美國雅培 (ABT) 2010 Q2 法說會逐字稿

Good morning and thank you for standing by. Welcome to Abbott's second-quarter 2010 earnings conference call. All participants will be able to listen only until the question-and-answer portion of this call. (Operator Instructions). This call is being recorded by Abbott. With the exception of any participants' questions asked during the question-and-answer session the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's express written permission. I would now like to introduce Mr. Larry Peepo, Divisional Vice President, Investor Relations.

Thanks, Wendy. 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 our outlook for the year. I'll then discuss the highlights of our major businesses. Following our comments, Tom and I will take your 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 1a, Risk Factors, to our annal report on Securities and Exchange Commission Form 10-K for the year ended December 31, 2009, and in item 1a, Risk Factors, to our quarterly report on Securities and Exchange Commission Form 10-Q for the quarter ended March 31, 2010, 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 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.

With that, I'll turn the call over to Tom.

Thanks, Larry. Today we're pleased to report the strong second quarter results, with ongoing earnings per share above our guidance range for the quarter. We delivered consistent results across our major businesses while taking actions to enhance our long-term growth, particularly in the emerging markets and with our pharmaceutical pipeline. This includes the announced acquisition of Piramal Healthcare Solutions, providing Abbott with the leading market share position in the fast-growing Indian pharmaceutical market. We also added to our emerging markets product offering with an agreement with Zydus Cadila of India to license a broad portfolio of 24 products in 15 emerging markets, with the option to access 40 additional products. And we're creating a new standalone established product division to provide focus, structure and resources to optimize the global market opportunity for our strong brand of generics portfolio. We also entered into a collaboration for a promising late-stage treatment for endometriosis, a product that will sit well within our existing Lupron franchise. And we completed the Facet Biotech acquisition, adding a compound for MS that recently entered Phase III studies.

In the quarter we delivered double-digit sales growth in most of our major global businesses and we reported ongoing EPS of $1.01, up 13.5% in 2009 and above our previous guidance range of $0.98 to $1. Sales growth in the quarter was 17.8%, including a favorable 2.7% impact from exchange rate. Sales included the first full quarter contribution from the Solvay acquisition, adding roughly $880 million in sales for the quarter. US pharmaceutical sales growth was impacted by US healthcare reform legislation and the continued generic impact on Depakote. The impact of additional Medicaid rebates required under US healthcare reform has been reflected in the sales of the respected US pharma products in our earnings release, lowering their growth rates in the quarter.

The adjusted gross margin ratio for the quarter was 60.6%, about 100-basis points ahead of our forecast, driven by strong performance across several business, including vascular, nutrition, diabetes care and diagnostics, as well as a favorable impact from foreign exchange. We also had strong double-digit growth in investment spending in the quarter, including the contribution from the Solvay acquisition. R&D investment reflects continued progress in our broad-based pipeline. This includes programs in biologics and vascular, as well as promising Phase I and Phase II clinical programs in HPV, oncology and neuroscience. The ongoing tax rate was in line with our previous forecast.

Looking to our outlook for the full-year 2010 we're confirming our ongoing earnings-per-share guidance range of $4.13 to $4.18, which excludes specified items. The mid point of this guidance range reflects growth of nearly 12% over 2009. We continue to expect strong double-digit sales growth for the full year, including the incremental sales from the Solvay Pharmaceuticals acquisition. For the first half we saw a favorable 3.4% impact on sales from foreign exchange. Assuming current exchange rates, we expect this favorability to reverse in the second half of the year. We're forecasting a negative impact from exchange on sales of 1% to 2% in the third quarter and 3% to 4% in the fourth quarter. So for the full year, we forecast foreign exchange to have a neutral impact on 2010 sales growth.

We continue to forecast an improvement in the full-year adjusted gross margin ratio over last year, with a 2010 ratio of around 59.5%. This increase reflects the favorable impact of improved product mix and efficiency initiatives. Also in 2010 we're forecasting continued investment and research in development programs to drive future growth, with R&D of approximately 9.5% of sales. As you know, we're adding Solvay to the expense basis here, which has a higher SG&A to sales ratio than Abbott. This will increase SG&A as a percent of sales in 2010 to more than 27%. As we've said previously, our 2010 estimate of Solvay accretion reflects no significant efficiencies in SG&A. We expect to generate efficiencies in 2011 and beyond. Since the close of the Solvay transaction in the first quarter, we've been actively engaged in the integration process and we're pleased with the progress. In the second quarter we recorded some additional one-time integration charges associated with the initial stages of the integration process, as we previously discussed. We're reaching the later stages of this process and expect to provide more details by the third-quarter earnings conference call. Regarding other aspects of our outlook for 2010, we continue to expect less than $100 million of other income. We're forecasting full-year net interest expense of approximately $475 million, with roughly $140 million in the third quarter.

Now, let's turn to our quarterly outlook. For this first time we're providing a third-quarter ongoing earnings per share guidance of $1.03 to $1.05. The mid point of this EPS range reflects growth over the prior year of 13%. For the third quarter we're forecasting low-teens sales growth, including the 1% to 2% negative impact from exchange previously mentioned. We expect an adjusted gross margin ratio of approximately 60%, R&D as percentage of sales around 10%, and SG&A as a percentage of sales between 27% and 28%. So in summary, we had strong performance in the second quarter and confirmed our outlook for double-digit ongoing earnings-per-share growth in 2010. This continues our track record of delivering consistent financial performance. We also advanced our broad-based strategy through a significant level of strategic activity in the quarter. We're strengthening our business through to the addition of new growth drivers, enhanced R&D productivity and geographic expansion to capture new growth opportunities in the years ahead.

