美國雅培 (ABT) 2012 Q1 法說會逐字稿

Good morning and thank you for standing by.

Welcome to Abbott's first-quarter 2012 earnings conference call.

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

(Operator Instructions)

This call is being recorded by Abbott.

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

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

I would now like to introduce Mr.

John Thomas, Vice President, Investor Relations and Public Affairs.

Good morning and thanks for joining us.

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

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

Larry and I will then discuss the highlights of our major businesses.

Following our comments, we will take any questions you may have as always.

Some statements made today may be forward-looking, including the planned separation of the research-based pharmaceutical company from the diversified medical products company and the expected financial results of the two companies after the separation.

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 annual report on Securities and Exchange Commission Form 10-K for the year ended December 31, 2011, 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 will turn the call over to Tom.

Tom?

Thanks, John.

As you can see from our earnings news release this morning, we had a very strong first quarter delivering double-digit ongoing earnings per share growth and beating our original forecast.

We are very pleased with our start to the year and our outlook for the remainder of 2012.

As a result, today we are raising our ongoing EPS guidance range for the full year 2012 by $0.05 on both the bottom and the top of the range, reflecting another year of top-tier performance.

For the first quarter we reported ongoing diluted earnings per share of $1.03, an increase of 13.2% over the prior year.

Sales increased 5.9% on an operational basis.

That is excluding an unfavorable 1.3% impact from exchange rates, which was driven by strong performance across a number of our products and businesses.

Reported sales increased 4.6%.

In emerging markets, broadly defined sales increased more than 10%, excluding the negative impact of foreign exchange, with double-digit growth in key emerging markets across the businesses.

We also saw meaningful improvement in the adjusted gross margin ratio, up 260 basis points from the prior year to more than 61%, as a result of the many margin improvement initiatives we are implementing companywide.

In the quarter we drove better margin performance across our major businesses including proprietary pharmaceuticals, vascular, nutritionals, and diagnostics.

We delivered more than 13% ongoing EPS growth and a 150 basis point improvement in our adjusted operating margin while continuing to invest in the businesses.

Ongoing R&D investment was 10% of sales, reflecting continued progress across our new product programs.

We also accelerated SG&A investment behind many of our key products and businesses to drive future growth.

In the non-operating section of the P&L in the quarter the net foreign exchange gain/loss line was unfavorable $58 million compared to 2011.

Other income in the quarter included a $60 million favorable resolution of a contractual agreement.

These two items, therefore, offset in the quarter with neutral effect.

Turning to our outlook for the full year 2012, we are raising both our ongoing earnings per share guidance range $0.05 on both ends of the range to $5 to $5.10.

With our planned separation on track for completion by the end of the year, the guidance we have provided continues to reflect a full-year outlook for the Company in total.

Regarding sales growth for 2012, we continue to forecast operational growth in the mid-single digits.

Based on current exchange rates, we continue to expect a negative impact of exchange on sales of approximately 2.5% for the full year.

As a result, reported sales growth is expected to be in the low single digits, in line with the forecast we provided in January.

Also for 2012, we are forecasting continued improvement in our adjusted gross margin ratio which we continue to expect to approach 62% for the full year.

This reflects efficiency initiatives and favorable mix partially offset by the expected decline in US lipid sales and PROMUS royalties.

We are forecasting continuing investments to drive growth in 2012 and beyond with full year R&D of 9.5% to 10% of sales and ongoing SG&A somewhat under 28% of sales.

Overall, we continue to expect to expand our operating margin by around 100 basis points in 2012.

We are forecasting ongoing net interest expense of approximately $425 million, and we continue to expect an ongoing tax rate of 14.5% to 15% for the full year 2012.

Turning to the outlook for the second quarter, we are forecasting ongoing earnings per share of $1.20 to $1.22.

We forecast specified items of $0.07 in the second quarter, primarily reflecting costs of previous restructurings and integration action.

This forecast excludes future one-time costs related to the separation.

Our operational sales growth in the second quarter, that is growth before exchange, is expected to be in the mid-single digits.

At current exchange rates we would expect a roughly 3.5% negative impact from exchange in the second quarter, resulting in reported sales growth in the low single digits.

We are forecasting an adjusted gross margin ratio of approximately 62% in the second quarter, an increase from the second quarter of 2011.

As mentioned, we remain on track with our plans to separate Abbott into two leading healthcare companies -- one in diversified medical products and the other in research-based pharmaceuticals.

We believe this separation will provide two unique and compelling investment opportunities for shareholders.

Our transition organization has been fully engaged in this separation since our announcement last October.

This was the same organization that executed the separation of our hospital products business and successfully integrated our key acquisitions.

We are currently working through the many details of separating the two organizations.

There is a significant amount of work to do, but the process is going well and is proceeding according to plan.

Last month, we announced that the new research-based pharmaceutical company will be called AbbVie.

The AbbVie name connects the new company to Abbott and its heritage of pioneering science and the Vie, which suggests the Latin root for life, calls attention to the vital work the Company does.

During the second quarter we expect to file the initial Form 10 with the SEC for AbbVie.

The Form 10 will provide historical results for AbbVie on a GAAP basis for the past three years and for the first quarter of 2012.

These historical results will include an allocation of certain costs previously held at the corporate level to the business.

