Biotech Values

[DewDiligence]

ABT’s Answers to FAQs from 4Q09 Results

[This is an addendum to the 4Q09-results PR; the entire PR including the addendum is at the link below. 4Q09 EPS of 1.18 excluding non-recurring items was +11% year-over-year; 4Q09 sales were also +11% year-over-year, although 240 basis points of this increase came from favorable exchange rates. Humira 4Q09 sales increased 21% YoY (20% in constant currencies) to $1.66B; Humira continues to rank second to Enbrel in the monster RA/psoriasis/autoimmune market, and its sales have barely been affected by such recent market entrants as Simponi, Stelara, and Actemra. Niaspan sales increased 15% YoY and, at an annualized run rate of $1B, it is now officially a blockbuster thanks to the results of the ARBITER-6 study (#msg-43586320).

ABT’s 2010 EPS guidance is $4.20-4.25, a 13-14% increase vs 2009 that includes +10 cents for the Solvay acquisition (#msg-41922225). The forward P/E is thus only 12.5x, which strikes me as a bargain.]

http://finance.yahoo.com/news/Abbott-Reports-DoubleDigit-prnews-3545951955.html?x=0&.v=1

›Q1) What drove the growth of worldwide pharmaceutical sales?

A1) Reported HUMIRA global sales growth was 21.4 percent for the full-year 2009, exceeding our previous full-year sales guidance for the product. International pharmaceutical sales in the fourth quarter increased 22.1 percent, including a 5.6 percent favorable impact from exchange. Internationally, growth for HUMIRA was 48.0 percent, with reported sales of $888 million. International anti-TNF market growth trends remain strong, and HUMIRA maintains a market-leading position in many of the international markets, including the number one share position in Western Europe.

U.S. pharmaceutical sales declined 1.9 percent, excluding the expected decline of Depakote sales due to generic competition, which reduced U.S. pharmaceutical sales growth by 6.7 percentage points. Reported U.S. pharmaceutical sales declined 8.6 percent.

U.S. pharmaceutical sales were led by Niaspan, with sales of $254 million, up 14.9 percent. The release of the Arbiter-6 HALTS study data at AHA in November is having a favorable impact on Niaspan prescribing trends. TriCor/TRILIPIX franchise growth this quarter was impacted by the comparison to prior year, when sales were up 16 percent, including the initial launch of TRILIPIX. Total prescriptions for the TriCor/TRILIPIX franchise continue to grow in the mid-to high-single digits, exceeding the growth rate of the cholesterol market.

In line with our expectations, U.S. HUMIRA sales growth was impacted by the comparison to the fourth quarter of 2008, when sales growth was 42 percent. Underlying demand for HUMIRA continues to outpace the market, with particularly strong growth in the dermatology and gastroenterology segments. During 2009, HUMIRA gained total prescription share in the U.S. anti-TNF market, with 42 percent share at year end.

Q2) What drove the strong performance in worldwide medical products and worldwide nutritional products sales?

A2) Medical products sales increased 23.4 percent, including a favorable 3.2 percent impact from exchange and sales from Abbott Medical Optics (AMO), which was acquired during the first quarter of 2009. Medical Products strength in the quarter reflects 9.1 percent growth in worldwide vascular sales and strong growth in U.S. Diagnostics, including continued double-digit growth in Abbott's molecular and point of care diagnostics businesses.

Vascular sales were driven by the continued market uptake of XIENCE V, which remains the number one drug-eluting stent (DES) in the United States and Europe. In January, we received approval for XIENCE V in Japan and expect to launch upon final reimbursement authorization, which we anticipate in early February. Japan is the second-largest drug-eluting stent market. XIENCE PRIME, our next-generation drug-eluting stent, is off to a strong start in Europe, where it was launched in September 2009. XIENCE PRIME is gaining market share given its improved deliverability and additional long-lesion sizes. In addition, XIENCE V was approved in Mexico in January.

Worldwide nutritional products sales increased 8.8 percent, including a favorable 0.9 percent impact from exchange. International nutritional product sales increased 11.0 percent, reflecting strong growth in key emerging markets, including Latin America and Asia.

Q3) What was the fourth-quarter gross margin ratio?

