美國雅培 (ABT) 2012 Q3 法說會逐字稿

Good morning, and thank you for standing by.

Welcome to Abbott's third-quarter 2012 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. John Thomas, Vice President, Investor Relations and Public Affairs.

Good morning, and thanks for joining us.

Today we'll discuss our third-quarter ongoing earnings results, as well as provide new information regarding the separation of Abbott's proprietary pharmaceutical business into a new, independent company called at AbbVie.

Joining me on today's call is Miles White, Chairman of the Board and Chief Executive Officer of Abbott; Tom Freyman, Executive Vice President, Finance and Chief Financial Officer of Abbott; Rick Gonzalez, who will become Chairman of the Board and Chief Executive Officer of AbbVie; Bill Chase, who will become Executive Vice President, Finance, and Chief Financial Officer of AbbVie; and Laura Schumacher, who will be Executive Vice President and General Counsel of AbbVie, and head of a number of corporate functions; including licensing and acquisitions, external affairs, and investor relations.

Also joining on today's call is Brian Yoor, who will become the new head of Investor Relations at Abbott, post-separation.

Brian has been with Abbott in numerous financial roles for 15 years, most recently as controller of our diagnostics division.

Larry Peepo, who is also on today's call, will remain Divisional Vice President, Investor Relations, at Abbott.

I will be moving over to AbbVie to head Investor Relations and Public Affairs.

Today, Miles will begin with an update on the separation, as well as our outlook for the new Abbott.

Tom will provide a brief overview of our third-quarter performance, and then provide some additional context for how we're planning to launch two new independent companies in January of next year; including their respective capital structures as well as annual dividends.

He'll also provide some additional detail on our 2013 for the new Abbott.

Following Miles, Tom and Rick will provide an overview of AbbVie and its future outlook, and Bill will cover AbbVie's third-quarter results and provide some further context on 2013.

Following our comments, as we normally do, we'll take any questions that you might have.

Before we get started, some statements may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, 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 forward-looking statements, and there is no assurance as to the timing of the planned separation or whether it will be completed.

Economic, competitive, governmental, technological and other factors that may affect Abbott's operations are discussed in item 1A, Risk Factors, through our annual report on the Securities and Exchange Commission Form 10-K.

For the year ended December 31, 2011.

And the interim reports filed on form 10-Q for subsequent quarterly periods.

Abbott undertakes 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.

And with that, I'll now turn the call over to Miles.

Miles?

Okay.

Thanks, Jon.

Good morning.

One year ago this week, we announced the most significant transformational event in Abbott's 125 year history -- our decision to separate into two leading public health care companies with completely new and unique investment identities.

So, today, in addition to reviewing our third-quarter earnings, we're going to give you some additional insight into what these two companies will look like going forward, beginning in 2013.

With regard to our third-quarter results, Abbott delivered another quarter of strong performance, with ongoing earnings per share growth of more than 10%.

In addition to generating strong operating results, we are continuing to prepare for separation.

We've completed a significant amount of work since last October, and both companies are ready to operate independently beginning January 1.

Over the past year, we've taken a number of steps to prepare AbbVie to become a new company.

We've named the leadership team, designating several senior leaders who will move from Abbott to AbbVie, which will complement the strong commercial and operational leaders who are currently part of our proprietary pharmaceutical business.

As we announced last year, Rick Gonzalez will become AbbVie's Chairman and CEO.

Rick has more than 30 years of Abbott experience, and has been Executive Vice President of our Global Pharmaceuticals business for the last two years.

Laura Schumacher, Abbott's current Executive Vice President and General Counsel, and a more than 20-year Abbott veteran, will lead that function at AbbVie as well as a number of corporate functions; including licensing and acquisitions, external affairs, and investor relations.

And Bill Chase, who is currently Vice President of Licensing and Acquisitions at Abbott, will become AbbVie's CFO.

Bill has been in Abbott for more than 20 years, also serving as Corporate Treasurer and the Controller of the International Pharmaceutical division.

We've also continued to strengthen AbbVie's mid- and late-stage pipeline since our separation announcement last year.

And we've seen impressive progress from later-stage development programs such as hepatitis C, which you heard a little bit about earlier this week.

In addition to an advancing pipeline, we understand that investors do seek a positive return while that pipeline continues to progress.

As you know, AbbVie generates robust cash flow and is committed to returning cash to shareholders.

AbbVie is expected to pay a strong, attractive dividend, which Tom and Bill will discuss in more detail later in the call.

So the separation we announced one year ago is nearing completion.

And our shareholders was soon benefit from two fundamentally different investment opportunities with distinct strategic profiles and business priorities.

The AbbVie Form 10 has provided some perspective on the pre-separation financial profile of AbbVie.

And a Form 10 amendment, filed last month, outlined the AbbVie capital structure and pro forma interest expense.

We recognize that investors and analysts need more information to help them model both companies separately.

So as a next step in this process, today we'll provide some additional information on separation-related aspects of the AbbVie P&L, including the tax rate, interest expense and cost AbbVie to run as an independent company.

We'll also provide some other aspects of the P&L profile for both companies.

Although it's too soon for specific 2013 EPS guidance, our intent is to help you establish a baseline for both companies, each of which will have a different profile after the separation.

Tom and Bill will cover the profiles for the two companies in their remarks.

We have structured both companies for future success, and have taken the actions necessary to support the unique attributes of each company.

AbbVie will be a large-cap biopharmaceutical company with a number of differentiated growth brands, including a sustainable biologic, HUMIRA; and a compelling pipeline.

It generates significant cash flow and will have the appropriate capital structure to support strong returns for shareholders, including a strong dividend.

As you know, I will continue to serve as Chairman and CEO of Abbott, so let me take a few minutes now to provide some brief comments on what the new Abbott will look like in the future.

As of the first of next year, Abbott will be one of the largest diversified healthcare products companies in the industry.

It will be comprised of four roughly equal-sized businesses -- nutritionals; established pharmaceuticals; medical devices; and diagnostics; all competing in large markets, and aligned with favorable long-term healthcare trends.

Our pipeline includes transformational medical technologies, next-generation diagnostic systems, new formulations, new packaging, new flavors, and other brand enhancements.

Our geographic mix is very well balanced, with one of the largest emerging market revenue bases of any large-cap healthcare company.

With leadership positions across this portfolio, expanding margins, and strong cash flow, Abbott will be well-positioned among its peers to deliver top-tier growth.

We've made a number of important strides in 2012 to continue to position Abbott for long-term growth, launching our bioresorbable vascular scaffold, ABSORB, in Europe, parts of Asia, and Latin America; breaking ground on manufacturing plants in India and China; completing 60 launches year to date across our nutrition business around the world; consistently driving above-market growth in core diagnostics; and implementing a number of geographic and product expansion initiatives in the established pharmaceuticals division, just to name a few.

At the same time, it's well-recognized that all of us are managing through a difficult business environment.

Like other multinationals that have a significant global presence, we've been impacted by a slowing global economy, both in the developed world as well as in emerging markets.

In particular, we saw pricing and market pressures in Europe impact our businesses more significantly this quarter.

Foreign currency has also been a headwind on sales throughout the year.

This resulted in somewhat lower Abbott sales growth than originally anticipated, yet we continued to deliver on our financial commitments.

While we face the same market and environmental challenges as our healthcare peers, we've structured Abbott to have the right portfolio of businesses and geographic diversity to take advantage of favorable trends ahead of us in healthcare.

So as we look to 2013 and beyond, let me walk you through our long-term growth strategies to provide additional insights on how the new Abbott will generate growth over the next several years.

I'll begin with nutrition, which produces tremendous cash flow and a high return on invested capital.

We're a leader in global nutrition, participating in a compelling growth market that's approximately $35 billion today; expected to exceed $50 billion by 2016.

It's driven by favorable demographics such as an aging population and the under penetration of nutritional products, given the increasing rate of chronic diseases; as well as the rise of the emerging market middle class.

Our long-term strategy in nutrition is to drive strong topline growth by building our product portfolio with a steady rhythm of innovative, differentiated new product launches; expanding aggressively in key high-growth emerging markets; and leveraging our number-one global position in adult nutrition to grow and further penetrate the market.

At the same time, we plan to significantly improve our gross and operating margins.

We've made good progress; in the US, year to date, we've continued to drive double-digit growth of our key pediatric and adult nutritionals by refreshing and improving our brands with products like PediaSure Clear, Similac with lutein, Ensure Clear, and Glucerna Hunger Smart.

Outside of the US, we are investing in the product pipeline and the infrastructure, including state-of-the-art manufacturing facilities in China and India, to drive share gains in key markets.

China is the world's largest pediatric nutrition market, at more than $7 billion, and it's expected to grow rapidly over the next five years.

We have ample opportunity to improve our share position in this market and others.

And finally, the global adult nutrition market is expanding.

As the world's population ages, life expectancy increases, and the unfortunate incidence of age-related diseases rises.

Our global leadership position in adult nutrition is a clear competitive advantage as we further develop and shape this market.

In addition to driving sales growth, we're improving how we do business in nutrition so that it's more profitable.

We expect to improve our operating margins from the low teens in 2011 to our target of more than 20% by 2015.

This is something that we've successfully achieved in diagnostics, and we're showing good progress now in nutrition.

