美國雅培 (ABT) 2010 Q1 法說會逐字稿

Welcome to Abbott's first quarter 2010 earnings conference call.

(Operator Instructions) This call is being recorded by Abbott.

With the exception of any participants questions asked during the question and answer session, the entire call including the question and answer session is material copywrited by Abbott.

It cannot be recorded or rebroadcast without Abbott's express written permission.

I would now like to introduce Mr.

John Thomas, VP, Investor Relations and Public Affairs.

Thank you and good morning, and thanks everyone for joining us.

Also on today's call will be Tom Freyman, Executive Vice President, Finance, and Chief Financial Officer, and Larry Peepe, Divisional Vice President, Investor Relations.

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

I'll then discuss the highlights of our major businesses, following our comments, Tom, Larry and I will take any questions that you may 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 one A., risk factors, to our annual report on Securities and Exchange Commission form 10(k) for the year ended December 31, 2009, and are incorporated by reference.

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

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

These nonGAAP financial measures are reconciled with the comparable GAAP financial measure in our earnings earnings release and regulatory filings from today which will be available on our web site 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.

With that I will turn the call over to Tom.

Tom?

Thank, John.

As you can see from our earnings news release this morning we had a strong first quarter as our major businesses are healthy and our fundamentals remain strong.

And we enhanced our long-term growth outlook with the closing of the Solvay Pharmaceuticals acquisition and the announced acquisition of Facet Biotech, supporting our emerging market strategy, adding to our R&D spending base and also adding to go our late stage pharmaceutical pipeline.

In the quarter we delivered double-digit sales gross across each of our four major global businesses and we reported ongoing EPS of $0.81, up 11%, and at the high-end of our previous guidance range of $0.79 to $0.81.

Included in our ongoing EPS this quarter was a negative $0.03 per share impact related to US healthcare reform which I'll discuss more in a moment.

Excluding the impact of healthcare reform, ongoing EPS were $0.84, up 15%.

Sales growth in the quarter was 14.6%, including a favorable 4.1% impact from exchange rates.

The first quarter included six weeks of Solvay sales in the US and only two weeks of Solvay international sales given our standard one month lag in the reporting of international sales.

Sales in the quarter were reduced by approximately $60 million due to the impact of higher Medicaid rebates required under recently enacted healthcare reform legislation.

Excluding this impact, sales would have increased 15.5%.

The adjusted gross margin ratio was 57.4%, ahead of our forecast for the quarter, driven by strong performance across several businesses including vascular and diagnostics, and less of a negative impact to foreign exchange than originally forecast.

We also had a double-digit growth in investment spending in the quarter, with R&D up nearly 15% reflecting continued progress in our broadband pipeline.

This includes programs in biologics and vascular as well as promising phase I and phase II clinical programs in HVD, oncology and neuroscience.

SG&A expense increased nearly 10% as we invested in programs to drive growth in 2010 and beyond.

The ongoing tax rate of 16.3% was in line with our previous forecasts.

As you may recall when we provided guidance in January, the outlook for the enactment of US healthcare reform was unclear.

Accordingly we and most other companies did not include the impact of this legislation in our 2010 guidance.

As you are aware, we now have a new law which will expands access to millions of patients over the coming years.

The resulting law is complex with many provisions that are important to our patients, our Company and our Industry.

As the a healthcare company there are commitments required of our industry to help pay for this effort.

Beginning this year the legislation includes an increase in Medicaid rebates primarily as a result of an increase in the basic Medicaid rebate from 15.1% to 23.1% and an extension of rebates to drugs provided through Medicaid managed care organizations.

As a result we are forecasting a negative impact of US healthcare reform legislation on 2010 sales of approximately $230 million.

This translates into a full year 2010 ongoing EPS impact of approximately $0.11 per share including the $0.03 per share impact recorded in the first quarter.

Favorable performance in the underlying business is expected to partially offset this impact.

Therefore we adjusted our previous guidance range by $0.07.

This results in our updated ongoing EPS guidance range for the full year 2010 of $4.13 to $4.18 which of course excludes specified item.

The midpoint of this guidance range reflects growth of nearly 12% over 2009.

As you know, healthcare reform is being phased in overall several years.

In 2011, additional aspects of the Bill will become effective including the fee on the pharmaceutical industry and additional rebates related to the Medicaid Part D doughnut hole.

And in 2013, the medical device tax becomes effective.

As I indicated, these regulations are complex and are subject to further interpretation.

However, based on what we know at present, we are forecasting the impact of healthcare reform on 2011 sales to be a little more than $200 million on top of the 2010 impact.

Turning back to our outlook for the full year 2010, we continue to expect strong double-digit sales growth including nearly $3 billion in sales from the Solvay Pharmaceuticals acquisition.

Our 2010 sales forecast reflects an estimated favorable impact from foreign exchange of 1% to 2% based on current exchange rates.

We continue to forecast an improvement in the full year gross margin ratio over 2009 with a ratio of around 59.5%.

This increase reflects the favorable impact of product mix and efficiency initiatives as well as the addition of Solvay Pharmaceuticals.

Also in 2010 we are forecasting continued investment in R&D programs to drive future growth with R&D up approximately 9.5% of sales.

We continue to forecast SG&A expense somewhat above 27% of sales in 2010.

Regarding other aspects of our outlook for the year, we continue to expect less than $100 million of other income, net interest expense of approximately $450 million, and a full year tax rate of between 16% and 16.5%.

Now, let's turn to our quarterly outlook.

For the first time we are providing a second quarter ongoing EPS guidance of $0.98 to $1, including $0.03 negative impact from Medicaid rebates required under US healthcare reform.

The midpoint of this EPS range represents growth over the prior year of more than 11%.

We're forecasting strong double-digit sales growth in the second quarter including Solvay.

We expect a favorable impact from exchange on sales of approximately 3% to 3.5% and an ongoing gross margin ratio approaching 60%.

In summary, our global diversified business strategy is continuing to deliver strong sustainable results.

The market leading products within our core franchises and the strategic actions we've taken all provide a strong foundation from which we will continue to grow despite changes in our operating environment.

