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Replies to #80892 on Biotech Values

DewDiligence

07/15/09 5:41 PM

#80893 RE: DewDiligence #80892

ABT Q&A Addendum to 2Q09 PR

http://finance.yahoo.com/news/Abbott-Reports-Strong-Second-prnews-1642362481.html/print?x=0

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

A1) Excluding Depakote, U.S. pharmaceutical sales increased more than 9 percent. As expected, U.S. pharmaceutical sales reflected the impact of generic competition for Depakote. This resulted in a $306 million decline in Depakote sales in the second quarter, reducing reported U.S. pharmaceutical sales growth by nearly 15 percentage points.

U.S. pharmaceutical sales were led by HUMIRA, with sales of $635 million, up 20.9 percent. Underlying demand for HUMIRA remains strong, and share gains occurred across all three major indications in the quarter. The lipid franchise continues to perform well, with TriCor/TRILIPIX sales up more than 9 percent and Niaspan sales up nearly 7 percent, both exceeding the market growth rate.

International pharmaceutical operational sales increased 13.8 percent, excluding a 16.7 percent negative impact from exchange. Internationally, operational growth for HUMIRA was 44 percent, with sales of $676 million, in line with our expectations. There was a 24-percentage point negative impact of exchange on international HUMIRA sales. 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. Kaletra also performed well internationally, with operational growth of nearly 14 percent.

Q2) What drove the 27.0 percent operational increase in global medical products sales and strong global nutritional products sales?

A2) Medical products operational sales increased 27.0 percent, excluding a 9.5 percent negative impact from exchange. This includes the first full quarter of sales from Advanced Medical Optics (AMO), which was acquired during the first quarter of 2009. Strength in the quarter reflects 43 percent operational growth in worldwide vascular sales and continued double-digit growth in Abbott's molecular diagnostics business.

Vascular sales were driven by the continued successful uptake of XIENCE V, which remains the number one DES in the United States and Europe. XIENCE platform share, which includes XIENCE and Promus, is now more than half of the U.S. market. U.S. DES penetration is in the mid-70s and percutaneous coronary intervention (PCI) volumes increased in the low-single digits from the second quarter of last year.

Worldwide nutritional products operational sales increased more than 9 percent, excluding 5.2 percent negative exchange. This reflects continued strong growth in key emerging markets, including Latin America and Asia. U.S. nutritional sales increased 10.0 percent, driven by strong market share gains in the infant nutritional business.

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

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

2Q09
Cost of
Products Gross Gross
Sold Margin Margin %
As reported $3,129 $4,366 58.3%
Adjusted for specified items:
Acquisition related ($17) $17 0.2%
Cost reduction initiatives and other ($52) $52 0.7%
As adjusted $3,060 $4,435 59.2%

The adjusted gross margin ratio was 59.2 percent, an improvement of 80 basis points from the prior year. This gross margin expansion was driven by improved operating performance of the diagnostic and nutrition businesses, and the impact of foreign exchange. This occurred despite the negative impact from lower Depakote sales.

Q4) How did R&D and SG&A investment compare to the company's guidance?

A4) Both SG&A and R&D were in line with our forecast for the quarter. Ongoing R&D expense, excluding specified items and the impact of foreign exchange, was up nearly 6 percent, reflecting continued investment in our pipeline, including programs in vascular devices, biologics, neuroscience, oncology and HCV. Ongoing SG&A expense, excluding specified items and the impact of foreign exchange, was up nearly 5 percent, in line with our forecast for significant SG&A leverage in 2009. We are forecasting a reduction in full-year ongoing SG&A as a percentage of sales of more than 100 basis points compared to 2008.

Q5) What was the tax rate in the quarter?

A5) The tax rate this quarter was 17.8 percent, in line with the previous forecast.

Q6) How did specified items affect reported results?

A6) Specified items impacted second-quarter results as follows:

(dollars in millions, except 2Q09
earnings-per-share) Earnings
Pre-tax After-tax EPS
As reported $1,567 $1,288 $0.83
Adjusted for specified items:
Acquisition related $40 $33 $0.02
Cost reduction initiatives and other $82 $67 $0.04
As adjusted $1,689 $1,388 $0.89

Acquisition related is primarily associated with acquisition costs related to Advanced Medical Optics (AMO), which closed during the first quarter of 2009. 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):

2Q09
Cost of
Products
Sold R&D SG&A
As reported $3,129 $670 $2,025
Adjusted for specified items:
Acquisition related $17 $8 $15
Cost reduction initiatives and other $52 $3 $27
As adjusted $3,060 $659 $1,983

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

A7) Abbott is advancing leading-edge scientific discoveries across the company, including:

* Lipid Management

o In January of this year, we launched TRILIPIX, Abbott's next-generation fenofibric acid. The product has been well received and the launch has been in line with our expectations. During the second quarter, we submitted CERTRIAD for U.S. regulatory approval. CERTRIAD is the fixed-dose combination of TRILIPIX and CRESTOR that Abbott is developing with AstraZeneca. Also in the quarter, we expanded our relationship with AstraZeneca with an agreement for the company to co-promote TRILIPIX in the United States.

* 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. Our collaboration with Genentech/Roche to develop two Abbott-discovered compounds continues to progress. These compounds include ABT-869, a multi-targeted kinase inhibitor and ABT-263, a Bcl-2 family protein antagonist. We now anticipate beginning a pivotal study for ABT-869 later this year.

o Abbott's oncology research also includes a PARP-inhibitor in Phase II, which prevents DNA repair in cancer cells, enhancing the effectiveness of current cancer therapies.

* 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 attention deficit hyperactivity disorder, Alzheimer's disease and schizophrenia.

o We're also pursuing compounds that could provide relief across a broad spectrum of pain states, such as osteoarthritis, postoperative pain and cancer pain.

* Immunology

o Abbott's scientific experience with the anti-TNF biologic HUMIRA serves as a strong foundation for our continuing research in immunology. HUMIRA has several indications in Phase III, including ulcerative colitis and pediatric Crohn's disease. In addition, ABT-874, Abbott's anti-IL 12/23 biologic, is in Phase III for psoriasis and Phase II for Crohn's disease. ABT-874 is on track for regulatory submission in 2010 for the psoriasis indication. 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 program includes our partnership with Enanta Pharmaceuticals to develop protease inhibitors, as well as our internal polymerase inhibitor program. Our compounds in development have the potential to shorten treatment duration, improve tolerability and increase cure rates. Abbott has three HCV compounds in human trials, with additional pre-clinical compounds in development. Abbott is well positioned to explore combinations of these new therapies, which may provide additional benefit to patients with HCV infection.

* Vascular Devices

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. We recently received CE Mark for XIENCE PRIME in Europe.

o XIENCE Nano - XIENCE V for small vessels in the United States. This 2.25 mm diameter stent has been available in Europe since early 2008.

o Bioabsorbable DES - DES that is gradually absorbed 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 bioabsorbable DES clinical program, with an opportunity to reach the market years ahead of competitors.

o Core products - Devices in active development include a next-generation bare metal stent, frontline and high-pressure balloons, and new guidewires.

o Endovascular products - Self-expanding and balloon-expanding peripheral stents, including the Absolute Pro and Omnilink Elite Peripheral Stent Systems, and the Emboshield Nav6 Embolic Protection Device for carotid stenting.‹