美國雅培 (ABT) 2009 Q3 法說會逐字稿

Good morning.

And thank you for standing by.

Welcome to Abbott's third quarter 2009 earnings conference call.

All participants will be able to listen only until the question and answer portion of this call.

(Operator Instructions).

Should you become disconnected throughout this conference call, please dial 1-312-470-7334, and reference the Abbott earnings call.

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, Executive Vice President Finance and Chief Financial Officer.

Tom will review the details of our financial results for the quarter and outlook for the remainder of the year.

I'll then discuss the highlights of our major businesses.

Following our comments, we'll take any questions.

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 1-A, risk factors to our annual report on Securities and Exchange Commission Form 10-K for the year ended December 31st, 2008, and are incorporated by reference.

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

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

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

In addition, we'll include operational sales results today, which are given on a constant currency basis, that is, excluding foreign exchange.

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

Tom?

Thanks, John.

And good morning.

Today we're pleased to report strong third quarter results with ongoing earnings per share of $0.92, reflecting growth of 16.5%.

This was above our guidance range of $0.88 to $0.90 for the quarter.

Based on our strong performance to date, today we're raising our 2009 EPS guidance range to $3.70 to $3.72, reflecting nearly 12% growth at the midpoint.

This was particularly strong growth, given the full impact we're absorbing from generic Depakote this year, currency headwinds and the global economic environment.

We've now exceeded the midpoint of our guidance range each of the three quarters this year, reflecting the fundamental strength of our diverse portfolio.

In addition to our strong operating performance, we were very active this quarter in terms of positive news flow.

With outstanding scientific data on XIENCE, two important new technology acquisitions in medical devices, and a strategic and highly accretive acquisition of Solvay Pharmaceuticals, which I'll recap in a moment.

First, let me provide some additional color on the third quarter.

Regarding sales, operational growth, that is, before exchange was 8.4%, reflecting double-digit growth in our global nutritionals business, international pharmaceuticals, and international vascular business.

Exchange was unfavorable, 4.9%, so on a reported basis, sales increased 3.5%.

Recall that our international businesses report sales on a one month lag, so our exchange impact reflects year-over-year currency changes for the three months ended August 31st.

Excluding a 3% negative effect from the decline in Depakote sales from generic competition, operational sales growth was 11.4%.

Depakote negatively impacted global pharmaceutical growth by 5.5%, and US pharmaceutical growth by 10.5%.

The adjusted gross margin ratio in the quarter was 57.1%, in line with our forecast, reflecting margin improvement in nutritional and diagnostic businesses, offset by lower Depakote sales and the negative impact of foreign exchange on the ratio.

Regarding spending levels in the quarter, both SG&A and R&D were in line with our forecasts.

Ongoing R&D expense reflects the timing of investment in our broad based pipeline, including programs in vascular devices, biologics, neuroscience, oncology and HCV.

Ongoing SG&A expense was 25.4% of sales, in line with our forecast for SG&A leverage in 2009, particularly in the second half of the year.

The tax rate in the quarter was 17.8%, in line with our previous guidance.

Before I turn to the outlook for the remainder of the year, let me give you a quick overview of our recently announced Solvay Pharmaceuticals acquisition.

The acquisition is both strategically and financially attractive, further diversifying our pharmaceutical growth, and adding more than $3 billion in sales to our global pharmaceuticals business next year.

This includes a portfolio of durable, sustainable, on-market products that complement our current offerings.

It bolsters our presence in fast-growing key emerging markets, where we'll leverage distribution channels to accelerate growth, taking both Abbott and Solvay products into new geographies.

The acquisition adds more than $500 million of R&D investment capacity next year.

As a result, we would expect Abbott's overall R&D as a percent of sales to increase at least half a percentage point from its current level.

This incremental R&D spending is expected to further accelerate Abbott's longer term pharmaceutical growth.

The acquisition establishes Abbott's presence in the global vaccines market, and includes a smaller molecular diagnostics business.

Importantly, the transaction offers a very attractive ongoing EPS accretion profile and strong operating cash flow.

We're forecasting ongoing EPS accretion of approximately $0.10 in 2010, ramping to more than $0.20 accretion by 2012, and increasing thereafter.

So overall, the acquisition advances our growth strategies and enables us to significantly add to our R&D investment, strengthening our pipeline in both the near and long term.

We're confident the acquisition will further enhance the growth of our pharmaceutical business over the coming years.

Turning to our outlook for the remainder of the year, as I mentioned earlier today, we're raising our 2009 earnings per share guidance, reflecting strong double-digit growth over 2008.

Regarding the 2009 sales outlook for the full year, we expect low to mid single digit growth on a reported basis, including the incremental sales from AMO.

Our sales forecast for the full year includes an estimated negative impact from foreign exchange of somewhat more than 4%, based on year-to-date performance and current exchange rates.

As a result, we expect operational sales growth for the full year, that is, excluding exchange, in the high single digits.

We expect a full year gross margin ratio of approximately 58%.

As I mentioned, we expect to deliver SG&A leverage in 2009 with SG&A as a percentage of sales somewhat above 26% for the full year, which would reflect a reduction of more than 100 basis points this year.

We continue to forecast R&D as a percentage of sales for the full year of approximately 9%.