Our outlook for double-digit ongoing EPS growth in 2010 continues to have its reputation as a leader among our healthcare peers.

With that I will turn it over to John for the business operating highlights.

Thanks, Tom.

This morning, I'll review the performance of our major business segments.

Pharmaceuticals, nutritionals and medical products.

Let me start with our Global Pharmaceuticals business where worldwide sales in the quarter increased 13% driven by strong double-digit growth for our immunology as well as our lipid management franchises.

In immunology, global Humira sales increased 36% to nearly $1.4 billion.

Performance was driven by strong international sales growth of almost 40% and US growth of more than 32%.

The US growth rate benefited from a favorable comparison to the prior year.

Underlying demand for Humira continues to out pace the overall market with particularly strong growth in dermatology and gastroenterology and new competitive entrants continue to track in line with our modest expectations for these products.

Internationally strong double-digit growth continues in the major European countries where Humira holds the number one share position.

We anticipate that Humira will eventually become the number one anti-TNF worldwide surpassing the current are global market share leader.

We are continuing to launch new indications into new countries around the world.

Earlier this year Humira was the first biologic approved for the treatment of psoriasis and psoriatic arthritis in Japan, and we also recently received approval for RA in China.

The growing awareness of Humira among physicians and patients, the expanding body of best in class clinical data and further market penetration across indications and geographies will continue to drive demand in the years to come.

We continue to expect reported global sales growth in 2010 of approximately 20% for Humira.

Moving on to our lipid franchise, where Niaspan sales were $205 million, up nearly 15%, significantly out pacing the growth of the total cholesterol market.

The Arbitor6 Halts data presented last year have helped Niaspan prescription share reach an all time high that we have continued to maintain.

We will be initiating new promotional activities for Niaspan in the second quarter which we expect to further increase patient awareness of Niaspan and drive incremental share gains.

We continue to anticipate FDA approval this year for two new dosage strength for Simcor that include 40 milligrams of Simvastatin.

When approved the new dosage strengths will provide additional flexibility for physicians as almost half of Simvastatin prescriptions are written for the 40-milligram dose.

Global TriCor/Trilipix sales were $291 million in the quarter, and that's up more than 15% including a modest partial quarter contribution of international [Phenafibrate] sales following the close of Solvay.

TriCor/Trilipix franchise prescription growth continues to exceed the growth of the overall cholesterol market and Trilipix now accounts for more than 30% of total franchise prescriptions.

Last month AstraZeneca and Abbott announced that the FDA issues a complete response letter for the new drug applications for Certriad, which is our fixed dose combination of Crestor and Trilipix.

We are working with AstraZeneca to prepare a response to the agency.

We continue to have a high degree of confidence in Certriad and believe it represents a promising treatment for patients with mixed dislipidimia.

During the quarter we completed our acquisition of Solvay Pharmaceutical business as Tom mentioned bolstering our presence in key emerging markets and providing us with significant incremental R&D spending capacity to drive future pharmaceutical growth.

Immediately following the February Solvay close, we began to integrate the business and we are pleased with the results to date.

Solvay brings to Abbott nearly $3 billion worth of successful consistently performing global products; approximately three quarters of which are in international and emerging markets, with a mix of products that are predominantly stable, branded generics.

Recall that Solvay is a significant footprint in key emerging markets such as Russia, India and Brazil.

Our focus on emerging markets is driven by the strong opportunity for growth which is expected to be three times the growth rate of developed markets and account for the 70% of pharmaceutical growth in the next five years.

This rapid growth is being driven by evolving demographics, rising incomes, modernization of health systems and increase in the treatment of chronic diseases.

Clearly these markets represent one of the greatest growth opportunities not only in pharmaceuticals but across our broad-based business segments today.

So as we look ahead to the second quarter, including a full quarter contribution of the global Solvay sales, we expect double-digit reported sales growth in both our US and international pharmaceutical businesses.

Turning now to our global nutritionals business, reported sales in the quarter increased nearly 12%.

US sales increased nearly 6% driven by continued strong growth in both our adult and pediatric businesses.

In our adult nutrition business, our Ensure and Glucerna brands continue their strong performance.

In our infant formula business, our innovative products continue to resonate in the hospital and retail settings, helping to us maintain a strong share lead over our nearest competitor.

We are also expanding our proprietary early shield brand to our infant formula Tolerance line.

Tolerance formulas, designed for sensitive baby stomachs, make up 30% of the infant formula market, and Abbott will be the first to market with this innovation.

International nutritional sales in the quarter increased 18%.

We continue to see very strong growth across geographies including emerging markets which is the fastest growing segment of our international nutritional business.

In China, for example, Abbott is growing twice the market rate and we are now the number three player in pediatric nutrition in the Company's top tier cities.

We are increasing our footprint in key emerging markets and we are launching next-generation products across many of our brands.

So as we look ahead to the second quarter in our global nutritionals business, we expect continued double-digit reported sales growth with mid single-digit growth in our US business and double-digit reported growth internationally.

Turning now to our medical products businesses, let's start with Worldwide Diagnostics where reported global sales increased 12% in the quarter.

In our Core Laboratory Diagnostics segment which includes immunochemistry and hematology, reported sales increased nearly 10%.

Sales were primarily driven by double-digit growth of our Architect and Prism platforms, with especially strong growth in emerging markets such as China.

We've expanded our presence in small and mid-sized labs with our new Architect CI 4100 system, and US Prism sales were also very strong, fueled by continued up take of our hiv blood screening assay.

We've also submitted two new Architect assays in the US, one for HIV, and one for rapid detection of acute kidney injury.

Both assays will be the first of their kind in the US and two of several key assays we plan to launch on Architect this year.

In both our Point of Care and Molecular Diagnostic businesses for the quarter, global reported sales grew double-digits.

In Molecular, reported sales were up 30%, driven by our M2000 platform.

We also continue to pursue our strategy in pharmacogenomics where we now have multiple collaborations underway for unique cancer diagnostics to help determine what patients may benefit from certain therapies.

In our Point of Care business, reported sales were up 20%, driven by the continued success of our Chem8 test and cardiac menu.

So as we look ahead to the second quarter in our worldwide diagnostics business, we expect high single-digit reported sales growth.

