美國雅培 (ABT) 2007 Q4 法說會逐字稿

Good morning, and thank you for standing by.

Welcome to Abbott's fourth 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 cannot be recorded or rebroadcast without Abbott's expressed written permission.

I would like to introduce Mr.

John Thomas, Vice President, Investor Relations.

Thank you, sir.

You may begin.

Thanks.

Good morning.

And thanks for joining us, everybody.

Also on today's call will be: Miles White, Chairman of the Board, and Chief Executive Officer, and Tom Freyman, Executive Vice President Finance, and Chief Financial Officer.

Miles will provide opening remarks on Abbott's 2007 performance and outlook for 2008, and Tom will review the details of our financial results.

I'll then add some additional information on the major businesses.

Following our comments we will 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 publicly any revisions to forward-looking statements as a result of subsequent events or developments.

In today's conference 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 and earnings news release and regulatory filings from today, which will be available on Abbott's website at abbott.com.

So with that, I'll turn the call over to Miles.

Miles?

Okay.

Thanks, John, and good morning to all of you.

As you can see from our earnings news release, Abbott reported another year of strong results in 2007 while at the same time investing for our future.

In addition, we positioned Abbott for continued success by executing on our major priorities and goals for the year.

Our confidence in the future is based on the strength and the balance of our broad mix of leading businesses from medical products to pharmaceuticals, to nutritionals and diagnostics.

Together these businesses provide a diverse mix of cash flows and multiple sources of earnings growth that should help us achieve consistent leading performance in the coming years.

Going forward, we're targeting higher growth markets, including emerging markets where we can distinguish Abbott from the competition with leading technology and innovative new products that meet the needs of patients and customers.

In 2007, we saw that focus pay off as our unique mix of businesses and new products delivered strong results with full-year sales growth of more than 15%.

For the first time in our history, our mix of total sales favored our international business, which accounted for slightly more than 50% of our $26 billion in sales.

Ongoing earnings per share growth for the full year increased more than 12% and we expect strong performance again this year which is reflected in our EPS guidance range of $3.20 to $3.25 a share.

As we've indicated before, our guidance accounts for realistic assumptions regarding Depakote sales.

Tom will walk you through our financial results in a moment, including more details on our fourth quarter results and our outlook for 2008, and John will add further color to our business and product performance.

Before they do so, let me start with my perspective on 2007.

Our strong financial performance was only one aspect of the Abbott story in 2007, we achieved a number of important milestones that further strengthened our company and complement the changes that we've made.

Much of what we accomplished last year will be evident in our performance over the next several years, so let me take a moment to review some of these highlights.

First, we met or exceeded every time line for regulatory submission or approval across our broad-based late stage development pipeline.

In pharmaceuticals, we received global regulatory approval and launched the Crohn's indication for HUMIRA.

We also filed for approval of psoriasis, which we received in both the U.S.

and Europe within the last few weeks.

In addition, we submitted for the approval of two new products that hold promise for expanding our lipid franchise, Simcor, our combination therapy of Niaspan and generic Simvastatin, and ABT-335, our next generation Fenofibrate.

Our fourth product submission was Vicodin CR, our extended release version of the well-known branded pain medication.

And finally, our TAP joint venture filed TAK-390MR, it's next-generation proton pump inhibitor for treatment of gastrointestinal disorders.

The execution of these filings means that over the next 12 months our commercial teams are poised to launch four new Abbott pharmaceutical brands in the U.S.

Our late-stage pipeline flow, however, was by no means limited to pharmaceuticals last year.

In our vascular business, we filed for U.S.

regulatory approval of XIENCE V last June, then received a positive recommendation for approval from an FDA advisory panel in late November.

In our diabetes care business we launched FreeStyle Lite, our new no calibration blood glucose monitoring device, FreeStyle Freedom Lite, our second new no-cal meter was launched in Europe and submitted for U.S.

approval.

In our global nutritions business we launched new formulations of our leading infant formula brand, Similac, and continues to expand the market for adult nutritionals through the introduction of new Ensure formulations in select markets.

In our global diagnostics business, we added new assays to our PRISM menu, strengthening our number one position in the blood-screening market.

We also launched our new high volume architect immunochemistry systems.

And in molecular diagnostics we launched our m2000 realtime PCR system in the U.S.

So as you can see, we had a good deal of activity on the new products front in 2007.

The second highlight from last year was the effective return of cash to shareholders.

We paid approximately $2 billion in dividends, the 35th consecutive year of increasing dividends, and we repurchased more than $1 billion worth of Abbott stock.

We also used our financial strength to invest more in our R&D pipeline, as well as our commercial operations to ensure we fully leverage our late-stage pipeline and related new product launches.

At that point, last year our combined investments in R&D and SG&A grew double digits including the impact of the Kos acquisition.

Our third major accomplishment last year was refining our pharmaceutical research and development efforts around our early and mid-stage pipeline where we saw good productivity improvements.

Our pharmaceutical R&D teams improved both their execution and their decision-making as they moved innovative high quality programs forward more efficiently than in the past and with some tangible results.

A significant number of compounds moved from discovery to development last year, and more than 75% of our new molecular entities advanced to the next stage of discovery or development.

This included promising early-stage compounds in neuroscience and oncology, as well as later-stage therapies such as ABT-874, our next generation [IR12-23] biologic which we just moved into final Phase III clinical trials for psoriasis based on outstanding Phase II results.

Our fourth major accomplishment of 2007 included two important new capital investments that will support our fast growing business lines.

We completed construction of our new state-of-the-art biologics manufacturing facility in Puerto Rico to support our long-term growth outlook for HUMIRA and other innovative biologics that are in development.

In addition, we continued construction at our new manufacturing facility in Singapore to support our long-term growth projections for global nutritionals, where consumer demand is driving rapid growth in the fastest growing emerging economies of Asia and Latin America.