Amendments are typically made to the Form 10 disclosures after the initial filing as more information becomes available for disclosure, including future quarterly results.

We would expect amendments to our filing as well until it's declared effective, which is expected to occur later in the year.

The historical balance sheet is not expected to include an allocation of debt to AbbVie as such debt was incurred for the total Abbott operations and was not associated with specific AbbVie entities.

The final, or effective, Form 10 will, however, include pro forma adjustments to reflect the impact of debt levels, cash balances, and interest expense for AbbVie as an independent company.

The Form 10 is one element in our communications plans for AbbVie and for Abbott post separation.

We will also have comprehensive investor relations efforts throughout the year to provide investors with information on the two companies as we progress towards separation.

So in summary, we are off to a great start in 2012, beating expectations for the first quarter and raising our outlook for the full year.

This outlook again reflects strong top-tier performance as we execute the steps necessary to separate Abbott into two leading healthcare companies by the end of the year.

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

John?

Thanks, Tom.

I will start with the diversified medical products businesses and then Larry will discuss the proprietary pharmaceutical business.

Sales for our diversified medical products businesses increased mid-single digits in the first quarter, excluding the negative impact of foreign exchange.

We also continued to expand operating margins in the quarter across our diversified medical products businesses including nutrition, diagnostics, vascular, and diabetes care.

Let's start with nutrition, where global sales in the quarter increased more than 10% driven by strong growth in both the US as well as international.

In the US, sales increased 11% as we continued to maintain our strong market positions in both the adult and pediatric nutritional segments.

US pediatric nutrition sales increased more than 15%.

We continued to gain share and maintain our strong leadership position in the US infant formula market with Similac.

We expect continued strong growth of this brand throughout the year as we launch new products to support Similac and the prenatal segment of the market.

Our toddler brand, PediaSure, continues to grow at a double-digit pace.

US adult nutritional sales increased more than 7%, driven by double-digit growth of both Ensure and Glucerna.

We expect Ensure and Glucerna collectively to generate roughly $2 billion in full-year sales this year globally.

Earlier this week we initiated construction at a new liquid manufacturing facility in Ohio that will primarily support the growth of our US adult business.

Abbott is the worldwide leader in adult nutrition and as the baby boomer demographic ages we expect continued market expansion of the adult nutritional segment.

Outside of the US sales increased approximately 10% on an operational basis in nutritionals.

Including the negative impact of foreign exchange, reported sales increased more than 9%.

This growth was driven by 13% growth in pediatric nutritionals with double-digit growth in infant nutritionals as well as PediaSure.

In the first quarter we initiated more than 10 new product or geographic launches, each of which is helping to drive market share gains.

Emerging market sales comprise more than 40% of our total nutritional sales and they increased double digits this quarter.

In addition to driving sales growth, a key priority for our nutrition business is the expansion of operating margins.

We have implemented an improvement plan to expand our nutrition margin from the low teens that we saw last year in 2011 to our target of more than 20% by 2015.

We have numerous efforts across the business with four main drivers of margin improvement.

Those are project costs, reducing packaging costs, ingredient costs and material costs; manufacturing where we are building plants closer to our customers, particularly in fast-growing emerging markets; distribution where we are going direct to customers in key geographies; and customer mix where we are improving both our product and geographic mix to focus on more profitable segments.

We are implementing the majority of these improvement initiatives here in 2012, which are expected to drive significant nutritionals operating margin expansion in 2013 and beyond.

As we look ahead to the second quarter in our global nutritionals business, we expect high single-digit growth on an operational basis and mid to high single-digit growth on a reported basis.

In the US, this includes high single-digit growth and internationally this includes high single-digit growth on an operational basis and mid single-digit growth on a reported basis.

Let's move on to our established pharmaceuticals business, or EPD, which includes international sales of our branded generics portfolio.

Sales in the quarter increased 2% on an operational basis.

Including a 3.5% negative impact of foreign exchange, reported sales declined low single digits.

Emerging markets now represent nearly 60% of total EPD sales where many of the pharmaceutical markets are growing at a strong double-digit pace.

We are growing faster in these markets as we continue to expand our presence and launch new brands, packaging enhancements, and new formulations.

In the first quarter EPD's operational sales in key emerging markets, such as India, Brazil, Russia, and China, increased collectively 17%.

Our large in growing portfolio of more than 500 established pharmaceuticals consists of trusted well-known brands that have broad use throughout the world.

Over the next several years we expect to bring the benefits of these medicines too much broader patient populations through registrations across multiple geographies, as well as launches of improved formulations to enhance efficacy and improve convenience.

So looking ahead to the second quarter in EPD, we expect low single-digit sales growth on an operational basis and a low single-digit decline on a reported basis, which includes for this division an expected negative impact of foreign exchange of more than 6% in the second quarter.

In our global diabetes care business worldwide reported sales declined 2.4%.

US sales increased more than 7% as we continued to execute on our strategy to drive share gains among the insulin-using patient population.

We also recently launched InsuLinx in the US, which is our new blood glucose meter specifically for this segment.

InsuLinx has a touchscreen interface and several personalization features designed to improve the diabetes management experience for patients.

International sales in our diabetes care business declined 7% on an operational basis.