We're reducing raw material and packaging costs, improving manufacturing processes, and building more efficient plants closer to our customers, simplifying our distribution and ensuring that products, customers and markets that we invest in our profitable.

In 2012, we expect to deliver approximately 200 basis points of expansion in our nutrition operating margin.

We're confident in our ability to deliver on our longer-term objective, as we've implemented a number of our planned actions in 2012, and we expect to continue our progress in 2013.

In our established pharmaceuticals division, home to our branded generics business, we're generating international sales from a large and growing portfolio of hundreds of products that have broad use throughout the world.

EPD is more like our nutrition business than it is proprietary pharmaceuticals.

It has a development organization that moves fast to refresh and improve key brands, and it markets products to customers in the developing world who typically pay out-of-pocket for their healthcare.

In many of these markets, despite the expiration of patents, product growth is sustained by brand equity, which is established by customer trust in products that are reliably supplied of high-quality, affordable, and tailored to the needs of each market.

EPD is a relatively new organization within Abbott, in place for less than two years now, where we have a number of early-stage geographic and product expansion initiatives now underway.

Our long-term growth strategy is to increase the breadth of our product offerings by launching new and improved formulations and registering products across multiple geographies.

Reinforce our position in the developed markets through portfolio expansion; and accelerate and capture new sources of growth by targeting faster-growing emerging markets where we have strong positions.

In fact, operational sales growth in key BRIC markets, which comprise more than one-third of EPD sales, increased nearly 20% year to date.

While austerity measures have negatively impacted EPD sales in Europe, as faster growing emerging markets become a larger percentage of EPD's sales base, we expect to see improving growth for EPD to achieve our long-term target of mid- to high-single-digit sales growth.

Next I'll cover medical devices, which includes our diabetes care, vision care and vascular businesses.

In diabetes care, we're advancing our new product pipeline with products such as FreeStyle InsuLinx, with the goal of simplifying the glucose testing process.

And we've improved operating margin with a shift to more profitable channels and customers; streamlining of our manufacturing; better salesforce execution; and more efficient SG&A spending.

In vision care, we are leaders in the refractive segment and number-two in cataract.

Our cataract business is the largest, most profitable, and fastest-growing of our vision care businesses.

We are launching new products to continue to grow our share in this segment, as well as capture growth in countries such as India and China, where we are introducing new products tailored to these specific markets.

And in vascular, our growth strategies focus on expanding our leadership positions across our three business segments -- coronary, structural heart, and endovascular.

This includes targeting emerging markets where interventional procedures are growing double digits, driven by an aging population with a high incidence of cardiovascular disease.

Penetration rates in emerging markets are also much lower than the developed world and have the potential to significantly expand with increased awareness and improve treatment of heart disease.

Emerging markets comprise more than 20% of vascular sales; and, on an operational basis, have increased 20% year to date.

In our coronary segment, we're focused on expanding our global drug eluting stent leadership position.

This year we've launched XIENCE PRIME in Japan and XIENCE Xpedition in Europe.

Xpedition combines impressive safety and efficacy of XIENCE PRIME and sets a new standard for deliverability.

We're on track to launch Xpedition in the US early next year.

In September we launched in Europe and other international markets, ABSORB, our BVS technology or bioresorbable technology, that acts like a drug eluting stent.

But unlike a metallic stent, has the added benefit of slowly absorbing over time, much like sutures do over after a wound heals.

The result is a vessel that can naturally flex in the pulse, similar to an untreated one.

ABSORB puts Abbott in a unique position to offer the only technology of this kind.

In our structural heart business, MitraClip is an example of how Abbott is pushing the transcatheter valve market forward, with a first-of-a-kind technology.

MitraClip can have a dramatic impact for many of the hundreds of thousands of patients who experience a diminished quality of life from significant mitral regurgitation, which is the leaking of the heart's mitral valve.

It's on the market in Europe.

We're working to bring it to other markets around the world, including the US.

It has significant long-term potential, given the number of patients who go untreated today.

And, finally, our endovascular segment represents a significant opportunity for growth.

We're applying our expertise in developing best-in-class coronary devices to the faster-growing endovascular market.

Today, Abbott is under-penetrated in this market that is growing at a high-single-digit rate.

We expect growth in this segment to improve, with numerous new product launches and new indications over the next several years.

We're also evaluating our bioresorbable technology for use in the periphery.

The last of our four major segments is diagnostics, where year-to-date operational sales growth is in excess of 7%, and operating margin continues to improve.

Our relevant global in vitro diagnostics market is very large, at nearly $30 billion.

While diagnostics comprised less than 5% of hospital costs, their findings influence the majority of health care decision-making.

Abbott is well-positioned with global leadership in the largest segment -- immunoassay diagnostics.

We've successfully improved cash flow generation and profitability in our core laboratory diagnostics business, and have now refocused our long-term growth strategy on the top line as well.

We're leveraging our global leadership position to capture growth in emerging markets.

One of the largest opportunities is China, a nearly $2 billion market that's growing roughly 20%.

We've been consistently growing near double the market pace as we expand our share.

We're delivering customized solutions that deliver results more efficiently.

And we're launching next-generation platforms over the next few years.

We haven't seen market-changing innovation in diagnostics in more than a decade, and we expect to lead this effort as we expand our product portfolio significantly.

Molecular and point-of-care diagnostics round out our diverse portfolio of diagnostics offerings.

These businesses allow us to develop solutions for newly identified disease targets, predict patient outcomes, and performed bedside testing to accelerate treatment decisions.

We're growing both businesses as we increase penetration of systems and tests and expand in emerging markets.

Margin improvement has been, and continues to be, a key focus in diagnostics.

From 2007 to 2011, we improved our operating margin from 8% of sales to more than 18% of sales, more than doubling the operating margin in dollar terms.

Our long-term goal had been to exceed 20% of sales by 2015.

We're ahead of schedule in our progress toward this goal, as we continue to expand and gross and operating margin profile of our core laboratory diagnostics business.

Year-to-date diagnostics operating margins is more than 19% of sales, and we now expect to well exceed our long-term target over the next several years.

So, in summary, over the last 12 months we've prepared both Abbott and AbbVie to be successful, independent companies come January 1. AbbVie will be well-positioned within its pharmaceutical peer group, with a strong dividend and an advancing late-stage pipeline that is getting increased visibility.

And that's certainly evidenced by the very strong ACV data released earlier this week.

The new Abbott will be one of the largest diversified healthcare investment opportunities; and over the long-term, one of the fastest-growing.

But like all multinationals, we're managing through a more difficult economic environment now.

And this year, we're making a number of business transitions that put Abbott in a better position going forward.

This includes working through the decline in Promus revenues, initiating a number of geographic and product expansion initiatives in EPD, and simplifying our nutritional supply chain.

We're making good progress on all fronts.

As we look to the future, we see tremendous opportunity ahead.

Our business, the majority of them in leadership positions, are aligned with favorable demographics that will be driving growth in healthcare.

We are well-balanced geographically including a broad base of customers, many in emerging markets where income levels are rising and socioeconomic conditions are vastly improving.

And we'll maintain Abbott's financial heritage with robust cash flow generation, upwards of $4 billion; and significant opportunity for further operating margin expansion.

All told, the new Abbott will be well-positioned among its peers to deliver top-tier growth.

So now, let me turn the call over to Tom who will provide a brief overview of Abbott's third-quarter results and the outlook for the remainder of the year.

He will also cover key financial aspects of the separation, including the capital structure and dividend for both companies, and 2013 financial profile information for new Abbott.

Tom?

Thanks, Miles.

Today we reported ongoing diluted earnings per share for the third quarter of $1.30, an increase of 10.2% over the prior year, and above our previous guidance range.

Sales for the quarter increased 4.1% on an operational basis, which was more than offset by an unfavorable 4.5% impact from exchange rates.

As we saw last quarter, there continues to be a significant impact from exchange on topline results.

Emerging markets remain a significant growth contributor, with sales in the quarter of $2.6 billion, an increase of more than 10% on an operational basis.

Regarding sales for what will become the new Abbott businesses, there have been two factors that are transitional in nature that have impacted growth trends.

The first is the decline in the Promus-related revenue in our vascular business, as we no longer provide product under the previous distribution agreement.

And the second is the shift to direct distribution in certain international nutrition markets as part of our gross margin improvement initiative.

Excluding these transitional factors, new Abbott operational sales growth is in the mid-single-digits year to date.

We saw continued improvement in the adjusted gross margin to 63.8% in the quarter, up 340 basis points from the prior year.

Half of this improvement was due to exchange, while the other half resulted from the various margin improvement initiatives we are implementing across our businesses.

Year to date, we've seen our adjusted gross margin ratio increase 310 basis points over the prior year, with nearly half of this improvement driven by the effect of changes in foreign exchange rates on the ratio.

Again, the remainder of this improvement resulted from our margin improvement initiatives.

Those of you who have followed our results over the years know that the extreme volatility in exchange rates has both positively and negatively impacted the adjusted gross margin ratio, depending on the year, by as much as a full percentage point or more.

You may recall that 2010 was favorably impacted; 2011 negatively impacted; and we are again seeing a favorable effect this year through three quarters.

Looking ahead to the fourth quarter, we expect this trend to reverse, with exchange negatively impacting the ratio by as much as a full percentage point.

