美國雅培 (ABT) 2008 Q3 法說會逐字稿

Welcome to Abbott's third quarter 2008 earnings conference call.

All participants will be able to listen-only mode 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 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 as normal.

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

Some statements made today may be forward-looking.

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.

Factors that may affect Abbott's operations are discussed in Item 1A, "Risk Factors" to our 2007 Form 10-K.

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

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

These non-GAAP financial measures are reconciled to 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 now turn the call over to Tom.

Tom?

Thanks, John, and good morning.

Today we're pleased to report third-quarter results that beat expectations with high teens sales and earnings growth.

Diluted earnings per share of $0.79 were above our previous guidance range of $0.76 to $0.78, reflecting EPS growth of nearly 18% over the prior year.

We're also pleased to be raising our EPS outlook for the full year 2008.

Sales for the quarter were $7.5 billion, an increase of more than 17%, also ahead of our previous forecast.

As a result of our performance to date and our outlook for the remainder of the year, today we're again raising our full-year ongoing earnings per share guidance range to $3.31 to $3.33, up from the previous range of $3.24 to $3.28.

The midpoint of this new guidance range reflects nearly 17% growth.

With this performance, we're clearly seeing the results of our efforts, as we built Abbott into a global diversified healthcare company, with recognized market leadership positions and top tier financial performance.

We've differentiated ourselves from our peers with multiple core growth franchises, significant cash flow and a diversified base of earnings.

We're well positioned to continue to deliver double-digit earnings growth while investing to sustain growth into 2009 and beyond.

We believe we provide a unique blend of both safety and growth in this difficult market environment.

Our board of directors recently authorized a new $5 billion share repurchase program.

Last year, we returned more than $3 billion to shareholders through share repurchases and dividends and we're on track to exceed that level in 2008.

We expect record operating cash flow for the full year 2008 and we increased our dividend by nearly 11% earlier this year.

Turning to the specifics of our quarterly results, our sales growth of 17.6% this quarter included a favorable 4.7% effective exchange rate.

Results were strong across each of our global businesses, with pharmaceuticals, diagnostics, vascular and nutritionals all contributing double-digit sales growth.

We also saw good performance from our key growth drivers.

This includes Xience, which is off to a very strong start in the first quarter of its US launch, Humira, which was up 50% worldwide, double-digit growth in our lipid franchise and more than 22% growth in international nutritionals.

John will discuss these in more detail in his review of the business operating highlights.

The adjusted gross margin ratio in the quarter was 57.5%, at the high end of our guidance range.

Total R&D and SG&A as adjusted increased more than 13%, reflecting investment spending across the businesses, in part to support the launches of new products and indications, as well as continued investments in our broad-based pipeline.

The tax rate this quarter was 21%, in line with our previous forecast.

As a reminder, the US R&D tax credit was not enacted until October, so it had no impact on our third-quarter rate.

Now let's turn to the outlook for the remainder of 2008.

As I mentioned, today we're raising our 2008 earnings per share guidance to $3.31 to $3.33, the midpoint of which would be growth of almost 17%.

In fact, our EPS guidance is up approximately $0.10 per share from our original guidance provided in January.

Sales growth for the full year is expected to be in the mid teens.

Now 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 in the low double digits, including an estimated 2% negative impact from exchange, a gross margin ratio of around 59%, continued strong investment in the business, with SG&A and R&D both up low double digits, and other income of approximately $125 million, reflecting ongoing payments from Takeda, following the conclusion of the TAP joint venture.

The fourth quarter-tax rate is expected to be between 18.5% and 19%, which reflects our current 21% rate less the full-year impact of the R&D tax credit.

So in summary, our global diversified business strategy is delivering strong results.

It's based on competing in high growth markets where product differentiation drives market success.

The products within our core franchises, Humira, Xience, international nutritionals, our lipids portfolio, and the compounds in our pipeline are all examples of the success of our strategy.

We're very pleased with our third-quarter performance.

We reported strong sales growth of more than 17%, EPS that beat our original guidance, and we raised our earnings per share guidance range for the full year.

And we expect this strength to continue into 2009, as we continue to target another year of double-digit EPS growth.

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

John?

Thanks, Tom.

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

So let me start with our medical products businesses, where sales in the quarter increased more than 25%.

In our vascular business, global sales were $636 million in the quarter, an increase of 58%.

We saw especially strong growth in our worldwide coronary stent business, which had sales of $383 million.

In the US, coronary stent sales were driven by rapid uptake of our drug eluting stent, Xience V, which as you know we launched in the US in July.

The launch, while still early, has led to steady market share gains, as Xience continues to gain share at the expense of all three of the major competitors.

Xience is clearly the product of choice among interventional cardiologists, based on its unprecedented clinical data which continues to get better and best-in-class deliverability, confirming that physicians are viewing Xience as a truly next generation drug eluting stent.

This week at the TCT Interventional Cardiology meeting, we presented two-year results from a med analysis of our Xience clinical trials, SPIRIT II and SPIRIT III.

This data confirms that Xience V continues to deliver clinically significantly outcomes for patients compared to Taxus, outperforming Taxus in key efficacy and safety end points out to two years.

The differences between Xience and TAXUS grew between one and two years, reinforcing the long-term safety and efficacy profile of Xience.

This includes a 45% reduction in major adverse cardiac events, or MACE, a 41% reduction in heart attack or death, and a 41% reduction in revascularization.

This strong clinical data is being well accepted in the market.

In just three months, Xience has become the number one stent on the US market, with share in the mid to upper 20%s.

The Xience platform, which includes PROMUS has become the most popular stent platform in the US, with more than 50% market share.