Including the negative impact of exchange, reported sales declined 8.7% due in part to certain reimbursement changes in Europe as well as overall market softness.

The negative impact in Europe was partially offset by stronger growth in emerging markets.

So looking ahead to the second quarter in diabetes care, we expect low to mid single-digit sales growth on an operational basis and low single-digit reported sales growth.

In our core Laboratory Diagnostics, which includes immunoassay, hematology, and blood screening, global sales in the quarter increased more than 6% on an operational basis.

Reported sales increased 5%.

In the US sales increased nearly 13%.

This strong growth was driven by continued uptake of our PRISM blood screening system and good moment that began in the latter part of last year with several key account wins and continued strong commercial execution.

Outside of the US operational sales increased 5% and reported sales increased 3%.

We delivered strong growth in emerging markets with sales in China, Brazil, and Russia collectively increasing 25%.

In each of these markets we continue to expand our presence with numerous new account wins internationally, including the largest private laboratory in Latin America.

In point-of-care diagnostics worldwide operational sales this quarter increased more than 19% and in molecular diagnostics worldwide operational sales increased nearly 8%.

Reported molecular sales increased 6%.

Looking ahead to the second quarter in our global diagnostics business, we expect mid to high single-digit growth on an operational basis and mid single-digit reported sales growth.

So moving on to medical devices and our vision care business, where global sales this quarter increased low single digits, this was primarily driven by mid single-digit growth in cataract, our largest, most profitable, and fastest-growing segment within vision care.

We also saw continued strong double-digit growth in emerging markets such as India and China.

Looking ahead to the second quarter in our vision care business, we expect low single-digit sales growth on an operational and reported basis.

In our vascular business, excluding certain royalty and supply arrangement revenues, worldwide vascular sales increase nearly 4% and US vascular sales increased 8%.

As expected, reported sales decreased 5% this quarter as a result of a more than 50% decline in royalty and supply arrangement revenues, including PROMUS.

As a reminder, the third-party distributor for PROMUS is transitioning away from this product as we approach the end of our distribution agreement this year.

Our vascular business also delivered strong growth in key emerging markets such as China, India, and Brazil, which all increased at strong double-digit growth rates.

Sales of our XIENCE drug-eluting stent franchise this quarter were a record $404 million, representing global growth of nearly 7%.

Abbott holds the clear global leadership position as the world's number one drug-eluting stent company.

US XIENCE sales increased more than 19% this quarter driven by the recent US launches of the XIENCE nano and XIENCE PRIME, as well as share gains from key account wins in the US as we further penetrate competitor accounts and broaden our overall footprint.

More than 60% of our drug-eluting stent sales occur outside the United States.

In Japan, which is our second-largest geographic segment, we hold market share of more than 40%.

We recently received approval for XIENCE PRIME in Japan and now have the exclusive position in the long-length Everolimus-eluting stent segment.

Also contributing to vascular sales growth this quarter was endovascular sales which increased nearly 5%.

In the past year we have launched seven new endovascular products, including most recently US approval for Absolute Pro, our new self-expanding stent for peripheral artery disease.

In our vascular pipeline we recently presented two-year data on our Absorb bioresorbable vascular scaffold, or BVS, which demonstrated impressive efficacy and safety results for the treatment of coronary artery disease.

We also have two clinical trials underway studying BVS for peripheral disease.

We continue to expect a full commercial launch of Absorb in Europe by year-end and plan to initiate our US clinical trial later this year.

MitraClip, which is our product for the treatment of mitral regurgitation, continues to see strong demand outside of the United States with sales of $25 million this quarter.

So as we look ahead to the second quarter in our global vascular business, excluding the negative impact of foreign exchange as well as certain royalty and supply arrangement revenues, we expect sales of our underlying business to grow in the high single digits.

Including the expected decline of royalty and supply arrangement revenues, as well as the negative impact of foreign exchange, we expect reported sales to decline low single digits in the second quarter.

As a reminder, the PROMUS transition will be completed by the end of the year, positioning our vascular business in 2013 for stronger reported sales growth.

Finally, as Tom mentioned, the adjusted operating margin in the first quarter for the total company increased approximately 150 basis points over 2011.

Nutrition, diagnostics, vascular, and diabetes care contributed to this expansion with most of the diversified medical products businesses each delivering at least 100 basis point or more margin expansion in their businesses.

In nutrition, as I mentioned, we expect to expand the operating margin from the low teens today to more than 20%.

This quarter we saw good progress towards that goal.

In diagnostics, in addition to strong sales growth, we continue to expand our operating margins following a record year of profitability in 2011.

As a reminder, this business has had a high single-digit operating margin just a few years ago.

This quarter we delivered an operating margin in the high teens.

We are applying many of our key learnings from the work we have done to improve profitability in our diagnostic business to our efforts to improve profitability in our diabetes care business where we continue to see good improvement on the bottom line.

And in vascular, despite the decline in PROMUS revenues which were expected, we delivered operating margin in the high 20%s in the quarter.

We expect continued steady margin expansion for our diversified medical products businesses over the course of the year and going into 2013 and beyond.

So with that I will turn the call over to Larry to cover our proprietary pharmaceutical business.

Larry?

Thanks, John.