As we see things today, we would expect this trend to continue into next year, with exchange negatively impacting the gross margin ratio for both Abbott and AbbVie.

Turning to our full-year 2012 outlook, we are narrowing our ongoing earnings per share guidance range to $5.06 to $5.08, reflecting growth of 8.8% at the midpoint.

This 2012 guidance continues to reflect a full-year outlook for the Company in total, as the separation is expected to be effective January 1. We're pleased with our overall performance this year, delivering ongoing earnings per share growth ahead of our original guidance provided back in January, despite the challenging global economy and currency headwinds affecting sales.

Regarding the fourth quarter, we expect reported sales growth in the low- to mid-single-digits, which includes an estimated negative 1% impact from foreign exchange.

Both our fourth-quarter sales forecast and EPS expectations for the year assume that a generic TriCor enters the market in the fourth quarter.

We expect a gross margin ratio of around 63%, including the exchange effect discussed earlier.

As we are now further along in our separation process, as Miles indicated, today we're in a position to give you some more information regarding certain aspects of the financial profiles of new Abbott and AbbVie, once separated.

While we're providing this additional information today, I would again note that it's too early in the process for either company to provide EPS guidance for 2013.

Between now and January, we'll continue our usual planning process.

While the profile information we provide for each company today could change somewhat over the coming months, each company will be ready by its fourth-quarter earnings conference call to provide more specific details of its 2013 outlook, including EPS guidance.

Those forecasts will reflect the latest assumptions on business and economic factors, including foreign exchange.

As we previously indicated, the primary rationale for the separation is the fact that these two businesses have evolved differently; and, as a result, they have different investment identities.

These differences are broad and deep, and they affect how each company plans to structure and run its business going forward.

So let me start with dividend policy.

A dividend has always been an important component of Abbott's investment identity.

We had previously indicated that we expected the combined dividend of the two companies to be at least equal to Abbott's pre-separation annual dividend; and we expect AbbVie to be even more focused on shareholder returns in the form of dividends, paying a larger portion of the dividend.

With this in mind, today we're announcing that we expect AbbVie to pay an annual dividend of $1.60 per share, starting with the quarterly dividend to be paid in February.

This, like all dividends, will be subject to approval by the future AbbVie Board in January 2013.

We're also announcing that we expect the new Abbott dividend to be $0.56 per share, in line with its peer group and growth prospects; again starting with the dividend to be paid in February, and again subject to approval by the Abbott Board.

In the end, this combined annual dividend rate of $2.16 for the two companies exceeds the current annual dividend rate of $2.04, and this increase is expected to be implemented one quarter earlier than in past years.

Regarding debt and related interest expense, as Miles indicated, last month we provided the pro forma capital structure for AbbVie and an amendment to the Form 10.

Consistent with our previous commentary, the pre-separation debt has been apportioned roughly in line with each company's share of the pre-separation cash flows after dividends and capital expenditures.

As a reminder, this rebalancing of the debt will be accomplished by the following actions -- first, AbbVie is expected to raise just under $16 billion in total debt.

Second, AbbVie will provide a net cash distribution to Abbott of around $8.5 billion.

And finally, Abbott will use the proceeds of that distribution to execute a tender for a portion of its debt outstanding, and to pay down a portion of its commercial paper outstanding.

As a result, the new Abbott expects to carry approximately $7.5 billion in debt as of the separation date consisting of long-term debt, commercial paper, and other short-term borrowings.

Abbott expects to have around $5 billion of cash on the balance sheet, post-separation.

As detailed in our earnings news release today, and as discussed last quarter, as a result of the low interest rate environment we expect one-time charges to be incurred in the fourth quarter related to the debt extinguishment costs, driven by higher interest rates on the existing bonds compared to the rates currently prevailing.

The resulting capital structure of each company will determine ongoing interest expense for each going forward.

For new Abbott, net interest will be driven by its remaining debt outstanding, including the impact of existing interest rate swaps, partially offset by interest earned on cash balances.

As you know, interest earned today on cash is very low.

As a result, we're forecasting net interest expense of a little more than $100 million in 2013 for new Abbott.

Bill will discuss the outlook for AbbVie's net interest expense in a few minutes.

Regarding taxes, we believe that the tax rate for new Abbott will be approximately 21.5% in 2013.

We will need to see what, if any, Congressional actions may occur at the end of the year, or the early part of 2013, that determine our final estimate for the tax rate.

Regarding AbbVie as an independent company focused on returns to shareholders, management plans to establish an appropriate balance across its global cash flows to provide maximum flexibility.

As a result, we expect an ongoing tax rate of around 22% for AbbVie.

While this rate is above the historical average for this business, it's reflective of a shift in emphasis from investing in successful ex-US growth opportunities in the past to a stronger emphasis on shareholder returns going forward.

This rate will support AbbVie's strong dividend policy.

We're also in a position at this time to clarify the profile of some other line items of the new Abbott P&L.

Bill will discuss AbbVie's profile in a few minutes.

As we see our 2013 sales outlook today for the new Abbott, we expect reported sales of roughly $23 billion, based on today's exchange rates.

This would reflect growth in the mid- to high-single-digits over where we expect to end 2012.

Regarding the gross margin for new Abbott, for modeling purposes today, we're forecasting a ratio of roughly 55%, excluding non-cash amortization; reflecting underlying business trends and the expected impact of foreign exchange rates on the ratio I mentioned earlier.

I'll discuss how we expect to report non-cash amortization expense going forward in a moment.

We expect R&D investment for new Abbott that's in line with the investment needs of our various businesses, which averages out to between 6% and 7% of sales.

We expect the SG&A ratio to be around 30% of sales for new Abbott; again, in line with the competitive profiles of our various businesses, with ongoing efficiency efforts to generate SG&A leverage over time.

Our outlook for SG&A includes an estimated impact from the medical device tax under the US Affordable Care Act that begins in 2013.

Finally, we would expect minimal nonoperating income and roughly $30 million of loss in the exchange/gain-loss line of the P&L in a typical year.

Before I turn it over to Rick and Bill for their thoughts on AbbVie, let me discuss a change in our reporting for next year regarding non-cash amortization that will affect both companies.

As you know, Abbott has historically been recorded non-cash amortization expense as part of cost of goods sold, and included it in our non-GAAP ongoing earnings-per-share metric.

This expense has well exceeded $1 billion annually in recent years as we've completed several strategic acquisitions that have reshaped Abbott.

The majority of this non-cash amortization -- approximately $850 million, or $0.42 a share in 2013 --relates to new Abbott.

Going forward, cash EPS -- that is, ongoing EPS excluding the impact of non-cash amortization -- is a more meaningful metric -- meaningful non-GAAP metric for assessing new Abbott's earnings power and growth.

This is particularly true as amortization expense begins to decline in the coming years.

So, beginning with the guidance to be provided for 2013, by January of next year new Abbott is expected to provide ongoing earnings-per-share guidance on a cash basis.

As a result, we will remove amortization from cost of goods sold starting in 2013, in order to calculate the adjusted gross margin ratio.

We will, of course, also continue to reconcile this guidance to EPS on a GAAP basis, which would include amortization expense on specified items.

AbbVie plans to use a similar cash EPS approach, as it begins to report independently next year, which Bill will cover in more detail in a few minutes.

So with that, let me turn the call over to Rick for an overview of the prospects of AbbVie; followed by Bill, who will review the third-quarter results for proprietary pharmaceuticals, as well as the financial profile for AbbVie.

Rick?

Thanks, Tom.

It's a pleasure to have the opportunity this morning to discuss our strategic vision and outlook for AbbVie.

As Miles mentioned, since the separation announcement one year ago, we have been focused on delivering strong performance in 2012, as well as preparing to operate as an independent company.

I'm pleased to say we're succeeding on both fronts.

Our research-based pharmaceutical business is delivering another strong year, with year-to-date operational sales growth of 8%.

We're ready to begin as a new company on January 1.

January 2 will be our first official day of trading on the New York Stock Exchange, under the ticker symbol ABBV.

Between now and then, we will continue to actively reach out, together with Abbott, to the investment community at large through our roadshows, our meetings, and or other communications.

Our goal is to help investors better understand our distinct investment identity.

Today we have an opportunity to begin that dialogue.

First, it's important to understand that AbbVie is not a traditional pharmaceutical company.

AbbVie will blend the stability, global scale, resources and commercial capabilities of a pharmaceutical company with the focus, culture and agility of a biotech, creating a unique biopharmaceutical company.

At launch, AbbVie will have a number of strengths and attributes that will position us well for continued success when we begin trading as an independent company.

These characteristics include a track record of outstanding operating performance; a specialty-focused commercial portfolio, with numerous market-leading differentiated therapeutics therapies.

Foremost among them is HUMIRA, which will continue to be a significant driver of growth for AbbVie.

A strong financial foundation, with annual operating cash flow of approximately $6 billion; a commitment to return cash to shareholders, including an attractive $1.60 annualized dividend, which will be recommended for approval by the AbbVie Board, and a commitment to grow that dividend; a compelling late-stage pipeline with several assets that have $1 billion-plus peak revenue opportunities, including HCV and an advance in mid-stage pipeline that includes key assets with compelling proof-of-concept human clinical data.

Finally, we have a strong, experienced, and highly committed leadership team to drive AbbVie's continued success.

