美國雅培 (ABT) 2007 Q3 法說會逐字稿

Welcome to Abbott's third quarter 2007 earnings conference 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 cannot be recorded or rebroadcast without Abbott's express 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 third quarter results, and I will 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 10K for the year ended December 31st, 2006, and are incorporated by reference.

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

In today's call, as in the past, nonGAAP financial measures will be used to help investors understand Abbott's ongoing business performance.

These nonGAAP 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.

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

Tom.

Thanks, John.

And good morning.

As you've seen from today's earnings news release our third quarter results reflect continued strong momentum across our major businesses.

The sales growth in the mid teens and earnings per share of $0.67 above our previous guidance range of $0.64 to $0.66.

And based on our performance so far this year we've raised the lower end of our EPS guidance range for 2007, as I'll discuss in a moment.

Strong overall sales growth of 14.4% in the quarter was ahead of our previous forecast.

Exchange favorably impacted sales by 2.8%.

Sales in our medical products businesses increased 12%.

Growth of nearly 14% in diabetes care, 15% in vascular, and nearly 10% in worldwide diagnostics.

In global pharmaceuticals, sales increased almost 20% as each of our major brands delivered strong double-digit growth.

Quarterly HUMIRA sales exceeded $800 million for the first time, based on the continued strong performance in rheumatoid arthritis as well as new indications.

The recent Crohn's launch continues to exceed our expectations.

We now estimate full year 2007 global sales for HUMIRA of $3 billion.

International nutritional sales were up more than 15% with continued strong performance in key emerging markets such as China and Latin America.

And we continued to make progress with a robust late-stage pipeline, on track for a record number of major new product launches and regulatory submissions this year and into 2008.

Gross margin ratio was 57.7%, roughly in line with our forecast provided last quarter.

The comparison to the prior year was favorably impact -- impacted by improved product mix, offset by the reduction in the contribution from Synagis in the U.S.

and the impact of generic competition on Omnicef sales.

We also saw a slight impact of commodity prices in nutrition.

We have a mitigation plan which will offset this in future quarters.

R&D investment, excluding specified items from both period, increased 11%.

This reflects continued investment in our pharmaceutical and medical products pipeline, including HUMIRA, ABT-335, ABT-874, controlled release vicodin, and Xience, as well as several promising compounds in mid-stage development.

SG&A expense included impact of the Kos acquisition as well as new and ongoing promotional initiatives, including new indications for HUMIRA and the continuing international launch of Xience.

Interest expense of $106 million was somewhat lower than our forecast due to better cash flow and lower interest rates and income from the TAP joint venture was in line with our expectations.

Tax rate for the quarter of 18.6%, as well as the year-to-date rate of 19.5%, were both consistent with the guidance we discussed last quarter.

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

Based on our year-to-date performance we're confirming our 2007 EPS outlook and raising the lower end of our previous guidance range.

As a result, our 2007 EPS guidance is now $2.82 to $2.84 excluding specified items.

Midpoint of this range reflects earnings per share growth of nearly 12% over the prior year.

This new full-year guidance results in fourth quarter earnings per share range of $0.91 to $0.93, also excluding specified items.

Let me walk you through some of the key P&L line items as we forecast them for the fourth quarter.

We expect sales growth of 13% to 15%, consistent with the growth we've seen in each of the quarters so far this year and consistent with the forecast at the beginning of the year.

The forecasted gross margin ratio of approximately 59%, R&D as a percentage of sales of around 9%, SG&A expense as a percentage of sales of approximately 25%, and a tax rate of approximately 19.5%.

Overall as we look at the third quarter we're very pleased with the performance of our major businesses.

We reported mid-teen sales growth, EPS above our guidance range, and we raised the lower end of our full-year 2007 EPS outlook.

And we made steady progress in advancing our R&D pipeline which is on track for a record number of major product submissions and approvals this year.

As we look ahead to 2008, we have a high degree of confidence given the strong momentum we're seeing across our broad base of products and businesses.

We also remain confident in our outlook for an accelerating rate of earnings per share growth in 2008 compared to 2007.

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

John.

Thanks, Tom.

As Tom indicated our third quarter results demonstrate the strength of our diversity, as a number of businesses and products outperformed our expectations including international nutritionals, diabetes care, and pharmaceuticals.

So I'll start with our pharmaceutical business where HUMIRA had another exceptional quarter.

Global HUMIRA sales were up nearly 50% to $803 million.

HUMIRA U.S.

prescription trends remain strong, growing nearly twice the rate of the self-injectable biologics market.

HUMIRA is gaining share across rheumatology, dermatology, and gastroenterology markets with more than 130,000 U.S.

patients on HUMIRA across all indications.

In Crohn's disease, our newest indication, HUMIRA continues to outperform.

We've gained more than 30% of the U.S.

biologics market for Crohn's since HUMIRA's launch in February.

This growth is coming both from patients who are naive to biologics as well as those who have failed Remicade.

HUMIRA has demonstrated strong efficacy against this insidious disease which causes patients to suffer bleeding, pain, and other GI distress.