PROMUS is the private label version of Xience distributed by Boston Scientific.

And as a reminder, we benefit economically from Boston Scientific sales of PROMUS.

Looking at the DES market broadly, we're very pleased to see continued steady improvement.

US DES penetration has now surpassed 70% in the US.

PCI volumes have also improved, up in the mid-single digits versus the third quarter of last year.

Outside of the US, we also continued to make steady progress with Xience.

In Western Europe, Xience share alone has surpassed CYPHER, Endeavor, and now TAXUS to claim the number one market leadership position.

In total Xience V is now the leading drug eluting stent across all geographies in which it's been launched.

We filed for Japanese market approval earlier this year and look forward to expansion into this market with a launch toward the end of next year, 2009.

As a result of the successful US launch, the continued share gains outside of the US and the recent improvements in the overall DES market, our DES franchise revenues this quarter outperformed our expectations, with $305 million in combined sales.

As a reminder, DES franchise sales include global Xience sales, as well as other third party DES product revenues.

This includes the royalty revenue we received from Medtronic on Endeavor, as well as revenue we received from Boston Scientific, of course on sales of PROMUS.

So as we look ahead to the fourth quarter, we expect global vascular sales to continue to grow strong double digits.

Now let me turn to our worldwide diagnostics business, where sales grew more than 15% this quarter, representing strong revenue growth in all three diagnostic segments: core diagnostics, molecular diagnostics, and point of care diagnostics.

We saw double-digit growth both in the US and internationally in our core diagnostics segment again this quarter.

This was the result of continued strong growth of both our prism blood analyzer as well as our ARCHITECT immunochemistry system.

We've launched new architect systems, including the i1000 for smaller labs and the c16000 for large labs.

In the third quarter, Abbott submitted for US FDA approval of our architect core hepatitis test.

Approval of the core test would complete our hepatitis B panel of tests in the US and represent an important milestone in the expansion of ARCHITECT's automated hepatitis testing menu.

Abbott submitted for FDA approval its PRISM HIV O+ assay, a fully automated blood-screening test designed to detect HIV-1, HIV-2 and HIV group O in serum and plasma.

This assay will further enhance the panel of screening tests in our highly successful Abbott PRISM blood screening instrument for the US market.

Also in the quarter, we announced plans to improve profitability in our core diagnostics business.

These actions support our efforts to reduce overall costs, improve efficiencies, and expand margins.

We've seen improved margins already this year and expect that improvement to continue as we anticipate doubling profit and cash flow in this particular business over the next several years.

In our point of care business, sales grew more than 15% in the third quarter.

Growth was driven by strong sales across all segments, as well as successful execution in both large US hospitals and alternate site locations.

Abbott's i-STAT analyzer is now used in one out of every three US hospitals and in more than 500 emergency rooms.

And in molecular diagnostics, sales this quarter increased more than 35%, driven by strong growth of both the m2000 and our Vysis products.

In the US, we've submitted for FDA approval of our hepatitis B assay for the m2000 and outside of the US, we've received CE Mark for the HPV assay on the m2000, which we plan to launch in Europe next month.

So looking ahead to the fourth quarter in our worldwide diagnostics business, we anticipate mid-single-digit growth, which includes the impact of foreign exchange.

In Diabetes Care, sales in the quarter increased more than 10% globally, driven by strong international sales and increasing adoption of our new no calibration meters, Freestyle Lite and FreeStyle Freedom Lite, which eliminate the manual calibration step required by most glucose meters, improving convenience for those people living with diabetes.

In the quarter, we saw positive share results from the promotional program we initiated last quarter and continued prescription share gains of our FreeStyle meters.

In the US, sales growth this quarter were impacted by the comparison to the prior year and Freestyle Lite launched.

Adjusted for initial shipments for last year's launch, growth this quarter in the US approached about 10%.

Outside of the US, we continue to see strong growth internationally.

In emerging markets, Abbott is the number two player and our sales are growing more than 20%.

In the fourth quarter, we expect high single-digit growth worldwide in Abbott Diabetes Care, which also includes the impact of foreign exchange.

In our global nutritionals business, sales this quarter were up more than 14%, driven by more than 22% growth in international nutritionals.

We continue to see double-digit growth across both pediatric and adult nutritional products internationally, particularly in emerging markets such as Latin America and Asia, where population growth and improving economies are leading to increased demand for our high quality nutritional products.

In the US we recently launched Similac Advance Early Shield, a new and improved formulation in a new and redesigned package.

Developed to be more like breast milk, it's the first and only infant formula with a unique blend of prebiotics, nucleotides and antioxidants to improve a baby's immune system.

In the fourth quarter in our nutritionals business, we expect mid to high single-digit growth in the US and continued double-digit growth -- strong double-digit growth internationally.

Turning now to our global pharmaceuticals business, where sales in the third quarter increased nearly 17%, driven by more than 21% growth in international pharmaceuticals and nearly 13% growth in our US business.

Several key products drove performance this quarter, so let me start with immunology, where worldwide Humira sales this quarter were up 50% to $1.2 billion, including 67% international growth.

We're obviously very pleased with the results of our launch in the psoriasis market, where we've exceeded expectations on a number of launch metrics.

In less than eight months since our FDA approval for this indication, Humira total prescription share has gained approximately 15 share points and is now approaching 30% total share.

New prescription share now exceeds 30%.

Humira's now capturing nearly as many self-injectable new to brand psoriasis patients as the market leader and more than 4,200 dermatologists have now written prescriptions for Humira.

Our early success in this market is based on differentiating clinical data.

Data from the pivotal REVEAL study demonstrated that more than 70% of Humira psoriasis patients achieved a 75% reduction in their symptoms, and quite frankly, a remarkable 20% of patients achieved a 100% reduction or complete clearance.