The fifth major achievement I'd mentioned from last year was the completion of the integration of our Kos Pharmaceuticals acquisition which strengthened our position in lipid management.

That gives you a sense for some of the major accomplishments in 2007, in addition to our strong financial results.

The common thread among all our achievements last year was that each one of them helped position Abbott for constant performance in the future.

And as we enter 2008, our leadership team has outlined new goals and expectations that will drive our organization, and like last year, I expect, it will deliver on them.

It's very early in the year, but we're off to a good start.

HUMIRA for psoriasis received FDA approval just a few days ago following EU approval in December, so let me discuss HUMIRA first.

HUMIRA, as you know, is our flagship biologic for a variety of autoimmune diseases and it continues to have significant long term potential.

In 2007, HUMIRA outperformed on every level and finished the year with total global sales exceeding $3 billion, making it the first Abbott brand to reach that level of success.

A launch last year of the Crohn's indication consistently exceeded our expectations as HUMIRA rapidly gained market share.

That level of acceptance continues today with more than one in three biologics patients in the U.S.

now receiving HUMIRA for the treatment of their Crohn's Disease.

We expect similar results for HUMIRA's launch in psoriasis, which is just now getting underway in both Europe and the U.S.

supported by clinical data that is truly best in class.

HUMIRA is differentiated by efficacy and convenience within a global psoriasis market that should reach $3 billion over the next few years, making it the fastest growing market segment within biologics.

Given HUMIRA's continued strength, as well as the promise of our newest indications, we now expect global sales of approximately $4 billion in 2008.

As important as it is, HUMIRA represents only one pillar of our global pharmaceutical strategy.

As I mentioned earlier, 2007 proved to be a critical year in establishing Abbott as a major player in lipid management, currently the largest U.S.

pharmaceutical market.

So another priority this year is the launch of Simcor, a fixed dose combination of Niaspan and Simvastatin, that combines the LDL lowering effects of a statin with the HDL raising benefits of Niaspan.

We've built our lipid franchise to address the growing patient need for comprehensive lipid management, where Abbott could participate with as many as five unique therapies by 2010.

Of course another priority in 2008 is the approval and launch of XIENCE in the United States and the continued successful launch of XIENCE V in new international markets.

XIENCE remains the only drug eluting stent that has demonstrated clinical superiority over another drug coated stent in controlled randomized clinical trials.

The strong body of scientific data for XIENCE as well as our experienced U.S.

vascular salesforce puts us in a good position when we launch.

Recall that Abbott maintenance market share leadership in bare metal stents with the vision platform, so the commercial team does know how to win in what remains a highly competitive market.

We're also advancing several next generation stent technologies behind XIENCE V as we work to meet our goal of releasing new technology at regular intervals over the next several years.

This includes the continued development progress of our full bioabsorbable drug-eluting stents, the first and only such program currently in human clinical trials.

With the U.S.

launch of XIENCE V and the continued strength of our portfolio of related products, our emerging vascular business continues to offer the promise of significant growth in the coming years.

International nutritionals is another driver of profitable growth throughout and another top priority for 2008.

As you saw from today's results this business grew close to 20% last year.

Like others, we've had good success in emerging markets such as southeast Asia and Latin America, as improving economies and population growth drive increasing demands for nutritional products.

In order to meet this strong market, particularly in markets such as China, next year we'll open our new manufacturing facility in Singapore.

In our other medical products business, our priority for 2008 is continued execution of product launches such as the architect and PRISM menus and diagnostics, our FreeStyle Lite and Freedom Lite in diabetes care.

We expect continued strong results in these businesses.

As I've noted earlier, we've increased the speed and efficiency with which we advance our early-stage programs.

Abbott scientists are doing some promising work in the areas such as oncology and neuroscience.

We're be doing more this year to ensure that our early-stage pipeline productivity keeps pace with our late-stage pipeline success.

So in summary, I'm confident that our broad mix of high growth businesses provides us with a unique balance, one that can help us offset any possible challenges.

As we build on that balance model we're continuing to grow stronger with the a diverse array of new earnings growth drivers that should benefit our performance for years to come.

With that, I'll turn it over to Tom and John for a more detailed look at our fourth quarter highlights and our outlook for 2008.

Tom?

Thanks, Miles.

For the fourth quarter, we reported diluted earnings per share excluding specified items of $0.93, within our guidance range of $0.91 to $0.93.

Sales this quarter increased 16.1% including a favorable 4.5% effect of exchange rates.

Results were strong across our businesses, with pharmaceuticals, diagnostics and nutritionals all contributing double-digit growth.

The adjusted gross margin ratio in the quarter was 58.3%, up sequentially from the third quarter.

This is somewhat below the prior year due to the reduction in the contributions from Synagis and Omnicef in the U.S.

and an increase in commodity costs in our nutritionals business.

During the quarter we continued to invest in the business to drive future growth.

R&D investment affect continuing progress in our pipeline.

As indicated earlier, this includes the new HUMIRA indication, ABT-874, controlled release Vicodin, and XIENCE, as well as several promising Phase I and Phase II clinical programs in neuroscience and oncology.

SG&A expense included the new and ongoing promotional initiatives including the launch of Crohn's and psoriasis indications for HUMIRA, the international launch of XIENCE V, and preparation for key product launches in 2008.

Income from the TAP joint venture this quarter of $122 million was in line with our expectations.

The tax rate for ongoing operations in the quarter was 19.5%, consistent with our previous guidance.

For the full-year 2007, we delivered sales growth of 15.3% and ongoing earnings per share growth of 12.3%.

Overall, 2007 was a successful year as we delivered on our financial commitments and executed on our initiatives to ensure a strong 2008, which I'll turn to now.

