Abbott Laboratories (ABT) Q1 2011 Earnings Report, Transcript and Summary

Good morning, and thank you for standing by. Welcome to Abbott's First Quarter 2011 Earnings Conference Call. [Operator Instructions] Should you become disconnected throughout this conference call, please dial 1 (517) 308-9439 and reference the Abbott Earnings Call. 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, everyone for joining us. Also on today's call will be Tom Freyman, Executive Vice President, Finance and Chief Financial Officer; and Larry Peepo, Divisional Vice President of Investor Relations. Tom will review the details of our financial results for the quarter and the outlook for the year. Larry and I will then discuss the highlights of our major businesses. Following our comments, we will take your questions. Some statements made today may be forward-looking. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Factors that may affect Abbott's operations are discussed in Item 1A, Risk Factors to our annual report on Securities and Exchange Commission Form 10-K for the year ended December 31, 2010, and are incorporated by reference. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments. In today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbot’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 will turn the call over to Tom.

Thanks, John. Today, we're pleased to report strong first quarter results, as we delivered higher-than-expected sales growth of 17.4% and higher-than-expected ongoing earnings per share of $0.91. This is above our previous guidance range of $0.88 to $0.90 and reflects growth of 12.3%. As you may have noticed in our earnings release this morning, in addition to providing the same division and product-level disclosure as in the past, you'll also see that we're presenting our businesses in three categories based on their underlying attributes. Durable Growth businesses, include our branded Generics business called, Established Pharmaceuticals, as well as Nutritionals, Core Diagnostics and Diabetes Care. These businesses are less dependent on significant R&D investment at minimal patent risk and operate in generally stable markets. In the quarter, Durable Growth sales were up more than 24% globally, including the contributions from the Solvay Pharmaceuticals and Piramal Healthcare Solutions acquisitions. Our Proprietary Pharmaceuticals business, primarily includes patented pharmaceuticals around the world, as well as an evolving pipeline to drive growth longer term. Global Proprietary Pharmaceutical sales increased nearly 12% in the quarter. And our Innovation-Driven Device businesses include Vascular, Molecular Diagnostics and Vision Care. These businesses require a moderate level of R&D investment with resulting pipeline products generating significant revenue and profit contribution. Global sales of Innovation-Driven Devices increased more than 10%. John and Larry will walk through the businesses underlying these categories in more detail. But I wanted to touch on our presentation of the businesses since it's new this quarter. Also new in our release is the disclosure of our Established Pharmaceuticals division, as well as emerging markets sales by business, which is in the Q&A section of the news release. Given our strategic efforts to build these areas of our company, we're providing this additional information to give investors a greater appreciation of the opportunity that exists in branded generics and in emerging markets across our businesses. Our emerging markets sales in the quarter were $2.3 billion, an increase of 38%, including the impact of acquisitions. Adjusted for acquisitions, emerging markets sales growth still exceeded 20%, underscoring the importance of these markets to Abbott's overall growth profile. Turning back to our performance in the quarter. Sales growth was 17.4%, including a favorable 1.3% impact from exchange rates as the U.S. dollar weakened as the quarter progressed. Sales growth in the quarter included the contribution from the Solvay acquisition, which closed in the first quarter of 2010; and the Piramal acquisition, which closed in the third quarter of 2010. Excluding the impact of acquisitions in exchange, organic sales growth in the quarter exceeded 6%, in line with our guidance for the full year. I've note that we've now left the impact of the Solvay acquisition. The adjusted gross margin ratio of 58.5% increased 110 basis points in the prior year of 57.4% due to improved product mix. The favorable comparison to the prior year was partially offset by additional rebates on the U.S. Healthcare Reform, the carryover effect to 2010 pharmaceutical pricing actions by European governments and an unfavorable impact of foreign exchange rate on the ratio. The movement in foreign exchange rate in the quarter benefited our top line, but actually negatively impacted the gross margin ratio by approximately 120 basis points compared to our forecast in January. Excluding this impact, the gross margin ratio was in line with our previous forecast of a ratio approaching 60%. Those of you who followed our results in recent years are aware that as exchange rates have fluctuated significantly, a rapid weakening of the dollar contributes to our top line immediately, but puts some pressure on gross margin ratio in the quarter the rates move. The ongoing tax rate was 15.7%, in line with our previous forecast for the quarter. Now let's turn to our outlook for 2011. Today, we're confirming our full year 2011 ongoing earnings per share guidance of $4.54 to $4.64. We're also issuing second quarter ongoing earnings per share guidance of $1.10 to $1.12. The midpoint of this EPS range represents approximately 10% growth over the prior year, in line with the guidance we provided in January. We forecast specified items at $0.13 in the second quarter, reflecting integration costs from past acquisitions and costs of previous restructuring actions. We're forecasting high-single digit sales growth in the second quarter and a favorable impact from exchange on sales of approximately 2.5%. We're forecasting R&D at around 9.5% of sales, and SG&A at approximately 28% of sales. This reflects SG&A leverage compared to 2010, despite our continued investment in emerging markets infrastructure across the businesses and the negative impact with the pharma tax associated with U.S. Healthcare Reform, which as you recall is charged to SG&A expense. Regarding our tax rate for the remainder of the year, companies with operations in Puerto Rico now have clarity around the required treatment for the excise tax that the Puerto Rican government established effective January 1 of this year. While there is no significant bottom line impact from this tax on Abbott, payment of the tax will impact certain P&L ratios, mainly our gross margin ratio and tax rate, starting in the second quarter. Because the tax is an excise tax, the gross amount payable will be recorded as an increase in product cost, reducing our full year gross margin ratio by approximately 30 basis points. The U.S. tax credit, however, will be recorded as a reduction of income tax expense, effectively reducing our income tax rate. We now project a tax rate of around 15% for the full year 2011. We expect the rate to vary somewhat across the remaining quarters of 2011 at the second quarter at approximately 15% to 15.5%. Again, the net bottom line impact of the excise tax is not significant for us, due to the fact that it's creditable for U.S. income tax purposes. Regarding gross margin for the second quarter, we're forecasting adjusted gross margin ratio of around 59.5%, reflecting underlying favorable product mix and efficiency initiatives, offset by the impact of U.S. Healthcare Reform; the carryover effects of 2010 European pricing measures; the Puerto Rican excise tax; as well as the impact of exchange on the ratio. So in summary, we're off to a great start in 2011, with strong performance across our businesses and delivering more than 12% ongoing EPS growth. This type of performance is the result of our broad-based strategy and competitive strengths. We're in many different innovative healthcare fields, and we're constantly evolving in shaping our product portfolio, with the mix of Durable Growth prospects and strong cash-generating businesses that will continue to sustain us longer term. We built Abbott to continue to deliver sustainable, top-tier financial performance, and our outlook for double digit ongoing EPS growth in 2011 continues Abbott's track record as a leader among our healthcare peers. And with that, I'll turn it over to John for the business operating highlights.