This includes mid single-digit reported sales growth in our Core Laboratory business, where we expect continued profitability in cash flow improvement throughout the year.

We are forecasting double-digit reported growth in both Molecular Diagnostics as well as Point of Care.

In our other medical products businesses our Diabetes business reported worldwide mid single-digit sales growth this quarter.

In our international business, reported sales increased nearly 5% and in the US sales growth was nearly 3%.

We also continue to focus on improving profitability in this business similar to our diagnostic business.

So looking ahead to the second quarter in our Global Diabetes business, we expect mid single-digit reported growth.

Let me move on now to Vision Care and AMO, where sales were $260 million in the quarter.

In January, we launched our new Tecnis multifocal one piece intraocular lens for cataract patients in Europe followed by the US launch earlier this month which we expect to drive share gains for this segment of our business over the course of the year.

We also continue to anticipate a 2011 US launch for our new Synchrony accommodating IOL based on the likely timing of a panel review in the second half of 2010.

Synchrony is designed to mimic the eyes ability to change focus, delivering improved vision at all distances and eliminating the need for glasses and contacts.

We expect high single-digit sales growth for AMO and our vision business in the second quarter.

Turning now to our Vascular business which delivered very strong growth this quarter.

Worldwide reported sales were $747 million and that's up nearly 16%.

This was driven by International Vascular sales growth of 33% and the continued success of Xience V and Xience Prime in international markets.

Global DES franchise sales in the quarter were nearly $400 million and that's up approximately 20%.

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

We launched Xience in February in Japan with results that exceeded our expectations.

In just one month, Xience claimed the number one market share position, exceeding 40% market share.

With the additional of Promus total Xience platform share in Japan now exceeds 50% which is the second largest DES market after the US, as you know, at $500 million to $600 million.

With the success and promotion of Xience we also saw share improvements in our core products in Japan including bare metal stents and balloons.

Keep in mind our international business reports on a one-month lag and included only the February Japan sales.

So the strength of our international business was primarily driven by the continued success of our next-generation DES Xience Prime in other international markets in Europe where the Xience family remains the market share leader.

And in the US the Xience platform which also includes Promus maintained market leadership with approximately 60% share in the first quarter.

We look forward to the publication of the Spirit IV results in a top tier medical journal here in the second quarter.

The publication of this data which shows the superiority of Xience over Taxsis in real world patients, will further increase awareness of the Xience clinical profile among physicians.

In the US DES market, PCI volume was up modestly in the quarter versus the prior year.

DES penetration was approximately 78%, up a few points versus last year.

With continued success in the US and Europe, as well as the impressive launch in Japan, the Xience family has become the number one DES worldwide.

This strong topline growth has led to continued improvements in the operating margin of our vascular business as expected.

We also had a strong showing at the ACC meeting last month for several of our vascular pipeline products which including our MitraClip device, which I'll discuss when I review the pipeline in a moment.

So looking ahead at the second quarter of our Global Vascular business we expect continued double-digit reported sales growth.

Now moving on to our broad-based pipeline, in 2010 we expect to see continued advancement of our pipeline including the anticipated approval for several new products or indications.

In our pharmaceutical pipeline we have a number of unique compounds in early and mid stage development for oncology, immunology, HCV, neuroscience and pain management.

In oncology, ABT-869, our multi-targeted kinase inhibitor has generated early data in liver, lung and kidney cancer.

Its currently in phase III for (inaudible) carcinoma and in phase II for additional cancer types.

ABT-263, our BCL2 family inhibitor, is in phase II for chronic lymphoid leukemia and other solid tumors.

And ABT-888, our PARP inhibitor, is being evaluated in a number of cancer types including a phase II study in metastatic melanoma which could potentially serve as a registrational study.

And we recently added an early stage biologic to our oncology pipeline as you may recall through a worldwide licensing agreement with Pierre Fabre to develop and commercialize a novel antibody for the treatment of cancer.

In limnology we are leveraging our experience with Humira to identify new mechanisms with a potential to treat an array of immune mediated diseases.

Our pipeline includes early stage work in oral Dmard therapies as well as a number of biologic candidates, including ABT-874, or IL12/23 for psoriasis, currently in phase III and on track for regulatory submission this summer.

In HCV we recently initiated a phase II trial investigating three additional HCV compounds with the goal to markedly transform current treatment practices by shortening therapy duration, improving tolerability and increasing cure rates.

In neuroscience we are developing compounds to address alzheimer's disease, schizophrenia, pain and other neurological conditions.

We currently have two compounds from our NNR and H3 platforms in phase II development for alzheimer's.

We recently expanded our pain portfolio with an innovative anti-nerve growth factor biologic in development for chronic pain.

In the first quarter we announced a definitive agreement to acquire Facet Biotech which will enhance our mid and late stage pharmaceutical pipeline.

The acquisition further expands our biologics pipeline in two of Abbott's key therapeutic areas, immunology and oncology.

The (inaudible) in a next generation biologic candidate expected to enter phase III development for multiple sclerosis in the second quarter and there are two oncology compounds in early to the mid stage development.

Facet also brings a broad based expertise in the area of biologics that will complement our existing biologics programs.

And also in our broadband based pipeline in our vascular pipeline we expect to bring more than ten coronary technologies to market over the next five years, making it the most robust pipeline in the industry.

These include new devices such as MitraClip, Xience Nano, small vessel DES, Xience Prime in the US, and ultrathin metallic DES next-generation balloons as well as our bio reabsorbable vascular scaffold, or BVS.

We've completed enrollment of our Xience Prime US clinical trial which is evaluating a range of stent sizes including small vessel and long lengths.

We remain on track for a US approval of Xience Prime in 2012.

In March at the American College of Cardiology or ACC meeting, we announced pivotal data for our MitraClip device from the landmark Everest Two trial.

MitraClip is in development for the treatment of mitral regurgitation which is the most common heart valve insufficiency in the world.

It effects more than eight million people in the US and Europe and is four times as large as aortic valve disease.

Mitral regurgitation is currently managed with medicine or treated with arrested open heart surgery with less than 20% of patients having surgery.