Before Bill discusses some financial considerations for 2013, I'd like to provide a high-level perspective on our unique product portfolio and our advancing late-stage pipeline.

I'll start with our current product portfolio, which includes a balance of differentiated growth brands as well as sustainable performers.

We compete in markets that offer significant growth potential.

And we hold strong category leadership positions in our therapeutic segments.

Certainly, HUMIRA remains the cornerstone of our portfolio, and is a strong driver for AbbVie, and will remain so.

Not many brands are able to achieve and sustain the level of performance we've demonstrated with HUMIRA.

Clearly, HUMIRA has a strong clinical profile.

But our commercial, our development, and our regulatory execution on HUMIRA have been outstanding.

HUMIRA's performance continues to be exceptional, as evidenced by the strong double-digit growth this year.

Several factors are driving that performance -- first, strong patient demand has led to global market share gains in both dermatology and gastroenterology.

Second, the addition of two new indications for patients -- u.c.

here in the US and Europe; as well as axial SpA in Europe.

HUMIRA now treats a total of eight approved indications, and four more are in late-stage development.

Finally, the global biologic market growth remained strong, and HUMIRA continues to outpace that growth.

We expect HUMIRA demand to continue to grow, given the relative modest biologic penetration rates across all market segments; but in particular, the dermatology segment, where biological penetration rates are still mid-single-digits.

And while much has been said about the potential changes in the competitive landscape in the coming years, we have planned for these factors.

We continue to have a high level of confidence in HUMIRA, given its extensive clinical track record, strong product profile, and proven clinical performance.

HUMIRA is clearly important to the AbbVie story.

And we will focus on growing and protecting this market-leading brand.

But our portfolio includes a mix of differentiated growth plans, sustainable performers, and a handful of maturing products that we will transition through over the next few years.

Within this mix, we continue to hold market leadership positions across numerous therapeutic categories.

For example, Lupron is the leading hormonal therapy for palliative treatment of prostate cancer.

Synthroid is the number-one branded synthetic hormone therapy for thyroid disease, and one of the most widely prescribed products in the US.

AndroGel has strong leadership position in the growing testosterone replacement market.

Prion is the leading pancreatic enzyme therapy for conditions associated with cystic fibrosis and chronic pancreatitis.

And Kaletra and Norvir remained leading antiviral medicines for the treatment of HIV.

AbbVie is focused on maximizing the performance of each and every product in our commercial portfolio.

We've structured our specialty sales force for efficiency and agility.

And we will leverage our competitive advantage and capitalize on the market dynamics.

This includes continued geographic expansion, where we expect to add approximately $1 billion in incremental sales over the next five years from emerging markets.

In addition to sustaining our position within the industry as a proven commercial leader with a strong track record of execution, our goal will be to further shape AbbVie into an innovation-driven biopharmaceutical company.

To that end, we will continue to invest in R&D at a rate of approximately 14% of sales next year.

As I discussed last October, we are extremely encouraged with the progress of our new product pipeline.

We will launch with numerous medicines in mid- and late-stage development that have truly breakthrough potential.

All told, across our emerging pipeline, we have 30 compounds in human clinical trials; 15 biologic compounds across several therapeutic areas; six ongoing Phase III programs, including several that represent $1 billion-plus potential; four new HUMIRA indications currently in Phase III development, which collectively add significant new growth opportunity for HUMIRA; and 10 compounds or new indications in mid-stage development, including several that will advance to Phase III within the next 18 months.

We're focused on delivering truly innovative medicines to address the most pressing areas of unmet clinical need.

Although we don't have time today to detail the entire pipeline for you, I'll briefly discuss some of the interesting mid-stage and late-stage compounds we have in development.

Let me start with our mid-stage pipeline.

There are 10 active programs, several with strong proof-of-concept data.

I'll highlight three promising assets poised to move into Phase III over the next 18 months.

ABT-199, our next-generation BCL inhibitor, which has shown strong activity in chronic lymphocytic leukemia.

We will present additional data in an upcoming medical meeting, and we expect to initiate Phase III in 2013.

ABT-719, our novel investigational compound for the prevention of acute kidney injury.

It's currently in Phase IIb development, and is expected to enter Phase III next year.

ABT-126, our alpha 7 agonist, currently in Phase IIb trials for Alzheimer's and schizophrenia.

We expect to present Phase II data next year, and start Phase III mid-2014.

Now let me turn to our late-stage pipeline, which also includes 10 compounds or indications in Phase III development.

As I mentioned earlier, we have four new HUMIRA indications currently in Phase III trial.

Several of these will be unique to the HUMIRA label, and will help us further differentiate HUMIRA from competitive products.

Daclizumab is our next-generation biologic in development with Biogen, for relapsing, remitting multiple sclerosis.

Results from one of the two pivotal trials demonstrated strong efficacy and disability performance.

Results from the Phase III study, which recently completed enrollment, are expected in 2014.

Bardoxolone is a compound in development with our partner Reata for the treatment of chronic kidney disease.

A growing market with few treatment options.

The Phase III study, which is an OUTCOMES trial, is now fully enrolled.

Elagolix is a compound in development for endometriosis and uterine fibroids.

It has a unique profile, with the potential to provide symptom reduction while avoiding significant bone loss or other adverse effects that sometimes can be associated with this therapy.

And Duopa is a therapy for advanced Parkinson's disease.

We recently completed our Phase III registrational program, and we're on track to complete our US registrational submission by year end.

Finally, turning to our HCV program, where we are making significant clinical progress -- we continue to have a high level of confidence that AbbVie has the potential to achieve a strong leadership position in this space.

As I stated previously, our goal is to bring to market a potent, well-tolerated, easy-to-administer treatment that delivers very high cure rates without interferon.

Data to date confirmed that we're on target.

Earlier this week, we released topline Phase IIb data from our Aviator trial, the most comprehensive set of interferon-free combination data in genotype 1 patients available today.

Results in patients who have reached post-treatment week 12 show that our 12 week regiment -- which includes all three assets in our HCV portfolio, plus ribavirin -- produced 99% SVR12, or cure rate, in naive patients; and 93% SVR12 in previous null-responding patients.

Additionally, SVR12 rates for the other eight- and 12-week programs in the study ranged from 89% to 92%.

Importantly, all combinations were very well-tolerated, with an overall rate of drug related discontinuations of less than 2%.

By way of comparison, the current oral antivirals paired with ribavirin and interferon, for either 24 or 48 weeks, produced SVR12s in approximately 75% of treatment-naive patients, and just over 30% of previous null responding patients.

So, our results suggest a very compelling improvement over standard of care, achieved without the use of interferon, and with just 12 weeks of therapy.

While we're somewhat limited in how much we can discuss prior to the data presentation next month, I will say that we are very impressed by the Aviator results.

The data demonstrates that our approach is validated in larger, confirmatory Phase III trials, represents a significant advance in patient care.

Today we're pleased to announce that we recently initiated our comprehensive genotype 1 registration program, with the start of our first Phase III study.

We're on track to begin the remaining Phase III studies in the coming weeks.

This global registrational program includes the study of naive and experienced patients with HCV genotype 1 infection, as well as certain special populations.

We will evaluate three direct-acting antivirals, with and without ribavirin, for four weeks -- for 12 weeks, in genotype 1 patients.

As a reminder, genotype 1 represents the most prevalent patient type in developed markets, including approximately 70% of patients here in the US.

Our Phase III triple [DA] cocktail will include a co-formulated, two-tablet therapy containing our protease inhibitor, ABT-450; and our NS5 inhibitor, ABT-267, administered once a day; plus our polymerase inhibitor, ABT-333, which is one tablet administered twice a day.

We will evaluate it both with and without ribavirin.

We're also conducting additional exploratory clinical trials to determine if a once-daily, ribavirin-free, co-formulated treatment of ABT-450 and 267 can provide high cure rates in specific HCV populations, providing an avenue for further simplification.

The timing of our registrational study supports commercialization in early 2015, putting us in a strong competitive position.

It is our goal to be the first to market on an interferon-free therapy for genotype 1 patients.

So, in summary, we have an excellent foundation for AbbVie.

We have a strong base of sustainable leadership positions across our specialty-focused commercial portfolio; including HUMIRA, which will continue to drive significant growth; a compelling late stage pipeline, including several programs with $1 billion-plus potential; a strong and experienced management team; a solid financial foundation, including strong profitability and robust cash flow; and a commitment to return cash to shareholders, including a strong dividend.

With that, I'll turn the call over to Bill Chase, who will be AbbVie's Chief Financial Officer, for additional information on our expected financial profile in 2013.

Bill?

Thanks, Rick.

It's a pleasure to be here this morning, and to have the opportunity to be part of the AbbVie team.

Through Rick's remarks, you should now have a good understanding of how we are viewing the broader identity of AbbVie.

I'd like to take a few moments to expand on this from a financial standpoint.

I'll also provide some color on our third-quarter results, and then discuss certain aspects of the AbbVie financial profile which will become evident when we begin operations in 2013.

As we build AbbVie, we're keeping a close eye on what we feel is the most important for the investor.

First, a sustainable top line supported by products that are leaders within their categories; second, robust cash flow that will support an attractive and dependable dividend; third, a continued commitment to drive efficient operations; and, finally, a financial policy that balances both the short- and long-term.