During the quarter, we presented data from a subanalysis of the REVEAL study, demonstrated continued strong efficacy and safety of Humira in psoriasis patients.

The findings showed that Humira works effectively, irrespective of the patient's age, duration of disease, whether they had been diagnosed with psoriatic arthritis or have a recent history of systemic therapy.

The data also showed continuous long-term therapy with Humira is more effective than interrupted therapy.

Humira efficacy in both psoriasis and psoriatic arthritis compares favorably to existing agents or potential new mechanisms of action being investigated.

Based on outstanding clinical data with Humira in the more than a decade of clinical experience, we're well positioned for continued success in the growing dermatology market.

US growth of Humira in all specialty segments, rheumatology, dermatology and gastroenterology, continues to outpace the market, contributing the majority of growth -- of market growth since January.

In Crohn's, Humira total prescription market share now exceeds 40% and our base RA business has also demonstrated consistent performance and is poised to take over the number two market share position by the end of this year.

Internationally, Humira secured the number one market share position in Australia recently and became the top selling pharmaceutical in Germany and was launched also in Japan, where we received approval for RA during the second quarter.

Humira continues to represent a major growth driver for Abbott in the coming years, with significant opportunity remaining in both the US and international markets.

Outside of the US, penetration rates are currently in the single-digits for biologics in many of these disease categories.

The global biologics market for all Humira indications is now estimated to exceed $20 billion by the year 2012.

Later this month, the American College of Rheumatology meeting will present data regarding Humira's ability to inhibit joint destruction out to five years in patients with early RA.

As a reminder, we already have five-year radiographic data on our label for established RA patients.

Humira's the only biologic with proven long-term radiographic inhibition data in both patient types.

Based on the strong performance to date and the outlook for continued momentum with Humira, we now expect full-year 2008 global sales for Humira of more than $4.4 billion.

In our lipid management franchise, Abbott's growth in the dyslipidemia market continues to outpace the overall cholesterol market, with double-digit growth of both Niaspan and TriCor.

Niaspan sales were $194 million in the third quarter, up more than 16%.

Currently more than one million patients are on Niaspan therapy.

TriCor sales in the quarter were $334 million, up 11%.

During the quarter, we announced an agreement with AstraZeneca under which Abbott's TriCor sales force will copromote Crestor in the US.

This agreement represents a complement to Abbott's growing lipid franchise and strategically positions the sales force for the TriLipix/Crestor fixed-dose combination that is currently in late-stage Phase III development.

Over the past few years, we've taken a number of strategic steps to strengthen our position in the overall dyslipidemia marketplace -- our 2006 agreement with AstraZeneca to develop a fixed dose combination with Crestor; the acquisition of Kos; and the development of TriLipix.

We've established Abbott as a significant player with a portfolio uniquely positioned to address the growing need for adjunctive and combination therapies.

So for the fourth quarter, looking ahead, we continue to expect strong double-digit growth in our lipid franchise.

Moving on to antivirals, where Kaletra was up double digits worldwide in the quarter to $387 million, driven by continued success of the tablet launch in various international markets.

And Lupron in the quarter had sales of $149 million, reflecting the first full quarter of sales following the conclusion of the TAP joint venture earlier this year.

We expect a similar level of Lupron sales in the fourth quarter.

So in summary, in pharmaceuticals, for the fourth quarter, we expect double-digit sales growth for our domestic pharmaceutical businesses and high single-digit growth internationally, which includes the impact of foreign exchange.

Finally, our broad-based pipeline continues to be highly productive.

As Tom mentioned, we had eight new regulatory approvals this year alone, including four approvals in our global pharmaceutical business and four approvals in medical products.

This quarter, we anticipate FDA approval of TriLipix, our next generation fibrate.

Once approved, TriLipix will be the first and only indicated for combination use with a statin.

Our regulatory submission includes data from three combination studies, along with the 52-week long-term open-label extension study, all part of the largest clinical program to date designed to evaluate the efficacy and safety of a fibrate in combination with three major statins.

Data from these studies demonstrate that TriLipix in combination with the three most commonly prescribed statins, Lipitor, Zocor, and Crestor, improved HDL and triglycerides compared to statin therapy alone and significantly improved LDL compared to TriLipix alone.

And importantly, combination therapy was well tolerated with reported safety similar to monotherapy.

Also this quarter, we anticipate approval of our extended release form of Vicodin.

When approved, this product will be the first extended release formulation of hydrocodone with acetaminophen.

Vicodin is one of the most established treatments in pain medicine and is the most prescribed product in the US, with more than 100 million prescriptions written annually.

With the ongoing productivity and success of our late stage pipeline, we're now focused on our early to mid-stage opportunities.

In pharmaceuticals, we continue innovative research programs in our therapeutic areas of focus, which include oncology, neuroscience, immunology and hepatitis.

We have a number of unique compounds in development that represent truly novel science, and if successful, would result in significant advances in treatment for patients.

We're also focused on expanding our medical products pipeline with new products and packaging in our nutritionals business, new diagnostic systems and tests, and developments -- significant developments in our pipeline for our vascular business.

We're working on a next generation Xience DES platform to further improve deliverability, particularly in longer lengths.

We're capitalizing on the proven clinical benefits of the Xience V polymer and drug, an improved stent and a delivery system.

In addition, we are the market leader with our bioabsorbable drug eluding stent that's in development.

At TCT this week, we presented two-year data from our ABSORB clinical trial that showed our drug eluding fully bioabsorbable stent successfully treated coronary artery disease and was absorbed within two years.

Patients experienced no new major cardiac events and no stent thrombosis.