At one year, the MitraClip device compared to surgery met its primary safety and efficacy end points and demonstrated meaningful clinical benefits for patients, including improvements in heart function and quality of life, and a decrease in cardiac symptoms.

The Everest Two results demonstrate that the MitraClip is a potential new option for treatment of mitral regurgitation.

MitraClip is on the market in Europe and we submitted the final PMA module for FDA review in March.

We expect approval for MitraClip in 2011 based on the likely timing of a panel review in the second half of this year.

We also expect to present additional data from Everest Two at PCR here in May.

Also at ACC we presented new data from our BVS clinical trial.

Positive thirty-day results from the second phase of our absorb trial demonstrated no stent thrombosis, no TLR and a very low mase rate.

This phase of the trial enrolled 100 patients and incorporates device enhancements designed to improve deliverability and vessel support.

These results build on the long-term success we've seen for the BVS technology in the first phase of the absorb trial which has generated positive data on 30 patients out of the three years.

Abbott is the only company with long-term clinical data evaluating the safety and performance of a BVS.

We plan to show six-month data from Coreheart B at PCR.

We also advancing our balloon offerings with the goal to recapture the number one share position in balloons over the next few years.

In 2009 we launched our Voyager NC balloon and gained approximately six share points of the total US balloon market.

We plan to launch our next-generation balloon in the front line segment, the largest segment of the market later this year with the expectation for continued market share gains.

So in summary, we are pleased with our better than expected performance in the first quarter.

We delivered ongoing EPS at the top end of our range at $0.81, and excluding the impact of healthcare reform as Tom mentioned, EPS would have been $0.84, or growth of 15 %, beating the first call mean by $0.04.

We effectively raised our ongoing EPS outlook excluding healthcare reform, with healthcare reform the midpoint of our newly updated guidance range reflects approximately 12% EPS growth over the prior year.

We also had a better than expected gross margin in the quarter and double-digit investment spending including nearly 15% in R&D.

We delivered double-digit sales growth across our four broad-based businesses including strong performance of our immunology and lipid franchises in line with our expectations, impressive performance of our international vascular business, broad-based growth across our global nutritional business and double-digit growth in diagnostics.

And we saw continued productivity and movement within our broad-based pipeline.

We also looking forward to upcoming data publications and data presentations from our vascular business including PCR in May.

And, over the next several months, we'll be participating in several upcoming healthcare conferences with our senior management team, Tom Freyman and Miles White.

And with that, operator, we will now open the call for your questions.

Thank you.

(Operator Instructions) Our first question is from Mike Weinstein from JPMorgan.

Thank you, good morning.

Let me start with healthcare reform which took a little wind out of your sales this quarter.

Obviously you would have beaten by $0.03 absent reform and it's taking $0.11 out of this year.

If I look at 2011 in the comment that it should have been a little more than $200 million incremental impact over 2010, is that roughly another $0.11?

Mike, this is Tom, obviously the majority of this adjustment is basically in the revenue line so there's a pretty heavy fall through.

So I think using a rateable estimate would be appropriate.

Obviously we've got a lot of things going our way in 2011.

Certainly this is going to be part of our mix as we plan for that.

As always, we target double-digit growth as we go into a planning cycle.

And as you know, next year between improvements with Solvay and various other margin improvement initiatives we've taken on over the last two years, I think there are a lot of good things going our way to help mitigate what is a new cost of doing business.

Right.

Tom, can you talk a little bit about Humira growth in the US?

You obviously had an easy comp this quarter and so you put up very good numbers.

Can you give us your thoughts on how growth looks from here?

And while you are talking US, can you talk internationally as well?

Well, international continues to be very strong as you've seen.

I mean, we continue to be in the strong double-digit area and we are very much in line if not, with our expectations for the quarter and I think with investor expectations, and we expect to see that rate of growth continue throughout the year.

So we don't really see a slow down in international.

The product continues to be competing in markets that are less penetrated and it continues to gain share and our execution continues to be outstanding.

As you know the US Market has been a slower growing market in the last couple of years just because it's more penetrated, but still very good growth and I think you have seen scrip rates in the upper single to low double-digit range depending on the period you look at and we would expect growth in that product to continue pretty much in line with scripps.

And I would add to that, mike, the penetration rates obviously remain fairly low across the globe.

In particular, they are low outside the US Where we have only low single digit overall penetration rates in dermatology, low double-digit type rates in gastroenterology and in the mid-teens in rhematology.

Let me ask one more question, then I'll drop.

TriCor/Trilipix, post the Accord presentation, if I missed it I apologize, but A) have you had any discussion with the FDA about an advisory panel and, B) just talk about scrip trends and your view of the product in the wake of that data.

Let me first comment on the Accord data.

The FDA did indicate after the NIH presentation of Accord that they would take a look at that and they are doing that.

We've had no further discussions with them about a panel.

We don't believe that a panel would be necessary but obviously that's always the prerogative of the agency.

As we mentioned before with regards to Sertriad, we are working with AstraZeneca to have a meeting set up with the agency and move forward on that.

We still have a lot of confidence in that product as well as Accord.

I would tell you that following Accord there's been no change in physicians providing patterns or behavior.

In fact, the overall scrip trends have been consistently strong and well above the market rate.

Larry, would you ad anything?

I would say we've seen four weekly data points post ACC for the TriCor/Trilipix scrip trends and they do look very consistent cross those four weeks.

Our next question is from Glenn Novarro from RBC Capital.

Thanks, good morning.

Two questions on Solvay.

One, you reiterated you expected $2.9 billion in revenues yet the dollar continues to strengthen, as you look at that $2.9 billion, are you saying that you are seeing better growth or you're feeling more optimistic about some of the products that you've acquired in that portfolio?

That's question one, and then obviously we've all looked at the $0.10 of accretion this year and we thought some of it would be spent away via acquisition, and given the impact of healthcare reform I'm wondering, is that cushion now going to be used for Medicare reform or should we still see the Company active in acquisitions this year?

Thank you.

Glen, this is Tom.

I would say at this point, obviously in the quarter we only had a very small portion of Solvay activity.

Fundamentally we don't really have a different view on the sales performance of the underlying product and I think when we put our plan together, we had exchange rate assumptions that were not too different from even where we are right now with the dollar.