We recognize the importance of growing the dividend, and we are implementing plans to deliver this while also ensuring that our new product pipeline is appropriately funded.

I'd like to now take you through how we are tracking against these objectives.

In the third quarter, worldwide sales for what will be considered AbbVie increased approximately 7% on an operational basis, excluding a negative impact from foreign exchange of roughly 4 percentage points.

Global HUMIRA sales increased nearly 16% on an operational basis, and 10% on a reported basis.

HUMIRA performance in the US was driven by continued [strides] across therapeutic categories, with particularly robust growth in the derm and gastro segments, where HUMIRA continues to outpace the market's double-digit growth.

International HUMIRA growth was 7.5% on an operational basis.

This growth would have been higher when normalized for the timing of tender shipments.

Year to date, global sales of HUMIRA are up 19.3%, and international sales are up 14.5%, both on an operational basis.

So as you can see, we are well on track to achieve our 2012 global sales growth outlook for HUMIRA of low-double-digit reported growth.

Moving on to some of our other major products, AndroGel achieved US sales of nearly $280 million.

AndroGel holds the leadership position within the testosterone replacement market.

Global sales of Lupron were nearly $190 million.

Our six-month formulation, approved last year in the US, continues to perform well, driving share gains and further expanding our category leadership.

US sales of Synthroid were $132 million in the quarter.

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

And finally, US sales of Creon were $92 million.

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

We are confident that our portfolio of products provides a strong and sustainable base for AbbVie, generating significant cash flow as our late-stage pipeline continues to develop.

Turning to our outlook, post-separation, as Tom mentioned, we plan to set AbbVie's annual dividend at $1.60 per share, subject to approval of the AbbVie Board.

This dividend level represents a strong payout, and should support a healthy initial evaluation for AbbVie, given current dividend yields in the 3.5% to 4.5% range for many of our pharma peers.

And as Tom said, in the coming weeks, AbbVie expects to raise just under $16 billion of debt.

After a net cash distribution to Abbott of approximately $8.5 billion, AbbVie will begin operations with around $7 billion of cash on the balance sheet.

This cash includes the $2.5 billion of funding raised for future operating and financing needs, as noted in our recent Form 10 amendment.

I'm quite pleased with the strength of our financial position as we start operations.

Our capital structure and its strong cash flow will ensure our ability to support both our dividend and the funding of our operations going forward.

Today, we're also providing our current estimates of our P&L profile, as we know this will be important as you begin to model AbbVie in the coming months.

We've mentioned previously that 2013 and 2014 will be a time of transition for our product portfolio, as our lipid franchise experiences the entry of generics.

We fully expect generic competition throughout 2013 for TriCor, and for generic events to play out during the year for TRILIPIX and Niaspan.

And we're planning for this appropriately.

And as Tom noted, our forecast for the fourth quarter assumes the launch of a generic TriCor, and we recommend that you model less than $200 million in US TriCor/TriLipix sales in the fourth quarter.

Given the expected timing of generic TriCor late in 2012, the year-over-year sales and gross margin ratio impacts will be more acutely felt by AbbVie in 2013.

As a result, we're forecasting 2013 sales of less than $1 billion for our combined lipid franchise, including TriCor, TRILIPIX, Niaspan and SIMCOR, reflecting a decline of roughly $1.2 billion next year.

We plan to cover a significant portion of this decline through growth of key marketed products, including HUMIRA.

So as we see it today, we would expect AbbVie's total sales to be somewhat above $18 billion in 2013, at current exchange rates.

As Tom mentioned, AbbVie expects to report adjusted EPS on a cash basis, removing non-cash amortization from cost of goods sold.

For modeling purposes today, we're forecasting a gross margin ratio of around 76.5%, excluding non-cash amortization, which reflects the impact of both lipids and some unfavorable foreign exchange.

We're very pleased with our pipeline, and expect to appropriately fund R&D investment to drive long-term growth.

As Rick mentioned, we expect R&D expense of around 14% of sales.

We expect SG&A to be around 26% of sales.

This includes the incremental cost of becoming an independent company, as well as AbbVie's share of Abbott's corporate costs.

While some analysts and investors have estimated these incremental expenses at 1% to 2% of AbbVie's sales, or up to $360 million, we've managed AbbVie's costs to be less than 1% of AbbVie's sales.

This reflects our initial efforts to minimize these costs, and it remains our goal, over time, to offset as much of the remaining costs as possible through efficiency efforts.

Given our debt outstanding and average interest rates, we expect net interest expense of approximately $400 million for AbbVie in 2013.

The gross interest expense -- that is, before interest income -- was reflected in the pro forma adjustments in the September amendment to the Form 10.

We're also forecasting minimal other income, as an existing agreement that was previously generating other income expires in 2013.

And we expect a tax rate of approximately 22% in 2013, as Tom previously discussed.

As outlined in our Form 10, we expect roughly $435 million, or $0.21 per share, of non-cash amortization in 2013.

This is important to note, as we expect AbbVie to provide its 2013 ongoing EPS guidance on a cash basis -- that is, excluding non-cash amortization for comparability purposes to most of our peers.

We will also reconcile this guidance to EPS on a GAAP basis, which would include amortization expense and specified items.

As I said earlier, I'm very pleased with how we're positioning AbbVie for future success, including our overall capital structure; the strength and durability of our cash flows; the sustainability of our on-market products; and the emergence of a leading late-stage pipeline.

I look forward to meeting many of you in the next few months, and in the coming year.

And with that, I'll turn it back over to John for some final comments.

Thanks, Bill.

Before we open the call for questions, let me give you a brief overview of the next steps in the separation process.

We continue to expect that Abbott and AbbVie will be independent companies on January 1, 2013.

This is, of course, subject to the final approval of our Board of Directors' declaration that the Form 10 is effective, and other customary conditions.

A few weeks prior to separation, we will issue a news release describing the special dividend distribution of AbbVie stock, including the distribution ratio and the record date.

We expect that [when issued] trading of both company's stocks to begin in mid-December, with regular trading of both companies to begin on January 2 on the New York Stock Exchange.

Abbott will continue to trade under the ticker symbol ABT; and, as Rick mentioned, AbbVie will trade under the symbol ABBV.

In addition, both Abbott and AbbVie will have separate investor road shows beginning next month, and we look forward to seeing you then.

With that, Elon will now open the call for questions.

(Operator Instructions).

David Lewis, Morgan Stanley.

Good morning.

Miles, I thought maybe we would start with a strategic question.

As I think about the DMP strategy, or the Abbott strategy going forward, I feel like investors see nutrition as a big source of leverage.

They see established pharma -- and as we've seen this year, as a source of growth.

But they have questions on the device franchise.

So how do you see the development of the device franchise?

Is it a growth asset?

Is it a leveraged asset?

And what impact do you think M&A is going to play in the development of that device franchise over time?

Okay.

Thanks, David.

Well, I'd characterize the device franchise in the following way -- I think we're in a transition period.

We've just launched a number of new products in our vascular business, for example.

We are lapping our Promus arrangement with Boston Scientific.

So we've got a number of things that are sort of in transition there.

I look for growth out of the vascular business.

I would say our -- and on a continuing basis, because as you know we've established a very strong franchise there with our entire XIENCE franchise.

I think we've got growth potential -- tremendous growth potential, really -- with ABSORB and with MitraClip and, frankly, with our endovascular franchise.

So I expect that to be a growth business.

And we simply have to lap the circumstance of Promus, and we've got to get our new products launched, which we are under way with.

And I think we got opportunity there -- a lot of opportunity, including in emerging markets.

On the front of the ophthalmology business, part of that is market- and economy-driven, and part of that is new product launches, which we have a number of coming.

And then part of it is expansion into emerging markets.

So it's a similar story, but I would say we're in the -- let's get all the ducks lined up to achieve that and be ready to do that.

That business has been somewhat disappointing over the last couple of years.

But as you know, the LASIK part of it and others are very dependent on economic conditions.

And that has really been a headwind for that business.

I look for that business, also, to be a growth contributor in the future.

And then finally, diabetes care I would characterize in two ways.

One, it's clearly a tougher, more competitive market over time.

There's been a lot of price pressure, reimbursement pressure and so forth, particularly from governments in Europe.

On the other hand, we've got a particularly innovative pipeline and system of products coming that I think really change diabetes testing for the type I and type II tester going forward.

The first product in that lineup, InsuLinx, is in the market now.

And I would say I've got a pretty exciting product line coming there.

So I look for that business to also improve from a growth standpoint going forward.

So I'm looking for growth out of all three.

All three happen to be in transitional phases right now, but they got a nice cadre of products coming.

At the same time, we put a fair amount of emphasis on gross margin improvement in all of them.

And we've seen a lot of margin improvement over the last few years out of vascular.

We've seen it of our diabetes care business.

I think that all the prospects look good there.

But in terms of the evolution of the performance of businesses, I would say diagnostics, for example, is ahead of others on those tracks; also with a healthy pipeline of systems that's in development.

As I mentioned, there hasn't been a lot new in diagnostics or core laboratory diagnostics arena in the last many years, actually; several years.

And the pipeline of products under development there, I think, are quite exciting for us and for the market.

I look at that across the board.

I think the evidence from our nutrition and pharmaceutical business, EPD; the expansion of the emerging markets; the number of products that have entered those markets; they are all laying the foundation for growth in what are going to be growth markets anyway.

