Good morning and thank you for standing by. Welcome to Abbott's fourth quarter 2009 earnings conference call. All participants will be able to listen-only until the question-and-answer portion of this call. (Operator instructions).
This call is being recorded by Abbott. With the exception of any participants' questions asked during the question-and-answer session, the entire call including the question-and-answer session is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's express written permission.
I would like to introduce Mr. John Thomas, Vice President, Investor Relations.
Thanks, Elan. Good morning everyone and thanks for joining us. Also on today's call will be Miles White, Chairman of the Board and Chief Executive Officer; and Tom Freyman, Executive Vice President, Finance and Chief Financial Officer. Miles will provide his opening remarks and Tom will review the details of our fourth quarter results and outlook for 2010. I'll then discuss the highlights of our major businesses. Following our comments, as we always do, we will take your questions.
Some statements made today may be forward-looking. Abbot 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 1-A, risk factors to Abbott's Form 10-K for the year ended December 31st, 2008, 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 we do always, non-GAAP financial measures will be used to help investors and analysts understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measure in our earnings news release and regulatory filings from today, which will be available on our website at abbott.com.
With that, I will now turn the call over to Miles. Miles?
Okay. Thanks, John and good morning. I'll review our 2009 performance as well as our outlook for 2010 across our diverse mix of health care businesses. Tom and John will then walk you through the details of our fourth quarter and full-year results, as well as our 2010 outlook. And then we'll take your questions as always.
As you can see from our earnings news release, Abbott reported another year of industry-leading results in 2009. When the industries finish reporting, our 12% ongoing EPS growth rate should again lead all U.S. pharmaceutical companies. Abbott's sales performance in 2009 included double-digit operational sales growth in our international pharmaceuticals, global nutritionals and global vascular businesses as we ended the year with total Abbott worldwide sales of nearly $31 billion.
As we did in 2008, we raised our earnings guidance in 2009 as we progressed throughout the quarters and gained additional clarity and greater momentum in our businesses. We delivered industry-leading performance in the face of some difficult headwinds, challenges that faced every multi-national company and each of our health care peers as well. The two that stand out, of course, is the global recession and early on, the impact of currency headwinds.
In addition, Abbott faced one of its toughest internal challenges ever, the expected loss of nearly $1 billion in sales of Depakote to generic competition. As evidenced by our results today, we managed through these external and internal challenges and still exceeded our goals for the full year.
In many ways, 2009 was a year in which Abbott's investment identity was further solidified as that of a durable, sustainable growth company, one that investors can depend on year in and year out despite external uncertainties or company's specific challenges. Our management team approaches every year with that financial brand identity clearly in mind. We take that commitment seriously and 2009 was no exception.
At this same time last year, we committed to delivering top-tier double-digit EPS performance and we were one of only a few health care companies to commit that level of performance and to ultimately deliver on it. And that's what our shareholders expect from Abbott and it's what we intend to achieve again in 2010.
As we announced this morning, our ongoing earnings per share guidance range for 2010 of $4.20 to $4.25 reflects accelerating double-digit EPS growth. The midpoint of this range reflects EPS growth of approximately 13.5%. I'll talk more about 2010 in a moment.
2009 demonstrated the balance within our diverse mix of businesses and the strength of our financial position. We generated record operating cash flow of more than $7 billion; returned approximately $2.5 billion in cash to shareholders in the form of dividends, reflecting an 11% increase; and we repurchased more than $800 million of Abbott stock.
2009 also represented our 37th consecutive year of dividend increases, making Abbott one of only a handful of U.S. that's increased its dividend this consistently over so many years. Our return of cash to shareholders through dividends together with Abbott stock price appreciation generated for our investors a total shareholder return of 20% over the last three years compared to a decline of 16% to the S&P 500 over the same period. That level of performance led all U.S. large-cap companies in the pharmaceutical industry while our five-year total shareholder return of 32% was among the top two companies and full 30 percentage points higher than the S&P 500's total return of 2.1%.
To help maintain this performance, last year we took long-term strategic actions to augment and reshape our business portfolio. We added new growth platforms and new late-stage pipeline technologies and we did it without passing on EPS solution to shareholders.
These non-dilutive strategic actions have enriched our mix of diverse businesses for the near and long term. So here is a reminder of what we accomplished in 2009. In medical products, Evalve brought a new category of growth to our vascular business for the leadership position structural heart repair. It's one of the fastest growing sectors in cardiology.