For the full year 2008, we expect high single to low double-digit sales growth, and we're providing earnings per share guidance of $3.20 to $3.25, excluding specified items, forecasting steady improvement in the gross margin ratio over 2007, with a ratio between 58% and 59% for the full year 2008, reflecting improved product mix and efficiency initiative, forecasting continuing investment in programs to drive future growth with R&D as a percentage of sales between 9% and 10%.

SG&A as a percentage of sales for the full-year 2007 was close to 27%.

And we're forecasting a similar level for 2008.

SG&A in 2008 reflects both the synergies of the Kos acquisition and an appropriate level of investment to properly execute the five major product launches that are planned for the year.

Regarding other aspects of our 2008 outlook, we're forecasting income from the TAP joint venture of $350 million to $400 million, a net interest expense of roughly $400 million.

We're projecting a modest reduction in the tax rate for 2008, based on continued changes in the mix of income across the various tax jurisdictions.

The tax rate for 2008 is expected to be somewhat above 19%.

As a result, when you look at the overall P&L for the year, we're forecasting an improvement in our operating margin and net margin ratio in 2008.

Now let's turn to our outlook for the first quarter.

We're providing earnings per share guidance of $0.61 to $0.63, excluding specified items.

This point of this range represents nearly 13% growth over the prior year.

We expect somewhat stronger growth over the balance of the year with growth of approximately 13% to 14% over each of the remaining three quarters.

Forecasting high single-to low double-digit sales growth in the first quarter with a gross margin ratio of approaching 58%.

Given the timing and number of product launches in 2008, we're forecasting SG&A as a percent of sales in the first quarter in the high 20%s, which should decline as we progress through the year again with the full-year average at roughly 27%.

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

John?

Thanks, Tom.

This morning, I'll review the performance of our major business segments: pharma, nutritionals and medical products, including diabetes care, diagnostics, and added vascular.

So let me start with the global pharmaceutical business where sales grew nearly 19% in the quarter and 18% for the full year.

In our immunology business, HUMIRA surpassed our expectations for the full year, exceeding $3 billion in worldwide sales.

With its well established safety and efficacy profile, HUMIRA is becoming the anti-TNF therapy of choice.

Now, with four additional indications approved beyond rheumatoid arthritis, Crohn's Disease, psoriatic arthritis, ankylosing spondylitis, and now psoriasis, HUMIRA's securing a strong position in both the gastro and dermatology markets in addition to the rheumatology market.

In Crohn's Disease, HUMIRA offers the only self-administered biologic treatment for patients, providing a distinct convenience advantage over the competition.

And for this reason and others, we're seeing strong demand from new patients, as well as those switching from other therapies.

And following last week's announcement, we just launched HUMIRA for psoriasis in the U.S.

following Europe.

Our data in psoriasis have demonstrated that three out of four HUMIRA patients achieve 75% skin clearance, nearly half of patients reach 90% skin clearance, and nearly one in five patients achieve complete remission from their disease.

And HUMIRA's the only therapy that's demonstrated superiority over the standard systemic treatment, methotrexate, in a head-to-head clinical trial.

This data, versus what's been shown with other biologics, has raised the bar for reliable skin clearance in moderate-to-severe psoriasis patients patients.

These results in the growing awareness of HUMIRA among dermatologists should provide for a promising entry into the expanding biologics market.

It's a market that's currently $1 billion in global sales and is expected to triple in the next several years.

In 2008, we expect continued growth across all five of HUMIRA's indications.

And we plan to add a sixth, juvenile rheumatoid arthritis, in the coming months.

In 2008, as Miles indicated, we anticipate global HUMIRA sales of approximately $4 billion.

In our lipid management franchise, Niaspan, our HDL-raising therapy posted nearly $180 million of sales in the quarter, exceeding our forecast of $650 million for the full year 2007.

Niaspan is the only prescription therapy capable of increasing HDL 25% to 35% on average, with proven cardiovascular outcome.

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

Since the launch last year of a new film-coated Niaspan tablet and the additional promotional efforts following the Kos acquisition, we have steadily increased Niaspan's share growth.

We expect double-digit growth for Niaspan to continue in 2008.

At the same time, our salesforce in commercial organization are preparing for the first quarter launch of our combination therapy, Simcor.

We presented Phase III data at the American Heart Association late last year that demonstrated Simcor's role in improving key lipid levels versus the use of a statin alone.

Also in the quarter, TriCor had good performance with double-digit growth if the full year as well.

TriCor remains the best available therapy for lowering triglycerides with a long-established safety and efficacy profile.

We submitted ABT-335, our next generation Fenofibrate for FDA approval at the end of 2007, and we remain on track for FDA approval of this product in the fourth quarter of 2008.

So for 2008, we expect strong double-digit growth in our lipid franchise again.

Moving onto our virology franchise, where both Kaletra and NORVIR were up strong double digits in the quarter.

Kaletra remains the gold standard protease inhibitor providing physicians with the clinical confident to manage HIV as a chronic long-term illness.

In November in the U.S.

we launched a new lower strength Kaletra tablet specifically formulated for children and expect approval in Europe soon.

For 2008, we expect worldwide sales of Kaletra in the mid-single-digit range.

Depakote sales in the quarter were up double digits.

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

With regard to Synthroid, U.S.

sales in the quarter were $132 million, and $458 million for the full year.

For 2008, we anticipate U.S.

Synthroid sales to again exceed $400 million.

So for 2008, in our U.S.

pharmaceutical business, we expect full-year sales growth in the high single digits, which includes, as Miles mentioned, a realistic assumption for Depakote sales for the full year and we expect international pharmaceutical sales growth in the mid \-to-high single digits.

In the TAP joint venture, sales of Prevacid and Lupron in the quarter were in line with our expectations.