And what's truly impressive for us is the trends and the data showed at two years the blood vessel moved and functioned like a normal blood vessel, a result that's not possible with metal-based implants.

Abbott is the only company with long-term clinical data evaluating the safety and performance of fully bioabsorbable drug eluding coronary stent.

So in summary, we're very pleased with our strong and diversified performance this quarter, with double-digit sales growth reported in each major global business and adjusted earnings growth of nearly 18% over the prior year, our underlying businesses are strong, our core growth franchises are healthy and at the same time, we're investing to sustain this performance into 2009 and beyond.

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

Thank you.

(Operator Instructions) Our first question this morning is from Larry Keusch.

And please state your company name.

It's Goldman Sachs.

Good morning, guys.

Good morning.

Hey, Tom, as you made your comments and gave us some read-through to your expectations for 2009, which is for double-digit earnings growth, could you just walk us through sort of what parts of the Abbott business you believe could be sensitive to a global slowing in GDP and what steps you might have available to you to offset any growth there to continue to ensure that you can get that double-digit growth?

Yes, Larry, sure.

When I talk about double-digit growth, it's really driven by the momentum we're seeing in all of these businesses.

I mean if you go through the quarter, we're performing really across the board very well in all of our businesses and that gives me a lot of confidence in our ability to continue to grow the earnings of this company in line with the investment identity we have and really the targets we've repeatedly stated.

So fundamentals there are really just what's going on in the businesses and how well we're executing and really the portfolio of products we have to be able to deliver that kind of growth.

I think Abbott, we have not seen anything to date on counting the economy and impact on our business.

In pharma, we're very specialty-focused and those are long-term chronic disease areas that are very immune to economic activity.

And we have very little exposure, as you know, to things like discretionary consumer products.

So we haven't seen much and I think our business is going to be quite different than most because of the type of areas we do business in.

And, Tom, just one of the growth drivers that's been very nice and strong for you guys has been that international nutritional business.

How -- again, how much exposure there is due to consumer if you look at some of those Zone Bars and other things that people might stop -- not stop buying?

I suspect it's pretty small overall.

It's pretty much the same as what I said on the other businesses.

First of all, I think any concern of economic slowdown is a little more US-focused as I follow the various economists and the like.

The international growth in these markets has continued to be very, very strong and that one product you mentioned is a very, very minor product for us in the international markets anyway.

Really what's driving that is the base products, the pediatric nutritionals, the adult nutritionals that people really see as more core to their essentials as opposed to discretionary-type items.

So, I think in that business as well and as we've forecasted '09 as we go through our reviews here, we continue to feel very good about the ability of these markets to grow and our products to continue to gain share and the fact these products are pretty resilient.

And then one other question, which is, as you look at your cash balances, obviously lots of challenges out there in the credit markets.

Could you just for the benefit of all of us, just give us a sense of what that cash balance really is sitting in and perhaps any exposures to any securities within some of the subprime mortgages, and I guess along with that question is sort of how's your commercial paper funding been going?

Are you getting access to that?

Then John, just a quick clarification.

The fourth-quarter sales guidance that you gave for growth, it sounded like that already included the impact of currency, but I just wanted to make sure I heard that correctly.

Larry, on the credit market situation, as you know, we are very conservatively managed from a financial perspective and the deposits we have and the cash we have invested are in very, very high quality instruments and we've even obviously become even more cautious in the last few months in terms of selecting where we put our money.

We have absolutely no exposure to any of the types of exotic instruments that you talked about and there's absolutely no issue there.

And as a very strong credit, we have been really unaffected by the turmoil in the credit markets.

We have had no problems whatsoever issuing commercial paper at very attractive rates and I think we're the type of credit -- the way I read into this is we're the type of credit people are looking for in this type of market and we've got a $4 billion essentially unused backup credit line.

We have no plans and have not drawn anything on that, because we have great access to the commercial paper market.

So we're in great position from a credit perspective and have been really unaffected by the turmoil in the market.

Okay, excellent.

Yes, Larry, just to clarify, this is John.

All the numbers and forecasts that I gave for the fourth quarter include the impact of exchange which at this point, top of the house corporate, we expect to be unfavorable about 2%.

So when we look at the total company and growth into the fourth quarter, we expect sales growth of low double-digits; that accounts for a roughly 2% unfavorable impact from exchange.

Excellent.

Thanks very much, guys.

Thank you.

Our next question is from Mike Weinstein.

And please state your company name.

Thank you.

It's JPMorgan.

A few questions.

Just wanted to clarify on the pipeline, first you seem relatively confident in the near-term approvals for Vicodin CR and TriLipix.

Can you comment on when you think you'll have the submission in for the combination of TriLipix plus Crestor?

Yes, we talked about that being a later next year second half '09.

Okay, and that's -- so the assumption is still a back half of '09 event?

Correct, yes.

Okay.

And if that changes, I'll let you know.

Obviously we like to be conservative when we give our forecasts, so we'll see.

We're moving along nicely.

Let me push you just for a minute on -- make sure I understand that some of the numbers you ran off, Tom, on the fourth-quarter and full-year updated guidance.

The -- you mentioned $125 million of other income.

That was for the fourth quarter, right?

That's correct.

And what is that attributable to?

Where does that come from?

That is all the payments from Takeda associated with the TAP wind down.

As we said at the beginning of the year, we went from a joint venture income situation -- income in the, I don't know, north of $350 million to this, this approach where we're taking payments from Takeda associated with Prevacid and pipeline products and that number in the fourth quarter would bring us pretty close to the full-year number we've been talking about all along, or actually a little bit higher because the performance has been a little better than we conservatively forecasted.