Thanks, Tom. As Tom mentioned, we've made some additions to our earnings news release and are presenting sales from our three key business categories in a new way. These changes are supplemental to the information we've always provided and are intended to help shareholders understand the strategic mix of our diversified model, as well as the significant growth opportunity in emerging markets. So today Larry and I will walk you through these three new categories. I'll start with our Durable Growth and Innovation-Driven Device businesses, and then Larry will give you an overview of our Proprietary Pharmaceuticals business, as well as our Pharmaceutical pipeline. Let me start with our Durable Growth businesses. In Established Pharmaceuticals, which includes international sales of our branded generics portfolio, we reported global sales of approximately $1.3 billion, including the contribution from Solvay and Piramal Healthcare Solutions. The Solvay integration and Piramal transition activities are continuing along, and we're pleased with their progress and performance. Our large portfolio of Established Pharmaceuticals consists of hundreds of branded generic products, expanding primary care therapeutic categories. The depth of our portfolio and the diversity of our geographic footprint help us drive durable, sustainable performance. We continue to expect approximately $5 billion in Established Pharmaceuticals sales this year in 2011. In our worldwide Nutritionals business, global sales increased 7.8%, driven by strong double-digit growth internationally. In the United States, sales were down 1% in the quarter. And as we mentioned on the fourth quarter call, we expected a difficult comparison in our U.S. Nutritionals business during the first half of this year, as we work to recapture share in our Infant Formula business. Our plan to recover our Similac business is on track. We have successfully maintained our number one hospital share position, and this continues to help us drive consumption at the retail level. We've increased our shares since the fourth quarter and anticipate better sales growth, in particular, as we head into the second half of this year. We also saw strong growth this quarter in our PediaSure business, driven by strong execution, share gains and the launch of our new PediaSure SideKicks product line. Similarly, in our U.S. Adult Nutritional business, as the market leader, we continue to pioneer nutritional advancements with our Ensure brand. Our new Ensure Muscle Health product line features a proprietary ingredient, Revigor, and protein to help rebuild muscle and strength naturally lost with age. There are approximately 140 million Americans currently over the age of 40. And I'll be one of them, which represents a significant opportunity for our Ensure product line. Outside of the U.S., sales increased nearly 16%. This was driven by continued strong growth in emerging markets, which comprises the majority of our international Nutritional sales. This quarter, our emerging markets sales for the Nutritional business were nearly $600 million, and that's up more than 18%. This was driven by impressive performance in Asian and Latin American markets, where we continue to see strong underlying market growth and increased penetration, as we launch a cadence of new products. For the full year 2011, we're forecasting more than $2 billion in emerging market Nutritional sales, which we expect to double over the next five years. So as we look ahead to the second quarter in our Global Nutritions business, we expect worldwide sales growth in the high-single digits. In the U.S., as we stated previously, we continue to expect U.S. sales to be down mid-single digits due to the difficult comparisons in our Infant Nutritionals business from last year. Conversely, in our International Nutritionals business, we expect continued double-digit growth in the second quarter. In our Global Diabetes business, worldwide sales increased 10% this quarter, with U.S. sales up approximately 5%. International sales increased 14%, driven by double-digit growth in emerging markets. We continue to grow our retail prescription share through expanded customer outreach and patient education. We also continue to improve our operating margin in this business through cost reductions and a focus on more favorable customer mix. So looking ahead to the second quarter in our Global Diabetes business, we expect low- to mid-single digit sales growth. In our Core Laboratory Diagnostics business, which includes immunoassay and hematology, global sales in the first quarter were up nearly 7%. Instrument placements in emerging markets, such as China, continue to help drive international sales growth. In our U.S. business, we continue to expand our menu of assays and recently submitted to the agency a new ARCHITECT Assay to measure Vitamin D. Vitamin D deficiency impacts as many as 1/3 of Americans and can impair calcium absorption, risking the health of bones and muscles. In the second quarter in our Core Laboratory Diagnostics business, we expect low- to mid-single digit sales growth. In our Point of Care Diagnostics in the first quarter, sales increased 8%. We recently received FDA clearance for a new wireless version of the i-STAT point of care testing system. This new system allows caregivers to wirelessly download i-STAT diagnostic test results directly to a patient's electronic medical record without leaving the bed side. Faster access to test results may lead to better care overall. And so for the second