Abbott Laboratories (ABT)

Q3 2011 Earnings Call

October 19, 2011 9:00 am ET


Richard A. Gonzalez - Executive Vice President of Pharmaceutical Products

Thomas C. Freyman - Chief Financial Officer and Executive Vice President of Finance

Miles D. White - Chairman, Chief Executive Officer and Chairman of Executive Committee

John B. Thomas - Vice President of Investor Relations & Public Affairs


Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Frederick A. Wise - Leerink Swann LLC, Research Division

Jami Rubin - Goldman Sachs Group Inc., Research Division

Anthony Butler - Barclays Capital

Barbara A. Ryan - Deutsche Bank AG, Research Division

David R. Lewis - Morgan Stanley, Research Division

Catherine J. Arnold - Crédit Suisse AG, Research Division



Good morning, and thank you for standing by. Welcome to Abbott's Third Quarter 2011 Earnings Conference Call. [Operator Instructions] This call is being recorded by Abbott. With the exception of any participants' questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's expressed written permission. I would now like to introduce Mr. John Thomas, Vice President, Investor Relations and Public Affairs.

John B. Thomas

Thanks, Elan. Good morning, everyone. Thanks for joining us. Today, we're going to be discussing 2 important Abbott news events. First, our announcement to separate into 2 independent publicly-traded companies. One in diversified medical products and the other in research-based pharmaceuticals. And second, we'll be talking about our strong third quarter ongoing earnings results.

Joining me on today's call is Miles White, Chairman of the Board and Chief Executive Officer; Tom Freyman, our Executive Vice President, Finance and Chief Financial Officer; Rick Gonzalez, Executive Vice President Global Pharmaceuticals and Larry Peepo, Divisional Vice President of Investor Relations. Miles and Rick will review the strategic rationale related to our announcement this morning, as well as provide an overview of each of these new companies and their investment identities. Tom will discuss certain financial aspects and conclude with a brief review of our third quarter results, which we summarized today to allow for sufficient time to discuss today's other major announcements. Details on our third quarter can be found in our earnings news release.

Following our comments today of course, we'll take any questions you have as always.

I'd also note that we posted a 12-page slide deck to our Abbott website this morning at, and this deck summarizes the details of our announcement this morning regarding the separation.

In addition, this morning, I'm pleased to announced that we will be hosting a 2-hour Investor Meeting this coming Friday in New York. Miles, Rick Gonzalez, Tom Freyman, as well as Dr. John Leonard, our Head of Pharmaceutical Research and Development will be in attendance, along with myself, Larry and some other people from our Investor Relations and Media Department.

At Friday's meeting, we'll discuss the growth opportunities in Abbott's diversified medical products business, as well as growth opportunities in the research-based pharmaceutical company. We're going to walk you through the pharmaceutical pipeline in more detail and we'll spotlight certain programs that we're particularly enthused about, including early data from our HCV trials and Rick will talk about -- more about that in a minute.

So given that you're going to hear from us this coming Friday, we're going to try to limit and focus our call today and try to keep it to approximately an hour.

Before we get started, let me remind you that some statements maybe forward-looking, including the planned separation of the research-based pharmaceutical company from the diversified medical products company and the expected financial results of the 2 companies after separation. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements, 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 to our annual report on Securities and Exchange Commission Form 10-K for the year ended December 31, 2010, and then 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.

On 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, as well as regulatory filings from today, which will be available on our website at

And with that, I'm now pleased to turn the call over to Miles. Miles?

Miles D. White

Okay, thanks, John. Good morning. As you can see from our strong third quarter results, Abbott delivered another quarter of strong performance across our mix of businesses. Our ongoing earnings per share growth was more than 12%, as we've now posted double-digit growth in 17 of our last 18 quarters. We'll generate similar performance for the full year, which will again place us among the top performers in our peer group.

So we're pleased with our consistent financial performance. But as evidenced by today's other important news, we are taking a significant next step in aligning our long-term strategic goals with our shareholders' best interest.

Today's announcement to separate into 2 publicly-traded companies in diversified medical products and research-based pharmaceuticals is a logical step in the further evolution of our company. Over the past 12 years, our actions have dramatically reshaped Abbott. Let me give you some background and examples.

Since 1998, Abbott has nearly quadrupled in revenues to nearly $40 billion in annual sales. During that same 12-year period, we shifted our geographic sales mix in what was more than 60% U.S.-based sales in 1998 to more than 60% international sales today. In 2001, the reshaping of our pharmaceutical business began in earnest when we purchased Knoll Pharmaceuticals, which included an R&D program that's now called by its well-known commercial name HUMIRA. As you know, HUMIRA is on track to soon become the world's leading biologic for autoimmune diseases with annual sales this year of approximately $8 billion. And today, our total research-based pharmaceutical business generates nearly $18 billion in annual sales.

In 2006, we globalized our leading Nutritionals business to sharpen its focus and better capture international growth opportunities and it worked. We doubled the division's international sales over the last 5 years. Also in 2006, we acquired Guidant vascular and subsequently built our existing vascular business into a leading interventional cardiology company, headlined by the number one global drug-eluting stent brand XIENCE.

In the last 4 years, we've also rebuilt our core diagnostic business to deliver higher returns, doubling its operating margin and significantly improving its cash flow.

So these are just some of the actions that we've taken over the last decade. More recently, we've moved to advance our strategy with an eye toward 2 major initiatives: rapid expansion in fast-growing emerging markets and a concerted effort to reenergize and retool our research and development pipeline. To that end, we significantly accelerated our emerging markets presence with the acquisitions of Solvay and Piramal Healthcare Solutions, the latter of which has positioned Abbott as the largest pharmaceutical company in India, the second fastest growing pharmaceutical market in the world.

We also created a new Established Pharmaceuticals division, a separate, fully integrated $5-billion branded generics pharmaceutical business that provides the infrastructure to expand in emerging markets. And we aggressively rebuilt our late stage research-based pharmaceutical pipeline through concentrated internal R&D efforts, as well as strategic in-licensing and late stage collaboration.

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