So that is entirely due to the TAP activity.

Got you.

And then, if I think about your change in your guidance, you're raising your guidance here for the full year, it would look to me like you're still being on the conservative end.

The R&D tax credit, so if we start with the $3.24 to $3.28, which is where you were, the R&D tax credit would seem to add $0.03, the other income would appear to add $0.04, so even without the beat from this quarter, you would already seem to be at or even pushing above the high end your old guidance and so with the beat from this quarter.

Let me clarify a couple things there, Mike.

R&D tax credit, $0.02 to $0.03, something like that.

We'll see exactly what the number comes in when we close out the year.

The TAP -- the other income has always been part of our forecast.

That's not really an add to our previous guidance.

That's consistent with our previous guidance.

So it's pretty much, seeing the momentum in the business from the third quarter, flowing that through.

The R&D tax credit is helping in the fourth quarter, but overall, it's a better, certainly a better fourth-quarter forecast than we provided back in, back in the second quarter, even adjusted for the R&D tax credit.

Okay.

So you had that $125 million of other income -- we did not, but you did.

That's right.

From the beginning, we provided that full-year number.

And as we've said all along, it's a little bumpier than the income from the TAP joint venture.

We've been forecasting the quarterly amounts somewhat conservatively, but if you add up all the quarters on that, it's very consistent with our guidance.

Okay.

Last question.

On the share authorization, which you announced I think on Monday, when does your window open up post the quarter to start to act again on your buyback?

Shortly after the quarter once, obviously the news from today's earnings is out and absorbed by the market.

We, we can move forward at any time we choose.

Okay.

Great.

Thanks, Tom.

Thank you.

Thank you.

The next question is from Rick Wise.

And please state your company name.

Good morning.

It's Rick Wise, Leerink Swann.

Good morning, Rick.

Good morning, Tom.

Let me hit on some pharma questions.

First of all, if I remember correctly, second quarter saw some inventory destocking dragging on pharma sales.

If I remember, particularly Humira, did -- was there any offset or rebound in third quarter as wholesale has rebuilt inventory?

No.

If you look at the script data on Humira, it's pretty consistent with that, plus a modest amount of price.

So if you take those two things, it was growing.

The last monthly script data showed we're growing in the low to mid-20s, or 30s, excuse me.

Okay.

Humira, obviously a major growth driver and I was struck, John, by your -- I think you were saying the global biologic market, [$20 billion], emphasizing, I assume, a lot of opportunities for growth for Humira, but there is competition looming.

We all listen to J&J highlight Ustekinumab for psoriasis, Golimumab for RA.

Just in general, does new competition or the very size of Humira slow Humira growth as we look out over the next couple of years, or are you optimistic that the new indications and the underpenetration in the injection market continue growth roughly at current levels?

So just any perspective would be welcome.

Sure.

Obviously with Humira now being on the market and having more than 10 years of data all the data that we've showed and have demonstrated with Humira in all these different indications, it's clearly now the best in class T&F inhibitor, considered the gold standard.

And it's growing at a very nice rate.

We expect growth to continue strongly over our five-year long-range plan, so there's significant growth opportunity with the product that accounts for market growth, that accounts for further penetration and launch of these products in different countries.

There is new competition, as you noted.

That's all accounted for in that outlook.

All these products have different challenges.

They have a place in the market.

For different reasons, they are either IV formed products that have limited convenience and/or don't have the efficacy or safety that Humira has, and so probably reserved for salvage or backup therapy, or they have other limitations.

And I think in particular the competitive product that is in the FDA's review right now for self-injectable does not provide any really additional clinical efficacy benefit from what we've seen with Humira.

In fact, our scores with Humira, the ACR scores are actually better than this particular product and obviously we've got a longer track record of safety and most importantly five-year radiographic progression data in the label, which is very important.

So, if you look at the normal patterns of pharmaceutical launches, products that are fourth to fifth or sixth to market that do not offer any clinical advantages typically have a limited place in the market.

So, on the other hand, that promotional effort into the market in helping educate patients and physicians will probably help sustain market growth because we're not seeing a whole lot of that from our primary competitor this year; we're having to do a lot of that ourselves.

So that's the other side of that coin.

I would say overall, growth of Humira factors in these different competitors, none of which offer any advantages that Humira doesn't already have.

Okay.

Two last quick ones.

J&J highlighted their sense that DES prices had declined 3% sequentially in the United States yesterday.

Just wondering what you're seeing in pricing environment.

Is it that bad?

And second, you highlighted the diagnostic restructuring.

Operating margins I recall now are in the upper single digits.

Where can they go for the next couple of years?

I assume this is an important driver of continued margin expansion at Abbott.

Yes.

Let me take your first question and I'll let Tom talk about diagnostic margin expansion.

So pricing actually from the data that we have and the -- our own market data, as well as third-party data, continues to show that the leading products, which is obviously now the Xience platform, Xience post-PROMUS, price is being maintained at a very high level, and this is a premium price product, because it has the best data out there, as we've talked about before.

No other product has shown superiority and all the other attributes that we talked about that make it so appealing to interventional cardiologists.

So actually the price of both Xience and PROMUS has been well maintained, average price in the market around that 2000 to 2100, in that range.

So I can't speak for some other competitive products.

We don't have the most recent share data and price information on, I think the product you were talking about from one of our competitors.

So I don't have any indications or we don't have any indications that there's been any major price play in this marketplace, but I don't have the most current information.

There's always pockets of discounting that go on, but certainly nothing significant.

The price has been well maintained, and most importantly, I think the market is growing again with DES penetration now in the 71%, 72% range, PCI volume has moved up nicely to the mid-single-digits here in the last data point that we have, so it's an expanding market.