quarter in Point of Care Diagnostics, we expect double-digit growth. So let me turn now to our Innovation-Driven Device businesses. We start with Molecular Diagnostics, where global sales in the first quarter were up 13%, driven by international sales growth of more than 25%. We continue to gain share worldwide as we expand the m2000 menu. In Europe, we launched three new infectious disease assays for the platform: Our new Qualitative HIV-1 Assay expands the way caregivers can collect and test patient samples; our new CMV assay will help physicians monitor for a virus common in transplant recipients. And our new HPV sequencing test identifies genomic sequences of a hepatitis B virus to help better monitor and treat HPV. Also in the quarter in our Ibis business, we introduced a nonclinical assay on the PLEX-ID System, that's designed to detect numerous pathogens that can pose serious health threats to human health, food, water and other resources. Our PLEX-ID System is changing the way viruses, bacteria and other microorganisms are identified in research laboratories by not requiring technicians to predict the testing outcome. PLEX-ID technology has been deployed in 20 sites around the U.S. including the CDC and the FDA. So in the second quarter in Molecular Diagnostics, we're expecting, again, double-digit growth. In our Vision Care business, worldwide sales were approximately $270 million in the first quarter. Globally, we continue to gain share in our Cataract business with our TECNIS multifocal and monofocal IOLs. We also continue to grow share in our Corneal business with our new RevitaLens contact lens solution. As we look ahead to the second quarter in Vision Care, we'd expect mid- to high-single digit sales growth. Let me turn now to our Vascular business, where sales in the first quarter increased 13%. International vascular sales, which is more than half of our total Vascular business increased nearly 37% in the quarter, and our sales in emerging markets increased 45%. International markets comprised 2/3 of the global drug eluting stent market. And in emerging markets, procedure volume is growing at a midteens rate. Abbott is particularly well positioned internationally and has seen impressive performance with both XIENCE and our next-generation XIENCE PRIME drug eluting stent. We have 35% share of the international DES market currently, based on our strong positions in Japan, Southeast Asia, as well as Europe, with nearly 20% of our total sales represented by emerging markets. Our global DES franchise sales in the first quarter were approximately $480 million. In the U.S., we look forward to launching our XIENCE 2.25 small vessel stent midyear this year. We are currently not participating in the Small Vessel Market segment of the DES market. And the launch of XIENCE 2.25 will allow us to drive additional XIENCE share. And in addition, in the U.S., I'm also pleased to report today that we have submitted our next-generation XIENCE PRIME DES for U.S. FDA approval. Also in the first quarter, we launched our new TREK and MINI-TREK balloon catheters in both the U.S. and Japan. We expect these new products to drive share growth for Abbott in the Balloon segment of the market. In our Vascular pipeline, we have a number of new technologies in development. Most recently, at the American College of Cardiology, or ACC conference, in New Orleans, we presented data on both our MitraClip and ABSORB devices. MitraClip is under U.S. FDA review for the treatment of significant mitral regurgitation, which is a common and debilitating structural heart defect. Today, patients with significant MR are either treated with medication, relieving symptoms, but not stopping disease progression, or undergo arrested open-heart surgery. While surgery is a good option for many patients, there is still a significant patient population considered at high risk for surgery. Abbott's MitraClip is in development as another option to reduce mitral regurgitation. At ACC, we presented two-year data from our MitraClip pivotal trial, EVEREST II. MitraClip demonstrated superior safety to surgery and durable clinical benefits that are similar to surgery at two years. We also continued to prepare for a FDA panel review for MitraClip, midyear this year. Also in ACC, Abbott presented one-year clinical data for our ABSORB bioabsorbable vascular scaffold or BVS. These data demonstrated low major adverse cardiac events, low blood clots and low late loss. ABSORB is the first BVS to treat coronary artery disease and is designed to slowly metabolize and eventually be absorbed by the body after providing support to the vessel during the healing process. Data on our market-leading XIENCE V drug eluting stent were also presented at ACC, which demonstrated predictably low stent thrombosis rates and consistently impressive efficacy at a pooled analysis of 7,000 patients, many of whom had complex disease. In fact, XIENCE has now been studied in 30,000 patients in nearly 100 trials against six different stents and continues to perform exceptionally well. So as we look ahead to the second quarter in our Global Vascular business, we expect sales of approximately $830 million. We're on track with our previous full year expectations, and growth in the second half of the year is driven by continued international growth, particularly in emerging markets, as well as our XIENCE 2.25 launch in the U.S. So with that, I will turn the call over now to Larry, and he'll give you a review of our Proprietary Pharmaceuticals business. Larry?