I mean, obviously there's more to the world than just the Euro and certainly the Euro has been a little week.

But a number of the other currencies very stronger.

And as I indicated in my remarks, our basic view on exchange impact on the topline for the Company continues to be for the full year in that 1% to 2% range.

So not a lot of change for our outlook on exchange.

And I think we'll have a little more color on the Solvay product performance by the second quarter as we get more than, for example, the two weeks we had in this quarter.

In terms of performance in the numbers.

So no fundamental change there.

Obviously with the question on spending, I mean with the Solvay acquisition we are bringing a lot of bear their spending into our P&L.

We've been very outspoken about the R&D, that we are bringing in the $500 million, our ability to increase investments overtime, reallocate those to high priority opportunities.

And you have seen some licensing over the last three, four months in Pharma as we augment our pipeline and certainly some of those programs which John talked about in his remarks will be partially funded by the increased opportunity we get from Solvay.

So I don't think fundamentally Solvays impact on our 2010 results is much different than what we thought about back in January and I think what you're seeing with us absorbing part of healthcare reform is basically better performance across our businesses and so that the entire $0.11 impact is partially offset by better performance.

Just a follow up on the M&A side, will 2010 be somewhat of a similar year to 2009, where we see more tuck ins than something on the larger side?

Obviously we were very active in 2009 culminating in the closing of Solvay this quarter.

And when have you that much activity, I think it is important for the most part to focus on integration and kind of take a breath and be sure that the assets we've acquired are going to perform at the level we expected when we acquired them.

That said, as you know, we are always looking at opportunities.

I think your characterization is correct that if we were to do anything more it would tend to be augmentation of pharma pipeline which I would characterize as tuck in.

We also continue to be interested in emerging markets and geographic expansion, complementary to the product lines we have.

So I think the way you've characterized, if there is more activity this year, as more tuck in, I think that's appropriate.

Okay.

Thanks, Tom.

Thanks, Glen.

Thank you.

Our next question is from David Lewis from Morgan Stanley.

Good morning.

Tom, it's pretty clear that cooperating performance is helping to offset the impact of reform.

Can you walk us through some of the primary drivers of operating improvement here in 2010?

I'd say fundamentally at least in the quarter, and I'm hopeful we do a little better during the year, we are just seeing a little bit better gross margin performance, a better product mix, a little more efficiency in our manufacturing operation.

I'd say fundamentally that's what we saw in the quarter.

We are expecting a little bit more of that in the forecast and we'll see if we can do better as the year progresses.

Just as a follow up to that, obviously GMs were very strong this quarter than versus our expectations but then obviously core spending as you highlighted was also higher as well.

How should we think about both those GMs and spending trends playing out throughout the remainder of the year?

The forecast I provided in my remarks were totally consistent with what I said back in January, around 9.5% of sales in R&D and a little over 27% for SG&A, as we talked about back at that time, our SG&A profile we do believe will pick up this year because of the addition of Solvay.

Solvay spend more per dollar of sales than our average and so we do expect to have that to tick up.

But as we've also said, we are planning very few efficiencies during 2010 related to Solvay.

It's going to take time for to us complete our integration plans and begin to execute, and we do expect that trend to reverse in 2011.

As I responded to the first question on the call, part of our mix as we go into 2011 is the return to SG&A leverage and improving gross margin and I think you are going to see that trends go back the other way next year.

Very helpful.

Last question, Tom, just thinking about cyclical recovery, many kind of peer group companies are talking about some level of cyclical recovery in certain areas of your business, whether it be AMO and specifically in diagnostics, it seems that there may be some evidence that you are seeing similar trends.

Maybe talk about have you seen a material evidence that we have some evidence of cyclical recovery or is it too early to tell?

In general as you recall from last year we generally had relatively modest impact of economics even in our diagnostics division which perhaps some companies had some economic impact but because we are not capital intense in that business and we tend to, the vast majority of our business is disposables we really didn't see much change due to the economy there as well.

I characterize it as just slightly more optimism, for example, in the lasik area, but nothing that we would bank on as a significant recovery this year.

As you recall in our guidance call in January, we were not counting on much economic recovery, so from our perspective we are just starting to see a little, not significant to our forecast.

We are hopeful as we move into 2011 that that will pick up and some of these businesses that are a little more sensitive to the cycle will start performing better.

Thank you very much.

Thank you.

Thank you.

Our next question is from Rick Wise from Leerink Swann.

Hi, good morning.

A couple things.

One briefly back to Humira, just to make sure I'm thinking about it correctly, so the report, had you guided to us 20% Humira growth reported sales growth, but now currency trends are less favorable than when you originally issued the guidance in January, so maybe in essence is it fair to thinking that your forecasting better operational growth (inaudible) Humira and absorbing the less favorable currency?

Rick, again, Humira is going just fine and growing with our expectations, maybe a little better.

Again, when we put our plan together relative to currency forecasts perhaps we were a little more conservative than others.

For the full year we are not seeing net across all the currencies much change from our initial expectations so hopefully, it's kind of steady as she goes as far as we're concerned.

The product continues to perform extremely well but I wouldn't characterize currency as being a big driver in this forecast.

Okay.

Is (inaudible) complete response letter, can you update us there, does it change your view at all as to what peak sales could be just given the timing of generics in 2012?

As I mentioned on the call remarks, Rick, we have, we are working with AZ to prepare this briefing package in response to the complete response letter.

We will share that with the FDA at the appropriate time and then request a meeting as would be the normal sequence of events in this.

We still have a high degree of confidence in the product as does AZ.

I don't think we've had any difference in our expectations for peak year sales.

Obviously for modeling purposes all the guidance we gave today, we are not assuming any sails this year which wouldn't be the prudent thing to do, but we do have high expectations for the product going forward.

We haven't given a peak year sales forecast per se, but given the data that we've seen, the fact that there are two strong products both involved in that product, as you know, and the information that we've shared so far, we feel good about that.

And so that's where we go.

We go forward from there.

A couple last quick once.

Just to make sure I understand your comment, Tom, you expect the SG&A as a percentage or you hope you're trying to get SG&A as a percentage of your sales in 2011, less than wherever you ends up in 2010, so however you are modeling it, you think is --

That's correct.

