounts, key accounts in certain markets like Italy and Switzerland and the Netherlands and progressing very well with the launch there.

You know, we launched in January in Ireland, in Russia.

As I mentioned, we had Belgium reimbursement in February.

We had Australia launch in March.

Hong Kong launch in March.

So we're doing a very good job.

As you know, we have the largest EU sales force of about 300 fully trained reps and their focus is on premier accounts.

So we're very pleased with the progress.

And also given the economics of our arrangement with Boston Scientific regarding Promus, we benefit from that as well.

So, we're somewhat indifferent to whether we sell it or Boston sells it.

We obviously would like to sell Xience ourselves and prefer that, but if they do well, that's good for us, too.

So we're just pleased with the overall progress with the DES franchise sales and of course including bare metal stents, the VISION platform has done exceptionally well.

Let me just ask the question in a different way, then.

Were Xience sales in Europe more than $40 million in the quarter?

I can't give that out specifically.

I would tell you that the bulk of Xience/Promus made up that $60 million.

Okay.

Thank you very much.

Thank you.

Our next question is from Glenn Novarro.

Please state your company name.

Hi, thank you.

Banc of America.

On Humira, John, you mentioned that there was some, I guess, stocking in 4Q.

In 1Q, Humira fell 40 to $50 million below our forecast.

Can you quantify what the stocking was in 4Q and what it may have taken away from revenues in 1Q?

That's question number one.

Then secondly, just on stent, can you give us the stents in the U.S., where you think DES penetration is right now?

Thanks.

Sure.

To address your first question on Humira, Glenn, I think the first thing I would say is we are well on track to easily exceed our target of more than $2.7 billion in global Humira sales.

I would remind people that the gating of this is probably similar to the way we saw it happen last year between the fourth-quarter '05 and the first quarter of '06.

If you look at the run rate there, you do see a little bit of de-stocking that happens from the fourth to the first quarter.

That happened last year.

I would say it's modest, maybe in the range of, 30 to $40 million, which, as you probably know and can do the math on, is a couple days of Humira sales.

So, we're doing very well.

The script data is strong.

We're drawing twice the market.

The Crohn's launch is in its first few weeks and doing exceptionally well.

We've got a very good sales force and excellent promotional activity around the product.

We're continuing to capture share from our competitors, particularly our IV competitor.

So we have high, high level of confidence in our full-year number for Humira, and fully expect that you'll continue to see sales ramp up like you did last year from the first quarter into the second, third and fourth quarter.

So, that's that question.

As far as DES and your question on penetration, our latest data shows that the U.S.

at least is stabilized around 69, 70% penetration rate.

And I would say that, according to our data, which is reverse engineered based on our bare metal stent share, which has obviously done well, we see a stabilization in the March time frame, which is the last data point that we have.

In fact, that's the best data that we have in the last six months in terms of stabilizing.

It looks like it's hit and it's plateaued out based on that March data.

So that's where we are in the U.S.

We obviously benefit from the bare metal stent share, which has picked up the remainder of that DES.

And as the market leader, we've certainly benefited as the markets continue to grow for bare metal stent shares and the VISION platform.

Can you give us what your bare metal stent revenues were, U.S.

and global?

We haven't broken that out specifically, but obviously it's pretty significant as a piece of the overall franchise and the overall coronary stent number.

All right.

Thank you very much.

Thanks.

Thank you.

Our next question is from Mike Weinstein.

Please state your company name.

Thank you.

JPMorgan.

John, there's a lot of moving parts this quarter.

In the pharmaceutical business, you talked about Humira.

Humira obviously was -- the reported results were obviously below prescription trends and prescription pricing.

Humira was below probably what it would have been on an organic basis, but then Depakote would appear to be above, and maybe Niaspan as well.

Do you have a read on what the net impact of inventory swings might have been on the business this quarter?

Yes, it's -- we did see a modest amount of destocking, as I mentioned on Humira.

We saw a little bit on a couple of the other products as well.

TriCor and Kaletra, a little bit of destocking in the first quarter.

So net-net, that probably had a negative effect on the overall business and brought down the overall growth rate a little bit.

But obviously we expect that to improve as we go forward into the second quarter and beyond.

Okay.

You know what would be helpful?

You guys have talked about the SG&A leverage that should materialize as you move through the year, particularly because of Kos, and with a lot of that showing up in the fourth quarter.

Can you discuss that a little bit more and help people get a better picture of what plays out from a synergy standpoint, particularly with Kos, that shows up as you progress through the year and then as you go into 2008?

Mike, this is Tom.

If you looked at all our quarters in the year, the first quarter SG&A as a percent of sales is, as we forecast now, the highest of the year.