Regarding other aspects of our 2009 outlook, we expect ongoing other income approaching $300 million, primarily related to the conclusion of the TAP joint venture and we're forecasting net interest expense of roughly $400 million including financing costs associated with the AMO transaction.

As a result, when you look at the overall P&L for 2009, we expect further improvements in our operating margin ratio as well as our net margin ratio.

The P&L profile results in our full year 2009 EPS guidance range of $3.70 to $3.72.

This includes a forecast for fourth quarter reported sales growth in the high single digits, including an estimated favorable impact from exchange of approximately 2%.

We expect an ongoing gross margin ratio of approximately 58% in the fourth quarter, reflecting the impact of Depakote, and the rapid movement in currency rates that we've seen recently, particularly when related to a move in the opposite direction in 2008.

Overall, we're pleased with our third quarter and our performance year-to-date.

We're delivering strong operating results while taking strategic actions to ensure our top tier performance over the long term.

This includes the medical technology acquisitions of AMO, IBIS, Visiogen, and Evalve, our acquisition of Wockhardt's nutritional business in India, and most recently the Solvay Pharmaceuticals acquisition.

In addition to these new platforms, our core businesses continue to perform well, and remain important contributors to our sales and earnings growth outlook.

With that, let me turn it over to John for the business operating highlights.

Thanks, Tom.

Because we've had significant activity over the last month, and several chances to communicate with our investors, as well as our sell side analysts, I'm going to try to keep my remarks somewhat brief today.

As I review the performance of our major business segments, including pharmaceuticals, nutritionals and medical products, I want to focus primarily on operational sales, which as a reminder is performance before the impact of foreign exchange.

And for reference, our earnings news release contains a review of sales results before and after the impact of foreign exchange, so both on an operational and a reported basis.

So let me begin with pharmaceuticals, where worldwide operational sales excluding the impact of Depakote, increased more than 9%.

Including Depakote, operational sales increased approximately 4%, and reported sales declined approximately 1.5%.

In Immunology, global Humira operational sales increased approximately 32% worldwide to nearly $1.5 billion, performance was driven by strong international operational sales growth of 41.5%, and strong US growth of 21%, actually more than 21%.

Given the performance of Humira year-to-date, today we're raising our full year global Humira forecast for operational sales growth to 28 to 30% worldwide, and for reported global sales growth to 18 to 20%.

Humira continues to grow faster than the self-injectable anti-TNF market.

Internationally, strong double-digit market growth continues in the major European countries, where earlier this year, Humira advanced into the number one market share position.

Humira clinical data continues to compare favorably versus existing agents or potential new competitors.

In fact, at the upcoming American College of Rheumatology or ACR meeting, we'll present data regarding Humira's ability to inhibit joint destruction out to eight years in patients with rheumatoid arthritis.

Based on outstanding clinical data across our full range of indications, and more than 12 years of clinical experience, we're well positioned for success in what is an efficacy-driven market.

Humira continues to represent a strong and steady growth driver for Abbott as penetration rates as the global market remain relatively low.

Currently, penetration rates for RA are in the mid-20s in the US and mid-teens internationally.

Crohn's disease penetration in the US is in the low 20s, and low teens internationally.

And in psoriasis, penetration both in the US and internationally is in the mid single digits.

We expect penetration rates across all indications to continue to increase over the next several years.

Moving on to our lipid franchise, where Niaspan sales were $215 million in the quarter, up more than 10%, continuing to outpace the total cholesterol market which is growing in the mid single digits.

TriCor TriLipix franchise sales were $330 million, similar to the prior year.

Sales growth this quarter was impacted by the comparison to the prior year, when sales increased double digits as well as a temporary reduction in net price associated with broader managed care access and expanded patients assistance programs that is temporary.

The launch of TriLipix is on track, with prescription growth for the franchise growing faster than the overall cholesterol market and growth of new patients resulting in total market share gains for the TriCor TriLipix franchise.

During the quarter, AstraZeneca sales force began co-promotion of TriLipix in the US.

Expanding reach and brand awareness to additional physicians.

As you may recall, Abbott began co-promotion of Crestor last year.

Both agreements strategically position Abbott and AstraZeneca sales forces for the first half 2010, expected approval of Certriad, the fixed-dose combination of TriLipix and Crestor.

As a reminder, TriLipix is our next generation fenofibrate and the first and only approved product for combination use with statins.

Also during the quarter, we initiated a TriLipix branded consumer awareness campaign, which has driven increased patient inquiries across all channels.

The campaign will continue in the fourth quarter when we expect it to drive incremental share performance.

Earlier this year and ahead of schedule, Abbott and AstraZeneca announced the FDA regulatory submission for Certriad, which provides comprehensive lipid management, targeting all three lipid parameters, HDL, LDL and triglycerides in a single pill.

The filing for Certriad is supported by data from multiple studies of TriLipix in combination with the most commonly prescribed doses of Crestor, the 5, 10, and 20-milligrams in large controlled clinical trials.

In these studies, combination therapy improved HDL and triglycerides compared to Crestor alone, and improved LDL compared to TriLipix alone.

Given the product profile and the size of the overall market, both companies believe Certriad represents a significant sales opportunity.