Earlier this month, TAP submitted TAK-390MR, its next generation proton pump inhibitor for FDA approval.

The filing, which was completed earlier than expected, includes clinical trial data for more than 6,000 patients.

We have plans to present data on this product during the first half of 2008.

TAP also continues to forecast a mid-2008 submission for Febuxostat, its compound for gout.

In our global nutritionals business sales in the quarter were up 11%, driven by 26% in international nutritionals as demand continues to increase for high-quality nutritional products, particular in emerging markets.

Performance was balanced across both adult and pediatric nutritionals.

In the U.S., including Synagis, nutritional sales increased the 11% this quarter with more than 10% sales growth across both the adult and pediatric segments.

New product introductions, especially our infant formula, Similac Sensitive and Similac Organic are contributing to this momentum.

In 2008, we expect mid-single-digit sales growth in our U.S.

nutritionals business and mid-teens growth internationally.

Turning now to our medical products businesses, let me start with diabetes -- Our worldwide were up 15% in the fourth quarter and nearly 10% for the full year.

We continue to gain new user share with our more convenient FreeStyle Lite meter.

Launched in June, FreeStyle Lite offers blood glucose results in an average of just five seconds, while eliminating the manual calibration step required by most meters in the market.

We're on track to launch FreeStyle Freedom Lite, our second no-coating meter, in the U.S.

this quarter, following its successful introduction in Europe last October.

With both FreeStyle Freedom and Lite products, we continue to differentiate ourselves from the competition.

We also further expanded our commercial presence in emerging markets.

In India and China, for example, sales grew more than 70% in the fourth quarter.

In our pipeline, we're focused on continuing to improve testing convenience for people with diabetes and developing a fully integrated blood glucose monitoring system, that combines the meter, test strips and lancing capabilities in one device, enabling simple point and click testing.

We also anticipate launching our navigator continuous glucose monitoring in the U.S.

later this quarter.

But for 2008, we expect continued double-digit growth in Abbott diabetes care.

Now, let me turn to our diagnostic business, where sales grew 13% in the quarter, driven by continued strong growth in our international business, which comprises a significant portion of our overall sales.

We also saw double-digit growth in our immunochemistry and hematology segments this quarter.

Our international business drove much of this growth with strong sales in Europe, Latin America, and Asia.

Sales in China, for example, were up more than 30%.

We launched two new architect platforms in the quarter which are designed to meet the needs of our high volume lab customers.

We expect to launch our architect platform for lower volume lab in the next few months.

And U.S.

PRISM sales more than doubled in the quarter, with the successful launch of our new hepatitis C assay.

We just launched an additional infectious disease assay, HTLV, on PRISM in the U.S., which further strengthens our position.

Placements of new platforms such as architect and PRISM will continue to aid growth this year.

In our point of care business, sales grew more than 25% in the quarter, and more than 20% for the full year.

And in molecular diagnostics, sales increased more than 25% in the quarter and nearly 20% not full year.

With approval in approximately 50 countries, our m2000 realtime PCR system continues to gain share worldwide.

Since its international launch two and a half years ago, we placed more than 400 systems and continue to expand our presence, including the expected clearance in the U.S.

this year for several additional infectious disease assays.

So in 2008, in our worldwide diagnostics businesses we anticipate mid-to-high single-digit growth for the full year.

This includes continued strong double-digit growth in both molecular diagnostics and point of the care, as well as mid-single-digit growth in immunochemistry and hematology.

Finally, in our vascular business, global sales were up 7% in the fourth quarter and 54% for the full year.

First, let me start with an update on our drug-eluting stent, XIENCE V.

In the U.S.

as noted earlier we received a positive recommendation at our FDA panel meeting in November.

Though we can't speculate on specific timing, for planning purposes we're modeling a second quarter 2008 approval and launch, which is in -- is within our previous forecast for the first half.

Regarding the international launch of XIENCE we continue to make steady progress ending the year with European share in the low 20%.

Looking at total XIENCE platform share, which includes both XIENCE and [Promis] share was in the mid-20%.

We're encouraged by the upward trajectory we see across every country in which we've launch XIENCE, currently approximately 10 countries have had or exceeded 30% share with several now approaching 40% market share.

And more recently, our U.S.

teams promote XIENCE with longer-term data, this includes one-year data on more than 1,000 patients, and data on several hundred patients out to two years, providing physicians with additional confidence in the XIENCE platform.

We'll present longer-term XIENCE results throughout this year.

Our global DES franchise sales which include XIENCE as well as third-party DES product revenues exceeded $260 million for the full year and were nearly $80 million in the quarter.

We also continue to enroll patients in our XIENCE Spirit trials.

Spirit IV is now at nearly 2,500 patients, and the 2,700 patient Spirit V registry completed enrollment at the end of 2007.

Total coronary stent sales which include bare metal and drug-eluting stents were up 45% in the quarter.

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

The strong performance in coronary stent sales was partially offset by endovascular and other coronary sales, reflecting lower third-party revenues including a decline in third-party catheter sales as expected.

An expected high single-digit decline in U.S.

PCI volumes versus the fourth quarter of 2006 also impacted sales of other coronary products, including guide wires and balloon catheters.

However, U.S.

PCI volumes were up sequentially versus the third quarter.

And briefly, in our vascular pipeline, we're advancing several next-generation stent technologies behind 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.

It includes a more deliverable [work-close] drug-eluting stent as well as our bioabsorbable stent.

We'll have data on our bioabsorbable stent as well as our XIENCE platform at scientific meetings throughout the year.

So in 2008, we again expect strong double-digit growth for our vascular business.

We anticipate more modest growth in the first quarter of 2008 with growth improving over the course of the year.