On an ongoing basis, it looks like that's around 30%.

We expect for the next two quarters a gradual reduction of that into the upper 20s; and in the fourth quarter moving closer to, down into the mid 20s range.

You're going to -- obviously as these costs come out and flow through, that's what's really going to drive things.

And, Tom, specifically within Kos, part of that is some of the existing relationships, contracts that they had, correct?

Yes, and just some of the reductions in staffing and those types of things.

The back office, the support functions as we consolidate them into our domestic pharma business generates a lot of efficiencies as well.

And as we are thinking about progression of that, I guess of that opportunity and of the Company's margins, if we start to realize these synergies as we move through this year, does all that carry into 2008?

Sure.

Our fourth-quarter ratio, because fourth-quarter sales are relatively high, is a little skewed in terms of what you would see from a full-year perspective.

But we hope and expect to see on an average basis year-over-year, some degree of SG&A leverage in 2008.

And, a lot of -- part of that certainly will be driven by the Kos synergies you talked about as well as just a general effort to leverage the business a little bit.

Okay.

Last item, then I'll drop.

Could you just spend a minute on the launch and sales force strategy around Humira for Crohn's?

Thanks.

Okay.

Well, it's, it's obviously off to a very fast start.

And, if you look at the weekly prescription data, gastro had been less than 5% of our total scripts when you look at a breakout of scripts between rheums and derms and gastro.

It had been about -- actually about 4%.

So there's a lot of opportunity there.

We're off to a very good start.

We've got a strong sales force.

It's a specialty sales force, as you guys know.

Doesn't require a lot of reps.

But certainly it's -- based on the latest weekly data, which is in terms of new RXs a good indicator of how you're going to pick up business going forward, we're doing as well as we expected, in fact, a little bit better in terms of Crohn's.

So it's a nice opportunity for us.

It's a more than $500 million peak-year opportunity for that particular indication.

We're looking forward to the EU approval of Crohn's indication probably in the next month or two.

We're also, obviously, fortunate to benefit from the apparent delay of a potential competitive product in the U.S.

and Europe for an indefinite period of time from another product.

So we're doing well, and as I mentioned in the remarks, it's a good opportunity for us.

The data was outstanding that we showed in Phase II and Phase III.

And we obviously have the convenience advantage versus the competitive product that's in IV form.

Of course the other self-injectable is not indicated for Crohn's.

It failed in Crohn's.

So a real good opportunity for us longer term.

We've got an excellent sales force, as you know, and we're off to a fast start.

Anything else, Mike?

Operator?

Thank you.

Our next question is from Rick Wise.

Please state your company name.

Hi, good morning, everybody.

Rick Wise, Bear Stearns.

A couple questions.

First, does the lower tax rate assumption, and the resulting EPS benefit, is that completely offset by now higher R&D assumptions and lower Omnicef forecasts, Tom?

I don't know where you're getting -- you're talking about in the quarter or for the year?

No, for the year.

You're saying, if I read the notes correctly, you're now saying 20% tax rate on a go-forward basis versus whatever -- 22.5 you had said in the past.

You talked about R&D.

We don't see R&D fundamentally changing at this point in time from what we originally said, of around 10% of sales for the year.

So no real change there.

But, your question kind of evolves or revolves around how conservative and what precise assumptions we've made on Omnicef, and we're not going to share that today.

But clearly when we talked about contingency plan on the fourth=quarter call, and when you look at the benefit that's coming through on tax, which is significant, that very nicely covers and eliminates a lot of the potential downside, if there were an at-launch risk.

So tax is a very big part of the puzzle and, you know, they are very much in line with each other.

I would just add to that that I want to be clear here that we-- there's no change in our legal strategy, our legal position or anything related to that regarding Omnicef.

This is simply an exercise in financial modeling to be much more conservative and realistic, even more so than we were earlier in the year, based on the activity we've seen and the aggressiveness that we've seen in general across the industry with regard to generic players and their willingness to launch at-risk at times and disregard intellectual property.

Now, I would say that these things can change.

And if you noticed yesterday, Rick, we won a case against one of the generic competitors and got a preliminary injunction against Biaxin XL in the U.S., which is a nice victory for us.

And the court determined that we are likely to win on the merits of that case when it goes to trial and that the competitor must recall their product.

So you never know about these things, but in this environment, I think it was the prudent thing to do.

Again, just to sum it up if I am hearing you correctly, basically the EPS benefit from a lower tax rate pretty much is offset by lower Omnicef assumptions.

That's the way we've modeled the rest of the year.