Thanks, John. As a reminder, we've recently globalized our Proprietary Pharmaceuticals business creating one division to allow for streamlined commercial efforts and coordination between functions. Worldwide sales in this division increased more than 11%, driven by strong growth of nearly 13% in the U.S. and more than 10% internationally. Sales included the contribution from the Solvay acquisition, which closed last February. In Immunology, global HUMIRA sales increased nearly 18%. Performance is driven by international sales growth of nearly 19% and U.S. sales growth of more than 16%, consistent with the underlying trends we saw throughout the quarter. Demand for HUMIRA continues to outpace the global market, and new competitive entrants are tracking in line with our expectations for these products. Internationally, double-digit market growth continues in the major European countries, where HUMIRA holds the number one share position. And HUMIRA growth in the U.S. continues to outpace the market. We're continuing our development efforts for HUMIRA, including the study of new indications and other product enhancements. Our regulatory applications for ulcerative colitis are currently under review. And we're evaluating other incremental indications currently in mid to late-stage development. Additionally, in the coming weeks, we plan to submit regulatory applications for a new 29-gauge needle for the HUMIRA pen and syringe. When approved, the HUMIRA needle will be the thinnest in the category. HUMIRA clinical data continue to compare favorably versus existing agents or potential new competitors. Our growing body of indications and comprehensive label is among the most extensive in the class. Recently, we received approval in Europe to expand our product information for psoriasis, making HUMIRA the only biologic in the EU with long term plaque psoriasis data out to three years, included in its label. Based on an outstanding clinical profile across our full range of indications and more than 13 years of clinical experience, we are well positioned for continued success in this market. HUMIRA is off to a strong start this year, well on track to achieve our reported sales growth outlook for the product in 2011. Moving on to our lipid franchise, where sales of Niaspan were $226 million, up more than 10% in the quarter. Prescription growth significantly outpaced the growth of the overall lipid market. Our focus on high-risk patients and the positive data showing Niaspan's benefit in this population continues to drive growth. U.S. sales of TriCor/TRILIPIX increased nearly 4%. Global sales of AndroGel and Creon were $195 million and $133 million, respectively, in the quarter. AndroGel holds the number one share position in the U.S. testosterone replacement market, an attractive category where growth is being driven by increasing diagnosis and treatment of low testosterone. A new lower volume formulation of AndroGel is currently under U.S. regulatory review, and we expect approval during the second quarter. When approved, the new formulation will provide patients a more convenient application option, delivering rapid and sustained improvements in testosterone levels with less gel than the existing formulation. Creon also maintains a leadership position in the pancreatic enzyme market. And over the past year, we've captured significant market share in the U.S. We continue to garner the vast majority of new prescription starts in this category. Moving on to Lupron and Synthroid. U.S. sales of Lupron in the quarter were up more than 10%. We expect approximately $750 million in global Lupron sales in 2011. And U.S. sales of Synthroid remain strong at more than $115 million in the quarter. We expect more than $450 million in U.S. Synthroid sales in 2011. Well as we look ahead to the second quarter in our Global Proprietary Pharmaceuticals business, we expect high-single digit reported sales growth, including high-single digit growth in the U.S. and high single to low-double digit growth, internationally. Moving on to our Proprietary Pharmaceuticals pipeline, where we have a number of unique compounds in development in areas of significant medical opportunity. Chronic kidney disease or the loss of kidney function is on the rise, driven by higher rates of diabetes, obesity and an aging population. We're leveraging our decades of experience in renal disease to address this highly prevalent condition. Current treatments only modestly slow the progression of CKD, and many patients ultimately progress to dialysis and end-stage disease. Bardoxolone data strongly suggest it may slow disease progression, and they actually help reverse the progression of the disease, which no other treatment has demonstrated. We expect to present additional data from the Phase IIb study, including 52-week results at a medical meeting in the second quarter. And we're on track to initiate the global Phase III clinical program with our partner company in the coming weeks. Also in development for the treatment of kidney disease is atrasentan. Phase II data were recently published in the Journal of American Society of Nephrology. And we plan to initiate a Phase IIb study in patients with diabetic kidney disease in the second half of this year. We've also made significant progress with our internal hepatitis C program. The HCV treatment landscape is expected to change rapidly over the next several years and will evolve considerably even after the newest therapies come to market. Over the past year, our program has moved quickly, and we believe we're in a position to become a significant player. We recently presented Phase II results for our protease inhibitor, which demonstrated that 92% of patients taking ABT-450 in combination with standard of care achieved complete early response after 12 weeks of treatment. ABT-450 has a number of strong attributes, including potentially best-in-class antiviral activity, good tolerability and once daily dosing. We also recently presented Phase II data on our two polymerase inhibitors, showing both compounds were well tolerated and have antiviral activity significantly greater than standard of care alone. We believe both compounds have the potential to be complementary assets in an HCV combination treatment regimen. And we recently began a Phase II study of our NS5A inhibitor. Our HCV program will continue to progress throughout the year, as we have a number of combination trials underway, including studies with and without interferon. In Neuroscience, we're developing compounds to address conditions, such as Alzheimer's disease, Parkinson's, schizophrenia, pain and MS. The Phase III study of daclizumab, our next-generation biologic being evaluated in MS, is currently underway. Abbott and our partner company expect to present data from the Phase II select study during the second half of this year. We're also continuing the Phase III development of Duodopa for advanced Parkinson's disease. Duodopa is already on the market in most European countries, where adoption is continuing to grow. In Immunology, we're leveraging our experience with HUMIRA to identify novel approaches to improve therapeutic outcomes for patients with autoimmune diseases. We continue our work on new HUMIRA indications. In addition to ulcerative colitis, we have additional indications in Phase II or Phase III studies, including uveitis. Our pipeline also includes early development work in oral DMARD therapies and biologics. And our proprietary technology brings the capability of uniting two antibodies in a single target. We expect our first combination biologic to move into Phase I clinical trials by year end. Endometriosis and fibroids are both associated with a multitude of symptoms, including pain and infertility. Our partnered compound, elagolix, has a unique profile that provides symptom reduction, while avoiding the adverse effects sometimes associated with current treatments. Planning for the Phase III clinical program for endometriosis is ongoing. We also continue to make good progress on Oncology. Our pipeline includes a number of new molecular entities for more than a dozen different cancer types. Elotuzumab has demonstrated very good response rates in multiple myeloma, the second most common blood cancer in the U.S. We recently initiated the Phase III program with our partner company. Our multi-targeted kinase inhibitor seeks to cut off the blood supply to a tumor to stop the progression of cancer. A Phase III study of the compound in liver cancer is underway, and it's also being evaluated in Phase II studies for additional cancer types. And our PARP-inhibitor, which may enhance the effectiveness of cancer therapies, is being studied in mid-stage trials for a variety of cancer types. We've also continued to make good progress in our early stage pipeline, advancing a number of compounds into human studies, including an S1P1 oral compound with potential in RA and MS, a novel EGFR compound for cancer, and we expect to begin a Phase I study this month for our next-generation highly selective Bcl-2 compound. So in summary, this quarter, Abbott delivered strong double-digit performance, with ongoing EPS growth of more than 12%, exceeding our previous outlook. This was driven by double-digit sales growth in each of our three major business categories, as well as 38% growth in emerging markets. And we confirmed our ongoing EPS outlook for the full year, reflecting double-digit growth over 2010 at the midpoint of the range. And with that, Tom, John, and I will be glad to take your questions. Operator?