In addition, HUMIRA is the only self-administered biologic treatment for Crohn's and provides a convenient advantage for this young, active patient population.

Our international Crohn's launch is also off to a rapid start, driving HUMIRA growth to nearly 60% this quarter.

HUMIRA also represents a promising treatment for psoriasis, an indication we expect will be approved in the first quarter of 2008.

At the recent World Congress of Dermatology meeting we presented HUMIRA psoriasis data from two clinical studies.

The results were powerful.

Both studies indicate that nearly three out of four HUMIRA patients experience a significant reduction in their disease as defined by POSI 75 scores.

The market opportunity for psoriasis is large and growing with peak year sales expectations exceeding $3 billion worldwide for biologic therapies.

Dermatologists are rapidly gaining experience and confidence with HUMIRA.

In fact, approximately 30% of dermatologists have already prescribed HUMIRA to treat psoriatic arthritis.

Recently HUMIRA was honored with the 2007 Galen Prize for best biotechnology product.

Awarded by Prix Galen USA this is one of the highest accolades in the pharmaceutical and biomedical industry, recognizing excellence in medical and scientific research and innovation.

Finally, as Tom mentioned, given recent sales trends in the strength of the Crohn's launch, today we're raising our estimate for full-year 2007 global sales for HUMIRA to $3 billion.

In our lipid management franchise, our portfolio is uniquely positioned to take advantage of the trend toward adjunctive therapies, that is those therapies that treat beyond LDL levels to also focus on HDL and triglycerides.

These therapies reduce cardiovascular risks beyond what a [statin] can deliver alone.

TriCor, our triglyceride therapy, reported sales of $300 million this quarter, up 13%.

TriCor continues to be the best therapy on the market for lowering triglycerides with a known and long-established safety and efficacy profile.

TriCor prescription trends remain strong, growing in line with the total cholesterol market.

For the fourth quarter we expect continued double-digit growth for TriCor with full-year growth in the range of 15% to 20%, consistent with our previous expectations.

Also in lipid management, our new film-coated Niaspan extended release tablet has been well received by both physicians and patients with sales in the quarter of nearly $170 million.

We've seen improved trends since we've added Abbott promotional efforts and integrated our sales force following the Kos acquisition.

We've also seen consistent gains across dynamic prescription share which includes new patients as well as those who are switching therapies.

Niaspan is the leading therapy for raising good cholesterol, or HDL, with the long-established safety and efficacy profile.

Niaspan is the only prescription therapy capable of increasing HDL 25% to 30% on average with proven cardiovascular outcomes.

Low HDL is recognized as an independent risk factor for heart disease and the guidelines developed by the National Cholesterol Education Program, the leading authority on cholesterol management for the U.S.

So we continue to forecast full-year Niaspan sales to exceed $650 million.

In addition to TriCor and Niaspan we have what we believe is the industry leading pipeline in cholesterol management with three late-stage programs in development.

In the second quarter we submitted Simcor for FDA approval.

Simcor is fixed dose combination of Niaspan and Simvastatin that provides comprehensive lipid management.

We've confirmed that we'll present data from the Simcor Phase III pivotal trials in November at the American Heart Association meeting.

In addition to Simcor we remain on track to file ABT-335, our next generation Fenofibrate, for regulatory approval this quarter.

We anticipate presenting Phase III data in the first half of next year.

Combination therapies are the fastest growing segment of the $20 billion cholesterol market, and we continue to make progress in our partnership program with AstraZeneca on a fixed dose combination therapy that targets all three lipid parameters, HDL, LDL and trigs.

As we announced earlier in the quarter, we have jointly decided with AstraZeneca to advance ABT-335 with Crestor.

We expect to file this fixed-dose combination therapy for approval in 2009.

So with TriCor, Niaspan, Simcor, ABT-335 and our combination with Crestor, Abbott's growing cholesterol franchise has the potential to include at least five unique therapies by 2010.

Moving on to Kaletra, where during the quarter worldwide sales grew 15%, Kaletra remains the number one most prescribed protease inhibitor in the market.

With seven years of data demonstrating no resistance for 99% of patients new to therapy, Kaletra continues to be the gold standard protease inhibitor, providing physicians with the clinical confidence to manage the disease as a chronic long-term illness.

In Europe, just over one year past our tablet launch, more than 70,000 HIV patients throughout western Europe are being treated with Kaletra, which now holds HIV market leadership in eight countries.

Kaletra tablets improve patient convenience by reducing the number of pills patients take each day and eliminating refrigeration requirements.

This quarter we submitted for regulatory approval, a new lower-strength Kaletra tablet for pediatric use.

So for the fourth quarter we anticipate continued strong double-digit global sales growth for Kaletra.

Depakote sales in the quarter were up double digits.

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

We anticipate continued double-digit sales growth for Depakote going into the fourth quarter, resulting in strong double-digit growth for the full year.

Regarding Synthroid, sales in the quarter were $110 million, and we now expect full-year sales for Synthroid to approach $450 million, up from our previous guidance of more than $400 million.

In looking to the fourth quarter in pharmaceuticals, in total we expect low to mid teens growth in both our U.S.

and international businesses.