Xience obviously doing extremely well, already the leading product and a lot of growth still left with the platform as we go out into next year.

I'll take the ADD question there, Rick.

As you mentioned, in the high-single digits in the segment in '07.

Already in the first three quarters of the year, you're seeing that op margin move into the low double-digit area and in the third quarter you'll see in the Q, when it comes out, that we continued to be in that area.

So they are making very nice progress within the division in terms of profitability improvement program.

We've talked about all the things they are working on there, they are basically doubling the profitability of this business over the next four or five years, and we would expect that to move into the mid to upper teens from an op margin perspective, out in that timeframe.

I think it will be a little bit slower progress in '09, just because they are going through a lot of the product transfers and the like that year.

But certainly it will accelerate beyond '09, so things are looking very good in terms of op margins within diagnostics.

That's good.

Thanks, John.

Thanks, Tom.

Thank you.

Thank you.

Our next question is from David Lewis, and please state your company anymore.

Morgan Stanley.

Good morning.

Good morning.

Two quick questions here, John.

First of all on Depakote, obviously a little better than our expectation.

Is this simply a matter of timing, or are we seeing any more stickiness either in ER or epilepsy proper?

Actually, Depakote, just to reground everybody, Depakote is a product that one form of the product that accounts for about 50% or a little more than 50% of the total sales, went generic July 29, as expected.

This was in our plans and in our forecasts for all of our growth expectations for this year and next.

That's tracking right in line with our expectations for the quarter, so the US sales for the third quarter were $254 million and that was pretty much as we expected.

So we'll go into next year.

That's accounted for in the double-digit growth outlook that Tom mentioned earlier in his comments for 2009.

That is already anticipated the effect of that next year.

Okay.

John, as well, on DES strategy, shifting from the third to the fourth, it seems as if on initial launch, both parties sort of played nice with Boston focusing more on TAXUS accounts, perhaps Abbott going more after Cypher accounts.

Do you see any material changes in sales force strategy and distribution heading from the third heading into the fourth quarter?

No, really we're in the enviable position I guess of taking share from everybody.

Clearly we've taken a significant amount from Cypher, and as you note we've seen Boston Scientific cannibalizing a lot of their own TAXUS business with PROMUS, but we're taking a fair amount of share across the board from all three of the major players including Endeavor.

We expect that to continue as we move into the fourth quarter and we expect DES sales as we go through the fourth quarter to maintain at this rate in terms of moving up steadily and share moving up steadily.

We gained about 2 share points as we move from August to September and we're moving more towards that 30% of Xience-only share point in the market in the US and we're in a good path to get there.

And then I guess maybe two quick ones here for Tom.

Tom, when you think about leveraging the business given the trends we're seeing in Humira and obviously Xience is going to probably approach peak margins faster than we thought.

I think you've historically talked about margins back F '09, heading into 2010, real inflection in the middle part of the P&L or broader corporate leverage.

Any changes to sort of that outlook, given what you're seeing in the core business?

No, I mean as I've talked about the last several years have been a period of building up funding levels to be sure we were competitive in all our markets and we actually have seen SG&A go up as a percentage of sales.

And 2008 was a critical year for that, given all the product launches we have and it was very important to spend appropriately to be sure those products went to market properly.

But starting in '09, we continue to believe that there will start to be some leverage in the SG&A area because, to your point the key products are growing very nicely and we're at competitive levels and we really think the sales will go up faster than the SG&A.

Okay.

One quick leverage question following Rick's question on diagnostics.

The improvement and profitability is not surprising.

What's surprising is the ability to improve profitability with growth still staying slightly above industry averages.

Is it possible you could take up margins in diagnostics and still maintain above-market growth rates?

Well, certainly I think that's possible.

As I've talked about in the last year or so, the focus of the division has been much more on profitability and cash flow than it has been on growth.

But a bit to -- we've been pleasantly, pleasantly surprised with the excellent execution across that business on the commercial side, as a focus in these cost areas.

And seems like they have done a really good job doing both.

And as John mentioned, products like Prism have done well, so I think there's even more to be optimistic about in terms of the performance of that business going forward.

Great.

Thanks for the color.

Thank you very much.

Thank you.

Thank you.

Our next question come from Phil Nalbone and please state your company name.

Hi.

RBC Capital Markets.

Good morning.

Good morning.

My first question relates to the expected uses of cash.

Obviously the $5 billion share repurchase program is considerably bigger than what we have been accustomed to from Abbott in recent years.

Does this in any way signal a change in management's thinking about how it will return cash to shareholders and just talk a little bit about what your intentions are regarding the dividend going forward and other uses of cash.

And the final part of that is whether the declines that we've seen in healthcare asset values in recent months, whether that tempts you to be any more aggressive on the M&A front than you might have been in the past.

Yes, thanks, Phil.

The $5 billion repurchase authorization is larger, quite a bit larger than what we've done in the past.

And that really is a statement to our shareholders that we have a long-term commitment, along with strong dividend payouts and an ongoing share repurchase program to return a lot of cash to shareholders, and the $5 billion is certainly a longer-term perspective.

One thing, the timing of that allowed us to do is to take advantage of what is clearly a great buying opportunity right now in terms of our own share price, and we can be a little more flexible in the short run to either at a bare minimum accelerate what we would have done over the next year or two and bring some of it forward at much more attractive prices, and either take more shares out or use less dollars to do it.

So it's really reflective of our long-term commitment and not really reflective of a fundamental shift in our strategy in terms of the cash utilization.

It continues to be the same.

We value an increasing dividend.

We have a high dividend payout.

We have ongoing share repurchase programs.