As I said earlier, Rick, we'll just see how exactly Omnicef plays out and how the pieces tie together, but that's the way our model is put together.

Okay.

And if we are successful in defending, it's going to flow through as additional spending or additional earnings.

That was my next question.

Thank you.

Xience, given the excellent SPIRIT III data that we saw at ACC, should we now expect to see in the second quarter a sharp acceleration internationally as you're able to market that information?

Oh, absolutely.

That's part of the key here, is that we not -- and maybe I failed to mention that.

I should have mentioned it proactively in my remarks.

The SPIRIT III results were, as everybody knows, just simply outstanding and the physician feedback and clinical feedback has been equally outstanding.

That's going to have a residual effect, not only in the U.S.

as we prepare for approval and launch, but internationally that certainly gets the attention of people.

A large clinical trial of that size with those kinds of dramatic results that showed superiority on not only the primary endpoint of late loss, but I guess even more importantly a safety endpoint like MACE, which has never been done before.

So people pay attention to that.

Clinicians around the world paid attention to it.

It happened at the largest meeting of the year, the ACC meeting, and so it will definitely have a benefit.

So that will kick in and we'll see that throughout the year continue to ramp up and into next year.

Just a last conceptual question, on the operating leverage front.

I would be thrilled if you want to give us an '08 EPS forecast, Tom.

I doubt you'll do that, but I would like to just hear your conceptual thoughts.

Can we, should we expect continued EBIT margin expansion in '08?

And if there is positive leverage from, just theoretically from let's say something like Omnicef, or -- so less troublesome generics, better new product launches, better expense control or synergies from Kos, are you going to spend that?

Or can we expect sustained EBIT expansion and maybe EPS expansion into the mid teens?

Is that what management is willing to do?

Certainly our medium-term objective even is to expand that EBIT margin and we've been building this business over the years with the higher growth innovation-driven businesses that would allow us to do that.

It's just a little early to talk about exactly what '08 will be, but clearly part of our strategy is to manage this to leverage down SG&A.

The tax rate you're seeing is going to clearly help '07 and it's going to continue through '08; and that will help our net margins as well.

That is clearly our objective.

But Rick, it's just a little early to talk about exactly how much of that you would see in 2008.

But conceptually, you would be willing to let some of that flow through?

That's what we've been trying to build this business to do for some time.

Great.

Thank you very much.

Thank you very much.

Our next question is from Sara Michelmore.

Please state your company name.

Yes, thank you.

Cowan and Company.

Just to follow up on the Omnicef question, when exactly -- you talked about assuming I guess an at-risk generic launch in the model.

When are you assuming that that would come in?

Do you have a specific time frame?

We are not going to share precise dates or anything like that, but I would say -- I would characterize it as we have made a very conservative assumption in our modeling at this point.

Okay, and in terms of the divestiture of the diagnostics business to GE, assuming you do get that cash in this quarter, can you give us any more granularity, Tom, on what the plans are for that cash, in terms of the amount or the timing that you pay down some debt?

If you can also talk about share buyback, the share count was up this quarter, so just wondering if you can give us a little bit more of an outlook on share buyback.

As we said on the fourth-quarter call, our initial plan is to pay down debt really upon receipt of the cash.

But we also indicated at that time that additional share repurchase is an option.

We do have a fair amount left on the program, the share repurchase program that was authorized by the Board last fall.

So clearly that is an option.

And, you know, I agree with you, that the with the higher share count this quarter that is something that we're thinking more seriously about going forward.

And once the deal closes, we'll be a little more specific about how much, if any, of that will move its way into share repurchase.

Okay, and, John, thanks for the update on the TAP product pipeline.

You mentioned TAK-390.

Any update on Ilaprazole, which I think was the other product that TAP was pursuing as a potential brand extension strategy for Prevacid?

Thank you.

Yes, Ilaprazole is another compound, another PPI in TAP's pipeline that is in Phase II development and continues to progress.

Thank you.

Thanks.

Thank you.

Our next question is from Larry Keusch.

Please state your company name.

Yes, it's Goldman Sachs.

John, a couple of stent questions.

I'll just rattle them off and maybe you can just go through them.

I guess just quickly, would you anticipate that you'll present the diabetic data for Xience from the SPIRIT III trial at EuroPCR?

Secondly, if you were surprised by an earlier FDA approval, what would be the sort of earliest that you would be able to be ready for a full launch as you kind of build up your capacity in Europe and then start to build inventory?

And then the third is, sort of what are you hearing from your vascular folks right now as you kind of exited March, as it relates to the overall trends in PCI procedures?

And how are you thinking about that on a go-forward basis?

Okay.