With that, I'll turn it over to Larry 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 increased nearly 25%, driven by strong double-digit growth of our International Pharmaceuticals business, which comprises more than half of our worldwide pharmaceutical sales. Sales included the first full-quarter contribution from the Solvay acquisition, which closed in February. Over next several years, a significant growth driver in pharmaceuticals and across our other business segments will be emerging markets. In the second quarter as Tom mentioned, we announced three major developments in our ongoing emerging market strategy; steps that will position Abbott well in these high-growth areas.

First, we entered into a licensing agreement with Zydus Cadila of India to expand our portfolio of branded generics, which we've built over the years through legacy Abbott products and products we're acquired through Knoll and Solvay. Second, we announced the acquisition of Piramal Healthcare Solutions, giving Abbott the number one pharmaceutical position in India, an $8 billion pharmaceutical market that is expected to more than double over the next five years. Piramal will add more than $500 million in 2011 sales in India and we expect strong double-digit growth from this business in the coming years. And third, we created a stand-alone Established Products division, which will focus on the international opportunities for branded generics. This division will generate more than $5 billion in annual sales, with approximately half from emerging markets. We've put in place a strong management team and plan to report sales from this division beginning in 2011.

In our Proprietary Pharmaceuticals business, immunology, global HUMIRA sales increased 21%. Performance was driven by strong international sales growth of nearly 33% and US growth of nearly 10%. Underlying demand for HUMIRA continues to outpace the global market and new competitive entrants continue to track in line with our modest expectation for these products. A number of factors will continue to drive demand for HUMIRA in the years to come, including increasing biologic penetration, market growth, share gains, expansion into new geographies and new indications. 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 global marketshare leader.

Recently, we received approval in Europe to expand our Crohn's indication. This expanded indication gives HUMIRA a competitive advantage, incorporating several new additions, including three-year remission data. We're continuing to launch HUMIRA indications into new countries around the world. HUMIRA was the first biologic approved for the treatment of psoriasis and thoracic arthritis in Japan, and we also received approval for RA in China earlier this year. The growing awareness of HUMIRA amongst physicians and patients and the expanding body of best-in-class clinical data continue to position HUMIRA for success in the years to come. We continue to expect global reported sales growth of approximately 20% for HUMIRA in 2010.

Moving on to our lipid franchise, where global TriCor/TRILIPIX sales increased nearly 16%, including the international contribution from Solvay. In the US we did see a modest impact from the [accord] data in the quarter. However, prescription trends have begun to stabilize and physician feedback has been favorable regarding the results in the patient population, where fenofibrate is primarily used. Sales of Niaspan, our HDL-raising therapy, were up modestly in the quarter and up 8% year to date, in line with underlying prescription trends for the product. In fact, Niaspan prescriptions are growing more than twice the rate of the overall cholesterol market.

Regarding the US approval process for CERTRIAD, the fixed dose combination of CRESTOR and TRILIPIX, we continue to work with AstraZeneca to address the FDA's questions on the submission and plan to submit our response shortly. We expect to meet with the agency in the coming months. We anticipate FDA approval this year for two new dosage strengths of SIMCOR that include 40mg of simvastatin. When approved these will additional flexibility for physicians, as almost half of the simvastatin prescriptions are written for the 40mg dose.

US sales of two key products from the recent Solvay acquisition, AndroGel and Creon, were approximately $160 million and $55 million respectively in the quarter. AndroGel is the current market leader in the testosterone replacement market, an attractive category that's growing double digits. And Creon is the leading pancreatic enzyme replacement therapy. So as we look ahead to the third quarter, we expect double-digit reported sales growth in both our US and International Pharmaceuticals business, including Solvay.

Turning to our Global Nutritional business, reported sales increased 10% in the quarter, US sales increased low single digits. We reinforced our leadership position in the infant formula segment by expanding our proprietary Early Shield brand to our tolerance line. Early Shield features immune-supporting nutrients, as well as DHA and ARA for brain and eye development. Tolerance formulas make up approximately 30% of the infant formula market. In adult nutritionals, Abbott also holds the leadership position, with products such as Ensure and Glucerna. Next month we're relaunching our Ensure brand with a proprietary ingediant called revigor to help consumers maintain and rebuild lean body mass lost due to aging, illness, injury or surgery. The US population is aging, driven by the baby boomers, and the loss of muscle mass increases dramatically with age.

International Nutritional sales in the second quarter increased more than 19%, with strong double-digit growth in both pediatric and adult nutrition. We continue to penetrate fast-growing emerging markets, such as China, Russia, Southeast Asia, Brazil and India. We're increasing our footprint in launching next-generation products across many of our brands. Sales in emerging markets increased double digits in the quarter. So as we look ahead to the third quarter in our Global Nutritionals business, we expect high single-digit reported sales growth in both the US and internationally, which includes a negative impact from foreign exchange.

Let's now turn to Medical Products, which includes diagnostics, diabetes care, vascular, medical optics and animal health. We had a strong quarter in both sales growth and operating margin expansion in these combined businesses, further diversifying our earnings growth. In fact, operating margin for the Medical Products group increased more than $150 million over the prior year, resulting from improvements in manufacturing efficiency, commercial success of higher-margin products and overall product mix. In Worldwide Diagnostics reported sales increased 8%. In Core Laboratory diagnostics, which includes immunochemistry and hematology, reported global sales increased to 6%. Sales were primarily driven by continued double-digit growth of our ARCHITECT and PRISM platforms. We received approval for nearly 20 new assays worldwide in the last year; most recently in the United States new tests for HIV and ovarian cancer. Both tests are the first of their kind in the US. At the AACC Scientific meeting later this month, we'll highlight these new assays and showcase our leading ARCHITECT platforms, which we have recently enhanced to increase lab productivity.