We expect as the Solvay integration gets into true cost reduction mode that we will be able to take cost out there without impacting investment in the business or the things that are going to drive longer term growth and start seeing leverage again in SG&A the way we saw it in 2008, 2009.

Just last on Diabetes, you talked about the improving margins, maybe just given us some perspective or where we are and where we could go or what's happening and when you expect to see a rebound there back to some kind of normalized growth?

Thank you.

So diabetes care overall we are seeing a nice steady performance as we talked about in my remarks.

I think the main focus there as we talked about in the past here recently is approaching that business more like we did the diagnostics business a couple of years ago and improving the profitability of that business and focusing on the right patient mix on more profitable party mix and we've been more disciplined about that and we are seeing the results of that.

So the outlook is steady, but that market does see some impact from the economy and there has been some decline in price and volume as a result.

As people become more price conscious.

But we are starting to see that improve slightly as we go forward here.

Thank you.

Thank you.

Our next question is from Sara Michelmore from Cowen.

Great.

Thank you.

Tom, I was hoping you could comment on the operating margin trends in the vascular business.

That was a huge up tick for you in 2009 and I'm just curious where we are this year looking out and just if you could talk about some of the investments you are making there in new products and how that shakes out in terms of the margin trend there?

Sure, Sara, as you know in 2009, we moved the op margin for that business to around 20%.

I mean that's gone from basically a loss position two years ago to a very nice profitable situation and as always included into in that 20% is amortization expense from the deal, so the cash out margins if you think about it that way are actually higher.

We have forecasted for 2010 a move into the mid 20s.

The volume we are getting out of markets such as Japan and continued growth in Europe and improvements in share in the US is continuing to drive efficiencies in that operation and they continue to do an outstanding job from a manufacturing perspective and from that an efficiency point of view as well.

I think there's room to go further in that business as we go into 2011 and as I said earlier part of our thinking on 2011 is when we look across these businesses, whether it's SG&A leverage or manufacturing gross margin improvement, we see pretty much margin improvements across all of them and we think vascular will be one which is going to be an important part of our planning as we go into 2011.

Great.

I assume Humira is another one or are there other products and services areas or specific products that we should be thinking about that have that trend?

It's pretty much across the businesses.

We talked about diabetes a minute ago, we expect better op margins there from some efficiency programs.

Diagnostics, we've gone through this fairly significant efficiency plan that's taken a couple of years to implement.

The savings of that really start kicking in in 2011.

And our institution are nutrition business we expect to see some improvement there as well.

So it's pretty much across the board and with the product mix in pharma improving we'd hope to satisfy a little bit there as well.

So it's really across all the businesses, Sara.

Okay.

And, John, thanks for going through some of the pipeline details.

Just curious, are there any upcoming data presentations that you'd point out to us, either phase II programs that might be at ASCO any additional look at the 874 phase III clinical trials coming up in the next couple of months?

Yes, we do have a number of those.

I talked about some of them.

I'll let Larry describe a few of those.

We don't have specifics on some of those yet but there are a number of data presentations from some of these earlier stage programs that we are real excited about that are moving more rapidly through the pipeline now, if you want to talk about some of that.

Yes, at ASCO we will see data across three of our oncology programs, a combination of phase II data for 263, ABT-888, as well as 869.

We will see also 874 data, there's a final phase III study that should be presented later on this year at a fall DERM meeting.

We will also see Humira (inaudible) colitis data.

We've scene induction data already, though that will be again presented at DDW here in May.

We will also see for the first time the maintenance data at a conference later in the year.

I don't have the specific venue or timing for that just yet but you should see that later in the year.

And on the other side of the business, don't forget at PCR in late May, we'll see some additional one year results for MitraClip.

John mentioned BVS data, six-month data from Cohort B will be presented at PCR.

We will also see some additional Xience data there.

And in the back half of the year, we've got the MitraClip panel as well as the Synchrony panel, and at the Synchrony panel, that would be the first presentation of the pivotal data for that product.

Then, of course, as I mentioned in my remarks the Spirit IV data being published in a major medical journal will also be a "catalyst" if you will, if you are looking for those things.

Then lastly if you could, are there any items from the Solvay Pharmaceutical pipeline that you'd highlight?

You mean in terms of data presentations?

Just in terms of products that you guys are focused on or think that are interesting.

The two big products there are Creon and AndroGel, both are doing very well.

Because of the close of the deal, we weren't in a position yet to break those out but we might do that going forward.

Creon has really done very well, gained significant market share over the last year.

And then AndroGel has been surprisingly strong as well.

We are going to talk about that more as we go through the next quarter.

Obviously, a partial quarter on those products wouldn't have been very meaningful.

Yes, you've probably seen that the partner on gabapentin ER discuss the recent filing of the US NDA for that product.

That's another piece from their pipeline that's moving forward.

Great, thank you.

Our next question, Sebastian (inaudible) with Goldman Sachs.

Good morning.

This is Sebastian in for Jami Rubin.

First off, can we just talk about additional pricing details for the DS business in the US, Europe and Japan?

What information are you looking for?

Just in terms of the for the first quarter pricing trends for drug leading stents in those various geographies.

We haven't seen any incremental overall pricing pressure.

As you know, this market has always been competitive.

There has been some price being taken by some of the other competitors, older technologies in certain select accounts.

We are pretty good sequentially.

Year-over-year as you probably know, the overall pricing is down in the marketplace which was expected.

But as we go through the year and as we've launched Prime XUS and now Xience in Japan, both of those are premium priced products into premium markets where we are getting the premium for the technology and the kind of data results that we've shown with Xience.

So US, decline as expected, but the volume obviously increasing significantly.

And the bottom line performance of the business increasing significantly, and then premium pricing outside the US.

On a sequential basis in the US, then, drug leading stents for Xience, Xience pricing has been roughly flat sequentially in the US?

It's down probably low single digits in the US.

Have you been able to take price in Europe with Prime?

We have.

We are getting a premium price with Prime in Europe as we move to supplement our product portfolio in those markets.