Moving on to our TAP joint venture, sales of Prevacid and Lupron were in line with our expectations.

In TAPs research and development pipeline, TAK-390MR, which is TAP's next generation proton pump inhibitor, completed Phase III trial enrollment of more than 5,000 patients and remains on track for an FDA submission in the first quarter of 2008.

TAP plans to share data on TAK-390MR in the first half of next year.

Febuxostat, TAP's compound for gout, recently completed enrollment in its supplemental trial of 2,700 patients evaluating the drug in 40 and 80 milligram doses.

TAP is now forecasting a mid-2008 FDA submission for Febuxostat.

Turning to our medical products businesses, let me start with diabetes care, which exceeded our expectations in the quarter with global sales up nearly 14%.

Double-digit growth in the U.S.

was driven by the success of our more convenient FreeStyle Lite meter, where we're steadily gaining new user share.

Launched in June, FreeStyle Lite offers accurate blood glucose results in an average of just five seconds.

It also provides patients with added convenience by eliminating the manual coating step required by most meters.

FreeStyle Freedom Lite, our second no coating meter, began shipments in Europe in October and our U.S.

launch is anticipated for the first quarter of 2008.

With both FreeStyle Freedom Lite and FreeStyle Lite products, we're significantly differentiating ourselves from most of the competition.

Double-digit sales in emerging markets, such as Russia, China, southeast Asia, and Latin America also positively contribute to this quarter's performance.

Abbott's diabetes care products are resonating with patients in these growing markets, especially China, where we're outpacing market growth considerably.

As we continue to improve testing convenience for people with diabetes, we're also 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.

So for the fourth quarter and the full year, we anticipate continued double-digit growth in diabetes care as we continue to introduce new products and strengthen our presence in emerging markets.

Next let me move on to Abbott vascular, which had worldwide sales growth in the quarter of 15%, as we've now fully lapped the Guidant acquisition.

Performance in the quarter was positively impacted by higher sequential quarterly growth in Xience and higher year-over-year bare metal stent sales.

However, growth was tempered by overall DES market conditions and lower other coronary sales, which include lower third-party revenues.

First let me start with an update on our drug-eluting stents, Xience V.

We submitted the Xience PMA for approval on May 31st.

Our Xience PMA is the first and the only FDA submission of a drug-eluting stent that has proven superiority over the current market leading drug-eluting stent in a randomized clinical trial.

Our PMA submission includes safety and efficacy data from our SPIRIT I, SPIRIT II, and SPIRIT III Xience clinical trials, which represent approximately 1,400 patients.

In SPIRIT II and III, which compared Xience to Taxis, we not only met the primary end points of end-stent and end-segment late loss respectively but also exceeded them to demonstrate the statistical superiority of Xience over Taxis.

While SPIRIT II and III also showed Xience was superior on the clinical endpoint of major adverse cardiac events, or MACE.

MACE measures important patient safety end points including myocardial infarction and death.

This was the first time ever that one drug-eluting stent was proven statistically superior over another drug-eluting stent on an important safety and efficacy end point.

MACE rates were very low with Xience, two to three times lower than Taxis.

Our PMA includes all the pre-agreed upon data necessary to complete our submission, and the FDA has not requested any new clinical trial patient data.

We believe we supplied a robust data package based on FDA requirements, and we remain very comfortable with the status of our filing submission as we continue to work with FDA toward a panel review for Xience on November 29th.

We look forward to the opportunity to review our data with the panel.

That data will include two-year follow up from several hundred Xience patients from SPIRIT I, II, and III, who have gone through their normally scheduled two-year follow up.

Beyond our PMA filing we continue to enroll patients in several additional Xience SPIRIT trials including SPIRIT IV and V, which are enrolling rapidly with more than 2,000 patients in each trial now.

We also initiated enrollment in SPIRIT women in August of this year, which is the first and only clinical trial to date to evaluate a drug-eluting stent in women with cardiovascular disease.

So across all of our post-marketing trials we anticipate studying more than 12,000 Xience patients in total, that includes our 5,000-patient post-approval trial, Xience USA.

Regarding the international launch of Xience, we continue to make steady progress as tenders become available.

In virtually every country we're gaining share.

In 14 countries we have share in excess of 20% with more than half of those countries in excess of 25% market share, and we have a few countries now in excess of 30% market share.

The feedback we've had on Xience to date has been exemplary Physicians appreciate the performance of Xience because it's built upon technology they have known, trusted, and used for years, the excellent deliverability and acute performance of VISION.

In addition, the Xience clinical data sets are continuing to reinforce its best in class clinical profile in a truly next-generation drug-eluting stent.

So our global DES franchise sales, which includes Xience, as well as third-party DES product revenues, were $65 million in the third quarter.

This includes an approximately 25% increase in Xience sales on a sequential quarterly basis despite a sequential decline in PCI volumes in the low double digits.

Xience performance was offset by lower than anticipated third-party revenues also as a result of softer market conditions year-over-year.

As a reminder our international business reports on a one-month lag, so this quarter included the months of June, July, and August, which is typically the slowest month of the year for European countries.

Year to date, our DES franchise revenue is north of $185 million.