[Operator Instructions] Our first question is from Mike Weinstein from JPMorgan.

Tom, I was hoping we could start with a strategic question. And I think on the fourth quarter call, probably it's the fourth quarter call, but it's probably some discussion about Miles' answer to the question about any strategic options producing different assets within the business. And I was wondering if we could get your perspective on the current portfolio at Abbott. There's obviously been a lot of evolution of Abbott's portfolio over the last 10-plus years. And we wanted to get the current mix of assets and the management and board's willingness to rethink some of those assets in order to create shareholder value?

Mike, this is Tom. I think this quarter is a good demonstration of, I believe, the quality of all our businesses. We really -- as you go down every one and you look at the revenue performance and what it translated to in overall EPS growth of over 12%, I think you can see that the portfolio is a good one. It's performing well, and it's very complementary to our overall financial objectives. We did talk a little bit about this on the fourth quarter. And as we look at these businesses, and again, looking at the performance you see, we're very happy with the outlook and potential for these businesses to contribute to our objectives, longer term. That said, we have high expectations. We have high standards for all the businesses. We're performing against them now, we believe. But as our history has shown, we are willing to take actions, as appropriate to enhance shareholder value, to put these businesses in a place where they're going to operate and flourish. But right now, I'd say that the portfolio is very strong.

You guys got the math that suggested organic growth was just over 6% this quarter, I think our numbers were close to that, maybe a tad lower. Your guidance for the year, Tom, what does that imply for organic growth over the balance of 2011?

Similar to what we said on the fourth quarter call. We had high-single digit overall sales growth forecasted at that point in time. We had around 3% impact of acquisitions, so north of 6% organic growth, and we delivered that. Actually, we did deliver over that at this quarter. And we would expect a pretty consistent performance against that throughout the year.

And then last question, and then I'll let some others jump in here. But you gave a good overview, I think Larry did there, on some of the Pharmaceutical pipeline products. Can you just give us your estimation of where you are in competitiveness with your Hep C platform? You moved, I know, the combination product into a clinical trial recently, and obviously that space has gotten more crowded. There's been a significant advancements in just the last few months. Could you spend another minute on your program?

Yes, this is Larry. We certainly do believe that we've made some very nice progress here, very quickly, and believe that we have a strong combination program under development here with multiple mechanisms of action. And as I said in my remarks, we're certainly looking at those in interferon-free ways as well, with the combination of polymerase, protease, NS5A. We'll see where we go. We're also trying to take a look at shortening up duration of therapy, course of therapy, et cetera. And again, feel like we've made some great steps here recently. Certainly, there's going to be some products launched here near term. But as we look at what they represent to the treatment community, we certainly don't believe that the uptake of those is going to rapidly de-warehouse the HCV space. And I think the treating clinicians have a very good understanding of what's in the pipeline, including ours, that could provide some significant benefit to patients down the road. So as we look at it, I think these new agents are going to get some of the HCV patients who are pretty far along in the course of their disease. But I do believe that the physicians will be waiting for these other follow-on therapies, including the combination treatment. So we feel great about where we're at right now.

Thank you. Our next question is from David Lewis from Morgan Stanley.

Larry, HUMIRA is off to give a better start this year than obviously we expected. And it sounds like a lot of that strength is coming from emerging markets, but there was some competitor disruption. And I think it's probably too early in the year to sort of change your outlook for HUMIRA. But can you just sort of talk about the underlying factors? And how sustainable you think those are throughout the balance of the year?

You mentioned the ex-US piece. And certainly, the markets, as I've said in my remarks, continue to grow strong double digits. So the International business is off to a great start. I think what probably is working even better than we thought initially this year is the U.S. market. We've seen scripts now growing and kind of the high-single digits approaching 10% for us. Our team has done some very nice things early in the year, from a competitive positioning and some real proactive work that they did to mitigate a little bit of that January effect that we've seen in the past. So they've done a great job there and we've seen great growth in the U.S. And as we look at the rest of the year, maybe we've seen a little bit of economic benefit there, too, as the economy is stabilizing, maybe move forward a little bit for us. But we would expect these trends to continue and like I said, we're well on track with HUMIRA to achieve our outlook for 2011.

And just maybe two more quick questions. I guess, Larry, just thinking about competitive data that have sort of come out and kind of, pre-ular [ph] here, looking at different dosing for the JAK inhibitor class. We obviously saw in the lower dose, one of your competitors, not showing significant radiographic change. I guess as you think about the outlook of sustainability of HUMIRA, how should we kind of think about that data in terms of resilience of the franchise?

Well clearly, radiographic progression is very important, not only to the patient, but also to the treating physician. And you mentioned the 5-milligram dose failing that primary end point. That's very important if you look at the HUMIRA data. That was a six-month readout. If you look at HUMIRA at six months or 24 weeks, we did show statistically significant radiographic inhibition at 52 weeks, and we've maintained that kind of benefit out to 8 years now in our data sets. So I think at the end of the day for the rheumatologist, that is paramount to their view of products. And we'll have to see where they go from here. But for us, that data is very strong in our label and something that we discuss with physicians all the time.

And just maybe one last question, I'll jump back in queue. I think post the American College meeting, a lot of investors are trying to figure out what are the implications for competitive stent launches in the U.S. marketplace? Maybe just talk a little about what you're seeing, in terms of European trends with XIENCE and PRIME versus Element in the European market? And what we should expect as you see those products come to the U.S. market?