Finally, again this quarter in our news release, we highlight several of our major programs in our pipeline, including our late-stage compound and devices, as well as some early and mid-stage pipeline programs.

So in summary, we're pleased with our results for the fourth quarter and the full year.

In 2007, we achieved ongoing earnings per share growth of more than 12% and sales growth in the mid teens.

And for 2008, we expect another year of double-digit performance.

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

Thank you.

We will now begin the question and answer session.

(OPERATOR INSTRUCTIONS) Thank you.

Our first question comes from Glenn Reicin with Morgan Stanley.

Please go ahead.

Good morning, this is David [Roslan] filling in for Glenn.

Just a couple questions.

First on the pipeline (inaudible - technical difficulties) and then the second is (inaudible - technical difficulties).

Okay.

David, we're having a problem hearing you.

I don't know if anybody else could hear you, I think we got the questions, but it was a bad connection.

So forgive us here if we don't get this right.

But I think you asked about ABT-335 and data.

We will have data presented at the ACC scientific meeting in March, that's the most likely venue for that data in the near term.

And regarding -- Vicodin -- it was the scheduling, our goal is still schedule three on that product.

It's something that we'll be working with the FDA on as we progress through the approval process.

Our goal, again, schedule three, but either way, if it's schedule two or schedule three, we think it can be a significant product.

If you look at some of the competitive products that are out there in the space, that are schedule two, like Duragesic and OxyContin have done quite well.

But again, go with schedule three.

Okay.

Thanks, and the second question, just on the cost reduction and other restructuring issues, can you give us a sense of when that's expected to be complete and what (inaudible - technical difficulties) in 2008?

Again, you broke up, but this is Tom.

With everything except vascular and the last vestiges of our shutdown of some older pharma plants and really the buttoning up and final accelerated depreciation, we are through everything, there's a little bit of trailing vascular into 2008 and a very small amount of wrap-up on pharma.

So we're pretty much through it, as we stand at the end of the year.

Okay, thank you.

Sorry about the connection.

Thank you.

Our next question comes from Mike Weinstein with JPMorgan.

Please go ahead.

Thank you.

Is this better?

Can you hear me okay?

Much better, thanks, Mike.

Okay, sure.

I'm going to ask a couple just clean-up questions from the quarter and then maybe a strategic one for Miles, if we still have him on.

First question on the pharma business, John, was there any -- were there any inventory swings on the U.S.

business that might have helped or hurt this quarter?

No, nothing unusual.

We're very comfortable with the inventory levels.

The only one where we typically see a little bit of modest buying activity, if you will, is TriCor in the quarter.

Other than that, overall, across the board, very comfortable.

Okay.

And then if we can just pick up some clarification on what you're saying on XIENCE for the year.

Your guidance for 2008, I apologize if I missed this, but your guidance for 2008 assumes a mid-year approval for XIENCE, or are you not being that specific?

Yes, what we said was our guidance is still the first half, but in my comments I noted that it's more likely it will be the second quarter.

But the question was is that included in the guidance?

The answer's yes, Mike.

Okay.

And then, Miles, if you could just talk with all that transpired really the last 24 months of the company, could you talk just a little bit about the portfolio today?

You seem to have the pieces in place right now to drive pretty good growth, and obviously in 2008 and 2009, but if you think beyond 2009, and the growth of the company into the next decade, do you feel like you've got the right pieces in the portfolio today, do you think there's likely to be more reshuffling, do you think the company's likely to pick up again on the M&A front?

How do you think about the positioning of the company beyond the growth in the next couple of years from HUMIRA, from XIENCE and from the other products?

Well, I tell you the first couple of things I'd comment on just to give it some context is, clearly the M&A activity of the past, say, seven, eight years had a purpose in terms of enriching the portfolio both in the pharma business in particular, and also in the balance of medical product businesses in the company.

And I think we've achieved a lot of our goals there.

There's a number of areas that we've looked at from time to time that we're tracking, that we watch, that we monitor for opportunity.

But the difference I'd say going forward is, now I like the portfolio mix, but I'm always going to be watching for where it might be further improved.

And I've commented in the past that I think it's a benefit for us to have a balance or a mix of sources of performance, cash flow profits, etc., in our portfolio and that balance means balance not only within the pharma business but across all of our businesses, nutritionals and medical devices, medical products, etc.

I wouldn't forecast forecast the kind of M&A activity of the past seven or eight years.

I would characterize anything that we might do, and I say might, because I don't have anything in particular or specific on my radar screen right now, as opportunistic.

It would have to fit the criteria that we have for what we think fits the mix of our portfolio.

I think we're conscious of the fact that whatever we may invest in has to earn a healthy return, it's got to be growing, it's got to be profitable, it's got to have good cash flows, etc., it's got to fit strategically with a lot of the things we're trying to do.

And so we're going to -- I think it's prudent for us to continually be evaluating the portfolio of the company to ensure that all the pieces of it fit that mix.

But I think any management team ought to be doing that with their company and generally probably are.

So I'd say don't look for the next 10 years to be like the last 10.

The last 10 was a pretty definitive we need to change what the mix here.

I like the mix where we are, but I wouldn't be so naive as to think that we just stand pat and never adapt or adjust the changes in medical practice or changes in technology or frankly changes in market.

So I think that from an investor standpoint, I would expect us to be careful, prudent, selective, opportunistic.

And just to wrap it up, I'd tell you today, I don't have on my radar screen a significant target from an M&A standpoint, either by market segment or specific asset.

There are small things we invest in from time to time, whether it's a product in development that we add to the pharma portfolio or technology or IP or whatever the case may be.

But those are smaller compared to the size of the [Canol] or Kos or Guidant acquisitions.

And I don't have anything like that on my radar screen.

I won't promise you I'll never have something on my radar screen, I just don't.