Our total coronary stent sales in the quarter, which include bare metal and drug-eluting stents, were up 85% year-over-year.

As you know, Abbott is in the unique position to participate in both the drug-eluting and bare metal stent markets.

This strong performance in coronary stent sales was partially offset by other coronary sales reflecting lower third-party revenues, including a decline in third-party catheter sales.

An expected decline in U.S.

PCI volumes versus the third quarter of last year also impacted sales of other coronary product, including guide wires and balloon catheters.

Endovascular sales in the quarter then were in line with our expectations.

So looking ahead to the full year 2007, we continue to anticipate growth of more than 50% for Abbott vascular.

Moving on briefly to our vascular pipeline we're advancing several next-generation stent technologies beyond Xience.

Our goal is to release new technology at regular intervals over the next several years which are based off our already well-known and well-tested VISION platform.

This includes a more deliverable workhorse stent, as well as our bioabsorbable drug-eluting stent.

In addition we have a number of clinical trials in our peripheral business that have recently been initiated.

Peripheral market is currently a $1 billion market worldwide that's anticipated to grow at a double-digit pace over the next several years.

We're working on a number of new product -- pipeline products to treat vascular disease outside the coronary arteries, including a stent to treat renal artery disease, as well as an SFA product.

At the upcoming TCT meeting in Washington we'll be hosting an investor meeting at 7:00 AM eastern time on Tuesday, October 23rd, where we'll discuss our pipeline in more detail, as well as our Xience SPIRIT III one-year data, which will be presented in the late breaker session Monday at TCT, and also on Monday at TCT we'll present one-year data on our fully bioabsorbable stent, which is truly a ground breaking technology.

If you're attending the TCT meeting we encourage you to join us.

And please RSVP if you have a chance.

A webcast will be available on our website.

With that let me move on to our diagnostic business where sales grew nearly 10% in the quarter.

In our immunochemistry and hematology segment sales grew 9%.

Our international business, which comprises 80% of our total worldwide sales drove much of this growth, with particularly strong sales in Europe, Latin America, and Japan.

The international launch of the c16000, our large volume chemistry analyzer, is off to a strong start.

And we plan to launch in the U.S.

by the end of this year.

In the quarter, we launched the PRISM hepatitis C assay, which completes the PRISM hepatitis panel.

In the coming months we plan to add additional retrovirus tests to the PRISM menu strengthening our position in blood-screening segment.

In the point of care business sales grew more than 20%.

Recently we announced that our i-STAT CHEM8 test was granted a broader claim by the FDA.

This means that the CHEM8 test, which is routinely ordered basic metabolic panel, was deemed simple and accurate enough for use beyond the hospital setting.

This greatly expands our market opportunity by allowing more healthcare providers to use i-STAT to aid in patients' care.

Moving on to molecular diagnostics, where worldwide sales increased nearly 10%, our m2000 RealTime PCR system continues to gain share worldwide.

Since its international launch two years ago, we have placed nearly 400 systems and continue to expand our presence, including our recent approval in China.

In fact, our m2000 instrument in RealTime PCR assay sales were up 65% in the quarter.

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%, thus improving laboratory efficiencies.

We're in the early stages of the U.S.

launch of the m2000.

Also in molecular diagnostics we continue to explore innovative collaborative research opportunities in the area of pharmacogenomics.

Longer term we hope to share updates on research programs that are in the early stages of development.

So as we look forward to the fourth quarter for our worldwide diagnostics businesses, we anticipate high single to low double-digit growth.

This includes strong double-digit growth in Abbott molecular, high single-digit performance in aminochemistry and hematology, and continued strong double-digit growth in point of care.

Moving on to global nutritionals, where sales of before national nutritionals increased more than 15% as a result of focused promotional efforts and sales force activities as we further penetrate new global markets.

We continue to see strong demand for pediatric and adult nutritional products as we gain share in emerging markets such as Latin America, China, and southeast Asia.

In pediatric nutrition, products such as Gain, Grow, and PediaSure, which are specially formulated for older infants, toddlers and school age children continue to perform well.

Internationally, adult nutritional sales, including production such as Ensure and Glucerna grew double digits in the quarter.

In the U.S.

sales of pediatric nutritionals increased double digits led by growth in infant formula.

This quarter we launched NutraPals fruit bars for kids, which feature nine times more fruit than the leading cereal bar, as well as Similac Sensitive, a specialty formula, and also our eight-ounce, ready-to-feed packaging.

So overall reported U.S.

sales were down modestly as we previously forecasted, impacted by the completion of the U.S.

co-promotion agreement of Synagis in 2006.

If you exclude Synagis from both years, U.S.

nutritional sales increased nearly 7%.

Looking ahead to the fourth quarter in nutritionals, we're forecasting continued double-digit sales growth internationally, with sales growth in the U.S.

of low to mid single digits.

Finally, let me briefly discuss the Abbott pipeline.

Again this quarter in our news release we highlight several of the major programs in our broad-based pipeline, including our growing oncology pipeline.

Today I would like to briefly discuss our ongoing efforts in neuroscience and pain management.