As I mentioned, we expect FDA approval during the first half of next year.

There are more than 100 million adults in the United States with lipid problems and prevalence is expected to rise, given increasing diabetes and obesity rates.

Approximately 35 million patients currently take lipid medications, with fewer than one in three reaching treatment targets for all three key lipid measures.

Abbott's lipid product portfolio is uniquely positioned to address the growing need for adjunctive and combination therapies, treatments that help patients achieve recommended lipid goals.

And there continues to be significant opportunity for patients to benefit from adjunctive therapies as penetration rates remain low.

So as you look ahead to the fourth quarter and our worldwide pharmaceutical business, on a reported basis, which includes the impact of foreign exchange, we expect sales growth to be in the mid to high single digits, including the continued negative impact of generic competition on Depakote sales.

Moving on to our nutritionals business, where operational sales increased 13% this quarter.

US sales increased more than 4% in the quarter, where we're beginning to see strong market share gains in the critical retail sector, driven by the launch of numerous new brands, new formulations, and line extensions as we've discussed in the past.

In our infant formula business specifically, we continue to leverage superior innovation and hospital and retail execution to hold a commanding share lead over our nearest competitor.

In our adult business, our core brands Ensure and Glucerna reported double-digit growth in the quarter as a result of our successful targeted marketing and promotional campaigns.

We also launched a new Zone Perfect product in the third quarter called Zone Perfect Indulgence Nutrition Squares.

The remainder of our medical adult nutrition portfolio including our growing specialty nutrition products grew double digits in the third quarter.

International nutritional sales this quarter increased 22% operationally, driven by 27% growth in pediatric nutritionals, and 15% growth in adult nutritionals.

We continue to expand our presence in emerging markets, which represents a high growth opportunity over the long term.

So as we look ahead to the fourth quarter in our nutritionals business in the US, we expect mid single digit sales growth.

In our international nutritionals business, on a reported basis, which includes the impact of foreign exchange, we expect double-digit growth in the fourth quarter.

Let me now turn to our diagnostic business, where worldwide operational sales in the quarter increased 6%.

In our core laboratory diagnostic segment which includes immunochemistry and hematology, operational sales increased 3.6%.

We're also reducing overall costs in this business, improving efficiencies, and continuing to expand operating margins.

During the quarter, we launched our ARCHITECT C4000 system for low to mid-sized laboratories.

We also received CE Mark for an ARCHITECT test that detects NGAL, a protein that's an early indicator for patients at risk for acute kidney injury.

We also recently launched an assay for HIV in our PRISM blood screening system, completing the PRISM infectious disease test panel.

In both our point of care and molecular diagnostic businesses, operational sales in the quarter grew double digits.

In August, we announced an agreement with Pfizer to develop a molecular test to screen non-small cell lung cancer tumors for the presence of particular genes.

This follows a similar partnership we announced with GSK last quarter.

Both agreements advance our strategy to develop companion diagnostics for personalized medicine and as Tom mentioned, we acquired IBIS earlier this year which brought us the Plex-ID molecular diagnostic system.

This technology which has the potential to detect unknown or new disease strains was recently named the overall gold medal winner among 500 entrants in The Wall Street Journal's technology innovation awards, which has recognized ground-breaking innovations over the last decade.

So as we look ahead to the fourth quarter in our worldwide diagnostic business on a reported basis, which includes the impact of foreign exchange, we expect mid single digit sales growth.

This includes low single digit sales growth in our core laboratory business, and double-digit growth in both molecular diagnostics as well as point of care.

In our other medical products businesses, worldwide operational sales in our diabetes business declined 4%.

While the market has been negatively impacted by the economy, we continue to grow our retail prescription share through expanded consumer outreach and patient education initiatives.

In the fourth quarter, in our global diabetes business, on a reported basis, we expect sales to be essentially flat compared to the prior year.

Let me move on now to vision care where sales in the quarter were $263 million, which was in line with our expectations.

As Tom mentioned, in September we announced the acquisition of Visiogen, which will add a late-stage accommodating IOL technology called Synchrony to our vision-care pipeline.

Synchrony is on the market in Europe and we expect approval in the US in the second half of next year.

Accommodating IOLs represent the next wave of cataract technology, and move more like the eye's natural lens, providing a full range of functional vision.

Cataract surgery is one of the most frequently performed surgeries in the world, and the leading cause of blindness.

It's expected to steadily grow over the long term, with the aging baby boomer population in the US, as well as growth in emerging markets.

Turning now to our vascular business, where worldwide operational sales were $666 million, or an increase of 8%.

Last month as you know, we hosted an investor meeting and webcast at the TCT conference or meeting in San Francisco.

Our vascular Senior Leadership Team updated investors on their business and the pipeline, as well as highlighted impressive clinical data for our drug-eluting stent XIENCE V.

The data from SPIRIT 3 and SPIRIT 4 trials, as well as the COMPARE trial, showed XIENCE significantly outperformed Boston Scientific's TAXUS Express as well as TAXUS Liberte drug-eluting stents on both safety and efficacy end points.

Statistically superior results were once again achieved on the primary end point of SPIRIT 4, with a 38% reduction in target lesion failure and our three year results from SPIRIT 3 demonstrated that the clinical advantages of XIENCE continue to increase over time, compared to TAXUS.