A3) The gross margin ratio before and after specified items is shown below (dollars in millions):

Cost of Products Sold, Gross Profit, Gross Margin %
As reported: $3,784 $5,006 56.9%

Adjusted for specified items:
Acquisition related: ($3), $3, --
Sibutramine suspension: ($34), $34, 0.4%
Cost reduction initiatives and other: ($83), $83, 1.0%
As adjusted: $3,664, $5,126, 58.3%

The adjusted gross margin ratio was 58.3 percent, consistent with our previous forecast, reflecting the expected reduction in Depakote sales resulting from generic competition and the negative impact of foreign exchange on the ratio.

Q4) What was the tax rate for the full-year 2009 and in the quarter?

A4) The full-year 2009 ongoing tax rate of 16.8 percent reflects continuing favorable trends. We expect these trends to continue into 2010. The fourth-quarter ongoing tax rate was 14.5 percent, reflecting the mix of income by taxing jurisdiction. The reported fourth-quarter tax rate is reconciled to the ongoing rate below (dollars in millions):

Pre-Tax Income, Income Tax, Tax Rate
As reported: $1,823, $284, 15.6%
Specified items: $334, $28, 8.3%
Excluding specified items: $2,157, $312, 14.5%

Q5) What drove SG&A and R&D investment in the quarter?

A5) In the fourth quarter, Abbott increased investment in programs to drive future growth, resulting in ongoing SG&A expense that was above previous expectations. R&D investment was in line with our forecasts, reflecting continued investment in our broad-based pipeline, including programs in vascular devices, immunology, neuroscience, oncology and HCV.

Q6) How did specified items [i.e. non-recurring items] affect reported results?

A6) Specified items impacted fourth-quarter results as follows (dollars in millions):

Pre-tax, After-tax, EPS
4Q09 as reported: $1,823, $1,539, $0.98

Adjusted for specified items:
Acquired in-process R&D: $170, $170, $0.11
Acquisition related: $49, $42, $0.03
Sibutramine suspension: $43, $37, $0.02
Cost reduction initiatives and other: $72, $57, $0.04

4Q09 as adjusted, $2,157, $1,845, $1.18

Acquired in-process R&D is related to the acquisition of global rights to PanGenetics' PG110, a novel biologic in development for the treatment of chronic pain. Product suspension primarily relates to inventory write-offs associated with the suspension of sibutramine by certain countries following the European regulatory recommendation. Acquisition related is primarily associated with integration costs related to the acquisitions of AMO, Evalve and Visiogen. Cost reduction initiatives include actions to improve efficiencies, including the previously announced efforts in the core laboratory diagnostic business.

The pre-tax impact of specified items by Consolidated Statement of Earnings line item is as follows (dollars in millions):

Cost of Products Sold, R&D, IP R&D, SG&A
As reported: $3,784 , $747 , $170 , $2,225 ,

Adjusted for specified items:
Acquired in-process R&D: -- , -- , ($170), --
Acquisition related: ($3), -- , -- , ($46)
Sibutramine suspension: ($34), ($9), -- , --
Cost reduction initiatives and other: ($83), ($1), -- , $11 ,

As adjusted: $3,664 , $737 , -- , $2,190 ,

Q7) What are the key areas of focus in Abbott's broad-based pipeline?

A7) Abbott is conducting leading-edge research across the company. In 2010, we expect to see continued advancement in our broad-based pipeline, including the anticipated approval for five new products or indications and data for numerous Phase I and Phase II compounds. Our pipeline is comprised of breakthrough research across both pharmaceuticals and medical devices. Following are select highlights:

• Lipid Management

o We continue to anticipate U.S. FDA approval for CERTRIAD during the first half of 2010. CERTRIAD is the fixed-dose combination of TRILIPIX and CRESTOR that Abbott is developing with AstraZeneca.

• Oncology

o Abbott's oncology pipeline includes therapies that represent promising, unique scientific approaches to treating cancer. Abbott is focused on the development of targeted, less-toxic treatments that inhibit tumor growth and improve response to common cancer therapies.

o Our mid-stage oncology pipeline includes: ABT-263, a Bcl-2 family protein antagonist; ABT-869, a multi-targeted kinase inhibitor; and ABT-888, a PARP-inhibitor. Abbott is also evaluating a number of additional promising mechanisms in our pre-clinical pipeline.