Worldwide proprietary pharmaceutical sales increased more than 8% before the negative impact of exchange.

On a reported basis sales increased 7%, including growth of 6.6% in the US and nearly 8% internationally.

In immunology, global sales of HUMIRA increased more than 19% before the negative impact of exchange.

Performance was driven by international sales growth of 17.4% before exchange and US sales growth of 22.7%, consistent with the underlying trends we saw throughout the quarter.

HUMIRA continues to hold the number one global share position.

We continue to see strong market growth, both in the US and internationally, with HUMIRA demand outpacing the market.

We are continuing our development efforts for HUMIRA, including the study of new indications.

We recently received approval from the European Commission for the treatment of ulcerative colitis, making HUMIRA the first and only self-injectable biologic therapy for this disease.

The approval also marks the seventh major indication for HUMIRA in the European Union.

We also have a number of other indications currently in late-stage development, many of which are unique to HUMIRA.

HUMIRA's utility across a growing number of diseases is one of the many attributes that set it apart from other agents.

HUMIRA is off to a strong start this year, well on track to achieve our sales growth outlook for the product in 2012.

Moving on to AndroGel where US sales were approximately $230 million, up more than 23%.

AndroGel holds the number one market share position in the testosterone replacement market where growth is being driven by increasing diagnosis and treatment.

AndroGel 1.62%, our new low-volume formulation, has quickly become the second most prescribed therapy in the market, second only to our older formulation AndroGel 1%.

US sales of Creon were nearly $70 million.

Creon maintains market leadership in the pancreatic enzyme market where we continue to capture the vast majority of new prescriptions starts.

US sales of Lupron were $140 million.

Our six-month formulation, approved last year, continues to perform well, driving share gain and expanding our category leadership.

US sales of Synthroid were approximately $130 million in the quarter.

Synthroid maintains strong brand loyalty and retains more than 20% market share despite the entry of generics into the market many years ago.

Moving on to our more mature lipid franchise where US TriCor/TRILIPIX sales were $254 million and sales of Niaspan were $190 million.

Our lipid franchise has been impacted by softness in the overall branded cholesterol market, as well as continued impact from last year's ACCORD and AIM-HIGH study results as we have previously discussed.

So as we look ahead to the second quarter in our global proprietary pharmaceuticals business we expect mid to high single-digit operational sales growth and a forecast for approximately 3% negative impact from foreign exchange.

Moving on to our proprietary pharmaceuticals pipeline where we continue to make good progress, we currently have 30 compounds in human trials, including numerous medicines in development with breakthrough potential.

Let's start with immunology where we have a number of next-generation programs underway, all with an objective to raise the bar with differentiated efficacy and safety.

This high bar is important as we believe the success of new compounds will be based on their ability to offer incremental efficacy and safety benefits beyond what is currently available to physicians and patients today.

Our DVD-Ig platform holds promise in the treatment of RA as well as other conditions.

This proprietary technology unites two anti-bodies into a single molecule.

Last year we initiated a Phase I study in RA for ABT-122 which combines the established mechanisms, anti-TNF and IL-17, with the goal of elevating efficacy and improving the overall clinical profile.

Our anti-CD4 biologic, BT-061, in development in partnership with Biotest, is currently in Phase II clinical trials for RA and psoriasis.

The way we have structured the collaboration allows us to evaluate Phase IIb data prior to co-funding the Phase III program.

And the product will need to demonstrate a clinically meaningful efficacy benefit greater than currently available therapies to clear the hurdle for advancement.

Our recently announced agreement with Galapagos to develop and commercialize a next-generation oral JAK1 inhibitor is structured similarly.

We believe this molecule, which preferentially targets the JAK1 pathway, differentiates it from other JAKs in development and may lead to a better overall profile.

The Galapagos compound is currently in Phase IIa development with the potential to start Phase IIb next year.

We are also evaluating a number of other oral candidates, including an internal JAK1, a SIC inhibitor, as well as next-generation anti-inflammatory modulators, or AIMs, through our collaboration with Reata.

Moving on to chronic kidney disease, which is also on the rise driven by higher rates of diabetes, obesity, and an aging population.

Bardoxolone is a promising treatment in Phase III development for CKD with our partner, Reata.

Bardoxolone is a Nrf2 activator, a novel mechanism that improves the kidney's ability to filter and remove waste from the body.

Results from the Phase IIb study of Bardoxolone were unprecedented and showed a significant and sustained improvement in kidney function.

No other treatment to date has demonstrated the ability to reverse the progression of this disease.

The Phase III study, called BEACON, is an outcomes-based study designed to assess Bardoxolone's ability to forestall or prevent chronic dialysis, kidney transplant, or cardiovascular death in Stage 4 patients, a group that is just pre-dialysis.

Enrollment has been very brisk, which reflects the significant need for new therapies in this disease.

We expect results from this 2,000-patient global trial in 2013.

Also in development for the treatment of kidney disease is Atrasentan.

Results from a Phase II dose ranging trial showed Atrasentan reduced protein in the urine, a symptom that is often predictive of renal function.

We would expect Atrasentan to be complementary to Bardoxolone within our portfolio.

A Phase IIb study is currently underway with results expected later this year.