As I look forward, my expectations are optimistic.

I would say, from time to time, a number of analysts, including yourself, have challenged us on our market assumptions.

And I think that market has been tougher and slower to recover, or slower to pick up, than I had certainly hoped and any of us had hoped.

But at the same time, you've got to be prepared to grow through the market.

So I have put a lot of attention on our organic or internal capability in innovation, R&D, and new products.

One of the things I'm quite pleased with, as we split the company, is that both companies have what I consider to be an appropriate critical mass of spending, or level of spending, in R&D.

As you'll know, over the last 10 to 12 years, we have been steadily -- I'd say, restoring or improving spending rates or investment rates in R&D.

If you'll note in the AbbVie profile on the split, they will spend 14.5% in R&D.

If you went back 10, 12 years ago, we would have struggled to spend at that level in R&D.

So I'm pleased that, with the performance of the Company over the last 10 or 12 years and the growth, we've also improved the investment and spending rates in both R&D and SG&A to pretty healthy levels, so that the Company is capable of sustaining organic innovation and sustainability going forward, which has been a focus.

You asked me about M&A.

I would say M&A remains, from my point of view, only opportunistic.

I'm putting an awful lot of our focus and emphasis, right now, internally.

I think that's important, particularly during the split, when we'll have transition service agreements.

We've got to get through the separation, and let the dust settle and so forth.

I also never forecast M&A transactions.

But I am mindful that the foundation of the company has to be operating well.

And on an organic basis, otherwise I think -- well, I think that's what we need to pay attention to.

I don't rule anything out.

But I'm not looking for anything big.

And we're not particularly active, as you can see -- over the last year, we haven't been.

There are a few categories or areas where we are particularly mindful whether or not there's opportunities to adjunctively add to the business, or enhance the strategic strength of a business.

We're always watching for that.

We're always tracking that.

But I'd say, right now, I don't have anything that I could forecast on the radar screen.

And my focus is primarily organic.

I know that's a long answer.

It's more than you asked for.

But I thought it would cover a number of things you would be curious about.

Thanks, Miles.

In the interest of not being selfish, I'll leave it at one question, but thank you.

Jami Rubin, Goldman Sachs.

Thank you.

A similar question to both Bill and Rick -- appreciate the granularity that you provided day on AbbVie going forward.

But I'm wondering if you could -- you gave us a good sense for operating margins in 2013; but since, again, this business is going through so much transition, with base business not changing much but facing competition in the lipid business, and then new products likely to come to the market 2015 and beyond, can you give us a sense for where you see opportunities for operating margin leverage?

The gross margin level, you said, was 76.5%.

Where can that go, realistically, driven by continued growth of HUMIRA plus new product contributions?

And then, how should we think about SG&A and R&D going forward?

And then, lastly, just on HUMIRA, gave -- obviously, this franchise has done extremely well.

When we think about HUMIRA 2013 and beyond, just wondering what you are thinking internally about tofacitinib.

Are you assuming, as I think the market is, a restricted third-line label?

If it is a second-line label, how would that affect your thoughts on HUMIRA going forward?

Thanks.

Okay, Jamie, this is Rick.

That was a long question.

Sorry, I didn't mean to be so verbose.

Yes, I think if you look at our business over the next three or four years, your perspective on it is correct.

We're going to go through a transition period where we are going to have relatively flat to slightly down top line for the next couple of years, driven by the loss of exclusivity, primarily in our dyslipidemia franchise.

And then, the underlying emerging growth that we continue to see out of HUMIRA offsets the majority of that going forward.

We anticipate that HUMIRA will continue to drive growth.

Those markets are still areas where we can continue to drive penetration.

As you know, the penetration rate is really across all three segments, are relatively low.

And we continue to see uptake of these kinds of products going forward, as we expand into more and more patients and we expand geographically.

Starting in roughly 2015, you'll start to see the emergence of our pipeline going forward.

And you'll see top line start to accelerate, particularly in the second half of 2015.

But from a margin standpoint, we still have an opportunity to be able to improve margins between now and then; gross margins.

And we continue to work on operational improvements.

There will be some mixed improvement over time, although some of that will be offset by the loss of exclusivity of some products that also have relatively high margins.

So there will be a little bit of a mixed bag there.

But I think, generally speaking, we're focused on operational improvements in those areas.

From and SG&A and an R&D standpoint, as I said in my comments, we have a strong late-stage pipeline.

We have a number of assets that are in our mid-stage pipeline that we believe have compelling enough data that they will likely be able to advance into Phase III.

This is an innovation-driven business.

We're certainly going to drive everything that we have that we think could be successful going forward.

We have a commitment to be able to support R&D at a level that's appropriate based on those programs that advance.

As I indicated, I think for 2013, you should be assuming in the range of about 14%.

On the SG&A front, I'd tell you that in general, both R&D and SG&A, based on what we know about the industry, we are one of the most efficient operating models.

And I think we operate very efficiently in the SG&A area.

We're always careful about how we build infrastructure, and make sure that we're as lean as possible, but yet effective.

So that's an area that we always focus on.

It's sort of an Abbott tradition.

And we plan on continuing that as part of AbbVie.

On the tofa front, I think our read in the US is consistent with what you described.

I think, based on the label, that we would anticipate on the data that we've seen publicly, we would expect it to be third-line.

We've anticipated both in our planning process.

Essentially, I think -- I believe that, ultimately, if it comes out behind TNFs, based on the profile we feel very, very comfortable with how HUMIRA will perform against it.

Even if it came out with second-line, I think we feel very comfortable with how HUMIRA will perform against tofa.

We're obviously doing a lot of work in that area.

We've done a tremendous amount of market research to understand the positioning of that product, and how HUMIRA stacks up against it.

And we feel confident with how HUMIRA will perform going forward.

I think that was everything.

It was.

Thank you.

Michael Weinstein, JPMorgan.

Thank you.

First question, let me just ask.

You were talking about some of the short-term trends and headwinds facing what I'll call new Abbott, post-spin.

The organic growth rate, by our math this quarter for new Abbott, was 2.4%.

Any way you could try to quantify -- and if it's tough to do right now, I understand.

But could you try to quantify what the impact was of Promus this quarter, and the distribution change in nutritional, so we can try to get a more apples-to-apples look at how new Abbott is performing?

Yes, Mike, this is Tom.

As we did describe in our comments, those were the two transitional factors that masked the real growth rate of new Abbott.

I'd say each of those on average -- Promus is probably in the 1.5% range.

And the direct distribution is closer to -- approaching 1%.

So if you adjust for those, we did have growth more in that 4% range.

And as I mentioned in my remarks, if you look at the --

You're talking about vascular -- (multiple speakers).

New Abbott.

Yes, New Abbott.

And as I mentioned in my remarks, if you look at our year-to-date adjusted for those items, we're in the mid-single-digit range.

That gives you a feel.

Clearly, we expect -- particularly in the nutrition area, when these direct distribution plans are completed, that that is going to be a really nice acceleration in growth next year, and will be a big part of our ability to move this growth rate up from what you are seeing this year new Abbott.

Tom, I want to ask you about the dividend and the tax rate.

What you laid out in the dividend is really consistent with what we had modeled out.

So there was really no surprises there in how you split it, and what basically you are forecasting for 2013 on the dividend.

But you indicated on the call that AbbVie's tax rate is going to go up by about 10 points from where it has been, and where the street is modeling to where it's going to be in 2013, which obviously has a big impact on people's earnings models for AbbVie and combined Abbott going forward.

I think our math on it was that it's about 8.5% negative hit to combined Abbott's EPS going forward from that increase in the AbbVie tax rate.

So is it that the -- you need to shift that much of your profits in order to support the AbbVie dividend going forward?

Is that why the tax rate is going from 12% to 22%?

You know, Mike, I think the key thing here is -- and it's really the point we've been making from the very first day we talked about this.

These are very different businesses going forward.

And they are operating independently.

AbbVie -- a lot of the cash flow, historically, has been efficient capital that we've been able to deploy to a lot of opportunities that have really helped the overall Abbott portfolio and performance.

And going forward as separate companies, AbbVie is much more focused on returns.

It's essential that a dividend gets set at an appropriate level, particularly given the focus on yields that investors have on these docs these days.

Making that a big priority for that company, it was important to rethink the balancing the cash flows in what would be an appropriate, sustainable level going forward.

Obviously, we continue to be hopeful that over time Washington will continue to focus on this area.

It could provide additional opportunities for both companies if we move to a more competitive tax system.

But the rate at which AbbVie will be starting its existence is a very good, sustainable rate, given the profile of the business, the expectations of investors and what the future holds, as opposed to what was appropriate in the past.

This is a surprise to the street today.

And that's why I'm focusing on it, because obviously we didn't model it this way.

I know people weren't modeling it; and that's, in part, because of the comments you guys had made last October on the tax rate.

You know, Mike, as Miles indicated, it's been a process since last October to provide additional information to investors as we get closer to the point at which investors are going to separately value these stocks.

Today is a big step in that regard.

Obviously, we're going to be talking to people about the companies as we get out and talk to investors over the next couple of months.

It's important that they have this information and understand the rationale, and that it really sets AbbVie up to be very well-positioned for its objectives.

Mike, this is Miles.