So as we look forward to like the five-points of operating margins, improvement in vascular business in 2010, if pricing will be flat to down likely on a sequential basis and especially year over year, will that operating margin improvement be driven mostly by the roughly $850 million in additional geographies for 2010 or are there metrics there we should be looking at?

Yes, this is Tom.

You are getting a lot of leverage from the incremental sales in Japan, Asia, the markets we've launched in this year, we have relatively fixed expense base and a more efficient manufacturing operation, very sensitive to volume increases.

So the dynamics there continue to be very good as we continue to be expand geographically with the product.

And I'd also keep in mind that we planned for a US lower pricing environment this year that was in our expectations and continues to be as we talk about these businesses and the growth rates.

Okay, great.

And then for the Humira pricing environment in Europe, are you not seeing a significant pricing pressure from EU markets such as Germany, Spain, Turkey and UK?

Or is Humira offsetting its pricing entirely with share gains?

This is Tom, certainly for decades we've been dealing with government programs that the general trends is downward price of very low single-digit type over the years and dealing very well in those environments.

When we went into our 2010 planning cycle, we were cognizant of, because of the economic downturn and the pressure on tax receipts, that there potentially would be a little more pressure on European healthcare budgets in particular and we planned for that going into 2010 and the news head lines have been there and you refer to them in your question.

Certainly we have seen a little more pressure, but that's pretty much in line with our expectations and our forecast that we provided today, the updated guidance, et cetera, take into account what is happening in Europe with some of those budget issues, whether it's that product or any other.

Then finally, I know we touched on M&A already, but maybe taking bigger picture five years down the road.

We have seen a flurry of small to mid-size deals lately, but is there kind of an estimation or a goal for achieving estimated M&A revenues as kind of a percentage of total revenues five years down the road or what's the largest strategy that Abbott is employing with kind of its increased deal activity?

I mean, our forecast to and expectations, our base line assumes no significant M&A activity.

I know we've been pretty active over the last few years and I think the assets we brought into the portfolio have been truly outstanding and it really accelerated the base line.

But our expectation going forward is to deliver the types of growth people expect, largely from organic sources and then if we can opportunistically find things to add to bring a little more accelerated growth, we will consider that from time to time.

But we are not counting on M&A to deliver the growth we are expecting.

All right.

Thanks a lot.

Thank you.

Thank you.

Our next question is from Bruce Nudell with UBS.

Good morning.

First question is to that very topic that you discussed, no one doubts the acumen of the management team or the earnings power of the Company as figured today.

I think people are less certain about the trajectory of the topline over the midterm with the products are through phase III or progressing through phase III, just to put a number on the base line, top line that you guys expect to deliver with what you know is pretty firm, could you just articulate that

Well, I think there tends to be when people are looking at our overall topline it tends to be a little more focused on pharma when they are doing that math in their head.

Obviously pharma is point for us but we have 40%, 45% of the business that is nonpharma that is totally different from a portfolio perspective, from a growth rate perspective, from a durability perspective.

And it's not just the product mix that people have to consider, but it's also the geographic mix which we are becoming more and more an international company.

John talked extensively in his remarks about the various emerging markets initiatives across the businesses.

And for us that's not only pharma but it's nutrition, diagnostics, vascular and all of these markets where there is a tremendous amount of geographic growth potential in the mix for Abbott.

And when we put that all together, I think we have to have a base line revenue growth in the upper single digits to achieve what we expected to do from an earnings perspective and I think that's very achievable when you look broadly across the portfolio and you look at our pipeline is starting to progress, and products coming out in three, four years and the growth potential of the product in the mix already being very strong over the next three, four years until we bring stronger pharma growth to the mix.

So there's a lot going on.

Emerging markets geographic is key and I think those revenue forecasts are achievable.

One follow up on Humira, the markets are relative opaque for us but do you perceive, just given the potential geographic roll outs and indication expansions around the world, do you see that deceleration which is inevitable to be kind of gentle going forward?

This is Tom, tremendous quarter again this year, 37% Humira growth in the quarter, 30% excluding (inaudible) a very strong quarter and obviously it's going to be another great year for Humira.

But as you indicate there, tough to grow at that rate forever, we do see very strong double-digit growth for many years to come and declining somewhat year-over-year but still very strong and it's just going to become a little less important an element of our growth over the years as these other businesses and geographic expansions, et cetera, contribute more and more going forward.

Thanks so much.

Thank you.

Our next question is from Derrick Sung from Bernstein.

Good morning, thank you.

Let me follow up briefly on that last point you were making on the Humira US growth.

Even in this quarter, while you did see very strong growth of 27%, there was king of a step down from the low 40s, the run rate that we've been at for the last few of quarters.

Did you have the visibility to point to any new indication expansion or any event that we are kind of anniversarying leading to that step down and then, more importantly moving forward, are there any sort of indication expansions, new entries into countries that we can be aware of to help us model how that step down might occur moving forward?

This is Tom.

I can't identify anything specific to your question.

I think it is a bit of the law of large numbers much it's a very significant product for us outside the US but, and certainly I think there's a little economic impact in there in some of the price discussions we had before, certainly some of that rolls through the growth potential as the European budget tighten down a little bit this year.

That's probably the one thing thats a little different than last year, again which we planned for and have reflected in our forecast.

I think it's really just the fact that the business has gotten large and I still think 27% is a very strong rate and we expect strong double-digits to continue in this international market.

In terms of new geography, Derrick, this is Larry.

John mentioned that we did get in Japan the psoriasis and psoriatic arthritis indication approvals here early in 2010 that's something that will expand our opportunities in the Japanese market over time.

RA continues to move up in Japan for us as well.

We just got approval for that in mid 2008 but as you know, that market takes a little while for all products to evolve and so now we are hitting stronger portion of the run rate for RA in Japan.

We also have other countries, we mentioned RA and China.

We continue to roll out crohn's disease in some latin America countries that haven't gotten it yet.

We're rolling out psoriasis across some eastern European countries, South Africa, et cetera.

So there still is geographic expansion for the product going on.

Okay.

Great.

Going back to healthcare reform, can you run us through the key pharmaceutical products that have exposure to Medicaid that are going to get a hit on rebates this year, and then also next year the Medicare products that will be exposed to the doughnut hole fill?