The safety data was even more impressive.

For the first time, we saw statistical difference on safety between XIENCE and TAXUS with an 80% reduction in stent thrombosis for XIENCE in SPIRIT 4.

In addition, SPIRIT 3 showed an impressive 0.2% rate of very late stent thrombosis.

And finally, data from the 1800 patient COMPARE trial demonstrated statistically significant better outcomes for XIENCE in key safety and efficacy measures compared to TAXUS Liberte, which is Boston Scientific's latest DES offering.

These collective results support XIENCE's Best-in-Class reputation.

As you would expect, our sales and marketing organization is sharing this new data with their interventional cardiologist customers.

We expect to maximize this good news to drive additional market share gains for the XIENCE platform both in the US and in international markets over the next six months.

Regarding US market share, XIENCE V remains the number one drug-eluting stent, with initial third quarter market share in the high 20s and preliminary September monthly market share data suggests that XIENCE-only share increased several share points since August.

Initial third quarter data shows the XIENCE platform, which includes both XIENCE and PROMUS, accounts for more than half of the total US market.

This share data is starting to show the impact of the data presented at TCT, although it's early, and we would expect to see both XIENCE and XIENCE platform share increase as we exit the year in the fourth quarter.

The US DES market dynamics remain very positive.

PCI volume is up in the low single digits, increase in the low single digits, year-over-year, as reported by third party data sources and confirmed by our own internal data.

US DES penetration is approximately 75%, and that's an increase of 4 percentage points year-over-year.

Sales performance was driven by the continued success of our drug-eluting stent XIENCE, as well as international launch of our next generation product XIENCE Prime.

Global DES franchise sales, which include XIENCE as well as other third party DES product revenues were more than $330 million in the third quarter, an increase of approximately 10%.

Early physician feedback for XIENCE Prime has been outstanding as we continue to expand in international markets.

XIENCE Prime uses the same stent material, Cobalt Chromium, well studied drug, everolimus, and proven biocompatible polymer as our market leading XIENCE V.

In addition, it offers a novel stent design and modified delivery system for greater flexibility and improved deliverability.

It's available in a broad size matrix including long lengths.

We're also expanding in into new geographies.

In the third quarter, XIENCE was approved in China as well as Canada.

China is the second largest DES market in the Asia-Pacific region where PCI volumes are growing double digits.

We expect an early 2010 launch in Japan as we said before, which is a more than $0.5 billion total DES market.

So as we look ahead to the fourth quarter for Abbott vascular, we expect reported sales to increase mid single digits.

Most importantly, we continue to see significant operating margin expansion in this business, and as we stated at our TCT investor meeting, we expect mid to high single digit topline growth and double-digit bottom line growth for Abbott vascular over the five-year long range plan for that business.

Finally, in our vascular pipeline, we're working on more than 10 coronary technologies over the next five years, making it one of the most robust pipelines we believe in the industry.

Our new technologies include new devices such as the ultra thin metallic DES, our XIENCE NANO small vessel DES in the US, next generation balloons, as well as our bioabsorbable drug-eluting stent program.

We're several years away from any competitor in the bioabsorbable DES space, and will have three year data from our first cohort at AHA in November.

Also, as Tom noted, we announced the Evalve acquisition in the third quarter, which gives Abbott a leadership position in mitral valve structural heart repair and another late stage pipeline technology.

Structural heart is one of the fastest growing sectors in cardiovascular disease.

Evalve's minimally invasive mitro-clip device, treats mitral regurgitation, which is approximately four times more prevalent than aortic disease and is currently treated through open hearth surgery alone.

The mitral clip is on the market in Europe, and we expect it to be approved in the US sometime in 2011.

So in summary, we're obviously very pleased with our strong operational performance here in the third quarter, our ability to raise our EPS outlook for the full year, and with the strategic actions we've taken to enhance our long-term growth.

In Abbott vascular, we'll leverage the compelling data on XIENCE to continue to drive DES share gains, while executing on the leading vascular pipeline in the industry.

And our acquisitions of Evalve and Visiogen add two competitive late stage pipeline technologies in large and growing markets for the future, and finally the acquisition of Solvay, as Tom mentioned, diversifies the sources of our pharmaceutical growth, and expands our presence in high growth, emerging markets.

At the same time, it accelerates our R&D investment and is highly accretive to Abbott's ongoing EPS beginning next year.

In short, we believe we're well-positioned for sustainable long-term growth, and with that, we'd be glad to take your questions.

Alan, do you want to open up the call?

Certainly.

(Operator Instructions).

Our first question today is from Rick Wise from Leerink Swann.

Good morning, everybody.

Hi, Rick.

Excellent quarter.

Thank you.

But let me just go through a couple of the things that just trying to understand a little better.

Gross margin, if we could start with that.

Tom, if I understand your guidance, your 58% guidance, now for the full year, wasn't it 58.5% before?

You've never given fourth quarter gross margin before.

Does this imply a little more caution?

Maybe you could help us understand some of the moving pieces there.

Thanks, Rick.

There's only one significant moving piece and that's really how much currency has changed since we talked on the second quarter call.