In molecular, reported sales were up more than 20%, driven by our m2000 platform. We recently announced the FDA approval of our realtime PCR Chlamydia/Gonorrhea test for the m2000, which are two of the most prevalent STDs. In our Point-of-Care business reported sales were also up double digits, driven by the continued success of our Chem 8 test and cardiac menu. So as we look ahead to the third quarter and our Worldwide Diagnostics business, we expect low single-digit reported sales growth, which includes a negative impact from foreign exchange. In our other Medical Products businesses, our Global Diabetes business reported mid single-digit sales growth in the quarter. In our International business reported sales increased nearly 10%, driven by emerging market performance and the launch of our next-generation freeStyle and freeStyle Lire test strips. These strips feature a new easier-to-use design for faster blood application and reduce the number of error messages and wasted strips. In the US, we recently received FDA approval for these new strips and are preparing to launch in the coming weeks. So looking ahead to the third quarter in our Global Diabetes business, we expect low single-digit reported revenue growth, including negative foreign exchange.

Let's move on to Vision Care and AMO where reported sales were up low single digits. We continue to gain momentum with our new TECNIS multi-focal one-piece IOL, which we launched in the first quarter. Cataract surgery is the most common surgical procedure in the world and AMO holds the number two position in this segment. In Europe, during the quarter we launched our next generation contact lens solution, COMPLETE RevitaLens. This new product delivers high-quality disinfection and comfort for the patient, with the convenience of a one-bottle, multi-purpose solution. We anticipate US approval by the end of this year. Looking ahead to the third quarter we expect mid single-digit reported sales growth for AMO, including negative foreign exchange.

Turning now to our Vascular business, which delivered very strong performance again this quarter. Worldwide, reported sales were $835 million, an increase of 27%. This growth was supported by one of the broadest portfolios in vascular care, which includes more than 100 distinct brands across more than a dozen segments. In fact, with this quarter's performance, Abbott is now the global leader in total coronary stents, including both BVS and bare metal. In addition to strong growth in coronary stents, we also saw growth across multiple business segments, with mid to high single-digit growth in endovascular, including vessel closure, carotid stents, as well as guide wires and angioplasty products. International Vascular sales growth of more than 50% in the quarter was driven by the continued success of XIENCE and next generation XIENCE PRIME. Global BVS franchise sales in the quarter were roughly $475 million, up 45% from last year and 20% sequentially. XIENCE remains the market-share leader in Europe and other international markets. With the XIENCE PRIME launch in Europe, we've seen mid to high single-digit share point gains for the XIENCE franchise.

XIENCE also continues to hold its leadership position in Japan, with total XIENCE platform share exceeding 60%. Japan is the second-largest BVS market, with market sales of $500 million to $600 million. In addition, with the success of our XIENCE launch, we've share improvements in our core products in Japan, including bare metal stents and balloons. And in the US, the XIENCE platform, which includes PROMUS, maintained market leadership, with approximately 60% share in the second quarter. The SPIRIT IV trial results were published in the New England Journal of Medicine during the quarter. The publication of this data, demonstrating the superiority of XIENCE over TAXUS in real-world patients, followed by compelling safety data at EuroPCR are further increasing awareness of the strong XIENCE clinical profile among physicians. In the US, PCI volume was up modestly and BVS penetration was approximately 78% in the quarter, up a few points from last year, reflecting continued physician confidence in BVS. We're sustaining our worldwide BVS leadership with continued success in the US and Europe and the impressive launch of Japan. This strong top-line growth has led to continued improvements in the operating margin for our Vascular business. So looking ahead to the third quarter in our Global Vascular business, we expect mid-teens reported sales growth, which also includes the negative impact from foreign exchange.

Moving on to our broad-based pipeline, in Pharmaceuticals we have a number of unique compounds in development for oncology, immunology, HCV and neuroscience and pain management. In oncology we currently have nine new molecular entities in human trials, targeting more than 15 different cancers and tumor types. ABT-888, our PARP-inhibitor, is being evaluated in a number of cancer types, including a Phase II study in metastatic melanoma. Compelling Phase II data in breast cancer was presented at the recent conference ASCO conference. We plan to initiate a Phase III study of ABT-888 in breast cancer by year end. ABT-869, our multi-targeted kinase inhibitor, has already generated early data in liver, lung and kidney cancer. It's currently Phase III for cata cellular carcinoma and in Phase II for additional cancer types. ABT-263, our Bcl-2 family inhibitor, is in Phase II for CLL and other cancers, and in Phase I for a number of solid tumors. Additionally, our recent acquisition of Bassett Biotech included several oncology collaborations, including early to mid-stage compounds that are being studied for difficult-to-treat types of cancers. And we are evaluating a number of promising mechanisms in our preclinical oncology pipeline, including work on an early stage cMET antibody biologic .