In pain, we're presently in Phase III development for a controlled release formulation of Vicodin.

We'll file for approval of Vicodin CR this quarter.

In neuroscience we're developing compounds for schizophrenia, ADHD, and Alzheimer's disease.

This includes ABT-089 and ABT-894.

NNRs, or neuronal nicotinic receptor agonists, that are in Phase II development for ADHD.

These compounds target receptors in the brain that play a role in regulating pain, mood, memory, and other neurological functions.

Also on our mid-stage neuroscience pipeline, ABT-925 is progressing through Phase II development for schizophrenia.

This compound targets dopamine III, or D3, a mechanism to treat both negative and positive symptoms of the disease while limiting side effects.

Both of these platforms represent truly novel science and if successful would result in a significant advance in the treatment of these diseases in markets that total more than $10 million today and are growing as the prevalence of these diseases increases.

As we focus on advancing our promising mid-term pipeline programs, our late-stage broad-based pipeline remains on track to deliver five major regulatory filings this year.

Those include: HUMIRA psoriasis, Simcor, Xience, ABT-335 and controlled-release Vicodin.

So in summary for the quarter, we're obviously pleased with our very strong performance.

Several of our businesses outperformed expectations, as sales grew 14.4% ahead of expectations.

We delivered EPS at $0.67, above our guidance range of $0.64 to $0.66.

We confirmed our EPS outlook for both 2007 and 2008, where we expect an accelerating rate of earnings growth over 2007.

We raised our HUMIRA guidance to $3 billion for this year, and we look forward to a major new indication with psoriasis in early 2008.

And finally, we're moving forward toward a Xience panel on November 29th with a strong and compelling package of data that supports the safety and efficacy of this truly next-generation technology.

And with that operator, we'd be glad to open up the questions -- the call for questions.

Thank you.

(OPERATOR INSTRUCTIONS) One moment, please, for the first question.

Our first question today is from Glenn Reicin.

And please state your company name.

Good morning, folks.

Glenn Reicin.

Morgan Stanley.

Lot of questions here but let me sort of get to the point.

Next year you have a couple of unknowns, and I want to know how you're going to manage this both operationally and from an EPS guidance perspective.

You have the Xience launch, obviously timing is out of your control at this point.

And then you have potential prospects of Depakote ER going off patent.

Can you sort of -- well, I know you haven't provided 2008 guidance.

Maybe you can walk us through something here that will give us some idea of the magnitude of the effect.

Glenn, I'll take this.

This is Tom.

When you talk about Xience and uncertainty, certainly we are very much looking forward to this November 29th panel.

We're very optimistic about the product, as we have been saying for sometime.

It's great technology and robust safety and efficacy data, as John mentioned.

As you know we've consistently forecasted a first-half '08 approval for Xience.

And that is unchanged from our perspective.

But to answer your question, we've a contingency plan as well.

And even if we saw a delay, the later part of 2008 for Xience, which we don't expect, but when we look at the momentum of what we're seeing in our business, the product growth, and really what you're seeing this quarter and what you've been seeing all year, I'm very confident in our ability to deliver at least the first call mean of $3.20, which would represent accelerating EPS growth over 2007.

So, we're prepared for that if it -- in the low probability it were to occur.

Of course, if Xience was approved on our anticipated time line there would be up side to that.

And I'd consider that a floor for our 2008 performance.

For Depakote, we've been saying for sometime that Depakote [DR] will go off patent in the middle of next year.

We've been planning for that all along, and all of our forecasting.

We do have patents on Depakote ER, but we've been down this road, and we understand the need to plan realistically for that to be sure that '08 is not exposed in any way to any unfavorable outcome on that product.

So we've factored that in, and really it's the power of HUMIRA and the pharmaceuticals, the acceleration of diabetes care you're starting to see this quarter, the continued good performance in international nutrition, all of these things are going to really get us through the -- a realistic assumption, shall we say, on Depakote for the second half of 2008.

Okay.

So I just want to be very clear here, and I don't want to put you in a corner or paint you in a corner here, so you're saying that the $3.20 in earnings is more or less a line in the sand.

You think you can get there even with Depakote ER going off patent and with -- and while you're not planning for this even with the delay in Xience past the first have of the year.

Yes, under that pessimistic scenario, and certainly all along we've been very realistic about Depakote, but even under that pessimistic scenario on Xience, that's what I'm saying, yes.

Okay.

Thank you.

Thank you.

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

Thank you.

It's JPMorgan.

That was a good answer there, Tom.

I think people probably like that one.

Let me ask you a couple of questions.

I'm going to first focus on Xience because obviously it's gotten a lot attention over the last week.

You guys made the comment there, John, that you are going to go ahead and look at the follow-up on patients, even though -- even though SPIRIT II and SPIRIT III won't have completed their two-year follow up on all the patients, obviously there's a number of patients that have reached those two-year marks.

So you are going to compile that data and have that data available for the panel.

You made the comment several hundred.

Can you give us a better sense of how many patients you think you'll have at two years for Xience if you do go to the November 29th panel?

Yes, so you're right, Mike.

What I did say in the comments, was -- and I don't think we've shared this previously, that we will have some two-year follow-up data from the three trials.