As you recall, the way we're positioned internationally, as the dollar weakens, while it helps the top line and certainly there's some profit impact, because of the mix effects in the countries it puts a little pressure on the ratio, and on top of that, when it moves very rapidly, there are lags between the immediate impact on the top line which you see when rates move and as it moves through the earnings statement and through the gross margin.

So between the two, that's probably costing us about half a point this year on the gross margin, just because of exchange.

That's really what's changed since the last time we talked.

Okay.

And on Humira, the third quarter US growth was, if I've got it right, 21%.

The fourth quarter you've got a tough comp.

Can Humira grow double digits in the fourth quarter, given that comp and given the environment and maybe you could talk a little bit about how you're thinking about or what kind of competitive impact you're seeing and expect from J&J's Symphony and Stelara, which was just launched in psoriasis.

Hi, Rick.

Sure, I'll take that question.

Yes, I think if you look at our full year guidance of 18 to 20% reported and 28 to 30 on an operational basis globally, we did raise that.

That would imply double-digit growth in the fourth quarter.

We didn't break it out specifically, but clearly it reflects strong growth internationally, in excess of 20%, and continued strong double-digit growth in the US, implies roughly low double-digit type growth.

So we are still very confident in Humira.

In projections for the full year, the projections for the fourth quarter.

I would remind you, though, as we discussed earlier in the year, we have not factored in any aggressive buying patterns from wholesalers in the fourth quarter, so we're being a little conservative on that front.

So could there be upside to some of that?

That's possible.

But we think we factored that in appropriately.

On competition, we really -- it's been going as expected for the new competitive entrants.

Our story on Humira continues to be one of very strong efficacy and safety, as you know.

The five year radiographic progression that we have on the label as I mentioned in my comments, we'll be presenting eight year radiographic progression data at ACR.

Of course, we've got physical function and major clinical response data, and over 12 years of total clinical data.

So we feel very comfortable with the competitive position of Humira, the products that are coming new to the market as we've discussed in the past are fifth, sixth, seventh products to market that really don't offer any significant clinical advantages versus Humira's standard of care.

So we feel very good about it.

They're progressing along at a modest rate, if you look at the total scripts for these new entrants so we factored that into the modeling.

We factored that into our guidance and really there hasn't been anything that's changed since the launch that would change our outlook in any way.

Okay.

Great.

Just last quick one, broad question for Tom.

Given the moving target on healthcare reform, Tom, what's your latest thoughts about the potential impact on Abbott from whether it's a tax or just what's happening in Washington.

Thanks.

Well, you know, it's still -- it is still a moving target.

I mean, there was a positive step obviously yesterday but I think the way we're thinking about it, there's a ways to go here and until we see what really comes out of conference and all the steps that have to happen, it's very hard to figure out exactly what we're dealing with.

That said, we'll definitely be contingency planning for different scenarios and factoring into our thinking and our planning as we work our way towards 2010.

Thanks.

Thanks, Rick.

Thank you.

Our next question is from Mike Weinstein from JPMorgan.

Thank you.

Good morning.

Hi, Mike.

Hi there.

Let me follow up on the Solvay acquisition and then I want to turn to some pipeline questions.

Part of what the appeal of Solvay is that it's giving you this R&D capacity which you wouldn't have had just within Abbott to move some of of your Phase I-II programs forward.

You talked about an incremental 50 basis points of cumulative Abbott R&D spend with Solvay in the fold.

Can you just highlight programs you think that you will accelerate now that Solvay gets pulled into the Company and you have this incremental spending that you wouldn't have before.

Would it be the Alzheimer's program?

Would it be one of the oncology programs?

Thanks.

Mike, I think it's a little premature for us to do that, probably when we close the deal we'll be in a better position to provide some updates.

There are a number of interesting late stage and early stage platforms that Solvay has in their pipeline.

It does afford us the opportunity, maybe Tom can talk more about that, in terms of broadly investing in some of our programs in oncology and Alzheimer's and HCV and Immunology.

We can talk a little bit about that later.

I think it's overall it's just there's some good programs there.

There's some interesting things.

We're still assessing all of it and determining next steps as we work to integrate the deal.

As Miles talked about on the call, it gives us many options including if there's an external opportunity that is equally interesting or more interesting than any of the others, we're open to that as well.

So we're going to be working through all of those alternatives as we work our way towards closing the deal and as John said, I think we can give a lot more granularity to that over the next few months.

We talked about this on the call with Miles when we announced the deal.

They do have some interesting things for Parkinson's and neuropathic pain that's associated with shingles.

There's a partner Company involved in some work on in the Gabapentin ER.

So there's a number of different things there and we'll be assessing all those.

On our pipeline, we talked in general about some of the oncology, neuroscience, HCV, Immunology compounds in that pipeline and I think you'll see more of that next year.

In fact, we'll have we expect three compounds in late stage or advanced clinical studies in oncology alone next year, as we move some of those earlier-stage programs along.

I wanted to ask you on the pipeline questions in terms of when you guys think you'll provide updates and two of them would be on the pending acquisitions of Visiogen and Evalve.

You've seen the Visiogen data but we haven't.

So the question is when do you think we'll see that data?