In immunology, we're leveraging our experience with HUMIRA to identify new mechanisms with the potential to treat an array of autoimmune diseases. Our pipeline includes early-stage work in oral (demar) therapies, as well as a number of biologic candidates. This includes ABT-874, our IL-12/23 for psoriasis, which is on track for regulatory submission this summer. In HCV our goal is to transform current treatment practices by shortening the duration of therapy, improving tolerability and increasing cure rates. We currently have three compounds in Phase II and expect to advance a new mechanism of action into the clinic by year end. In neuroscience we're developing compounds to address conditions, such as Alzheimer's disease, schizophrenia, pain and MS. We currently have three compounds in Phase II development for Alzheimer's, two of which are also being evaluated in schizophrenia. And we also recently initiated a Phase III study of daclizumab, a next-generation biologic being evaluated in relapsing/remitting MS, the most common form of the disease. During the quarter we entered into a collaboration with Neurocrine to develop Elagolix, a first-in-class oral compound for endometriosis-related pain and uterine fibroids. A Phase II study was recently completed in endometriosis and a meeting with the agency is expected in the coming months to discuss the next steps for development.

In the medical product side of our pipeline two late-stage devices, Synchrony and MitraClip, are under US FDA review. Synchrony is our next-generation accommodating IOL, which is available in Europe. Accommodating IOLs are an advancement in technology designed to mimic the eye's natural ability to change focus. We recently received approval for Synchrony in Australia and New Zealand. MitraClip is our minimally invasive device approved in Europe for the treatment of select patients with mitral regurgitation, the most common structural heart defect in the world. Significant MR affects more than eight million people in the United States and Europe and is four times more prevalent than aortic valve disease. Currently MR is treated with medication, which only relieves symptoms, or it's treated through open heart surgery, which less than 20% of patients undergo, generally because they are too sick for the invasive procedure or not sick enough to warrant surgery. In the US, both Synchrony and MitraClip have been submitted for regulatory approval. Consistent with industry trends, we're expecting somewhat longer review timelines for new medical devices, including these products. Therefore, it's less likely we'll see advisory panels for these devices in the second half of 2010. In Europe, where Synchrony and MitraClip are approved, both products continue to perform well.

In our overall broad-based pipeline Vision pipeline we expect more than 20 new products in technology advancements over the next five years. This includes the European and US launches of our COMPLETE RevitaLens contact solution. In our market-leading Lasik business we're expanding our proprietary laser platform into new applications, including cataract surgery, and we're developing new diagnostic instruments and treatments to improve visual outcomes. In our cataract business, we continue to expand our premium and standard IOLs. In our vascular pipeline we expect to bring more than ten coronary technologies to market over the next five years, making Abbott's vascular pipeline the industry's most robust. These include new devices, such as XIENCE NANO small vessel BVS, XIENCE PRIME in the US and ultrathin BVS, next generation balloons, MitraClip, as well as our bio absorbable vascular scalpel, or BVS.

Regarding MitraClip in May at EuroPCR we announced additional subsets and longer-term data from our US pivotal trial. The US pivotal trial results, which were presented at ACC in March, demonstrated that MitraClip met both its primary safety and efficacy end points, suggesting that MitraClip may be an important treatment option for select patients with mitral regurgitation. Also at EuroPCR we shared six-month data from Absorb, our BVS clinical trial that showed continued impressive efficacy and safety results. BVS resorbs away after treatment, leaving behind a vessel that can move similar to an untreated vessel. Abbott is the only company with long-term data on a BVS. Also on our vascular pipeline, we remain on track for a 2012 US approval of XIENCE PRIME. Our US clinical trials evaluating a range of stent sizes include the small vessel and long lengths.

We're continuing to expand our position in the coronary market, which, excluding BVS, is a $2 billion global category. Abbott holds the leadership position in guidewires and bare metal stents and our goal is to recapture the market-leading position in balloon angioplasty, which accounts for nearly half of this $2 billion market. We've already had success with the launch last year of our VOYAGER NC balloon, gaining several share points in the US market. In Europe we recently introduced TReC, our next-generation balloon, and beginning later this year in the US. The TReC family will be launched in a range of sizes. TReC is also the delivery platform for Abbott's future generation of stent technology.

So in summary, we're pleased with our performance this quarter. We've continued to differentiate ourselves from our peers, with a diversified base of earnings, significant cash flow and our ability to deliver top-tier earnings growth. We did that again this quarter, exceeding our ongoing EPS guidance range and delivering more than 13% growth. We delivered double-digit sales growth across the majority of our broad-based businesses. We remained focused on improving the profitability of our core businesses and saw impressive performance from the medical device side of our business in the quarter, including diagnostics, vascular and diabetes care. Many of these divisions are ahead of expectations for improving our operating margin. And our adjusted gross margin ratio was approximately 100-basis points ahead of our forecast in the quarter. Our diversity, including our geographic diversity, allows us to us deliver stable, more predictable financial performance. We're focused on further diversifying into emerging markets and in the quarter made significant progress integrating Solvay and building critical mass through the announced acquisition of Piramal. With a portfolio of multiple, durable growth franchises, a broad base of new product pipelines and an experience senior management team Abbott continues as the leader in the global healthcare market.

With that, we'll open the call for

Thank you. (Operator Instructions). Our first question today is from Rick Wise with Leerink Swann. Your line is now open.

Hi, good morning, everybody.

Hi, Rick.

Thanks for taking the question. A couple questions. Maybe to start, maybe you can talk about -- on the Pharma side, was there any wholesaler stocking activity that we need to be aware of in the quarter, particularly HUMIRA, and maybe just expand on some of the drivers for HUMIRA growth, particularly in the context of what seemed to be decelerating in the US, decelerating IMS script trends. How do we factor that into the second half in 2011? Thanks?