Well, let me address your question about an expedited review.

That's difficult to comment on.

Obviously we would be thrilled with that.

That is not in our plan.

We're planning for a normal approval timeline, and clearly we wouldn't speak for the FDA.

It is up to them to determine the approval of this product.

If we were fortunate enough that it came early, we are absolutely ready for it.

As I mentioned before, we are building; our manufacturing yields are improving significantly.

We're continuing the expansion of our plant in Ireland as well as California.

We have the capacity, as I said before, to supply more than 50% of the international market while we're building up supply, pre-launch supplies in the U.S.

So if we were fortunate enough and it came a little early, we're definitely ready for that.

But that is not something that obviously we're going to build into our modeling or our expectations for sales or earnings or any such thing.

And it's obviously up to the FDA to determine, to determine that.

So with regard to data, I don't have specifics yet on which data sets that we will be providing.

Obviously we're going to have data at PCR, as well as TCT later in the year.

Likely that we will do further SPIRIT III data at TCT and that we will have some SPIRIT I and SPIRIT II longer-term data presented at PCR here in May.

And probably the ARC readjudicated and one-year data later in the year for SPIRIT III.

I don't know specifically about the diabetic subset, but I'm sure we'll present it.

And I forgot your third question.

Just March, as you sort of exited, sort of what feedback were you getting on PCI procedures overall, the market, and kind of how you're thinking about that on a go-forward basis?

Yes, as I said before in a question, another question on that, we saw about a 69, 70% DES penetration rate exiting the quarter, and it seems like it's stabilized there.

So that appears to be in pretty good shape.

And obviously, one of the benefits that we have is hopefully we'll be set up here to not only benefit in the short term with increased bare metal stent share, but also help reaccelerate the market with new technology and a better technology, we think, based on the clinical trial results that we've showed.

So that we'll be launching into a market that is growing again rather than contracting.

And it appears that, you know, that's the case at least so far where, you know, March has stabilized in that kind of 69, 70% penetration range.

John, I was actually just trying to -- not DES penetration per se, but I was just trying to get to a feel for just the overall procedures.

And where I'm going with all of this is post the noise from COURAGE; and thoughts on medical management versus percutaneous procedures.

I was just trying to get a feel for that.

I don't (multiple speakers) exact numbers, maybe one of the other major players have.

We weren't surprised with the COURAGE results.

I don't think that people who knew about that study were surprised.

It obviously had some flaws and -- but it could have a temporary transient effect on the market.

I think people expect that.

There was some noise at ACC, as you know.

So it's possible that that could have a short-term impact.

But I think, you know, clinicians in general understand that DES has a number of advantages over the older bare metal stent technology in general, which is what was primarily used in that study.

So we expect that it will continue to reaccelerate as we go throughout year.

Okay, great.

Thank you, John.

Thanks.

Thank you.

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

Thank you.

It's Leerink Swann.

John, can you help me out on I guess the other revenue line, which I think I'm getting a number of $495 million or so for specialty or other or whatever we're calling it these days.

Are you guys booking the other Kos revenues there outside of Niaspan?

Is that what I (multiple speakers).

No, no, no.

No, that's as a -- go ahead.

What's included in that category is our bulk pharmaceutical and business, our spine business, animal health, diabetes -- I'm sorry, diabetes care and our molecular business are in that category.

And you're right.

The number on the quarter for that segment now as defined, now that ADD is not included, is about $497 million.

And you'll see the ADC number, the diabetes care number, on the subsequent page where we break out the major businesses.

It's really just the result, temporary situation where we've got ADD as discontinued ops, so we no longer have that division.

But we do have the diabetes care number, and the remainder of that is molecular.

Okay.

Would you be willing to part with the total sales number for Kos for the quarter?

No, we haven't provided that information specifically.

We gave obviously the Niaspan number for the quarter of $142 million, but I would say that it was, roughly, as a percentage of the overall sales was 4 or 5%.

Okay, and then if I could, John, just talk a little about the diabetes business.

I know you mentioned it's been a little sluggish here.

It looks like to me four quarters or so of flattish revenues.

I'm kind of curious.

Do you think if in fact we're experiencing some pricing issues here, do we -- have we lapped that in terms of the comp?

Or is it your sense that pricing, at least in the U.S.

diabetes market, is still sliding down and to the right?

Yes, the market, as you probably saw from one of our competitors yesterday, has been slower.

That's been the case for the last couple of quarters.

We've seen, as we've talked about before, some impact by a reduction in retail customer inventory levels and to a lesser extent, some pricing.

So that's depressed the market a little bit.

But we're expecting that the market will continue to pick up as we go throughout the year, as I mentioned in my comments.