When do you think you'll disclose the Evalve pivotal data once you have that data in house?

And then I think the one pharma pipeline product that we could see in the first half of next year would be the metastatic breast cancer trial for ABT869, do you think that will make it in time for ASCO?

Thanks.

Evalve has some interesting data.

There's been some registry data that's already been presented on Evalve that was interesting.

I don't have specifics yet on when they'll show the rest of the data.

So we'll keep you posted on that front as well as regulatory time lines and what's going to happen with the Everest II data.

We haven't seen it yet.

It's blinded.

The trial's not finished as you noted.

Probably sometime in 2010 we'll have that and then we can show that to you at that time.

What was your other question?

The Visiogen data which you do have and then ABT869, from the oncology pipeline that would be the first one where we would get the Phase II data from.

We're moving that into Phase III as I talked about and I mentioned that's one of the three compounds that will be in Phase III.

I don't have any specifics yet on where we'll present data next year but as we get towards the end of the year and probably on the fourth quarter call we might have a better sense of where we might present that data.

Okay.

I'll let some others jump in.

Thanks.

Our next question is from Jami Rubin from Goldman Sachs.

Thank you.

Just a couple of points of clarification.

Tom, you had stated that you expected the Solvay accretion next year to be $0.10 and I am assuming that you are aware of First Call consensus of $4.12.

Can I assume that you are implicitly comfortable with the consensus estimate next year of $4.12 given your comment of $0.10 accretion on top of underlying earnings.

And my second question relates to the Company's priorities with respect to cash.

You're obviously generating tons of cash flow.

You've been extremely busy this year with business development activities but how important is debt reduction and share buybacks relative to continued business development activities going forward?

Thanks.

Well, taking your first question, it sounds almost like I would be giving guidance if I answered it directly.

And it's certainly premature.

We won't do that.

It's certainly premature for 2010 guidance and I guess I would reiterate what we've been saying all along and let you draw your conclusions.

We continue to target double-digit EPS growth year in and year out as a baseline.

And when we announce Solvay, we said that was additive, the $0.10 was additive to anything that we would be targeting.

That's about as far as I'm going to go in terms of 2010 EPS forecasting at this point.

Typically, we provide specifics on that by the fourth quarter call.

On the use of cash, I guess going right down the line of our options, I mean, we continue to take a very balanced approach.

We value a strong dividend and solid dividend growth and if you look at our record it's been outstanding in that regard for years and decades.

Share repurchase is a steady program for us.

We like to buy shares year in and year out and I think it's a good way to increase returns to shareholders and certainly debt reduction to the extent we have additional cash flow and there are not opportunities, strategic opportunities, we'd be interested in doing a degree of that to the extent it presents it to us but I think given the strong cash flow of the Company and as evidenced by the fact that -- with the Solvay acquisition, we are acquiring it without taking on additional debt, we're in a great position to manage a very strong position in a lot of different ways.

And Tom, lastly, are we correct in assuming that there was approximately $100 million in stocking in the fourth quarter last year in US Humira sales?

The advanced buying was probably somewhat more than that.

Again, when that occurred in the fourth quarter, the anticipation for Humira was was that the fourth quarter growth rates would continue into 2009 and as you know in the first quarter that just did not happen.

So there was a number of at least that amount in the quarter and then probably a little bit more.

Thank you.

Thanks, Jami.

Thank you.

Our next question is from Glenn Novarro from RBC Capital Markets.

Good morning, guys, thank you for taking my question.

I wanted to follow up on Jami's question because next year you're saying that Solvay adds $0.10 to EPS but you've also done in the back end of this year Evalve and Visiogen which I suspect are dilutive transactions.

So I'm just trying to -- we're all going to be in the next couple months trying to model 2010 but should we assume that that $0.10 of accretion from Solvay is somewhat offset by dilution from Evalve and Visiogen?

That's question one.

No.

I think you're getting a little too --

You're overthinking this.

A little too scientific there.

When we announced Evalve and Visiogen within the R&D priorities of the Company, we're able to absorb those deals in without changing our thinking about earnings growth or guidance.

So I don't think that should impact your thinking and what I said to Jami is pretty much the way you should interpret the Solvay piece.

Okay.

Great.

Thank you for clarifying that.

Okay.

And then just secondly, Tom, can you give us some thought on the Company's tax rate going forward?

And the reason I'm asking that is that we were all a month ago at Baxter's analyst meeting and they had told us that their tax rate, which is close to where you guys are this year is going to go up meaningfully over the next five years, so maybe just some thoughts about your tax planning and maybe where the Abbott tax rate will go over the next couple of years.

Thanks.

I can't speak for other companies and I -- certainly I think -- I've been reading lately that some of the -- there's good reason to think that policy makers are hearing some of the implications of raising corporate taxes as some of the proposals that were floated earlier in the year do not seem to be getting much traction so I think that's good news for anyone worried about corporate tax rates going forward, and the way we're structured and given the products, their growth rates, et cetera, and based upon where the various products are located, I am not in a similar position.

I don't see our tax rate going up going forward, and I would think with the news that's been coming out recently, I'm feeling pretty good about our ability to sustain our tax position.

Okay.

Great.

Thank you.

Thanks, Glenn.

Thank you.