Yes. So David, this is John. We've -- as I mentioned in my remarks, our data at ACC was supplemental to the data we've shown on XIENCE in the past, good strong data on both the base platform and also absorb. But we look at the rest of the world, we probably -- there's probably a lack of attention paid to the ex-U.S. markets versus the U.S., and the visibility there for us is good, where about 2/3 of that overall worldwide market is outside the U.S. And we've done quite well there. XIENCE and XIENCE PRIME account for more than 30% of share in Europe. And that's the leadership position. And at the same time, we've seen that the competitor product you mentioned has actually lost considerable amount of share while we've gained share in Europe on that. And of course, we've done extremely well in Japan, where we have approximately 50% share. And the market has been quite receptive. And then of course, there's emerging markets, like China, that we mentioned in our remarks as well. So it's a strong market. We're very pleased with performance there. As I mentioned in the comments as well, we have now announced that we have filed PRIME in the U.S., so we're very comfortable with our time line there of getting into the U.S. market by mid-2012 or sooner. And then we have the other products you mentioned, too, that will help us in those areas where we don't have a position to date, like the small vessels and of course, PRIME with the long lesions. So that's the stent piece of it and of course, there's other components of it, like TREK and then, down the road, MitraClip. So I feel pretty good about where we're at.

Thank you. Our next question is from Glenn Novarro from RBC Capital Markets.

Two questions. One, you had a very good vascular quarter, on top of our expectations, top Street expectations. Your guidance for 2Q, if I heard it correctly, was for $830 million, which is below 1Q levels. I'm wondering is that conservative? Is that trying to factor in Japan? And then my second question has to do with Japan, just overall for the organization, is there much of an impact? And then I'll follow-up with other question. Thanks.

While there's a couple of dynamics at play there, probably in the mix is lower PROMUS sales, some overall lower U.S. DES sales as we're holding share. But as you know, the market has taken some price, and we're seeing that as well. When we do launch the 225 NANO in the second half of the year, we think that will help offset. Of course in that business, and Tom can talk to this more than I can, is the bottom line impact of improvements in margin profile for that business, which is key to the overall profitability story. So net-net for the full year, we feel pretty good overall. And it gets back to what I just mentioned, in terms of 2/3 of the market being outside the U.S., where we are seeing strong performance of XIENCE and XIENCE PRIME.

Glenn, I'll take the question on Japan. First of all, clearly, our thoughts are with the people there as they begin to recover from this tragedy. Our situation is all of our employees are safe. We've been aiding as much as we can to help there. Our -- the Abbott fund contributed $3 million right up front to the relief effort. So we're doing everything we can to help. We've looked at the business impact of this, and there will be some economic disruption across the businesses. But we factored that into our forecast, and it's not material really for our outlook.

Let me tell you this one quick follow-up. At the end of this month, you're going to stop supplying J&J with rapid-exchange catheters for the Cypher system. Do you know how much supply they have of your rapid-exchange catheters? I'm just trying to figure out how the market changes over the next couple of quarters if Cypher is no longer available on a rapid-exchange catheter?

Yes, I wouldn't be able to comment on J&J's position. You might be better served asking to them. You're correct that, that agreement has come to a conclusion, and that's about all we can really say. And I can't comment on their business.

Our next question is from Rick Wise from Leerink Swann.

Let me turn to the pharma pipeline. Larry, very carefully, in your press release highlights the many projects underway. You have a couple in Phase III, daclizumab and elotuzumab in neuro-oncology. Maybe -- it'd be really helpful, if from your perspective, Tom, you could tell us whether it's these two Phase IIIs or some of the Phase IIs -- which should we be focused on as the most important, perhaps, one or two incremental growth drivers and over the next one, two, three, four years, whatever the right time frame should be?

Well Rick, we have a number -- we have pretty much the product Larry went through are our later-phase programs. The HCV space is moving rapidly. That is certainly one that you should watch. The developments happened there with quite rapid change. Daclizumab is a program in Phase III. That's one that we're very, very excited about, given the hopefully, very positive safety and efficacy profile of the product. Elotuzumab, again, in Phase III and our partner company is also extremely excited about the prospects for that product. So I think those are...

Bardoxolone...

Yes, and then I guess the other big one is bardoxolone. Those are the four that are in the later stages that in the time frame you mentioned are going to start contributing nicely to our growth. And really everything we've seen from a clinical perspective and all those that are progressing according to plan, I guess I'd have to throw one more in there. Elagolix is a program that will be moving into Phase III, we believe, in the not-too-distant future. And it's another later-stage program. So it's hard to discern because they're all in similar phase of development, and we'll be hitting in similar time frames. So all five of those are our products to launch.

So there's no one that stands out then, you're saying?

I mean, they're all -- every one of these licensing opportunities we've looked at are significant potential contributors if the clinical profile turns out to be what we suspect and hoped when we entered the deals. And they're all on track with our expectations. And often -- in many cases a year into our working with the companies and our experience with the programs.

Turning back to gross margin, Tom. You highlighted some of the pressures that dragged your gross margin about healthcare reform rebates and the EU pricing and FX. And that we're -- it seems like you think we're going to see 100 basis points or so improvement sequentially in the second quarter. Can you just help me understand -- so all the drags basically go away and so the natural benefits of mix kick in?

First of all, things like U.S. Healthcare Reform, European pricing, those types of things that are truly significant headwinds this year, we laid that all out on our fourth quarter call. And that was all in our planning and expectations. And despite some very good underlying trends in product mix and cost-production efforts in the businesses, even in the fourth quarter, as we were forecasting 2011, we believe we'd see modest gross margin improvement, but kind of a transitional year while we got those kind of onetime pricing impacts behind us. Our first quarter, typically, just from a product mix point of view, is a little softer than other quarters. That's part of -- as the mix improved going into the second quarter and the rest of the year, that's going to be the big driver. The one thing that has changed since we talked last January is just a very rapid weakening of the dollar. And again in our company, there's a lag between the sales benefit of a weaker dollar and the margin benefits, which are going to come later in the year. So that is really the one thing that's changed. And you're right going forward, it's better product mix, growth of the higher margin products that's going to continue to boost that gross margin as we move into the second quarter.