Virtually every product has in our release, it's basically allocated by product.

So every single product has some impact of the higher Medicaid rebates in the quarter.

I would say generally speaking the antivirals are a little more, lipids are a little more.

Humira is probably a little bit less.

And we even have some residual, as you know, Depakote, the neuroscience products, tend to be quite a bit higher Medicaid and while that did go generic last year and our sales were down to $300 million last year, that's still a base on which we did give up some additional rebates for Depakote in the first quarter.

I think that characterizes, but one thing to keep in mind as you look at our sales growth numbers for the quarter is virtually every product had some impact from these Medicaid rebates.

As we look forward to between 2011, are some there certain products that might have more exposure to the doughnut hole fill than others?

That's very hard to tell because the mechanics of how the doughnut hole is going to work and you can have some relatively low cost products once you are in the doughnut hole getting rebates, so it's a pretty tough thing to estimate at this point in time.

Okay, and lastly, when can we expect to see some operating leverage in the nutritions business?

You mentioned that there was some opportunity there.

I don't think you are going to see much operating leverage in 2010 because given the strong topline growth you are seeing there, it's being driven by continued SG&A investments and basically feet on the street in a number of these markets and 2010 is another year where we are doing that.

I am hopeful we can see some op margin in 2011 as that stabilizes a little bit but the reason nutrition has been fairly flat is that's been a relatively higher SG&A investment business for us.

Great.

Thank you very much.

Thank you.

Our next questions is from Catherine Arnold from Credit Suisse.

Good morning.

Obviously gross margin is an important feature of this year and you had given us guidance on a consolidated level that you expected expansion.

I wanted to ask you two questions about gross margin.

One is when you gave that guidance did you anticipate healthcare reform and had you incorporated some element of risk to your outlook for gross margin such that you had already factored that in, or should we be thinking about the fact that your optimism suggests that despite healthcare reform you are still comfortable with the gross margin?

And the seconds piece which I know might be a little bit detailed but I am asking for the summary version of this is, if you sort of tick through your divisions if you could talk about what the key drivers are positive, negative, in terms of gross margins that will get the consolidated, is there any division that you are not going to really see improvement, there is a lot of things going on with mix and volume and reform, so if you just step back and went through that, that would be helpful.

Sure, Catherine.

I think you've captured really a good point in terms of our gross margin forecast for the year.

As I indicated in my remarks when we did guidance, the outlook for healthcare reform legislation was very unclear and we did not incorporate that into our gross margin forecast.

Despite that in the quarter and the fact that we did have $60 million sales effect of healthcare reform, we outperformed our forecast in the quarter and for the full year we've pretty much held it steady despite the fact that we are getting around a $230 million sales impact for the full year.

So that does indicate underlying across the business, better performance than our base line expectation at the beginning of the year.

I think you captured a good point and I think it shows that once we get through this phase of transition on healthcare reform, the trends in our business continue to be good and I've talked about a number of these during the call this morning.

We talked extensively about vascular with the volume impacts being very beneficial to their gross margin.

Pharma, when you strip away healthcare reform, between Solvay coming in which is positive to our margin and the mix effect of lipids and Humira and the like, the trends there are positive as well.

Diagnostics is clearly one that is going to particularly in 2011 have a nice step function in gross margin as the savings from these cost reduction programs they initiated a couple years ago started kicking in.

So those are the big ones that are going to be driving improved margin performance in 2011 and you are already seeing some of it in 2010.

Tom, as a quick follow up is there any comment to be made about nutritionals or opthalmology businesses?

Nutrition I would characterize as fairly steady because of the nature of the manufacturing processes they are being much more material than labor or overhead.

It's a little tougher to move cost savings into that business, the margin is more impacted by geographic mix and product mix and I see that one as being steady to only slightly up and IChair and AMO, I think the key one there is going to be when the lasik business picks up.

I think that's a profitable piece of that business as volume increases.

We're not seeing much this year as I indicated in my remarks, its fairly steady there in 2010.

Hopefully if we get some economic impact that one will start moving the right way in 2011 as well.

That's great.

Operator, I think we have time for one last question if there is one.

Thank you, our final question today is from Larry Biegelsen from Wells Fargo.

Good morning, thanks for fitting me in.

I apologize if you already talked about this but Solvay contribution in the quarter, did you give that out?

The dollar amount?

Yes, I mean, on the topline, and this is very ratable with the full year $3 billion number we provided, it was a little more than $200 million in the quarter.

And remember that was two weeks of international and six weeks of US

Exactly.

So if you do that math you'll find that it's very consistent with the $3 billion forecast for the full year.

And second, Xience Promus share in the US And Europe, I thought I heard a 60% number.

I'm not sure if that was US or Europe or both.

Yes, that was platform share in the US, the combination of Xience and Promus.

And Europe?

And Europe, I think we are over 30 now total share.

Then lastly, again on the M&A front, like a lot of pharmaceutical companys, your late stage pipeline has had some set backs recently, but the Facet deal looks like it brings you a nice asset there but that's more likely a 2014 launch I think I heard you say, so how compelled do you feel to add something a little more near term for your late stage pharma pipeline?

Thanks.

We like our pipeline.

We think we have a lot of good things going on progressing from our internal pipeline and to your point, Facet brings some very nice compounds in oncology and immunology into the portfolio that are particularly with (inaudible) later stage and so we should see those coming to market in the not too distant future.

In this business it never hurts to have more bets and we continue to be very vigilant and look at opportunities, particularly licensing opportunities to put more into the mix and increase the probability of getting more and more products out, so we're very open to that.

And I would say that's a focus area for us as I indicated earlier in some of the Q&A on this call.

Thanks, Tom.

Thank you, Larry.

That concludes our conference call today.

A replay of this call will be available after 11am central time today on our investor relations website at Abbottinvestor.com and after 11am central time via telephone, at (203)369-0548, confirmation code 138-1449.

The audio replay will be available until 4pm on Wednesday, May 5, thank you all for joining us today and please call us, call Larry if you have any questions.

Thank you.

That does conclude today's conference.

You may disconnect at this time.