We have been bringing debt down a little bit, quite a bit actually in the last couple quarters, so we've been using some cash for that.

So it's a nice balance and we're in very, very good position from a cash flow perspective.

Regarding M&A, I don't -- certainly some of the assets out there are quite more attractive from a price perspective, but I don't think that fundamentally alters the motivation.

When you're looking at a business long-term, you've got to be sure there's a payback and it's a market you want to participate in at a more attractive price than might be a slightly better return.

But I don't think it fundamentally changes a decision whether to do an acquisition or not.

Great.

Thanks, Tom.

And following up on some of the operating margin improvement questions so far, I think one of the most intriguing opportunities is obviously in the vascular division.

Can you talk about where that division's level of profitability is right now?

Are we in kind of the second or the fourth inning in terms of what that could contribute in terms of operating margin improvement?

I think we're in the second batter, but I'll let Tom answer that.

You'll see in the segment information we've put in our Q, that vascular really had a great quarter from a profitability perspective.

It's into the double digits.

And as we've talked about with the volume and the sales growth obviously and the volume running through our facilities we expect very significant improvements in profitability in 2009.

This is a major contributor to our growth and even in 2009 we think we can be approaching the 20% level in terms of operating profitability, which is a good step on the way to even doing better.

So there's a long way to go there and we're going to see a lot of benefit in 2009.

Great.

Batter up.

Last question and I'll leave you alone for now.

To what degree, if any, does your Q4 outlook depend on the approvals or launches of TriLipix or Vicodin CR, and to what degree are you confident about those approvals in the fourth quarter?

Yes, I mean as we indicated, we continue to expect fourth-quarter approvals of those, both of those products.

To be -- it's never good to be too aggressive in your financial planning and we're really not dependent on the precise timing of those within the quarter.

It should be fine within the quarter.

Okay.

Thank you very much.

Thank you.

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

UBS.

Thanks for taking my question.

Could you gentlemen provide a little lucidation about economic sensitivity, specifically with regards to the biologics, which are, as you know, expensive.

What about the -- is it something about the insurance profile or the lack of deductibles that gives you the confidence to think that the US market could kind of continue unabated next year?

Sure.

Well, obviously the most important thing is having a great product with terrific clinical efficacy that makes a dramatic difference in patients' lives.

And if you know anybody who's got RA or serious psoriasis, which I'm sure you probably do, knowing you and how connected you are, that you can tell that the benefits are dramatic.

You go from basically changing a person's life from a crippling disease to preventing that type of joint destruction that leads to that kind of incapacity.

Psoriasis, the same way.

When you're talking about complete skin clearance for what is a pretty terrible and sometimes embarrassing disease, that's important.

And then Crohn's also an insidious disease where you're changing someone's life.

And I don't think that people often appreciate that side of it, that in many cases some of these diseases can lead to not only debilitating aspects, but also death in some cases.

So you've got to have a very good product that makes a difference in people's lives and that's what we have with Humira, which is why the demand for it has been so strong.

There are -- these are expensive drugs.

They are difficult to manufacture, and because of that we try to do what we can on the patient side in terms of different programs, patient assistance programs that will help certain economically disadvantaged patients with those copays and things that might be difficult for them to pay, so we do what we can there to help them.

But overall it's really about changing the nature of this disease, the incident rates of the disease, the penetration rates, and the overall profile globally of the product.

So with all those things set together, we expect there will be continued strong demand for Humira over the next several years at a minimum.

And I have a couple follow-ups.

Just quickly, with regards to TriLipix, you've been very successful historically with managing the TriCor brand.

Going forward, is the primary strategy you're going to have the compatibility of TriLipix with statins and the lack of side effect profile with that drug in the label, or might you consider actually removing TriCor from the market?

Well, TriLipix does offer some significant advantages versus the older forms of the product, including TriCor.

Recall that when we started out with this program, we had a plan to optimally design a compound that could be used in combination with statins safely and effectively.

That was the goal.

We set out, we found a molecule here.

This is a different -- it's the base form, but it's different.

It's fenofibric acid, which is designed for safe and effective use in combination with statins, and that's what we showed in the three large clinical studies that were shown earlier this year.

So we've got over 2,700 patients in those trials.

We've demonstrated that in combination with those statins, you can have a dramatic impact on the outcome and that's the most important thing.

We showed you can double the reduction in Trigs.

You can double the improvement in HDL, the good cholesterol, and you can improve LDL, all at the same time versus taking TriCor alone and/or taking a statin alone.

So -- and the safety was good.

So you've got all of those aspects together, and so we'll launch TriLipix.

We'll keep TriCor on the market and we'll see how it goes and evaluate our options going forward.

Great, and my final question pertains to, as you know we have a very large number for your inflammatory franchise in 2012, north of $8 billion, almost $9 billion.

Could you sort of scale for us the impact that that might have on a basis point level for the operating margin in the pharma division?

You have a tremendously entrenched drug.

Everybody will know what it is.

The SG&A should be going down and manufacturing efficiencies should be coming up.

Could you hazard any sort of guess?

Pretty hard to go out that far, but I think you've got the right concept here.

This is a profitable product.

The ongoing SG&A investment is relatively stable, and as volume goes up it should help the profitability of that business, but it's pretty hard to go out that far in terms of really quantifying exactly what it means, but directionally, I think you're right.

Thanks so much.

Thank you.

Operator, we'll take -- I think we have time for maybe two more questions.

Thank you.

Our next question is from Larry Biegelsen.

And please state your company name.

Wachovia.

Thanks for taking my questions.

First John, I think you're close to your 12-month post launch Xience goal, almost like three months post launch.

I think your goal was 25% to 30%.