Sure. As we look at the quarter certainly a couple things played into the sales growth for our Pharma products. Tom mentioned healthcare reform, that does have an impact, as well. There are puts and takes quarter over quarter with inventory levels. It doesn't take much to move around a little bit in terms of their sales growth. Even a tenth of a month can have an impact. So we did see a little bit on the lipid side and on HUMIRA, but for the most part, HUMIRA's performance in the quarter was pretty much in line with the underlying trends of the business. You talk about script trends, Rick. We have seen a little bit of movement forward and improvement in the overall market, as well as for HUMIRA script trends in the US. In June we saw 8% growth, which is better than what we had seen in May and April. So we're pleased with how things are moving for HUMIRA in the US. We're certainly taking actions here internally as an organization to continue to promote HUMIRA in the US. Certainly the economy's probably having a little impact, as well, but at this point we're pleased with where we're at in the US, ex-US , it continues to grow very well. We see market growth in most of the European countries exceeding 20%, so that looks very stable for us and we'd expect to see continued gross help there. And we reiterated our outlook for the year of about 20% reported growth for HUMIRA. So all in all, good performance for HUMIRA in

I appreciate that. Sec -- last question, maybe you could expand a little bit more -- and I apologize if I missed -- I missed the beginning of the call -- where are you at this point with rationalizing your global manufacturing base in light of the -- or post the Solvay acquisition? And just related to that maybe talk about your stepped-up, increasing focus on emerging markets. It just seems to me that maybe one of the factors internationally maybe Solvay helped -- that expanded distribution helped O-US performance this quarter? Thanks.

Rick, this is Tom. As you know, over the years -- you mentioned manufacturing, really across the businesses, we have initiated a number of efficiency initiatives, certainly in Diagnostics a couple years ago. You're seeing the benefits of that starting to flow through the (inaudible) margins as we get into the later stages of that process, so that's going very well. We've also done that in the Pharma business over the last few years and even in the Vascular business, particularly in vascular. That's another area where the benefits are playing out. We're seeing OP margins continue to expand and that's in part due to manufacturing action. If your question's alluding to Solvay a little bit more, I did talk about that on the -- on my script.

I'll come back to it, then.

Yes, I just -- overall we're pretty deep into the process. We've taken a few actions and we've taken a few charges through the first half of the year. We're going to finalize that activity during the third quarter, hopefully we can give you more color on that on the third quarter call. And we've focused more in that process on just SG&A efficiencies, and so at a future date, hopefully in the next 90 days or so, we'll be able to give you a little more color on that.

Okay. Maybe I'll follow up with just a question on EU pricing, Tom, if I could.

Sure.

We've had yesterday and today, and last week for us, J&J, Boston, everybody starting to talk more concretely about the pressures with Southern Europe but anticipating more pressure in 2011 just directionally on utilization, price, et cetera. Can you just update us your latest thinking and what you're dialing in and just maybe -- again, just your response on those issues?

I know this issue's come up probably broadly across the industry since the first quarter conference call. We were fortunate to have the opportunity to talk about this when we announced the Piramal acquisition. This issue came up and as we noted at that time, as we went into the 2010 planning process we knew from the economic challenges in Europe during 2009 that there would be a lag effect and there would be some more aggressive pricing and utilization actions and factored that pretty significantly into our 2010 plan. That, in fact, as most of the companies have talked about has played out, and we are -- what we estimated when we put our plan together is very, very close to what has played out for 2010. So I think between planning and management we've done a good job in anticipating that part of the environment. Certainly as we go into 2011 we will plan for more of that and certainly there'll be an annualization effect going into 2011 and we'll factor that into our planning, as well.

Thanks, Tom.

Thank you. Our next question is from David Lewis with Morgan Stanley. Your line is now open.

Good morning.

Hi, David.

Tom, I just wanted to start and come back here to margins for a second. I know you talked about Solvay and it does sound like you're well through the throes of restructuring or well into that process. Just thinking about much stronger-than-expected gross margins this quarter and, obviously, that seeming reinvestment in SG&A so higher SG&A spending would have expected. From an operating perspective can you give us some color on what's happening and driving the GM line, what's going on with higher SG&A spending and how we should think about those dynamics for the next 6 to 12 months?

Sure. Gross margin is something that, as you know, has been a key focus for us and certainly our investors over a number of years. We've been very gradually moving that metric up and internally, we have had incredible focus across the businesses on doing better there. Whether it's improved mix or efficiencies in operations every, single business leader is very focused on that. I think as we progress, the cumulative effect of many years of effort are beginning to pay off, and we're seeing -- frankly we saw better performance in the quarter than I expected and I think that's coming really across most of the businesses. So we're very, very pleased with that. I hope that's a continuing trend. Certainly that'll help us going into 2011. I just attribute it to a lot of management focus. Some tough decisions we've made over the years in terms of rationalizing and starting to reap some of the benefits of that.

On the SG&A area I think perhaps our spending levels were above your models but they're not significantly different than our initial planning. And I think perhaps, again, as we've said a few times, we're really running pretty much at the status quo SG&A level for Abbott and Solvay combined during 2010. And as we go through this integration process over the next few months and complete it, that's really when we're going to start to see some of the reductions and some of the efficiencies that'll really help our 2011 outlook. Internally I don't think we're far off of our spending plans. We are continuing to invest in those markets that are responsive to promotional investment, and so I think that's all a good thing and that's going to also set us up well as we move into next year. I think you will see leverage in 2011, but for this year, as I indicated in my remarks, it's going to be a little more steady state.

Okay, very clear. Thank you. Larry, just in terms of TriCor conversion, can you just update us on impact from ACCORD that we've seen post -- recent data and commentary, and then secondarily, in terms of the conversion to TRILIPIX where we stand and where you think is a reasonable level for us to exit the end of the year?