And I like the mix now, I like the performance in the mix.

We built this so that we could sustain double-digit growth, and I think we're in a fortunate position where instead of having to overly focus on just this year's performance or even the next three to five, we're in a fortunate position where we can be sort of managing our portfolio and mix for the five to 10 years out.

And we look at our pipelines and our products that way.

Now, obviously we pay a lot of attention to current performance quarter-to-quarter also, but I like the position we're in where we can be thinking a lot about the LRP over five years, and frankly, the LRP over 10.

And given the development times for products in some of our businesses, like the vascular business or the pharmaceutical business, I think that the really healthy place to be, because increasingly there are fewer and fewer companies that have all the infrastructure and capability to bring products to market in those segments, and it does require longer term planning and the ability to sustain a commitment to a strategy to get there.

And I think that's where we are.

That's where we wanted to be.

That's what we built over the last 10 years.

And I think that's what we'll just continue to manage ongoing.

I hope that answers your question.

I guess --

Yes, you did, let me have one follow-up and I want to drop, because I've been on a while.

Should we just assume at this point that you [indicate] will not be able to resolve the relationship, that you won't be able to come to some sort of agreement between now and [Prevacid] going generic, or do you think that's still a possibility?

I think it's still a possibility.

We get along well.

But I sort of said that now for nine years and it's -- I'm always optimistic and we always have what I call constructive dialog, and there's no change to that.

I wouldn't -- I would say it this way.

I wouldn't tell you that it's highly likely and I wouldn't tell you it's highly unlikely.

I would acknowledge that it's possible.

Okay.

Great.

Thank you.

Thank you.

Our next question comes from Larry Keusch with Goldman Sachs.

Please go ahead.

Yes.

Hi, good morning.

Tom, I'm wondering if you could provide perhaps a little bit more color on -- you think there's realistic assumptions around Depakote.

Are you assuming that generics come in immediately upon the expiration of patents?

And you've obviously had experience with generics here in the last couple years.

Are you seeing a very typical generics sort of penetration as you think about the '08 guidance?

I think the key thing you said, Larry, is the last part.

We have been through this before.

We understand despite the existence of what we think is good intellectual property, that the generic companies have been awfully aggressive in this area, and that it's just not prudent to assume that even a -- your appropriate position from a financial planning perspective, is one that should be sustained.

So we've been very realistic about the behavior of generics with the compounds goes off in the post pediatric exclusivity, late July, and we have -- we do understand that at least in one indication area, there could be some retention because of the nature of the epilepsy market, but that's really a modest assumption.

We've been very realistic about the likely impact of generics coming in.

I would add to that, just as a reminder, that because of the number of significant product launches that we have this year, or have launched in the past, say, six to 12 months, we're in the really fortunate position of having all of those ramping at the same time, Depakote would face generic competition.

And so, consequently, we're in a very fortunate position to still perform well and deliver the guidance that we've indicated.

And we think we've captured the assumptions of, as Tom said, appropriately, in that guidance.

So in spite of the fact that Depakote will face generic composition, we're very confident in the balance in the guidance that we gave.

Okay, and just two other quick ones.

In terms of the first quarter guidance which came out a little bit below the street consensus, Tom, maybe you can talk a little bit about sort of how you're thinking about, and you touched on this in your prepared comments, how you're thinking about the expenses in there for launches of new products, where you don't have the revenues yet?

And are you really sort of waiting those expenses in the first quarter?

And are you also not assuming any XIENCE in the first quarter as well, so that 1Q sort of becomes sort of more a conservative bogey and then you start to see things pick up during the year?

Well, Larry, I'm glad you asked this question because the supposed consensus that's out there is really skewed by a huge outlier.

First of all, there's only seven analysts that have forecasts of the first quarter at this point prior to the guidance, one is $0.73 which would be 33% growth in the quarter, which I just, obviously that's not anything we would plan for nor would others.

So when you take that one outlier out, the average in the quarter is $0.63, which is captured within our guidance range for the quarter.

I'm glad you asked that, I think it's an important clarification for people that are looking at that aspect of our guidance.

It is important to remember that in the first quarter, the growth rate, if you go to the midpoint of that range, it's close to 13%.

That's very similar to what we're looking at across all the quarters during the year.

So contrary to some years where there's ins and outs and variability in growth rates over the quarter, we're back to fairly steady quarterly growth throughout the year, which I think is really good news and really syncs up well with what Miles is talking about.

Even though some products are likely to head south, such as Depakote, we've got all the strength of the other product to help us maintain steady performance throughout the year.

The first quarter does have a couple things to remember.

Omnicef, as you know, went generic in '07, so we have very low sales, that impacted the quarter a little bit, as I indicated in my remarks it is a quarter where we're doing a lot of spending on these launches, and we're only seeing the early aspects from the top-line point of view contributing to the quarter.

And as indicated from a modeling point of view, John indicated that XIENCE is in the second quarter for our modeling.

So when you put that all together and close to 13% midpoint EPS growth in that quarter, I think it's very, very reasonable and hopefully people are clear about what the guidance situation and what the consensus situation is right now.

Okay.

And just lastly, and maybe for Miles on this one, clearly Miles, the Prevacid had an Prevacid, a topic of discussion here, TAK-390MR has been filed.

I guess the two questions are, if you look at experience with other products in this space, they don't have a lot of success.

And so again, I just wanted to get objection sense as you talk about double-digit growth you are really thinking about even in years where you may have challenges like that, that you can still deliver on that type of growth, given the portfolio?

Yes, we factored in, I'd say, appropriate expectations from the joint venture.

Larry, we've captured that in our guidance, and frankly our expectations going forward, whether it's three, five years, whatever it is.

I think we've got realistic expectations there.