Moving on to neuroscience, where we are developing compounds to address conditions such as Alzheimer's, Parkinson's, schizophrenia, pain, and MS.

Daclizumab is a next-generation biologic in development for MS.

Last year Abbott and our partner company announced promising results from the first of two registrational studies.

The Phase III study, called DECIDE, is ongoing.

In this study we hope to confirm the findings observed in the Phase II trial.

If successful, we expect believe a significant reduction in disability and annual relapse rates against an active comparator will be data that is unique to this promising and highly active treatment.

Results from Phase III study are expected in 2014 with potential commercialization in 2015.

We are also developing an intestinal gel for the treatment of advanced Parkinson's disease.

The gel, currently in advanced clinical development in the US and marketed as Duodopa in Europe, consists of two compounds with proven efficacy in this disease -- levodopa and carbidopa.

Through a unique delivery system the intestinal gel is infused directly into the small intestine via a portable pump.

Yesterday, we announced results from a Phase III trial showing patients treated for 12 weeks reported significant improvements in disease symptoms versus the oral forms of the products.

The results from the study will be presented at the American Academy of Neurology meeting later this month.

We expect our US registration submission to occur this year.

Endometriosis and fibroids are both associated with a number of symptoms including pain and infertility.

Our partnered compound elagolix has a unique profile that provides symptom reduction while avoiding the adverse effects that can sometimes be associated with current treatment.

The Phase II clinical program for fibroids is currently underway and the Phase III study in endometriosis is expected to begin this quarter.

Moving on to oncology, where we are focused on developing targeted treatments that inhibit tumor growth and improve response to common cancer therapies.

Elotuzumab is being developed with a partner company for the treatment of multiple myeloma, the second most common blood cancer.

Phase II data suggests the potential for improved efficacy versus current treatments.

A Phase III study for elotuzumab is currently underway.

We also have active PARP and BCL-2 inhibitor programs, as well as a number of other early-stage oncology compounds in development.

Finally, turning to our rapidly advancing HCV program where we have a broad portfolio with compounds spanning three mechanisms of action, including protease, non-nucleoside polymerase, and NS5A inhibitors.

Recent data suggests the combination regimen will likely prove to be the most effective approach and we are well-positioned in that regard given our portfolio.

Earlier this month abstracts for the upcoming EASL meeting were published online, including results from two of Abbott's Phase II interferon-free HCV studies, PILOT and CO-PILOT.

In the CO-PILOT study two different doses of our protease inhibitor, ABT-450, plus our non-nucleoside polymerase inhibitor, ABT-333, and ribavirin were administered for 12 weeks.

The results showed sustained virologic response at 12 weeks post treatment at 93% and 95% of treatment naive genotype 1 patients.

In these patients response was independent of HCV subtype, host IL28B genotype, or dose level of ABT-450.

The PILOT study evaluated treatment with ABT-450 plus another of our non-nucleoside polymerase inhibitors, ABT-072, and ribavirin for 12 weeks.

The results showed sustained virologic response at 12 weeks post treatment in 91% of genotype 1 treatment naive patients.

Both regimens were well tolerated and the most reported adverse events were mild in severity.

Full results with longer-term follow-up data from these studies, as well as a number of other abstracts, will be presented at the EASL meeting this week in Barcelona, Spain.

We are building on the PILOT and CO-PILOT results with data from our larger global Phase II clinical trials.

These studies include various combinations of all three compounds in our portfolio, both with and without ribavirin, as well as evaluation across various HCV genotypes.

Additional data from these studies, which are planned for presentation later this year, will shed further light on our promising program.

We have a high level of confidence that our HCV compounds in development will dramatically change the treatment landscape.

We expect to start Phase III studies in 2013 with commercialization in 2015, putting us in a very competitive position from a timing perspective.

So in summary, this quarter Abbott delivered strong double-digit performance with ongoing EPS growth of more than 13%, and we have raised our ongoing earnings per share guidance for the year.

We remain focused on the process of separating Abbott into two leading healthcare companies, which is on track to be completed by the end of the year.

With that, Tom, John, and I will be glad to take your questions.

Operator?

(Operator Instructions) Rick Wise, Leerink Swann.

Good morning, everybody.

Yes, congratulations on a wonderful quarter here.

As we think about operating margins, Tom, I mean clearly, in particular on the nutritional side, John laid out very thoroughly and clearly some of the drivers there.

Can you talk a little bit more just over the next couple -- looking ahead over the next couple of years and as the Company separates what are the biggest margin drivers beyond this nutritionals program?

Is it diabetes?

What is next?

And is this going to be -- are these similar programs that you laid out for nutritional or is it more about cost?

Just, again, any perspective would be welcome; where do we go from here?

I think what John said in his remarks is a good representation of the way we are approaching it, and I think our experience in diagnostics really helped a lot in this regard.

We talked about this in the past.

What that team did this they didn't limit their analysis of their business to just the cost area.

They really looked comprehensively at their P&Ls all the way from the top to the bottom line.

They did a lot of thinking through mix -- product mix, customer mix; profitability by customer segment.

They did some very good analytics and addressed some of the challenges there that really weren't evident as we looked at these businesses differently prior to the work they did in that area.

We have really taken that approach and that template and brought it over to the other businesses and very comprehensively looked at each.