I'd say it's a little difficult to say precisely right now what that number will be, but I think it's fair to say it's going to be in the range of 200 to 300 patients.

Okay.

And that -- so you'll have 200 to 300 out two years, and obviously the full data set from SPIRIT II and SPIRIT III out one year, correct?

Right.

That's right, and we're going to present that at TCT next week.

We'll go over that in our analyst meeting Tuesday morning.

I think it's also important that we discuss, and I mentioned in my comments, that we'll have that, which I hope gives some comfort to people who have been concerned about that.

And we understand where the concern comes from, because there were some comments made, but more importantly is the overall package.

And as I mentioned, we think we've submitted a very powerful package to the FDA.

It's compelling data.

We met or exceeded all the original protocol criteria that were established by FDA.

We think it's an important product to get on the market, and it would be a disservice to patients that it didn't come on to the market.

The other thing I think is important in this discussion around the number of patients and late-stent thrombosis is the fact that that's only one parameter of safety.

Safety is much broader than just thrombosis, as you probably know better than anybody.

And when we look at that and we consider the overall safety story, rates of cardiac death, heart attacks revascularization, which culminate in the safety and efficacy end point of MACE, we did exceptionally well.

We were statistically superior to that product, based on the data that we've already showed and the data we will show at TCT.

We're very pleased with that.

So revascularization, reinterventions are not benign, and that's an important part of it, so we've got a very compelling package.

We're looking forward to going to panel and we're looking forward to presenting one-year data which we're pleased with from the SPIRIT III data set.

Let me ask you a couple of pharma questions just real quick, if I can.

Couple positioning questions if you would.

First, you've got ABT-874 and J&J obviously has an anti-IL-12/23 in development a little further along.

Can you talk a little bit about how you viewed the positioning of 874 as well as the IL-23, 20 class versus HUMIRA and psoriasis, and once you get that products grouped how would you position the two products.

And then second, one of the questions that's been on investors' minds has been the positioning of Niaspan, potentially with the competition coming from Merck maybe in 2008, assuming that that goes well for Merck.

How do you view the positioning of Niaspan versus Cordaptive?

And then I'll let you guys wrap up there, thanks.

Okay.

Alright.

Thanks, Mike.

Well, I think first on ABT-874, that's our investigational IL-12/23 antibody, which by the way we have a very strong patent position object.

We have six on seven patents that we've either developed or are licensed in, so we feel like we've got a very broad and strong patent position around that particular pathway.

But we do have that product in development.

It's in Phase II.

It will be moving into Phase III by the end of this year.

The data that we've shown on that so far has been excellent.

The Phase II data, the POSI scores, the POSI-75 scores, which are a measure of skin clearance were greater than 90%, which is better than anything that's been seen to date.

So we're very much looking forward to that.

It's a category that is new, obviously, and there's some competitive products out there as well.

I think they will have a place in the market at this point for those who have not responded to T&F treatments, but T&F treatments have a lot of history, and HUMIRA in particular, which has 10 years of clinical history and thousands and thousands of patients who have been treated safely and effectively with the product is going to be probably the first line therapy.

And, of course, as you know, HUMIRA showed very good results in psoriasis as well, in terms of the POSI scores, the 75s, 50s, and so forth.

Those scores were two to seven times better than the competitive product that's out there right now, the other self-injectable product.

So there's a good safety and efficacy profile for HUMIRA.

It would give at good start in the market.

And as we mentioned on our comments, we look forward to -- and hopeful for approval here in the first part of '08 for that indication.

Your question -- your other question was Niaspan and Cordaptive.

The way we look at that, Niaspan has been used safely and effectively for many years.

It's well-known, well-established product.

Physicians feel very comfortable with it.

I'm not real comfortable commenting on a competitor's product other than to say in general it's always a situation where if there's a new molecular entity involved and an unknown safety profile around such an entity, it's difficult to know, longer term, how that will stand up in the marketplace.

It's also difficult to know how physicians might respond to adding in a flushing agent, which is a long-term situation to manage what is, in essence, a very short-term, transient effect that happens with a small percent of patients.

So, from what we can tell, that product, at least the data we've seen, flushing is not eliminated by that product, so I guess it's a question of using an underlying therapy like Niaspan that you have known and trusted for a long time, or aspirin to help control flushing, versus putting in the mix a product where you've got a different form of [Niacin], not Niaspan, with an anti-flushing agent that is not known as of yet to control a short-term phenomenon.

Great.

Thanks, guys.

I'll let some others jump in.

Thank you.

Our next question is from Glenn Novarro.

And please state your company name.

Thanks.

Glenn Novarro with Banc of America.

Couple quick questions.

One, what is the status of Xience reimbursement in France?

Two, on Simcor, what's going to be the edge for that drug?

In other words, if someone is well treated on Lipitor and Crestor, why does someone move to Simcor?

And if a physician is comfortable providing with the current statins on the market, why would they put a patient on Simcor?

And then just lastly, for Depakote last year, ER represents half of the revenues.

Should we be just cutting our Depakote number in half, or should we assume a further erosions in Depakote revenues next year?