We've watched that market and business carefully, and because it's a separate company, we're careful about how we plan it, at least from our perspective at Abbott in terms of the impact on EPS.

Because obviously we want to be very reliable in the EPS guidance we give and don't want a lot of surprises that we don't control to affect that.

So I think we've got a properly balanced.

Okay.

Great.

Thanks so much, guys.

Thank you.

Operator, we are having issues hearing a couple people that are queueing up.

Yes, sir, we're trying to adjust their lines when we open them.

So --

Thank you.

Our next question comes from Rick Weiss with Bear, Stearns.

Please go ahead.

Hello?

Hello?

Rick, your line is open.

Hi.

Good morning everybody, sorry about that.

Hi.

Good morning everybody.

Hi, Rick.

A couple things.

The HUMIRA psoriasis indication approval came a bit earlier than we thought.

Maybe just a couple questions related to that.

Is that slightly early, three or four weeks earlier than we thought, baked into your numbers?

And maybe give us some perspective on the degree of, I don't know the right way to say this, off-label use you guys have seen so far, how big is the opportunity that's remaining, what percentage of determines have written HUMIRA scripts at this point for psoriasis?

Thanks a lot.

Yes, Rick, sure.

So we did get the approval in the U.S.

slightly ahead of our forecast -- we're obviously pleased about that and launched again immediately last week when we got the approval following the European approval in December.

So it is a significant market opportunity for us.

It remains a pretty underpenetrated market.

Right now, if we look at the total script break-out for HUMIRA, about 80% of it is rheumatology, about roughly 12% is gastro, and I'd say around 8% is the derm market.

That is a function really of our psoriatic arthritis indication, where we can't promote on that -- that indication to dermatologists, obviously we haven't and can't until now promote on psoriasis.

So we see about that percentage break-out.

We do know that roughly 30% of dermatologists have written a HUMIRA prescription as a result of the psoriatic contradiction indication.

So there is some good experience in that regard, but obviously a lot of opportunities still left.

Yes.

One of the things I wanted to follow up with is on gross margins.

Gross margins were a tad weaker than we looked for anyway for the second quarter in a row, and you very clearly detailed why in your press release.

Can you just remind us some of the factors that are affecting it?

How long are they going to drag gross margins, the Synagis?

And on the nutritional side, how do you work to offset the higher cost impact on gross margins?

Can we hope for some relief there going forward, John, or anybody, Tom?

Rick, gross margins, we're through the Synagis effect, and I think the news really you're looking for is, in 2008, as I indicated in my remarks, we're looking for an improvement in the gross margin ratio.

One of the things in addition to what we put in the script is, as the dollar continues to weaken and there's very rapid movement, there tends to be a lag between the sales benefit of exchange and the gross margin benefit of exchange.

And some of that will carry into 2008 and help us.

So it's really those things, and the good news is we see an improvement in 2008 for the full year ratio.

On the nutrition side, we've done a number of things.

We've done contracting with a number of suppliers to stabilize those costs.

We have refocused on cost efficiencies in our manufacturing operations.

And we have seen those costs stabilize and actually even decline in the last few weeks, which could be good news for '08 relative to what we have run into in '07, and can also support improving gross margin during the year.

Okay.

Thank you very much.

Thank you.

Our next question comes from Sara Michelmore with Cowen and Company.

Please go ahead.

Yes.

Thank you, good morning.

I guess a question for Miles first.

It does seem, Miles, that there is a higher level of activity in your pharmaceutical pipeline, particularly with products in the clinic at this point.

And I'm wondering, since we haven't focussed a lot on it recently, if you could just kind of give us a rundown of what you think are the most important projects that you're working on currently, and what could be most impactful for you out of that pipeline over a five-year time frame?

Well, I -- let me take it this way.

We obviously still have more claims that we're exploring on HUMIRA, and I'm sticking with the five-year time frame.

We have a fixed-dose combination in development with AstraZeneca on CRESTOR and ABT-335.

ABT-874, which could be a terrific treatment for variation autoimmune diseases like Crohn's and psoriasis, obviously coming, Flutiform for asthma, a couple of oncology products that we're co-developing with our partner Genentech.

I think there are a number of things there that are fairly promising for us over the next three to five years.

What I spend more time worrying about, or not worrying about, but I want to say paying attention to given the lead times, is that early and mid-stage development area and discover, and both internally and in terms of opportunities that may be available to us outside.

But internally in particular, because it's important for us to be effective with our own organic growth.

And that's why the comments I made in my more prepared remarks regarding the productivity of our R&D group, I think, are important.

Because we have made a number of distinct changes in the way in which we're managing and driving our R&D in the pharma business, and that is clearly resulting in a higher degree of productivity in terms of compounds identified, and then moved along through various stages of development.

So it's been an area of focus for us, and I think appropriately so, because increasingly, of course, the whole industry is challenged by its R&D productivity.

We've put a lot of effort into that.

I think the early returns look good, and that allows us to spend time thinking about the pipeline that is developing for the time frame beyond five years.

I think we're in really sound condition here for driving our growth over the next five, even five to 10, out of our pharma business.

I think it's a very healthy pipeline and nicely balanced with a nice mix.

And so consequently, those early-stage things for for the later years out there, and that is developing nicely.

That's helpful.

And philosophically, Miles, it sounds as if you're not looking for major acquisitions, that you're going to have a significant amount of free cash flow to work with here in the next couple of years.

Can you just talk through what you think the correct deployment of that capital's going to be in terms of debt pay-down, share buyback, or whatever else you would like to prioritize those funds for.

Well, I think it's all of the above.

Our shareholder base clearly expects its dividend, it's rising dividend, and we tend to budget and buyback about $800 million to $1 billion worth of shares a year on an ongoing basis.

That could vary in some years, but generally that's what we did last year, that's what we expect this year.