So as John described in his nutritional discussion there, it's a pretty broad range of things beyond just the cost area and our other businesses have done similar exercises.

In terms of what is going to drive operating margin improvement for the diversified company, certainly the biggest opportunity over the next two to three years is nutrition.

I think that is where we see the highest ramp.

We were in the 13% range, I think, in operating margin a couple of years ago and we see a very good path to 20% here in the next two, three years, and we have a very thorough plan to get there.

So that clearly is the biggest mover.

But every single business is continuing to execute on their programs, again similar to what diagnostics did, and we see steady improvement in each business including diagnostics.

While we have gotten that business up into the upper teens, we clearly see that getting well into the 20%s in the next couple of years as well as they continue to execute.

So it's a way of doing business, it's a continual process, and I think across the businesses it's going to contribute to a good margin expansion element of the diversified company as we move forward.

Thanks.

And to follow-up with two product or division-related questions.

Core Lab US up 13%, excellent performance.

Maybe highlight some of their pipeline products and how sustainable.

Last on Absorb, given the EU launch later this year, maybe you could update us in terms of just some basic expectations about the penetration the product is likely to get in the first year or so post launch.

Thanks, again.

Let me take the first part.

So Absorb has been doing well in a limited clinical setting as we have described before and then we expect full commercialization launch later this year.

The reaction has been very good from clinicians around the world.

As you know, the data results that we have showed so far are similar to what we have seen with XIENCE and XIENCE PRIME in terms of the safety profile and the efficacy.

So very encouraged there.

And as I mentioned, later this year plans to start the US trial remain on track there.

So it's a good story there.

In Core Lab it has been -- it's interesting because it's a business, frankly, that we haven't talked a lot about the different products and tests like we used to, but there has been a number of new products that have been launched, new assays.

PRISM obviously has been important as that expands.

We have had good growth there with both of those systems, particularly in some emerging markets around the world where -- markets like China we have grown in excess of 35%, grown at twice the market.

Brazil we have had very good traction with our vitamin D and Chagas test.

Russia is growing in excess of 30%.

It's off a smaller base, but we are really investing in some of those emerging markets and leveraging our overall global leadership position is definitely making a big difference.

Then, as I mentioned in my remarks, we did win the largest private laboratory in Latin America in the first quarter this year.

So those are the good things.

The European market has been a little challenging, I think, for everybody.

Other competitors have talked about that, but that is one of the things that you have to deal with and you plan for.

We also have had some specific tests in the pipeline.

Last year, for example, the vitamin D test that I mentioned launched; a number of new assays this year include diabetes and cardiac markers.

Then we have other things that we have done in that business.

As you know with our acquisition of STARLIMS, that was our first entree into informatics.

And we have launched what we call OneLab, which it is an offshoot of the STARLIMS system that is gaining some good traction and giving our customers some options that they didn't have before.

Thank you, John.

Mike Weinstein, JPMC.

Good morning.

Thanks for taking the questions.

So the first one, let me ask on the hep C.

So what are we going to see additionally at EASL that we didn't see in the abstracts?

Yes, most of our abstracts, Mike -- this is Larry -- contained the information that we have at EASL, so when they posted earlier this month that pretty much encompassed all of our data.

Again, the key data there for us would be the CO-PILOT data which showed very strong SVR 12 rates of 93% to 95% and then PILOT also was very strong, SVR rates, SVR 24 actually, at 91%.

But most of the abstracts that have been released back in early April will be comprehensive of what we have at EASL this weekend.

One of the questions that people have had, has been bounced about on the Street post the release of the abstracts is the difference in the response rates between name non-CC naive patients and those that are non-CC treatment failure patients, interferon failure patients.

Do you have any thoughts as to why there is such a difference in response rates between those two groups?

Obviously the N is small but there is a pretty strong difference there.

Well, people who are non-responders are certainly the most difficult to treat.

This data that we have right now is kind of our first foray into that group and it does only include two of our agents -- the protease inhibitor as well as the polymerase.

And so, as you know, we have got additional studies under way that we will see, as I mentioned, later this year that are inclusive of the NS5A which we believe to be a much more potent group.

But that 47% SVR rate within that non-responder group is actually better than just about anything else that has been put forth to date, including some pretty low level response rates from the [nuc] class that we have seen here over the last six weeks.

So I would say that 47% looks very good relative to anything else that we have seen.

I think we will see more again later this year when we put together a more potent agent, NS5A, in combination with this tough-to-treat patient population.

Then, of course, Mike, the other data that we showed in the most prevalent form of the virus in developed markets, the TT1 treatment naive patients, that is where we saw the cure rates of in excess of 90%.

So those are unprecedented types of results.

It's obviously, as Larry said, early data and we expect to have more data later in the year on a broader patient population, but clearly I think that put us in a leadership position in HCV.

Good.

Let me ask one question on PPD.

The performance this quarter was a bit light of our thinking it was up 1.8% constant currency.

At the analyst meeting you guys had talked about EPD growing mid to high single digits going forward and I know emerging markets are close to 60% of the revenues.

So help us out there, what is going on in EPD?

It's important because it's a third of the profits for new Abbott so it's going to be a key driver.

Why is growth low single digits right now and why isn't it in that mid to high single-digit range you guys talked about?