And you're still on track for the di-move [ph] accretion from Solvay this year and $0.12 next year? That's still the right numbers?

Well we're very much on track, and we're probably doing somewhat better than that.

Our next question is from Jami Rubin from Goldman Sachs.

Tom, question just sort of a follow-up from one of the earlier strategic questions. I'm just trying to understand why you've gone to the great lengths to recharacterize your major businesses apart from providing greater transparency into Established Pharmaceuticals, i.e. emerging markets? I'm just wondering what it says about the strategic importance of these three business units? And I do think it's interesting...

That's a good question.

Can I -- yes, I think it's interesting that you're reporting prescription, or rather emerging -- or what do you call it? Emerging pharmaceuticals as part of Durable businesses, not Prescription Pharmaceuticals. And I'm just going to throw this out there, but I'm just wondering if you're preparing investors for an eventual sort of spin or shakeup or whatever you might call it, of one of those three businesses? And it's the business that is now smaller, but I would think would be a major candidate. But maybe if you could talk to that, that would be great? And then just a follow-up, a nitty-gritty one. On SG&A, your guidance going into the year was a little above 27% of sales. Should we now assume that's more like 28% just because of where currencies are falling?

No, let's take the SG&A comment first. Our forecast for full year SG&A is exactly on what we said in the fourth quarter. It's around 27% or maybe a little bit more than 27% of sales, so no change in that. The reason we've started to categorize our businesses in this way is really to help investors better understand the product mix in the business. We truly believe that the Established Pharmaceuticals business, which is primarily branded, generic and emerging market has a different set of attributes than traditional patented pharmaceutical product. We think that investors, particularly those who are new to the story that haven't been following us as long as people like yourself, Jaime, don't have quite the appreciation of the mix of the businesses. There's a perception that we are primarily a patented pharmaceutical company. And when you we look at these sales breakdowns as we've presented, we are 40% Durable growth, which include that Established Pharma, but it also includes Nutritional, Diagnostics, other very durable businesses with good growth opportunity. We're about 40% Patented Pharma, which I think is the number that surprises some people that really have not studied the company as carefully as others. And then we're about 15% Innovation-Driven Devices. And we just want to be sure that the underlying attributes and nature of these businesses, and particularly, the durability of this Durable Growth segment from a cash generation point of view, the lack of exposure to the riskier patent cycles and R&D cycles that you see in, for example, the Patented Pharma business, that really is understood. And this is a more predictable type of grouping of businesses that I think speaks to the investment character of the company. So that's really what we're trying to do, and we're going to continue to try to demonstrate the business this way. And hopefully, that will have some ultimate improved appreciation or, perhaps, valuation of the underlying businesses.

Just Tom, if I could follow-up. What will this mean with respect to your future capital allocation strategy? In other words, are there, it seems that if I were to ask you, what is your core competency, your core competency, is it prescription drugs or is it Durable businesses? And just in terms of how you think about allocating capital, i.e. M&A, going forward how would you prioritize your three businesses?

Well we have to be outstanding cost competitors in every single one of these businesses. And we can't be -- we can't lack core competency on any one. The only way our portfolio like this make sense, which we believe ultimately drives a very good investment profile for investors, is to be excellent in every single business. And so, I really can't answer that question. Every single one of these businesses has to be competitive, in terms of R&D investment, talent, processes and all the other things that make a business successful. So there is -- it doesn't say -- our capital is going to go to those opportunities that have the highest risk-adjusted opportunity. And if all businesses have equal opportunity, they're all going to get their fair share of capital. If programs and investments come forward that have better risk-adjusted returns, they're probably going to get a little more of the capital piece.

Thank you. Our next question is from Tony Butler from Barclays Capital.

One question around the Nutritionals business. Given the disruption that occurred in manufacturing for powdered formula over a year ago, the question becomes have margins in that business returned to normal? And are they potentially capable of improving? And then I have one follow-on.

Yes, thanks, Tony. It is true that in 2010, the overall margins in our Nutritional business went down a couple three points from what they have been running at. And that was largely due to the recall last fall. The product that was recalled is a very important one for us. I think the really good news is that, that team is doing an outstanding job regaining share. The numbers you see in terms of reported sales being only slightly down in the U.S. Nutrition business, I think reflect that execution. And frankly, they reflect above expectations performance in the other businesses beyond Nutrition, which is where the recall occurred. So this year, we expect some modest progress in, at least, as we looked at the original plan, some modest improvement back in the Nutrition business margins as we went through the recovery process. But if we do better, as it looks like we may do in the U.S. business, which is an important piece of the product mix story there, we could do better than our planning assumption. And I know that, that's what the team and our business is aiming to do. But beyond that, Tony, even if we get back to where we were, say in '09, in terms of margin in this business, we're really not satisfied with that, as we've looked at some competitor margins. We definitely could do better, and we've got a number of activities going on within that business, really focused on margin improvement. And we believe that in the years after 2011, that team will deliver a steadily improving and, hopefully, significantly improving margin in that Global Nutrition business. So we've got some pretty big aspirations there. And hopefully as we move forward, we'll be able to show some even better results on margins in the Nutrition business.

Thank you, Tom, and one final question. Where you laid out, very nicely again, some R&D activities, one around bardoxolone, as that Phase III begins to ramp. Is Abbott responsible for the entire cost of development for that Phase III program for its ex-U.S. submission? Thanks.

No, there's shared R&D on that program.

Our next question is from Larry Biegelsen from Wells Fargo.