Our next question is from Bruce Nudell from UBS.

Good morning.

Thank you and pardon my voice.

Good morning, Bruce.

We understand there's a lot of that going around.

Yes.

Just a couple fibrate questions and then one on Humira.

Clearly, you have good expectations for Certriad.

Is there any way you could kind of quantify them in terms of bigger than a bread basket or just in the context of how much it would add to the fibrate franchise as you see it and also is your thinking still that TriLipix will co-exist with TriCor for the long haul?

Okay.

Bruce, yes, on Certriad, we are as I mentioned I have optimistic about this product for a number of different reasons.

So is AstraZeneca.

Because we have a partner, we need agreement on, before we give out a peak -- official peak sales year forecast for the product, but I think it's fair to say that given the size of the cholesterol market which as you know is over $20 billion and the attributes of these products, Crestor and TriLipix and the data that we have, and the fact that there are two companies involved who are splitting the proceeds, if you will, it would have to be a significant product of at least $1 billion peak potential, if not more than that, to make it worth our effort, if you will.

So I think it's safe to say it falls in that category, but we have not given a specific peak year forecast.

Regarding TriLipix, TriCor, yes, as we said before, our expectation is that we continue to provide both products and market both products for the foreseeable future until further notice.

Thanks.

And my follow-up question on Humira is really kind of general and qualitative, but its performance ex-US is pretty remarkable.

I mean, it's bigger than it is in the US.

Its growth rate is extremely high on an operational basis.

Could you just give us some qualitative color as to what explains its performance ex-US, either by geography or market dynamics that may be somewhat different than that as in the United States.

Well, I think it's a credit to our marketing organization.

I'll chime in, maybe Tom can add to it, but we have an outstanding international pharmaceutical marketing organization that will take advantage of products like Humira that have outstanding superior clinical data and I think that's the difference and we've been able to show to payors in countries outside the US that there are cost benefits, downstream cost benefits to treating patients and stopping disease progression, which is -- let's not forget, what these products are all about and what they're supposed to do, which is what differentiates Humira from virtually every other product is its ability to inhibit joint destruction, which is so critical to patients and these are insidious, life-threatening diseases, so we've been able to show that.

Payors have been good about that in terms of understanding the economic benefits.

So we're growing very strongly in markets like Europe where market growth is by itself about 20%.

We've been growing two times the rate of both Enbrel and Remicade.

We have the number one market share position in double-digit countries outside the US.

There is significant room for further market growth and expansion as there is a large pool of patients that are still yet untreated and should be and could be treated.

The penetration rates, both in the US and particularly ex-US, are significantly lower than I think what some people have expected or estimated.

So there's a lot of room for opportunity there.

We have a good look into next year.

We feel very confident about the growth of the product internationally as we go into next year.

We know what the payor scenarios are in the major countries.

We've always done a good job of working with those payors, and there's nothing new there that would suggest or put us off a trajectory that would say this product can grow strong double digits next year.

Thanks so much.

Sure.

Thank you.

Our next question is from Derrick Sung from Sanford Bernstein.

Hi.

Good morning.

Thanks for taking my question.

Good morning.

So it look like the Humira scripts for last month came in this morning and showed Humira at about 14% which I think is probably the lowest of the year, and it looks like there's been a bit of a trend down in script growth, TRXs from IMS.

Can you speak to what you're seeing there?

Is that representative and what you think is going on.

Is that the competition coming in or what's happening there.

Let's keep this on proper context.

IMS has had its challenges as you know.

Their data has been somewhat unreliable and they have acknowledged that with a number of restatements and other things that have gone on there, so you've got to take that with a little bit of a grain of salt, in terms of the overall performance of the product.

We have our own information that we collect as we talked about before, sell-out directly to customers that we track.

That's all obviously factored into not only the performance this quarter, which was about $50 million above what most analysts expected, but also our outlook for the rest of the year and going into next year.

So clearly, the underlying trends are still strong for the product.

The TRX growth is good, it's probably higher than what that suggests.

And then there's other things going on there too that you have to be careful of, like holidays, Labor Day holidays this year compared to last year that create some fluctuations in the data.

But everything we've seen that we get, it looks like Humira continues to grow strongly in the US, and we're confident and obviously we put that in -- factored that into our thinking when we raised the number for the year.

Okay.

Are your numbers, by your count, are you seeing a trend down in the growth through your numbers as well or are your numbers showing growth constant or even possibly up?

Our data suggests that the product is growing in the mid to high teens on a TRX level.

So higher than what was suggested by IMS this morning.

Okay.

Let me ask you, moving to TriCor, TriLipix.

You mentioned a temporary reduction in pricing due to the number of factors.

Can you go into that a little bit more detail and how do you give us confidence that that is temporary and how much did that affect sort of sales this quarter?

Well, there was this temporary effect on net pricing because what happened there, basically, is we went out with a purposeful program there to help patients through a patient assistance program, and we more or less bridged them to the point where we had enough managed care access there, or they could get traditional managed care coverage, which is where we're at now.

We have very good managed care coverage with TriLipix, significant presence and good tier position.

So that strategy worked.