Sure. Following conversion we're still a little north of 30% and again, we haven't put out a specific target there in terms of how far and when, but we continue to promote TRILIPIX based on the benefits that are included in the label and we'll see where it moves from here. But we continue to move it forward. In terms of ACCORD impact, as I said in my remarks, we did see a modest impact as everybody follows the prescription trend over the month -- or over the quarter, I should say. We did see a little bit of an impact there and that reflected through in the sales for the quarter. But looking at the last four weeks, we've seen pretty stable prescription trends from here. And as we look at the back half of the year, just from a reported sales amount, don't forget we have what I'd consider to be a little bit more of a favorable comparison to the back half of 2009 for TriCor/TRILIPIX. We had a number of patient-assist programs running in the back half there that reduced our net realized price the way it was treated. So, again, probably a little north of 30% of TriCor/TRILIPIX conversion, a little bit of impact on ACCORD, but seeing stable prescription trends at this point over the last four weeks..

Okay. And then, Larry, just one quick one and I'll jump back in queue. Carotid Stent reimbursement, panel timine, have you provided a date or have a rough sense of when that could be?

No, we have not provided that externally at this point.

Okay, thank you very much.

Okay. Thanks, David.

Thank you. Our next question is from Glenn Novarro with RBC Capital Markets. Your line is now open.

Thanks. Good morning, guys.

Good morning, Glenn.

Couple of quick ones. One, Tom, just the gross margin guidance for the rest of the year. You had a very strong gross margin for 2Q of 60.6% and then you're guiding to 59.5%, which is -- for the year, which it will be a slow down in the back end. I'm guessing that that's more of a function of currency so any commentary there would be helpful? And then getting back on to the HUMIRA subject, you guys reaffirmed full-year guidance of close to 20% yet in the back end of the year internationally you're going to have some FX headwinds and then there's also the issue of pricing in Europe. So I wonder if you -- are there any markets in Europe, Japan that are doing much better than expected? Maybe walk us through why you're so comfort that the back end of the year for HUMIRA will remain very strong? Thanks.

Sure, Glenn, I'll take the gross margin question. Clearly based upon what's happened the first two quarters of this year we're pretty pleased with the trending in gross margin. I would like -- frankly, just from a planning perspective, I'd like to see a little bit more of the results in the rear-view mirror before I forecast significant improvement there from our original forecast. So I guess the answer in that one is I just -- I'm sticking to the original forecast and hopefully will do better. And again, that would bode well for the future if we do. And I think Larry will take your questions then on HUMIRA.

Sure. For the first six months if you look at the reported growth, we're a little north of 28% on HUMIRA, so in the back half certainly we are factoring in exchange, we are factoring in anything that comes out of pricing in Europe. I think the good news there is there's really nothing specific in any of these austerity plans that restrict access to anti-TNF, HUMIRA, et cetera. It's pretty much across their pharmaceutical portfolios, including generics. So I would say we've factored in all of that and would consider our estimate of, as you said, approximately 20% very attainable here for 2010.

Okay, great. Thanks, guys.

Thanks, Glenn.

Thank you. Our next question is from Jami Rubin with Goldman Sachs. Your line is now open.

Thank you. Just to follow up on Glenn's question on HUMIRA international, you posted almost $900 million in sales this quarter, can you parse out for us how much of that is driven by new markets, new geographic expansion, and how much of that is continued underlying growth and if you could just comb that out for us? And also, next year for 2011, Tom, you mentioned in your remarks that you planned a new -- launching HUMIRA in new geographic markets. Can you tell us what they are, the size of those markets? And also, I believe the ulcerative colitis indication is pending, or will be pending at the FDA, if you could answer those? And then my other question relates to your nerve gross factor drug, just wondering how you're thinking about going forward with that just given the setback from tanezumab? Thanks.

Well, on HUMIRA, Jami, I don't have a specific breakdown by country for you but I would say the European country where we are a significant player, again leading market share, we are seeing very strong market growth there in excess of 20% at this point. Japan is new for us, so certainly we're making progress there with the RA indications. We did just get approval, certainly in the early stages of launch in psoriasis and thoracic arthritis and then other indications like Crohn's and psoriasis start move out into Eastern European countries that we might not have been in as of this point in time. So I would say they're incremental from here but they still are opportunities for expansion. But the developed world growth in Europe, in particular, is still a pretty big component of our overall outlook.

UC, yes, we will file the ulcerative colitis indication, both in the EU, as well as the US here by the end of the year and that is a nice indication to have for our gastro sales force. They can actually go in and talk about the benefits of HUMIRA for UC. UC does have surgical options, but anti-TNF, excluding Remicade have been found to be useful in that disease state, so that is an incremental opportunity for us, as well. And then we're also looking at uveitis as a possibility indication. There's been some proof of concept there that TNF works in uveitis, so that's another potential opportunity for us down the road.

In terms of nerve growth factor, certainly the product that we have is early stage. We are just in Phase I. We're obviously assessing what has happened with Pfizer's Phase III three programs and see how that relates to our program. Certainly we're early in our development and we do have an opportunity to learn from their outcome. But at this point it could allow us to take a different approach with our trial design, patient inclusions, et cetera. But again, very early stage for us and it gives us an opportunity to evaluate exactly what the next steps for us would be.

Could I just ask one last question? Obviously emerging markets is just a huge new focus for the Company, have you actually broken out your emerging market sales, and can you tell us how fast those sales grew this quarter and what your expectations are for the year?