Thanks.

Thanks, Glenn.

Let me start with the first couple of questions here, and then maybe Tom can help with the last one.

In France we're now expecting reimbursement in early next year.

There's been some delays, administrative delays, in the reimbursement office, just general administrative matters.

So we're expecting France to come in the first part of 2008.

So that's a modest impact to our overall plan for the fourth quarter.

We didn't have much in terms of sales, and for France, of course, but that's an important market, and one of the higher priced market in Europe.

So given the technology that Xience demonstrates and the premium technology that it is, we're looking forward to getting that on the market in the first part of next year.

So that's kind of what's going on in France.

With Simcor, I think the situation there is really, you've got a fixed-dose combination of Niaspan and generic Zocor, or Simvastatin.

These types of products can help with compliance, convenience.

And we think that given the profile of this product, which you'll see more about when we show the data at AHA, can deliver Vytorin-like reductions in LDL, while also delivering Niaspan's unprecedented HDL raising benefit, and the trig benefit that Vytorin can't match.

So you've got a market where adjunctive therapies and fixed-dose combination therapies are growing at a rapid rate, some estimate more than 80%, 90%, compared to the overall market growth, which is more in the mid teens, as patients realize and doctors realize that they have to be more aggressive about managing their lipids and getting to the target, because a lot of patients, as you know, don't reach target on statin therapy alone.

In fact, there's an estimate that of the 30 million adults who are treated in the U.S., for cholesterol management, about three quarters of those don't currently reach their target lipid goals, and there's another 80 million estimated that are untreated for general dyslipidemia.

So it's obviously a huge market.

I believe it's the largest pharmaceutical market in the world at about $20 billion in the U.S., in particular.

So a lot of room for growth.

A very good product.

And we look forward to presenting the results at AHA.

Question on Depakote?

Yes, just one follow up.

AstraZeneca, Pfizer, a huge sales force in detailing Lipitor, Crestor, for instance, do you have the manpower or is this something that's going to have to get beefed up next year to be competitive with Simcor?

We believe we've got the sales force in place.

Remember, this is a sales force that's been selling TriCor for some time.

We brought in and integrated the best of the best in the Kos sales force, and so we have over 2,000 reps in our lipid franchise already, so I don't see a big need for adding additional sales force.

I think we can handle it with it what we have.

Okay, great.

And on Depakote?

Yes.

Glenn, first of all, as you know, this product should be going into July next year with full patent protection, so that's key thing to factor in your modeling.

And I'm not going to give you a specific number today, but I'll say a couple things.

Certain of the disease stated treated by that product probably will be a little more resistant to change than you'd typically see in a generic situation, so there's a degree of that you have to factor into your modeling.

And I think as we've looked at the street models for Depakote for '08, I think they've done a pretty reasonable job of estimating what we think is going to happen with the product.

Okay.

Great, thank you.

Thanks, Glenn.

Thank you.

Our next question is from Rick Wise, and please state your company name.

Good morning, everybody.

Hello, Rick.

Couple questions.

First, Tom, maybe could you give us a little more color on gross margins.

You mentioned the higher costs and maybe you could help us understand what those were, how you plan to address it, and maybe just give us a little more color on just the longer term trends of gross margins.

Should we -- shouldn't we expect to see gross margins trend higher over time, given the improving mix of the business?

Sure.

Well, regarding the third quarter, we were pretty darn close to my forecast that I provided last quarter.

I said around 58%, I think, and we came in a little below that, and it's hard to call this within a tick or two, given all the complexities of our business, but I feel pretty good about forecast.

As I said in my remarks, the one thing that's probably slightly different than what we were seeing back then is some pressure from nutritional commodity costs.

I'd characterize that more as a lag effect.

We've got mitigation plans we've already started to implement in the business, it's pretty much the obvious things that are going to allow to us offset that as we go forward in future quarters.

So a temporary slight impact of that that we're going to manage through going forward.

In terms of longer term trends, again, fourth quarter should be our best quarter of the year at around 59%, as I indicated in my remarks.

And we're seeing steady progress in the gross margin.

I pretty much repeatedly characterized it as steady because as you're correct about mix improving for our business and the right products growing we've had some things to overcome, such as Synagis this year, and Omnicef, which have been drags on the margin as we work through those generic issues and those -- the ending of the Synagis co-promotion.

In '08 we'll have a little more of that from Omnicef, and obviously Depakote will have some impact, but even with all that given the remaining mix of the business, we see steady progress and average gross margin in '08 compared to '07.

So I think that's what you should be watching for.

Okay.

Turning to Niaspan, obviously Niaspan had good quarter year-over-year, but if I'm looking at may numbers correctly, $170 million was basically equal to the second quarter.

I might have thought we'd see some sequential growth given the new technology and the larger sales force.

Again, what does it take to get that growing, or do we have to wait for the combo product for these -- this area to really take off?

Well, I guess we'd beg to differ.

We thought the growth was pretty good.

We are on track for in excess of $650 million for the full year, which is a little bit ahead of our original expectations.