It will be -- it's obviously the script data, if you look at the scrip data, it's growing in the mid to high single digits ahead of the overall cholesterol market, and certainly ahead of the absolute dollar amount that was this quarter, so we do think it was temporary and our expectations for the fourth quarter are more in line with the script data.

Okay.

Just one last one for Tom.

In terms of cost controls and SG&A, we saw a pretty marked impressive improvement this quarter, I think 190 BPs over last quarter in SG&A reduction.

How sustainable is that moving into 2010 and how much more room is there to cut further there?

Well, it's a steady target for us to leverage SG&A.

We did ramp it quite a bit prior to 2009 as we launched products and build infrastructure in the businesses but focusing more on the non-value added areas, the more administrative type costs, IT, those types of things, we're very, very focused on -- there's no reason for a lot of those costs to grow.

They should be flat to down and we've got a number of programs within the Company to keep those costs down, and so we would expect sales to continue to grow faster than those costs in particular, and continued leverage going forward.

It's again a little premature to quantify that for 2010 but we'll be talking about that on the fourth quarter call.

Thank you very much.

Next question is from Catherine Arnold from Credit Suisse.

Thanks very much.

Good morning.

Good morning.

I wanted to just follow up with the conversation we were just having about the TriCor, TriLipix, if I could, and more broadly ask you about the evolution of rebating and out-of-pocket costs.

In terms of the comment on script growth, that's clear, and we see the progress there in terms of TriLipix.

But what I'm wondering is, if you have a program in terms of reducing the costs and rebating, I would assume would be hand in glove with that.

The implied price that you are getting per prescription for TriCor or TriLipix, how does that increase next quarter or subsequent quarters, given those programs, once you provide the rebates it's hard to get them back.

And maybe that's a mix of what you're going to tell me on patient assistance versus rebate.

That would be helpful in terms of modeling the price per prescription.

Stepping back, big picture, can you talk about the rebating environment and out-of-pocket cost assistance programs for Humira and the rest of the portfolio, how you see these trends evolve year-to-date, what do you expect to happen over the next 12 months.

Okay.

That's a long question there,.

Sorry about that.

It's an important one.

I would say this.

We haven't really seen any major changes in our rebating.

I know one of our competitors talked about that.

Nothing different than what our standard practice would be, so that's not really what the dynamic was that was at play here.

It was much more about patient assistance programs, cards that we distribute like we did with Humira to help patients who are in need economically and we had a lot of those cards go out, and the use of those cards was better than we expected, frankly.

And so as we work through that, and now that those patients get more traditional coverage on managed care, we do think that's a temporary effect.

So I wouldn't say that there's any real change in rebating, even though that's what was implied by one of our competitors.

Are you -- with that, are you -- you're taking those deductions from gross sales to net versus your SG&A line?

That's right.

I'm talking about the credit course for patients to help them.

That's right.

That's exactly right.

Okay.

And then in the TNS space is there anything different happening?

Than the rest of the portfolio?

No, we talked about that earlier in the year and pretty much the same as we talked about before.

So really no change there.

Great.

Thank you.

Operator, I think we're at the top of the hour.

We have time for one more question.

Our final question is from Sara Michelmore from Cowen.

Thanks for taking the question.

Just I guess two follow-ups.

One, John, I appreciate you going through the penetration rates for the various indications for Humira.

Give us a little more color in terms of the growth rates of the drug in each of those indications, it would be helpful just in terms of visibility and trying to forecast that going forward if we understand what's going on in each of those three areas.

Well, I think all I can give you is penetration rates for those.

Global penetration for rheumatology's in the low 20s.

Global penetration for dermatology is kind of in the mid single digits.

And global penetration for gastro indications is in that kind of mid to high teens rate right now.

I don't have indication breakout by growth.

We don't typically do it that way.

Okay.

And then a question for Tom.

Tom, as I look out to the model next year and one of the biggest dynamics I see is it's one of the first years in a while that you guys haven't had a major small molecule generic challenge, and just curious if there's any way to quantify the hit that you've taken this year in Depakote, and what should we be thinking about in terms of kind of gross margin line in terms of that coming off?

Thanks.

Obviously, with the $1 billion plus product going generic small molecule, it's been a very significant percentage impact.

I don't have the exact number in front of me, but it's been a real drag all year and it does mask I think some good mix shift in the rests of the businesses.

Again, we expect continued steady gross margin expansion and until we really roll up all the budgets and see the pieces and with exchange being such a volatile dynamic, it's just -- I'm just afraid it's premature to give you an idea until we get to that fourth quarter call.

Sara, I would note, as you guys can see through your modeling and the quarters as they accumulate, that year-to-date Depakote is down about $760 million from 2008 and that's obviously a product that has margins above the corporate profile, is that fair to say, Tom?

Yes, that's accurate.

Anything else, Sara?

No, thanks.

Okay.

Thank you.

That concludes our call today.

A replay of this call will be available after 11 central standard time on our Investor Relations website at AbbottInvestor.com.

And after 11 central via telephone at 203-369-3011, the confirmation code for that is 7609413.

The audio replay will be available until 4 central on Wednesday, October 28th.

Thank you all for joining us.

If you have any questions, please give me or my staff a call.

Thank you.

Thank you.

And this concludes today's conference.

You may disconnect at this time.