• Neuroscience

o Abbott is conducting innovative research in neuroscience, where we have developed compounds that target receptors in the brain that help regulate mood, memory and other neurological functions to address conditions such as Alzheimer's disease and schizophrenia. Abbott recently advanced two compounds into Phase II development for Alzheimer's disease.

o Abbott is also pursuing compounds that could provide relief across a broad spectrum of pain states, such as osteoarthritis, postoperative pain and cancer pain. We recently expanded our early-stage pain portfolio with the addition of an anti-nerve growth factor (NGF) biologic for chronic pain [#msg-43510907].

• Immunology

o Abbott's scientific experience with the anti-TNF biologic HUMIRA serves as a strong foundation for our continuing research in immunology. In our pipeline, we continue to explore additional indications for HUMIRA and have ongoing studies for ABT-874, Abbott's anti-IL 12/23 biologic. We are also working to advance development of our early discovery programs, including oral DMARD therapies, as well as other potential biologic targets.

o Additionally, our proprietary DVD-Ig technology represents an innovative approach that can target multiple disease-causing antigens with a single biologic agent. This technology could lead to combination biologics for complex conditions such as cancer or rheumatoid arthritis, where multiple pathways are involved in the disease.

• Hepatitis C

o Abbott's antiviral program is focused on the treatment of hepatitis C, a disease that affects more than 180 million people worldwide, with approximately 3 to 4 million people newly infected each year. Abbott's broad-based hepatitis C development programs include our partnership with Enanta Pharmaceuticals to discover protease inhibitors, as well as our internal programs focused on additional viral targets, including polymerase inhibitors.

o Abbott currently has three HCV compounds in human trials [two of these are ABT-450 and ABT-333 (#msg-46036079); I don’t know what the third one is], spanning multiple mechanisms of action, with additional compounds in pre-clinical development. Abbott is well positioned to explore combinations of these new therapies, a strategy with the potential to markedly transform current treatment practices by shortening therapy duration, improving tolerability and increasing cure rates.

• Vascular Devices

o MitraClip – Abbott's MitraClip is on the market in Europe and in development in the United States for the treatment of mitral regurgitation. Abbott anticipates presenting the MitraClip pivotal trial, EVEREST II, at the upcoming ACC medical meeting in March.

o XIENCE PRIME – Abbott's next-generation DES that capitalizes on the proven attributes of XIENCE V while offering a novel stent design and a modified delivery system for improved deliverability. XIENCE PRIME is off to a strong start in Europe, where it was launched in September. XIENCE PRIME is in clinical trials in the United States.

o XIENCE Nano – XIENCE V for small vessels is in clinical trials in the United States. This 2.25 mm diameter stent was launched in Europe in 2008.

o "Thinman" DES – Abbott is developing an ultra thin DES, which would be the thinnest DES on the market at the time of launch. Thin stent struts are designed to improve clinical outcomes by reducing vessel injury upon deployment, enabling faster healing and improving deliverability in complex anatomy.

o Bioabsorbable Stent – Abbott is developing a bioabsorbable stent that is gradually resorbed into the vessel wall – much like sutures are absorbed after healing a wound – with the potential to return the vessel to full motion. Abbott has the most advanced clinical program, with an opportunity to reach the market years ahead of competitors.

o Core products – Abbott recently received CE Mark for its next-generation bare metal stent, MULTI-LINK 8. We expect approval for this product in the United States later this year. Other devices in active development include next-generation frontline and high-pressure balloons, and new guidewires.

• Molecular Diagnostics

o In the fourth quarter, Abbott launched its first RealTime cancer test on the m2000 platform to detect a gene linked to colorectal cancer. Abbott also continues to partner with pharmaceutical companies to develop automated molecular tests to screen for non-small cell lung cancer.

• Diagnostics

o Abbott recently received CE Mark for an important ARCHITECT immunoassay, which can help in the assessment of ovarian cancer in women. Abbott has also submitted the test to the FDA for 510(k) clearance.

o Abbott has also submitted a Premarket Approval (PMA) application to the FDA for its ARCHITECT HIV Ag/Ab Combo assay. The assay has been shown to detect acute and chronic HIV infection earlier than currently approved antibody tests. Upon approval, the test is expected to be the first of its kind available for patients in the United States.‹