Obviously that mid to high was a bit of a longer-term target for this group and the results in the first quarter were very consistent with the guidance we provided in January.

What is happening, this organization has been in place for a little more than a year.

There are a number of their geographic expansion initiatives and product expansion initiatives, which are just in the early stages.

Programs such as the Zydus collaboration, which will bring new molecules to the market, and some of the payback on some of the commercial investments that have been made over the first year or so are still a bit further out.

So I think we are on track in the first quarter.

We do expect growth rates to improve later in the year.

As you know, there is a base part of this business that is the developed world that is growing a bit more slowly.

In the first quarter we were working through a little bit of a headwind in some of the European countries there as we progressed through the year, but I think the comps will get better, in particular the third and fourth quarter.

As we exit the year, our forecast show that we will be much closer to that range we talked about at the analyst meeting as we progress into 2013.

So we expect better growth; I think you will see it.

We will just have to keep monitoring it as we go forward.

Great, thanks.

Jami Rubin, Goldman Sachs.

Thank you.

Just a few questions.

Tom, TriCor, what are your expectations for revenues going forward, just given the settlement that you have reached with Teva and Teva's commentary that the FDA has issues with their formulation and won't be launching this year?

Do you anticipate that there will be other generics on the market and does your settlement agreement allow for other generics to reach the market?

Then I have a follow-up question on HUMIRA growth, which has been quite remarkable in terms of the re-acceleration we have seen with HUMIRA growth in the US, along with the entire anti-TNF class.

I am just wondering what you think is going on.

As you know, there will be a JAK inhibitor potentially reaching the market in the second half of this year.

If your guidance for the full year incorporates a competitive dynamic; if you could just share with us what your thinking is, thanks.

So this is Tom.

On TriCor, I mean I have heard some of the comments you mentioned from Teva, but we can't make assumptions on what they are going to do or not going to do.

Clearly they have a right to enter the market the second half, so we continue to model that.

I think even if there was somewhat of a delay there, over even the near term or the medium term that is not real meaningful for us.

Because clearly as we move into 2013 and 2014 these lipid products are in their last phases and we don't have expectations for sales for those products.

So that issue may be a little more meaningful for the other company than it is for us and we will see how it plays out in the second half.

John, you want to take, or Larry, you want to take the HUMIRA?

Sure, this is Larry.

Hi, Jami.

The market growth has been very strong for biologics overall and I think you will see that our growth from a prescription trend basis is growing even faster than the market.

I think from an overall market maybe we are seeing a little bit more contribution from the dermatology side, which, as you know, has very low levels of penetration currently.

I think that is lifting the overall biologics market.

I think unique to HUMIRA has just been some very strong commercial execution across all the categories.

We continue to see very good share momentum, particularly in dermatology, relative to Enbrel as well as in the gastro space relative to the Cimzias of the world.

We continue to see really nice market share gains there.

And room has held in their quite nicely for us as well, despite an increased level of competition from smaller players who have garnered, I would say, pretty low levels of share overall.

Now you asked about our contemplation of a potential launch of Pfizer's [tofacitinib] product.

We pretty much, almost like in the TriCor situation, we have to assume that they will be successful with their ultimate approval on a PDUFA date, which I believe is in August.

And so we have factored that into our outlook for the year.

Certainly we feel very good about our position, the strength of HUMIRA relative to that products launch.

But to your specific question, yes, we have factored that into our outlook for this year.

And just, Tom, very quickly on your tax rate guidance for the year of 14.5% to 15%, does that contemplate an R&D tax credit?

Is that already in that number?

No, we do not assume that at this point in time.

Okay, thanks.

David Lewis, Morgan Stanley.

Good morning.

Tom, just wanted to come back to EPD for a second.

So it does appear that the key emerging markets [with NS-7] are performing actually quite well, so I wonder is the performance now today, which I know you hope to get better, is that more a function of the BRICs not growing as fast as you want or expected, or is the situation with the non-BRIC markets that may be more developed in nature are being pressured for economic reasons at this current time?

Well, it's the non-BRIC but we -- frankly, as we look at this business over the long term, the medium term, we have factored into that mid to upper expectation on sales growth the fact that this base business will not grow as fast.

But as the emerging markets grow as fast as we expect and as it becomes a higher percentage of the business, I think it's going to support growth in the range that we had targeted.

I will say as part of the latter part of 2011 and in the first quarter of 2012 there still is some residual austerity affect coming through in the developed world element of this business, and that is a little bit of what you are seeing in the first quarter, a bit of headwind.

But in the BRIC areas very strong double-digit growth.

We are really pleased with how the business is executing in those areas.

Okay.

Maybe just a quick question for Larry on hep C.

Larry, has there been any decisions made about -- if you look at the regimens in PILOT and CO-PILOT about which of those regimens, if any, are going to be brought into Phase III?

No final decisions on Phase III at this point in time.

I would say one thing that we learned from PILOT/CO-PILOT though is that we used ABT-072 in PILOT.

That is our, again, the polymerase inhibitor and we used 333 in CO-PILOT.

As you can see in the Phase IIb studies that we have described on clinicaltrials.gov, we are moving forward in Phase IIb with the ABT-333 polymerase.