The trends, the Rx trends have been good on the product, it's been growing 2% to 3%, now growing 4% to 6% after we fully integrated the Kos sales force.

So we're plugging right along there.

Overall market growth is pretty good.

As I mentioned, adjunctive therapies and HDL and trigs are an important part of that, and they're growing well.

So I -- we think we're right on track with our expectations for the full year.

And obviously we'll do a lot better than that next year.

Good.

Two last questions.

First, just in general, international nutritionals obviously had a stellar quarter.

How sustainable is that kind of growth as we look over the next year or so, or how should we think about that growth?

And last, just -- I'd be curious to hear your thoughts, Tom.

I appreciate your comments and perspective on the impact of Xience with or without -- in '08, but truly the market outlook for these procedures in general is tougher today than it was when you bought the Guidant business a year ago.

Prices just in this quarter seem to be down 5%, procedures are down.

How are you thinking about the impact that -- sort of the market that XIence is entering, one, and the longer term positive contribution it it can make?

Is it going to be less than you might have dreamt at one time?

Well, I think -- I'll take the second question first.

I think as we look at '08, clearly the market is different than when we bought the company, and -- but again, for us, even if it's a $5 billion market versus a $6 billion market, it's a market where we're barely participating in globally, and with the quality of the product, and the efficacy of the product, and the ability we believe of the former Guidant organization, now Abbott, to execute, we're very confident we'll get plenty of share and more than enough profit from this product to more than justify the acquisition.

So we're still very happy with the acquisition, the product.

As you know, the Xience data actually came out a lot better than even we anticipated when we bought the company, so that's clearly an upside to our original modeling.

We thought we'd be equivalent, and we turned out to be superior.

So I think when you net it all out it's going to be very positive in '08 and well beyond, particularly given that our R&D activities in that organization are very solid, and we believe will have a series of innovations that will continue to sustain our position in that market going forward.

And Rick, in regards to your question on international nutritional, we've obviously been very pleased.

And for those who don't recall, remember, we created that business internally and separated it from our overall AI business, what used to be AI International business, so that we could get the focus and the results that we're seeing now.

And so the growth that we saw this quarter we think is very sustainable.

In fact, in the near term, the fourth quarter outlook is even better.

We expect very strong double-digit growth going into the fourth quarter.

And for next year a little early to give precise guidance, but based on the trends, based on the emerging market growth, the products, and the dynamics in terms of demographics and so forth outside the U.S., we would expect another year of strong double-digit growth.

I'll just add as well, that as we have looked out over the longer term planned horizon for this and into 2008, strong double-digit growth is expected to continue.

I mean there's tons of potential in this market.

I'd remind you that we're building a very large plant in Singapore on the anticipation of that and we're putting our money behind our forecast.

So this is a business that's going to continue to be a big contributor to our growth for years to come.

Appreciate that.

Thanks.

Okay.

I think, Operator, we have time for probably one more question.

Thank you.

Our final question is from Sara Michelmore.

And please state your company name.

Yes.

Cowen and Company.

Good morning.

John, can you give us a little more color on HUMIRA in international markets?

It's obviously a big piece of the overall revenue stream there, and it's been outpacing the U.S.

growth pretty substantially.

Can you just give us a sense of what the growth drivers there, either by country market or in terms of where the approvals are and where it's scaling up?

Okay, sure.

Actually, there's a couple of dynamics there.

I think, overall, in just the general market, there's low penetration, biologics, and we've seen that penetration rate for the market continue to increase as some of these new therapies come to market, HUMIRA in particular, as we launch the Crohn's indication.

We've seen very good response to that.

The [pin] container, which you might recall was an advancement in the dosage delivery system for HUMIRA has been very well received in those markets.

So the penetration overall is probably the biggest factor.

Having excellent data as we've shown with HUMIRA on rheumatology first and then with psoriatic arthritis, and now Crohn's, we've just continued to pick up a lot of share at the competitor's expense, and also ride the wave of an underpenetrated market, as that continues to grow.

So a significant opportunity still outside the U.S.

We expect that to continue as we go into the fourth quarter and early next year, particularly as we get the psoriasis approval, which, as I mentioned, we expect in the early part of '08.

That's a global filing.

So we'll have that ready to launch in both the U.S.

and internationally.

Okay.

That's helpful.

And, Tom, maybe could you give us a little sense of where you are in terms of the operating margins for HUMIRA?

You're obviously past the point of investing a lot of the R&D dollars that you need to invest to expand the laboring for the product.

And you've built a lot of the commercial infrastructure.

Can you just give a sense of where you are in terms of the operating margin percent for that product and where you think it's going to go heading into next year?

I think you've characterized in general the dynamic properly, that we're pretty well sized in terms of commercial infrastructure, and as we're seeing this volume expand we're getting quite a bit of additional drop-through in that.

Clearly SG&A is not leveraging with the sales of the product.

So that absolutely is a positive dynamic, and if you take it all the way to the bottom, we also are seeing benefits of our -- some of our plant investments in terms of bottom line contribution from the product.

So there's continuing leverage from HUMIRA, and I think you've characterized it pretty well.

Okay, thank you.

Thank you.

And that concludes our conference call.

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