What is your guidance assumed for generic Tricor in the U.S.? Is there a chance we could see generic before July 2012, given some of the movement on the generic side?

No, we don't believe so. They're -- we're fairly confident that Tricor generic competitors will come in mid-2012, this year.

And then on the Vascular side. You're initiating a limited launch of BVS in Europe. Have you made a pricing decision? Obviously that's something that could turn around the price erosion we've seen there. And just lastly on MitraClip, I don't know if you want to comment on the proposed reimbursement we saw last night. If I was reading the document correctly, it looked like it was being mapped to a relatively low-paying DRG? Thanks.

Hi, Larry. This is John. Let me take your last question first. The DRG, I think, has been out there for some time. It's obviously not final and open for public commentary at this point. As you know, it's all part of the process. We believe at Abbott that the appropriate DRG payments should be more in line with DRG rate for patients who are undergoing open-heart surgery. But this is something that will be discussed and it's just one step in the overall reimbursement process for a new product like MitraClip and so we'll see how it goes and we're hopeful that it would be eventually coded that way. As for ABSORB, I think as we said in the past that we're not specifically discussing pricing for a product that's a couple of years away in the U.S. But clearly with the benefits that we have shown with the product and if the clinical data continues to demonstrate the type of response that we see and then also giving patients the benefit of not having any material left in the vessel and the flexibility and natural healing elements and all the attributes, this could be a game-changing technology. And will likely warrant a premium price in the marketplace, but that's -- a lot not yet to be determined there.

Thank you. Our next question is from Rajeev Jashnani from UBS.

Larry, you touched on IMS growth for HUMIRA. And I think over the last two quarters, we've seen your TRX growth in the 8% to 9% range with reported rev growth of 13% last quarter, 16% this quarter. I was just wondering if you could comment on what kind of pricing you're seeing for HUMIRA right now and if that's improving? And if so, how sustainable that might be?

Well we do have the difference, generally speaking, between TRX -- obviously TRX growth is somewhat of a blunt instrument. But we use it as an approximation, I guess, for script trends overall. The difference between script trends and the ultimate reported percentage growth is likely price. You're well aware of the history of the price increases here on HUMIRA over the last year. There weren't any new HUMIRA increases in 2011. But I would ascribe that differential between script trends and the reported growth in the U.S. to realize the price. I think that's fair.

Do you see that level of pricing that we've seen over the last two quarters as sustainable?

Well, it's been fairly consistent. Year-over-year, we've been in kind of a 10 to 12-month clock. And it's been in that 4% to 5% range, and we don't predict future price increases, but you can see that as, kind have been our history.

Great. Thank you.

Thank you. Our final question is from Robert Hopkins from Bank of America.

Just finish up here with a couple of in-the-weeds questions on Vascular. Now that we're getting closer to the end of the agreement with Boston Scientific, I was just curious if you guys could give any clarity on the contribution that you've been realizing from that royalty payment for those guys? Is that something you're going to disclose?

No, we haven't specifically broken out that particular payment, but we're obviously eager to have XIENCE PRIME on the market and more than willing to compete head-to-head for that share where a lot of docs, as you know, are very comfortable with the platform as it exists today and would appreciate an improvement on that product. So that's the way we're looking at a chance to get 100%.

Okay. And then with ABSORB, I know it's very early and it's a very limited situation in Europe. But in the centers where it has been launched and in the addressable market, is there any qualitative or quantitative commentary that you can give on the reception of that product in its limited form right now?

Yes, I think that a reception's been very good. We've been pleased with the rate of uptake of centers across Europe. Doctors seem to be pleased with the performance of the product. As you know, as we showed at ACC, the one-year Cohort B data looked very good and confirmed the six and nine-month results that we've previously seen with no thrombosis and low MACE rates, low weight loss, et cetera returning the vessel to a more normal functioning. So I think they're excited about it. They're excited about the fact of leaving patients with a healed vessel and no metal implant. So we still have a ways to go, but so far so good. And I think what we're seeing in Europe is reflective of the potential and future for the product worldwide and in the U.S. So we're pleased.

I mean you're taking a lot of share on a couple of individual accounts in its addressable market or is it mostly just being trialed at this point?

It's being trialed right now. We do expect to be in about 80 centers worldwide by the end of this year. And so it's nothing that we're specifically breaking out at this time, Remember, we don't have any revenues in our plan this year for the product.

And then 225 in the U.S., would you say that -- what percentage of the market is 225 in the U.S. today? 10% to 15% or is it less?

Well, I think it's a little less than that. Maybe 5% to 10%.

And then finally for me just on the same topic or similar topic. Stent pricing in the U.S. before ABSORB comes, is there any reason to believe that it would be anything different than the sort of negative 7% to 10% that we've been seeing. Any reason to think that we might see an improvement in stent pricing going forward or not really?

Well, as you know, there has been a sequential decline in pricing in the marketplace. We still believe that XIENCE is a premium product overall. And with XIENCE PRIME coming and some of the other products that we've mentioned, we'll see how pricing goes. We're not counting on a robust pricing environment in our outlook. We'll model more conservatively, but there are some new technologies in the pipeline for us and some others and those should command a premium price in the market.

Thanks, Bob. That's going to conclude our call for today. We would appreciate any feedback you have on the supplemental materials that we provided to investors today in our earnings release with the three business categories and the emerging markets. We'd tell you that a replay of the call will be available after 11:00 Central today on Abbott's Investor Relations website at abbottinvestor.com and after 11:00 a.m. Central via telephone at (203) 369-3583. The confirmation code for that is 2128742. And an audio replay will be available until 4:00 p.m. of this call on Wednesday, May 4. Thank you and call us if you have any questions.

Thank you, and this concludes today's conference. You may disconnect at this time.