And also with our approval of FreeStyle Lite, which is the only no-cal product in the top three players, should help.

We have other product improvements that we're working on throughout the year and some other initiatives.

So we expect this business will have turned to double-digit growth as we get into the third and fourth quarter, and better growth in the second quarter.

Okay.

Last question for me, just on TAP, I know last quarter the guidance for the year was somewhere between 425 and, I think, $450 million.

Did that guidance contemplate the, I guess, the one-time win, if you will, this quarter?

No, it did not, so you could rationally up that, for that amount.

So 460-ish might be a reasonable area to be in for the year?

That's a good, that's a good territory.

Yeah, 450 to 5 is what we would be forecasting with that, with that flow-through benefit.

Okay, thank you.

Okay.

Thank you.

Our next question is from Catherine Arnold and please state your company name.

Credit Suisse.

I have two questions.

One is Humira and then the other on Omnicef.

When you think about Humira's performance, it's been very strong.

And I'm wondering, as you think about the market expansion opportunity internationally versus the new indications and data in the U.S., would you characterize the international market or the U.S.

market as having more potential for upside this year on your forecast?

And if you could talk about where you're getting your market share from, Remicade sales in the U.S.

looked a little weak yesterday.

I was wondering if that seems to be a good source for you in terms of your market share gains.

Then on Omnicef, if you could just speak to your level of confidence in that patent situation given your Markman hearing in March and yesterday's summary judgment hearing (inaudible).

Sure.

So regarding Humira, you know, there's potential for upside in both the U.S.

and ex-U.S.

With the Crohn's approval in the U.S.

that obviously gives us a nice accelerator to sales as we go throughout the year.

That market is underserved, as you know, given that there's only one product out there, the IV product that you mentioned, available for Crohn's patients; and this is a much more convenient form.

So that's a nice opportunity for us as we go throughout the year.

We are taking share from that particular competitor.

We're taking share from the other competitors as well, but I would say we're primarily taking share from the IV competitor.

But we're gaining significant share across the board, if you look at the prescription trends and where the trends are going for the other products.

So nice opportunity in the U.S.

We expect approval ex-U.S.

for Crohn's here in the next month or two and that will give us another opportunity.

So I would say there's potential for upside on both the U.S.

and the international market.

And our confidence in our greater than $2.7 billion is high, and I think we'll do well in excess of that.

And we'll keep you updated on that, as we always do, as we go throughout the year.

On Omnicef, I think I want to be clear that there's no difference in our view on the legal strategy or our confidence in our IP, based on what we said about Omnicef and taking a more conservative approach.

There's no really new developments in the cases.

We do have a couple generic filers, as you know.

We're in legal action with those filers and we're going to continue to take the appropriate steps at the appropriate time.

We have confidence in our patents.

We have strong formulation patents that go out to 2011.

But these things are hard to predict.

The May date for the compound patent is also important in this, of course.

But we will vigorously defend our intellectual property as we have on Biaxin XL.

To my point earlier, that it's difficult to know how these things will turn out, Biaxin XL case went our way yesterday and the product is going to be recalled from the market.

So who knows?

I think it's just the prudent thing to do, but it's not a reflection of our legal confidence in any way.

Anything of note from the summary judgment hearing yesterday on Omnicef?

No, there's nothing that I'm aware of.

That was to determine the scope of the claims.

And it was not for summary judgment and not for, in terms of anything on the merits of the case.

It was really more the scope of the claims.

And nothing came out of that that I'm aware of, so there's nothing new to report.

Okay?

Sure.

Thank you.

Operator, I think we'll take one more question.

Thank you.

Our final question today is from Matthew Dodds.

Please state your company name.

Sure.

It's Citigroup.

Tom, one question for you on diagnostics.

Are you still forecasting a second-quarter close, or is it possible with the warning letter that GE may have some right or ability to look into the Texas facility more in depth?

What I'd say about that, Matt, is our view about this is pretty consistent with what GE said last week, that we are (inaudible).

This is a pretty complex transaction, very large asset purchase.

And there's been a lot of work to do here on transition services, et cetera, and really just to set up both companies to operate in a post sale environment.

We have to provide a lot of services to them and they even have to provide some back to us through that diagnostics division.

So we're working very diligently to close the transaction, and we're moving forward and committed to do that.

But are you still forecasting second -- by the end of the quarter, or is it--?

Given the amount of work, we've done a tremendous amount of work on this, but given the amount of work left to go, it's a little premature to give a precise date on that.

All right.

That's all I had, thanks, Tom.

Okay.

That concludes our conference call.

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Thank you.

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