The one thing I'd say that's clear to us as we've gone through the separation, when you split two businesses that do look very different from a profile standpoint or a return standpoint or, frankly, the expectations of investors.

One thing I've noted is, some analysts and some investors are pretty good at projecting what they think each business will look like.

But what we don't want is for analysts to have to guess on a lot of the parameters that help them model the business, because it is so much a part of how they will value the businesses and so forth.

Our intent, both with the amendments to the Form 10 and to the additional information we put out today, isn't a surprise.

But, frankly, to take out uncertainty where there is wide ranges of assumptions -- whether it be about interest rates or interest costs or, frankly, dis-synergies and transition costs, or the costs of running a company separately and so forth -- and if there is changes like tax rate in the structure of the P&L of the company, we want you to know what those things are so you can model.

There is a time when we know that; there's a time when we can finally give clarity to analysts and investors about those things.

And when you put them all together, it's our intent to try to take out the difficulty of modeling each company separately for you and other analysts and investors.

Other than that, I think it's just new information today that frankly so many of you have been asking for, to give you more ability to know what they're going to look like.

I appreciate that.

So, Tom, what is the payout ratio that that implies for AbbVie going forward?

Roughly -- the dividend you're talking about, Mike?

Yes, just given the higher tax rate.

Roughly 50% payout on cash earnings for the dividend.

Okay, perfect.

I'll let some others jump in here.

Thank you, guys.

Glenn Novarro, RBC Capital Markets.

Hi, good morning.

Two questions for Rick.

The first is on the HUMIRA franchise.

If you look at the HUMIRA franchise just this quarter, O-US came in a little light.

And you mentioned the timing of tenders.

But I've got to believe that European austerity is having an impact as well.

And if that is the case, is this going to be a headwind for the HUMIRA O-US franchise for the next couple of years?

And are there any offsets?

And then as a follow-up on HUMIRA, the patents in both the US and Europe expire over the next five years.

Is there a strategy in place that can extend the patents?

And then I'd like to ask a follow-up on hepatitis after you have answered the HUMIRA questions.

Okay.

So, Glenn, on the growth rate in the third quarter, there were essentially two tenders that moved between quarters.

One moved out into fourth quarter; one moved back into second quarter.

If you essentially adjust for those changes, HUMIRA is continuing to run about mid-teen.

So there isn't any material impact on HUMIRA.

Having said that, clearly the impact across everyone's business in Europe is being felt with some of the austerity measures that are being taken.

I wouldn't say that we feel differently than we felt for the last couple of years.

2010, from a price standpoint, was probably the most difficult year, the most challenging year.

If you look at this year, it's in that range, but it's slightly below that, from a price erosion standpoint.

What we've modeled for 2013 is close to 2010, so we're planning in that range.

But it hasn't had a material impact on the performance of HUMIRA going forward.

And we don't expect that going forward.

As far as biosimilar competition in 2017 or 2018, which is what you're talking about, obviously we spend a lot of time working on that strategy.

You have to remember that beyond just the molecule patents, there are a number of process patents that will be important in the process, and a number of other things that we continue to look at.

And as you know, if you look at biosimilars, it's a very different ball game from small molecules.

We do not believe that it will be an interchangeable or substitutable kind of product.

They will have to sell based on their own data, if and when they come to market.

And we believe that HUMIRA's track record will stack up nicely against them.

It certainly will have an impact.

We recognize that.

But we think it's a manageable impact.

And we believe we have a number of strategies to be able to protect HUMIRA going forward.

So from a modeling point of view, we should ask assume some generics entering the market in 2017, 2018.

Correct?

You should assume some biosimilar activity based on some entering the market around 2017, 2018.

Correct.

Okay.

And then just as a follow-up, I had a question on your hepatitis program.

We have seen very good, very strong data from the current regimen.

But the current regimen also -- and the protease inhibitors boosted with Ritonavir -- and there's a lot of questions out there whether or not this will limit the ability to take market share because of Ritonavir's interaction with other drugs.

What's your best guess is -- as to what a Ritonavir booster will do in terms of limiting the market share for your platform?

And then as a follow-up, the data in the nulls was really, really strong.

And this could really establish you as a major player in that segment of the market.

How big do you think the null market would be?

Thanks.

Let me start with Ritonavir.

There's obviously been a lot of questions around Ritonavir.

I think it's important to recognize that the dose of Ritonavir in the HCV cocktail, or in the PI specifically, is 1/12th the dose, the label dose, in Ritonavir.

So we have not seen any of the side effect profiles that people talk about, like GI side effects, lipid profile side effects, in any of the critical trials.

And we've now done a substantial number of patients, as you know.

The tolerability in the trial had less than a 2% discontinuation rate, and a very low rate of any kind of drug-to-drug interactions.

So we don't -- everyone can talk about Ritonavir.

And obviously our competitors are talking about it.

The reality is the data speaks for itself, and you're going to get a chance to see the data.

A patient doesn't know or a physician doesn't really care whether it has Ritonavir in it or not.

What they care about is high cure rates, tolerability, and ease of use of the protocol.

I think in those fronts, based on the data that we've seen thus far, we're pretty confident about what we have.

I think the data will play out over time.

We'll do our Phase III trials; it'll be an even larger cohort of patients.

And we'll have an opportunity to see that.

But there's nothing in this data -- and I can tell you, we have been through this data very, very carefully -- there is nothing in this data that concerns me from a tolerability standpoint with Ritonavir.

Oh, the nulls -- the null performance is very, very impressive.

As you know, we haven't seen anything from any other product that even comes close to this level of performance.

The way we calculate nulls -- and we spent some time looking at this -- it would suggest to us that nulls alone are somewhere around a $2.5 billion to $3 billion opportunity.

So they are a pretty sizable opportunity.

And, obviously, the market will continue to grow as more and more therapies come out there.

So we believe that could be a very significant differentiating factor for our therapy.

But to see how other data that comes out over the course of time, but certainly 93% performance in null responding patients is something that the industry has not seen before.

Okay, thanks.

Thank you, Rick.

Rajeev Jashnani, UBS.

Hi, good morning.

My question first was on new Abbott, and not getting too much into the guidance -- but I was hoping you could help us think about outlook a little bit, in the sense -- you've talked about margins impacting, or FX impacting the margins next year.

And, obviously, margin expansion is one of the attractive points for that company.

Maybe you could help us understand the way rates are currently sitting.

How much is that going to dilute the margin expansion next year?

And can we still expect some net margin expansion in that business?

Sure.

This is Tom.

As you have seen from Abbott's performance over the years, certainly within a year, the currency has been a little bit less impactful to us than maybe some other companies.

It really is a function of the way things flow through our business.

As you know, sales -- when currency moves, that's an immediate impact; whereas the impact of cost of sales tends to lag through the inventory process.

We've had quite a bit of that this year.

And some of that is going to carry into next year.

So I'd say, as we have been saying all along on the quarters with the favorability of exchange that we've been pointing out in the gross margin improvement, some of that was a bit transitional this year.

And it's going to flip back a little bit the other way next year.

I just think it's normalizing; and if you look at underlying -- what's really going on in these businesses, it's very quite positive.

As we've talked about in terms of improving the gross margins fundamentally.

And I think once we get through this one-time adjustment, if you will, of getting the margin back to a more normalized level, you'll be able to see the growth of that margin as we've been talking about.

Rajeev, this is Miles.

I would just add to that to the following, is by way of background explanation.

One of the reasons that exchange doesn't translate from the top line to our bottom line as much as it may at other companies -- and other companies frankly do the same thing -- we try to put our cost base, our manufacturing, et cetera, also in the same markets where we may experience exchange fluctuation in sales and top line because there is a natural hedge there in costs, et cetera.

So, for example, over time -- to the extent that costs and manufacturing and other things are in some of the growth markets where we are growing and we are putting our plants there, et cetera, for the products that we will sell there -- there is a natural hedging there that helps mitigate the topline impact of exchange down to the bottom line.

So some years, that is a plus for us on the margin line.

For example, this year, while the topline is experiencing negative exchange, the gross margin line is experiencing positive exchange.

Important to point out though, that on the gross margin line, it's not all exchange.

There's a big chunk of that improvement in the gross margin line that is actually actions taken to improve our cost structure structures or mix and whatever the case may be.

So, if exchange improves on the topline next year, as Tom says, that will have a dampening effect on the continued improvement of gross margin.

But we expect to continue to improve, from our own actions, the gross margin line.

It just won't benefit from an extra boost from exchange.

So it is kind of a mitigated thing both ways.

At the end of the day, what we're looking to do, in the way we structure our own approach to exchange is to mitigate its volatility on the bottom line.

Thanks for that.

I think clearly what's important is what happens on an underlying basis.

But it's just helpful to have expectations in the right place as far as the numbers go, I thought.

I did have a follow-up on nutritionals.

I guess the growth there was a little bit lighter than what we were looking for in pediatric.

And I know you talked about some of the distributor issues.

But those are things obviously things that you've known for several quarters.

Maybe just -- particularly on e-x US, if you could talk about if any of the underlying market dynamics have changed materially this quarter, and if you are thinking about the markets there any differently than you have been in the past?

Thanks.

Well, I'd say a couple of things, and then I'm going to let Tom weight here, too.

There aren't really distributor issues.

There is one circumstance, a fairly significant one, where we bought out the distributor.