We do have, obviously, additionally desire to pay down some debt.

And, fortunately, our cash flows are strong enough that if there is an opportunity that comes along for a given deal somewhere, we've had the strength to do that as well.

And I think -- my own desire would be to make sure we keep all of that in the right balance so we maintain our strategic flexibility in the event an opportunity comes along that we want to react to.

I don't want to be balance sheet constrained that way, but as I said, fortunately we've had strong cash flows across the board that we've been able to do all of the above, buy back shares, pay down debt, pay dividends and do some selective M&A.

And that, I think, is probably what we'll continue to do going forward.

Okay.

And just one final question for you on diagnostics.

Now that you've gone back and made a long-term commitment to that business, any notable changes in terms of the level of investment there or where you plan to invest in the diagnostics business going forward?

Well, I don't know that I describe it as investment as much as the manner in which we're managing it.

I tell you, it's kind of a tale of two different stories.

The international markets have terrific growth and we are clearly the market-share leader in international markets.

And in fact, the majority of that business is in international markets and always has been.

And you can see in the report that we're seeing very healthy growth in international markets today.

And so I would call those a growth orientation to a large degree.

The U.S.

market is considerably more competitive and lower growth.

And I'd say that in the whole business, as a whole, I think we need to be focusing on returns and running it for profit, and not just growth.

And in particular, in the U.S.

we should run that business -- that part of our business for improved returns and profit.

And I think we have to pay careful attention to that in overseas markets as well so the growth we're getting is truly good return and good profit.

And I think a heightened emphasis on that is probably the single biggest shift, given that the diagnostic market in general isn't as robust a growth market as it used to be.

Okay.

Thank you very much.

Thank you.

Thank you.

Our next question comes from Tony Butler with Lehman Brothers.

Please go ahead.

Yes, thanks very much.

If I may, Tom, just go back to the gross margin comments you made, and in the first quarter, I believe you gave guidance of approaching 58% implying that the back half of the year would probably be better than that level in order to get to the target of 58% to 59%.

So outside of currency effects are there other mixed shifts which actually improved that GM?

And then the second question really relates to HUMIRA's contribution.

When you were -- were you able to negotiate with Genentech with respect to the two oncology products, an actual elimination of the royalty payment based on [doscaveli] patents that I assume you were paying prior to that?

And is that actually also making a contribution?

Thank you.

Yes, I mean, when you look at the [gathing] gross margin company, it's always strongest in the fourth quarter when we have our strongest quarter and there's plenty of fall-through on the sales.

And that's really the same pattern we're seeing in 2008 as we've seen in 2007.

As I indicated earlier, the first quarter will be impacted by the fact that that's the last -- well, actually the second to last round on Omnicef, we'll have a little bit in the second quarter next year, that will put a little pressure on, but as we go through the year, with HUMIRA growing strongly the XIENCE launch, the new pharma product we've been talking about launching, that's really going to show good progression in the gross margin in the third and fourth quarters in particular, part of it consistent with our pattern, and even a little better than that, given the mixed shift to those products.

The royalty you suggested, because of the way these types of things get reported, there's no significant impact of a change in the royalty arrangements that we talked about.

Thank you.

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

Thank you.

Our final question comes from Larry Afanassiev with Wachovia.

Hi, everyone, thanks for taking my question.

Tom, does the tax guidance include the R&D tax credit?

The answer is no.

As you all know, the R&D tax credit has not been reenacted by Congress, and so we did not include that in our guidance.

If that were to come through during the year, there would be some positive effect to the fax rate if it came through later in the year, we'll see what happens there.

And just a follow-up on TAK-390MR.

Could you just give us some color on whether you envision that being a full launch?

And by that, if we look at the -- on the operating expense side, historically the run rate for TAP's operating expenses between 2003 and 2006 were $1 million to $1.2 billion.

We understand you have realistic expectations for maybe the sales, but the PPI market is very promotional, sensitive.

Could you give us a little color on that, on your expectations there?

And then I just have one more on TriCor after that.

Okay.

Yes, we do expect to have a full launch of TAK-390MR, as I mentioned, TAP did file that product here recently, which should, if things go well, put it on the market well in advance of the compound patent expiration for Prevacid, which is November of 2009, with pediatric extension.

So TAP is planning on a full-scale launch of that product and further information, obviously, we'll provide to you as we get closer to that, I should say TAP will, as we get closer to that date.

John, in recent quarters, operating expenses for TAP have been coming down, but because -- maybe because it's an older product, but if you have a full launch operating expenses could -- is it fair to assume that they could increase?

Could.

And then on TriCor, John, I didn't hear any growth guidance for 2008.

And on ABT-335, I think you submitted 12-week data with statins to ACC and the data was actually posted last week.

Is it going to be apparent from the presentation at ACC if -- what advantage 335 has over TriCor?

Thanks.

Sure.

So we do expect close to double-digit growth for TriCor again this year in 2008.

And 335, we will discuss more about the data at the ACC meeting.

And we've talked about that as having some advantages in terms of use in combination with statins and potentially some labelling advantages with that as well, which as you know the [adjunctive] market is a big opportunity in the overall cholesterol market, as there's a shift more towards further reduction in cardiovascular risk beyond what LDL can do.

And that's where we have a lot of opportunities across HDL-LDL and trigs with our complete portfolio of products.

And you'll see more of that when we present the data at ACC.

Thank you.

Okay.

All right, well that concludes our conference call.

A replay of the call will be available after 11:00 AM central today on Abbott's investor relations website at abbottinvestor.com, and after 11:00 AM central via telephone at 203-369-0225 and the confirmation code is 5567444.

Audio replay as always will be available until next Wednesday, January 30th.

Thank you all for joining us.

Thank you, that does conclude today's conference.

You may disconnect at this time.