Is that still your goal?

Are you going to increase that goal?

That's an excellent question.

We're -- we have a high class problem here.

We hit it pretty early, didn't we?

So, Xience is doing exceptionally well, as you know.

We've all right hit that goal.

As you look at the latest market share data, we're in the mid to high 20%s for Xience-only share in the US already.

We do expect steady improvement as I mentioned in that share and hopefully we can get that to 30% or so per share as we exit the year.

We're not updating that guidance right now, but obviously we're doing better than our expectations.

The platform has done exceptionally well, as you know, and is more than 50% of the overall market.

I would say at this point we expect growth to continue next year and this is going to be a significant product for us and we benefit from PROMUS sales as well.

So the platform doing well, it will be larger next year, and we're obviously very pleased with that.

Great.

Could you tell us what Simcor sales were in the quarter?

And based on the prescription data, looks like, and some of your earlier comments, that Simcor hasn't met your expectations originally of $100 million in '08.

What have you done to improve its performance and can you remind us of the timing of the 40-milligram dose and the low flush version?

And then one quick one after that?

Sure.

Yes, Simcor, given the market dynamics that we've seen in the lipid market, it's below what we modeled initially.

But, again, we're seeing more benefit with Niaspan.

Niaspan is doing better than we expected and as we sell Simcor, we're selling the Niaspan molecule, too.

So, we've seen Niaspan do well.

We've seen TriCor do well.

Niaspan sales in the quarter were up more than 16%, so I think it's really just a function of the trajectory.

The curve is pushed back a little bit probably, given the market dynamics, given enhance and these various things that affected at least temporarily how physicians and patients are viewing that, but it's still a great product, as you know, with strong clinical profile, and we're working on the low flush form of that as well and -- but there's no specific time line I can offer at this point.

So we continue to work on that.

We expect the product still to be healthy size product for us, longer term, and in the meantime, our overall lipid franchise continues to do better than the market.

And the 40-milligram dose, John, I mean in the past I think you were targeting 2009 launch, 40-milligrams I think about half of the Simvastatin prescriptions today.

Yes, I don't have specific information on the 40-milligram.

I would have to get back to you on that just to get a more recent update on that, Larry.

Okay.

Just lastly, pediatric nutritionals in the US was a little weaker than we expected and adult was stronger.

Was there anything unusual on those two --

Yes, the only thing I would note is a comp issue really year-over-year for pediatric.

We had some big accounts last year that impacted the overall year-over-year growth, but still strong.

We're seeing very nice execution on some of the branded products in the domestic nutrition business on the adult side and we've really picked up some share and grown the market and we're seeing some pretty nice results there.

Yes.

And as I mentioned in my remarks, Larry, recall, we've got a new package out, I don't know if you have babies, but it's a very consumer-friendly package, with a lot of new ingredients that are specially designed for boosting the immune system, so that's off to a real strong start.

There's a lot of promotional effort behind that.

Ty Pennington, from the TV fame, is part of that program and you can see all of that on the website.

So it's going pretty well.

I think we --

Thank you.

Thanks, Larry.

I think we have time for one more question this morning.

Our final question is from Sara Michelmore.

And please state your company name.

Yes, Cowen and Company.

Thanks for taking the question.

Let me go back to this top other income issue, if I could.

Tom, there's been a lot of variability in the three quarters that you're booking this year.

And I'm just wondering, as you go out to 2009, should we think about that being similarly up and down or volatile?

And if you could just give us a sense for how much visibility you have into the quarterly fluctuations.

Well, we have very good visibility.

It's basically we know how the on-market products that are doing.

And we are aware of the development of milestone activities, and as I've said more than once, as we look at those, we've been pretty conservative in forecasting those activities.

And the reason for the variability is these modest milestones that come from time to time and we just have to record -- forecast them on a quarterly basis.

As you recall, in the second quarter we actually had one happen earlier than we thought and we had higher results.

So there will be a degree of variability.

A little bit of that will continue in 2009, but again, we'll forecast conservatively and try to give you our best estimate of when they are going to occur so you can do the appropriate modeling.

And, Sara, I think I would add to that, that we forecast this when we split apart evenly the [Tap] joint venture.

This was all in the pull-apart and our forecast for the year, so this is very consistent with what we've said from the beginning.

Okay.

And in nutritionals, can you give us the status update on the Singapore manufacturing facility, when will that be online and what shall we expect in terms of how that could impact the costs and returns of that business?

That project has gone extremely well.

Should be online in the first part of 2009.

We're just going through the final stages now.

It will be a very -- a much more convenient way to supply the Asian market, which currently we're supplying out of our European facility.

So that, between cost of materials and freight and the like, it will be a nice enhancement for the profile there.

It won't be a major mover, but it's just capacity we needed to supply the very strong demand for these products with some efficiencies, and it just is much more convenient for the markets.

And is that tax-advantaged as well, Tom?

Yes.

Okay.

And lastly, on Vicodin CR, John, what are you guys assuming in terms of whether or not that product will need to be scheduled?

Well, we're still at goal, and we're hoping it's a schedule three product, but that's up to the FDA.

And whether it's schedule two or schedule three, we think it can be a significant product, given all the things that I discussed in my comments.

It's a large market.

It's a well-known brand.

It's a trusted brand.

It's been around a long time.

This product offers some pretty unique benefits in terms of the dosing of frequency down to one to two tablets a day and sustained blood levels and so forth.

So whether it's two or three, it should be a significant product.

There are some products that are two that have done quite well.

Obviously our goal would be to have it three, but we're still expecting an approval here in the fourth quarter.

Okay, thank you.

Thanks a lot.

And that includes our conference call.

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Thank you.

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