And there is an adjustment we're going through while we let that inventory wind down -- and the sales wind down and come back into our own system.

We're -- in effect, we're going direct in a lot of our markets, and some of our significant ones overseas.

So there is a transition there as you do that that clearly is dampening.

It's not an issue per se; it's a action on our part to go more direct for a lot of favorable reasons.

I guess I would just say that, really, the items we noted on the distributor changes are the drag on what one might expect.

And we do expect, in the fourth quarter, upper-single growth in this business.

So you are going to see a better rate, we believe, in the fourth quarter.

And we think it's even got better potential in 2013.

I think once you get through this transition, you'll feel confident that those types of growth rates are possible for this business.

And we plan to deliver on them.

You asked if there is an underlying fundamental downshift in some way -- not that we see, no.

No, we're not looking at that, or expecting that.

Thanks a lot, guys.

Larry Biegelsen, Wells Fargo.

Good morning.

Thanks for taking the question.

The emerging market growth this quarter, it was over 10% and it was 12% last quarter.

So it feels like it's in that 10% to 12% range.

Is that a realistic rate going forward?

And maybe if you could talk about AbbVie versus Abbott, if there is differences there?

And then I just had one follow-up.

Well, certainly, in the quarter -- and we've said this in the October meeting last year, and throughout -- emerging markets is much more a part of the story, and a much more important part of the growth opportunity on the Abbott side.

And, in fact, in the quarter, even though overall Company drew double-digits, it was stronger on the Abbott side and a little bit below that on the AbbVie side.

So it clearly is a more important part of the story now.

That said, I think AbbVie, and we said this also -- but does see opportunities there, and I think somewhere in the range of $1 billion of growth in emerging markets over the five-year period is still is still a part of their story.

But, clearly, the performance was better in that quarter on the Abbott side, and really is a bigger part of the story.

The other thing I would say is, some of the tenders that Rick talked about when he was talking about HUMIRA, also tended to dampen down AbbVie in the third quarter.

And I think that is a bit transitional.

Thank you.

And then one for Miles -- at the analyst meeting last October, you laid out some goals for the new Abbott to grow high-single-digits in EPS at a double-digit rate.

Today you are saying you can grow mid-single-digits in 2013.

Could you give us a little bit of an update on the long-term goals for the new Abbott, and why maybe next year is mid-single-digits versus your original high-single-digit goal?

Thank you.

That's mid to upper, Larry.

I just wanted to clarify.

That's mid-to upper, Larry.

I just wanted to clarify.

Larry, I'd say this.

There is no difference in our long-term goals at all or even our long-term expectations.

I think there's a number of things that are different now than last year, but only relatively speaking.

So, for example, I'd say, right now, 2013, I'm looking for mid- to high-single-digits.

And I think at that meeting last year, I distinctly remember at least one of you if not a couple of you were more cautious about economy, et cetera, going forward.

You proved to be right.

I'd say right now the difference in my outlook is more about market conditions than anything else, and how slow a recovery in a number of markets around the world will come.

I think that the biggest change that I see is slower market growth rates in emerging markets.

But I'm cautious about how I describe that, because when people in general look at a China -- and this is any company that's doing business in China today, not necessarily in healthcare or medical products -- people say, gee, the Chinese market has really slowed.

It was 9%.

Now it's at 7%.

Well, slow is a relative term.

7% looks pretty attractive as a matter of generality compared to developed markets and a lot of developing markets.

But I'd say that the underlying market growth rates in a number of economies around the world are slower, particularly in emerging markets, than we might have originally expected.

I think all industries are experiencing that right now.

Who knows whether these things will recover as fast as everybody would like or not?

The whole world now is pretty interlocked, so that if the developed markets are slow, it does roll back into a number of developing or emerging or growth markets.

So, single biggest difference I think in our outlook is the underlying market growth rates or expansion rates, which I think, in relative terms, is more a more near-term thing than a long-term thing.

I think all those markets overseas that we view as growth markets are growth markets for the long-term.

And my expectations are high-single-digit topline for the long-term; and mid- to high- in the nearer term.

Our goals haven't changed.

But we have to be realistic about the underlying market conditions.

Our objective is to do better than market in any circumstance, so that we're growing and gaining share, et cetera, in our targeted geographies and targeted segments of the business.

So I would say there is no change to my expectations.

There's a change to my assumptions about the conditions in which we operate.

That affects the exchange too, although we all understand exchange.

I think the biggest change or surprise to my own expectations for the year was the exchange impact from growth markets.

Historically, with AbbVie as part of Abbott, Europe is a huge part of exchange for us.

That's less true for new Abbott going forward.

It's much more a market basket of a lot of currencies around the world, which is different.

And a lot of those currencies have performed differently this year.

So I think a lot of this is adjustment to conditions.

And, frankly, I think our underlying expectations -- which are generally driven by our own performance; the new products we bring to market; the share we gain; the market opportunities we access -- there's no change in my expectations about those.

Thank you very much.

Tony Butler, Barclays Capital.

Thanks very much.

A couple of questions on hep C. Rick, you commented with respect to the very good data -- very good 12 week data in genotype 1, that you would be the first in the market in 2015 against genotype 1. I'm curious if that statement was correct as I wrote it down.

And second, what is your -- AbbVie's expectations with respect to the competition being in the market at what time?

And in the second question around hep C is around nulls.

You did provide some commentary around the market and that's very helpful; although I'm curious -- and I seem to recall that the null data that has been presented is without cirrhotics.

Is that correct?

And then I had one financial follow-up.

Thanks.

Okay.

As far as the nulls are concerned, it is without cirrhotics, that is correct.

We're going to do a cirrhotic trial now; so it is nulls without cirrhotics.

As far as the timing, you heard the comment correct -- we do anticipate that if we hit the window of early 2015, based on how we have modeled out timelines for competitive products, it would suggest to us that that could be the first product to enter the market for genotype 1.

There may be products that enter the market for genotype 2 and 3 prior to that -- in fact, I think there could be, in all likelihood, products that enter the market after that.

Now, that's based on a set of assumptions that we are making that essentially are based on our competitive intelligence of how long we think trials would take to be able to start up.

I can tell you, all of us recognize that this will be a race to get to market.

We anticipate early in 2015 is the timeframe that we should be able to hit.

And based on what we know today, we are assuming that that would be first to market.

But we'll have to see how it plays out over time.

Yes, sir.

I understand the race all too well.

The one financial question, though, is around AbbVie's debt to EBITDA.

Are you happy with that debt to EBITDA, at least in the short term -- i.e., would you take excess cash beyond the dividend to pay that debt down?

And if not, does the high tax rate really imply a fair level of repatriation of capital?

And that is, again, for AbbVie.

Thanks very much.

Tony, what we have done is we have structured AbbVie with what we think is a very strong, responsible balance sheet at the onset.

As cash is generated, yes, I think one of the priorities we would have as we balance our cash -- and we do look at as a an exercise in balancing between returning to shareholder, funding the business -- but one of the other items is ultimately paying down debt as well.

And we would look to do that when we have maturities through the next couple of years.

In regards to the need to repatriate, I think if you look at AbbVie, we've got a pretty strong balance sheet.

We've got $7 billion of cash starting out.

The 22% tax rate will allow us to appropriately balance geographic cash flows between our needs and our uses.

So I don't think any additional repatriation would be necessary.

Thanks very much.

Elon, we are running out of time here.

We want to be respectful for people's time.

So maybe we can take two more questions, please.

Okay.

Jeff Holford, Jefferies.

Hi there.

Thanks for taking my question.

One part of [CAFO] allocation you haven't discussed yet for either AbbVie or Abbott is share repurchases.

Can you outline any thoughts that you have there?

Thank you.

Yes, both companies do anticipate continuing their share repurchase programs.

As you are aware, Abbott has been more active this year than we have been in the last couple.

The specifics of that, each company is going to have to talk about it at future dates.

One more question, I guess?

Is that it?

Operator?

Danielle Antalffy.

Hi, guys.

Thanks so much for taking the question.

If I could focus in for the legacy -- the Abbott device business.

On the vascular side, one of -- another cardiovascular company just this morning talked about pressure -- cardiovascular procedure volumes in Europe.

I'm wondering if you could talk about what you guys are seeing over in Europe, and how that could be impacting stent sales going forward.

Well, I think -- I don't know what the other company said this morning, Danielle.

But we are seeing a definite pressure on PCI volumes, or procedure volumes and so forth, and procedure rates.

What we see -- and I think it depends on what geographies you are in -- for us, the pressures in Europe are somewhat offset by the growth in procedures in developing markets or growth markets, other markets.

But I think for some time, at least for the near-term, we can expect to see some continued pressure on Europe, perhaps the US.

Okay, great.

Thanks so much.

And then, again, on the vascular business -- Evalve -- I wasn't there, but I talked to a few docs that attended the ESC meeting.

And it sounds like there is more excitement being drummed up for the MitraClip.

Just wondering what your status is on that filing here in the US.

And should we view this business any differently after hearing some more positive data points coming out of the ESC meeting in August?

Thanks so much.

Yes, Danielle, we are -- in the US, we're still hopeful for our panel, probably in early part of next year in the first quarter.

That's the latest thinking.

Okay?

Great, thanks.

Thank you.

Operator, that concludes today's conference call.

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