Yes, we don't have real time data for the quarter here. We talked pretty extensively about the magnitude of that during the discussions of the Piramal acquisition. The established products division within Pharma is going to be about a $5 billion business to start with, and then obviously we have very significant presence, particularly in nutrition really across all of the businesses. So that's something we'll have to consider in the future, tracking quarterly, but we don't have those numbers at our fingertips right now.

I mentioned Nutritional did grow double digits. That is one group that has historically reported up, but Pharma is still kind of a proprietary business and we'll have the numbers for the EPD next year.

Okay, thanks.

Thank you. Our next question is with Bruce Nudell with UBS. Your line is now open.

Thanks very much, just two very quick questions. Could you guys ballpark the impact -- dollar impact in 2010 and 2011 and austerity measures in Europe?

Yes. I would say that despite -- it's an issue, obviously, but it's a low single-digit type of impact on our business. So when you average it all out -- and I'm really talking on our Pharma business -- our international Pharma business, and again, that's kind of the number we planned for in 2010, and we basically -- I'd say the level that it's coming in at is roughly double what it was perhaps, say, in 2009 or 2008, in terms of impact in 2010. So, it's something to manage, obviously, but it's order of magnitude in that range.

Just to follow up on the -- the stent numbers are very impressive but the -- and I caught the first part of the Boston call. The worldwide pricing dynamic is just awful, and do you feel that the bioabsorbable stent or something else could really break that pattern so that the market actually starts to resume growth? Thank you very much.

Obviously certainly there has been price pressure in this market probably in the upper-single range. The great thing about our manufacturing efficiencies and the fact that the volume we get from the expansion, the market share growth, the geographic expansion, et cetera, has allowed us really to expand our gross margin. So obviously, we are compensating for the pricing impacts through the manufacturing process and growing the OP margin for the business. Hopefully, over time that moderates, but I do think you cite, certainly, a medium-term opportunity to stem the tide a little bit more because if the bioreabsorbable product does bring additional benefit to the market, which we think it will, it provides an opportunity to restate and improve the profit opportunity for that business.

Thanks, so much.

Thanks, Bruce.

Thank you. Our next question is with Derrick Sung with Bernstein. You're line is now open.

Hi, thanks for taking my question.

Sure.

Just going back to HUMIRA very briefly, you had been -- HUMIRA in the US had previously been making some pretty strong gains in the psoriasis market, you've seen some recent competition there and some competitor (inaudible) trying to take share. What's you current outlook for HUMIRA and psoriasis, is that still going to be a growth driver, one of the few remaining growth drivers in the US moving forward?

Yes, it will. If you look at the US penetration rate -- not only in the US, but internationally in the dermatology segment, those are down in the single-digit range. You mentioned a new product in the space. It in our minds it's probably still capturing share as a result of use and TNF failures and that is something that obviously is always out there. Not everybody has TNF as their primary driver of their disease. So as we've always said about ABT-874, our IL-12/23, that we would see it also functioning as a TNF failure product. So with that in mind and with the penetration rates as low as they are, we do believe that dermatology continues to be a very strong source of opportunity for us on a global basis.

Okay. Thanks, that's helpful. On your lipid franchise -- your TriCor/TRILIPIX franchise, you talk a little bit about the conversion rate, but it looks like script trends for that overall class of Fenofibrates seems to be slowing a bit in the US. Do you have any insights into maybe what's causing that and does that change your view at all on the potential for CERTRIAD and what that could bring?

Well, as I mentioned, we did see a modest impact from ACCORD during the quarter on script trends, you could see it as you look at the weeklies throughout the quarter. But over the last four weeks, we have seen a stabilization in those script trends, and again, we are getting favorable impact from the ACCORD results. Again, there was that subset analysis that the physicians are aware of that talks through what it does in terms of benefit in this high trig, low HDL grouping. So again, feel like we did see some impact, but have seen some stabilization here in recent weeks.

Okay, thanks, Larry. And then just one last question on impact of healthcare reform in the US. You've now seen the first impact of a first full quarter here in 2010, does that change your outlook or can you give any additional color on how the impact might look in 2011 with what we're currently seeing on the Medicaid rebate side but the additional doughnut hole fulfill in the other measures that might be?

Yes, there's no change to our expectations for 2010 or 2011. We provided full-year impact of around $230 million on our first-quarter conference call and that we would expect that to be in the range of the experience this year, and we said roughly an additional $200 million, a little more than that in 2011, as the fee kicks in and as the doughnut hole impacts kick in. Nothing we've seen thus far would change our estimates at this point. The toughest one to estimate there probably is the doughnut hole piece, but at this point we have no new information that would make us think it's anything different.

Right, thanks, Tom. Thanks very much.

Thank you. Our next question is from [Mayank Gandhi] with Cowen and Company. Your line is now open.

Good morning, thanks for taking my question.

Good morning.

Hi. I wasn't -- I didn't hear the opening comments -- I apologize if you already disclosed this -- but between the -- when you set your guidance last quarter and now there's been considerable momentum effects and obviously that's somehow written on your sales whether you're absorbing all of that in EPS, so can you just quantify what that headwind is to sales?

Roughly compared to what we thought back in April -- and of course all we do is project based upon the rates existing at that date. We have no more of a crystal ball than anyone else -- compared to what we delivered in the quarter compared with that last April forecast, we're roughly 1% less favorable due to exchange in the second quarter. So that was the top-line impact of the forecasting difference. To your point, we actually delivered above our guidance range. As we've talked about before, we, I think, on average compared to most healthcare companies probably have less volatility related to exchange, and obviously, as the quarter progressed we managed to deal with that in top-line impact. So that's roughly the difference compared to what we estimated back in April.