But I think, more importantly, is the data that is coming from our broader Phase II program, Aviator and Navigator, that really combine and have various arms that have various combinations of these three compounds with and without ribavirin that will really be the guide to what we move forward with into Phase III.

Again, right now we are talking initiation of Phase III in 2013, but as you can imagine we are working very hard to have that occur as soon as we can.

But that is our guidance today.

Okay, and then maybe just one quick one, I am sorry, for John or Tom.

You talked about nutritional opportunities, obviously a significant driver of DMP growth.

You talked about two different opportunities; the first of which is a cost-driven opportunity, the second is mix.

And I guess I am just curious, can both of those opportunities move forward simultaneously or should we think of them as sort of a phased effect?

No, all of the margin initiatives are being addressed concurrently as aggressively as the organization can do it.

So it's going to -- there is no reason to phase things.

There are numerous, numerous -- literally over 100 programs that the business is executing on as we speak.

Great, very helpful.

Thank you.

Glenn Novarro, RBC Capital Markets.

Good morning; two questions.

One on HUMIRA, the O-US strength.

Can you comment about -- I can't imagine it's entering new markets so it must be indications.

So maybe discuss what is driving the international growth?

Then my second question is on US stents.

Can you give us a sense of what pricing has been doing in the market sequentially and what DES penetration was in the first quarter?

Thanks.

Let me take the last part first, Glenn.

So stent pricing actually has moderated nicely from what we have seen, as you know, last year throughout the year and I think the competitors saw this as well.

It was declining in the high single digits.

It has moderated to mid-single digits price decline, and that is a function of a number of different things.

One on our end is the launch of both nano and PRIME, so getting into the short lengths and the longer lengths -- small vessels and longer links, excuse me.

Those are premium products and I think that has helped stabilize as well.

And some other competitive launches in addition.

So that is one thing.

DES penetration has been around 80% and with PROMUS out of the mix, as you know, too that helps our overall pricing situation now that they are no longer a part of that third-party revenue line in our overall numbers.

So DES penetration is good, PCA volume has been up nicely particularly outside the US and certain emerging markets.

It's growing in the mid-teens.

So the dynamics there are good for the underlying business despite the noise.

And as I mentioned on the call, it's really about setting up the business for much stronger growth in 2013 as we get through this transition year with PROMUS coming out of the numbers for us.

Can I ask one follow-up?

Just US PCI volume, it has been kind of tracking flat to up a little, down a little.

Any indication what that was in the first quarter?

And the 80% DES penetration, is that better than what we have seen in the second half of last year?

Thanks.

Yes, it is slightly better.

We were seeing, pushing upwards of 80%, 79%.

This is the first time that we have gotten to 80% in a while.

The US, you are right, PCI volume there has been relatively flat and down just very slightly sequentially.

But, as I mentioned, up kind of in the mid-single digits worldwide and then certain international emerging markets been up quite strongly.

And then just international HUMIRA growth?

Sure, I think it's a combination of factors, Glenn.

Certainly HUMIRA has a leadership position and as a leader grows probably in excess of the marketplace most quarters.

That leadership extends across, as I said now, seven indications, so it is somewhat driven by new indications.

It's also driven by some expansion in geographic presence.

Japan continues to move forward nicely.

We have launched in China.

So I think in general the overall driving factor is just market growth.

We continue to see across the major markets growth rates anywhere from 14% to 20% just based again on the benefits that the product brings relative to the downstream cost that can be incurred for not treating the severity of these diseases.

So market growth is probably your primary driver there on the international side and we are growing a little bit faster than those markets.

And that 14% to 20%, should we assume it's closer to 14% in Europe and 20% outside of Europe or is it a little bit slower in Europe?

The Europes are in that range.

Okay, very good.

Thank you.

Thanks, Glenn.

We have time for one more question.

Rajeev Jashnani, UBS.

Just a follow-up on EPD.

I think you guys reported in 2011 pricing was minus 1% to 2%.

Is that still kind of the run rate you are seeing for that business?

Yes, that is probably about right.

A little -- probably closer to 2%.

Okay, fair enough.

I guess just following up on HUMIRA ex-US.

I know you don't want to get too specific on this, but is it reasonable to assume a double-digit ongoing constant currency type growth for that product, again in international markets, over the next few years?

It's always hard to project out that far, Rajeev.

Again, here we are in 2012 and those markets continue to grow in the range that I just indicated.

That is pretty strong growth.

Now certainly our product gets bigger and bigger every year, so dollars of growth can continue to be quite strong.

The percentage is based on the way the numbers work, starts to come down a little bit, but we foresee good growth there internationally.

You will recall from the October investor meeting Rick Gonzalez talked about $1 billion plus in raw dollars of HUMIRA growth over the next few years, so certainly as a percentage that would be double digits in 2013 and probably 2014.

But that gives you an idea of what we think the continuing growth potential of the product is as we look out two, three years.

That is very helpful.

It just seems like the product just continues to move ahead at such a brisk pace.

I appreciate the color, thanks.

Well, the performance has been good and we think the durability is very strong as well over the longer term.

And don't forget all the indications that we have.

We just got another one, as you know, in Europe so it's the utility of the product has been amazing.

It's a great, great well-positioned product for the long term.

Thanks a lot, guys.

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