Great. And then just on HUMIRA, can you provide just a volume and price mix US and internationally?

Well, we usually don't break that down specifically, but you can look at the script trends, even if you just average the monthlies. Again, we saw a stronger performance in June at 8% here in the US, but the average for the month was probably closer to 6%. You get a bit of price and you get a little bit of inventory puts and takes and that's how you get to almost 10% growth for the quarter.

And internationally?

Well, international doesn't have a whole lot of price so it's mostly demand.

Okay. And then just looking at your pipeline, obviously your Pharma pipeline, there are a lot of potential opportunities, but as you are -- and you highlighted in the past that licensing is a near focus so as you are triaging potential opportunities, is there any specific therapeutic area or technology platform that is appealing to you?

Well, obviously, when we look at opportunities we start with therapeutic areas that both we have commercial presence in but more importantly, that we have scientific knowledge and expertise in that really allows us to go in the diligence process and make an appropriate evaluation of the opportunity. As I say, commercial meshing is a good thing in the long run. It would be -- there'd be some synergies from that. But what we have learned from HUMIRA and a number of products over the years is, if you've got a good product with good data, even if you don't have commercial presence, you can build that up. With HUMIRA we were never in RA, we were never in gastro, we were never in derm, but the product performs extremely well in all of those areas. We were able to build up commercial organization and we've executed extremely well. So it's a little more focused on the science and ideally we'd have commercial synergies, as well.

Okay, great, and my final question. Is there any update on the CERTRIAD complete response letter?

No. In my remarks I said that we would be responding to the FDA shortly, and we'd expect to meet with the FDA in the coming months.

Okay, thank you much.

You're welcome.

Thank you. Our next question is with Larry Biegelsen with Wells Fargo. Your line is now open.

Hi, thanks for taking my question.

Hello, Larry.

Couple of pipeline questions. MitraClip, could you give us a sense of the uptake in your procedures or sales per quarter? The Synchrony panel timing I think you filed last year, is there a delay in that? I know you touched upon that, Larry, in your remarks that you might not have a panel this year.

Yes.

And lastly, BVS. The CE Mark approval timing, could you remind us of what that is and are you planning to do a head-to-head study with XIENCE -- or what will be the comparative for your US pivotal trial? Thanks.

Okay. Yes, Mitral certainly it is on the market in Europe and is doing well. The progression there from the point in time when we bought it has been moving up. I would say that sales of Mitral are kind of in the high single-digits per quarter approaching $10 million, so that's good progress for us. On Synchrony, you're right, we did submit last August. I guess I would point to a recent panel that's just been established for an ophthalmology product that was actually submitted about eight months before Synchrony and their panel was just established here for the end of July. So as we look at the process, as I said in my remarks, we're just forecasting a little bit longer review timeline, simply adjusting our expectations to reflect the current environment and taking a little bit more realistic approach to how long things are going to take. And that includes building in a little more time for normal questions and the response review cycle, et cetera. On BVS, what we've said is that we're targeting a 2013 CE Mark for BVS and at this point we haven't laid out specifically what those trial comparators are going to be for you, Larry. So, at some point we will.

Okay. And on India, what's your understanding of the IP protection today. Are there any test cases of this post 2005 branded products in which the IP's been challenged and the branded company has won? How strong do you think the IP protection is in that market today? Thanks.

Yes, I'll just make a couple general comments. There has been in the last five years or so some legislation to improve IP. For us, Larry, that's not such a significant issue because our current business is largely branded generics. Obviously with Piramal that's all branded generics and our fundamental strategy is in that area. We have very, very modest expectations for patented products there, so we're not real focused on the IP situation. We think that the market growth is going to be in the branded generics area and as you know, it's a very different market and that's what our focus is.

Okay, thank you very much.

Thanks, Larry. Operator, we have time for one final question.

Thank you. Our final question today is from Matthew Dodds with Citigroup. Your line is now open.

Just a couple questions. On KALETRA the last couple quarters we're seen a pretty big sequential decline from the back half of last year to the front of this year, both US and O-US, so Tom, can you just say what's going on there. And then second, on Solvay, the $880 million, can you give us a rough estimate of what the US benefit was? Was it in the $250 million to $300 million range, roughly?

Yes, on Solvay of the amount I gave less than 30% relates to the US.

Okay.

And on KALETRA, I would say that it is pretty reflective of what's going on in the underlying dynamics in that marketplace. If you look at script trends, our reported sales are pretty much in line with those script trends. Don't forget that healthcare reform also has a pretty big impact on these types of products, so you can be picking up 4% or 5% decline just from healthcare reform, as well. But that included, as you look at script trends for KALETRA it's pretty much in line. It's a mature product for us and we're managing it accordingly.

And then, Larry, O-US, pretty similar in terms of the trend, just some slight share loss, or is it marketing?

Yes, exactly, there's a bit of share loss there.

Perfect. Thanks, Tom. Thanks, Larry.

All right, everyone, thanks.

And that conclude's Abbott's second-quarter conference call. A replay of this call will be available after 11:00 AM Central time today on Abbott's investor relations website at abbottinvestor.com, and after 11:00 AM Central time via telephone at 203-369-3035, confirmation code 7494858. The audio replay will be available until 4:00 PM on Wednesday, August 4. Thank you for joining us today. Take care.

Thank you. This does conclude today's conference. Thank you for participating, you may disconnect at this time.