Ibis expanded our portfolio of technologies in molecular diagnostics. Advanced Medical Optics provided entry into the attractive vision care market, adding a leading diverse and sustainable new long-term growth platform. We augmented this business later in the year with Visiogen, adding a new late-stage pipeline technology with an accommodating lens.
And in our global pharmaceuticals business, we took a range of significant strategic actions from the expansion of our early-stage pipeline with the addition of a novel biologic for the treatment of chronic pain through to through acquisition of Solvay Pharmaceuticals. Solvay brings to Abbott a portfolio of – a pharmaceutical portfolio of more than $3 billion worth of successful, consistently performing global products, a number of which had reported sales of $100 million or more. Approximately three quarters of these sales are in international markets, predominantly from stable, branded generic products.
The acquisition bolsters our presence in key emerging markets where we will leverage our distribution channels to accelerate growth, taking both Abbott and Solvay products into new and faster-growing geographies. As we noted at the time of the agreement with Solvay, we expect more than double Abbott's overall presence in emerging markets by 2013 from nearly $3 billion in 2009 to more than $6 billion. Solvay also enables us to step up our R&D investment, giving us approximately $500 million of incremental R&D investment capacity. We will use this extra funding power to drive future pharmaceutical growth.
Finally, the Solvay acquisition was highly attractive from a financial standpoint. In addition to adding more than $600 million in operating cash flow by 2012, Solvay has a very attractive ongoing EPS accretion profile. This accretion is assumed in our 2010 guidance range. We still anticipate this accretion will ramp to more than $0.20 by 2012 and then increase further in subsequent years.
Each one of the actions we took in 2009 was strategically attractive, strengthening our technology base, our geographic mix, and overall financial position. In addition to these actions, Abbott continues to maintain commercial leadership positions in a wide range of attractive growth markets. So let me discuss a few of these.
HUMIRA, our biologic for the treatment of autoimmune diseases, delivered growth of more than 20% to the full year 2009 and we are well positioned for continued double-digit growth over the long term including another strong year in 2010. We anticipate that HUMIRA will eventually become the number one anti-TNF worldwide, surpassing Enbrel's global market share.
HUMIRA's safety and efficacy profile compares favorably to any competitive product on the market or on development to date and there continues to be plenty of room for further penetration in all market segments. This is particularly true internationally where a significant number of patients remain untreated.
In cholesterol, Niaspan remains the number one therapy for raising HDL or good cholesterol. The Arbiter-6 HALTS data has helped Abbott's Niaspan prescription share reach an all-time high. And our TriCor/TRILIPIX franchise includes the best therapies for reducing triglycerides as TRILIPIX continues to gain market share.
Our nutrition business is one of the strongest globally and we are the market share leader for the majority of the categories in which we compete. This includes infant formula where we've made significant strides versus the competition in the U.S. Outside of the U.S., we are the fastest growing international nutritional company and we expect to maintain our pace of double-digit growth over our long range plan as we further penetrate emerging markets such as China, Brazil, and India.
In vascular, we are the market leader in drug-eluting stents where the XIENCE platform is clearly number one in both the U.S. and Europe and we expect to launch XIENCE in Japan in February after receiving final regulatory approval earlier this month. Japan is the second largest DES market in the world, representing a $500 million to $600 million market opportunity. The success of XIENCE has also contributed significantly to this division's operating profits, which more than doubled from 2008. We expect continued steady margin improvement in our vascular business again in 2010, as well as over our long range plan.
And in diagnostics, our core laboratory business remains the global leader as we significantly improved operating margins and returns in 2009. The team in this division has outperformed our expectations executing on our previous plan to expand margins and increase cash flow. We continue to grow our point-of-care and molecular businesses at a double-digit pace as well.
We are using our financial strength to continue to invest in our research and development across our pharmaceutical and medical device platforms and pipelines where we have a balance of near-term lower-risk opportunities, as well as earlier-stage biologics, small molecules and medical devices that have real potential to change how diseases are treated.
Let me highlight a few of particular interest. First in nearest term is CERTRIAD, which is our fixed dose combination product that combined AstraZeneca's CRESTOR with Abbott's TRILIPIX. It provides comprehensive lipid management, targeting all three lipids in a single pill. Given the size of the market and the strong attributes of this product, we have high expectations for CERTRIAD long term. U.S. approval is expected in the first half of this year.
In the earlier stages our pharma pipeline, the PanGenetics biologic that we acquired last year as a potential game changer in its ability to treat pain. It's also complementary to our in-house neuroscience portfolio where we have recently moved two compounds into Phase II for Alzheimer's disease.
And we have proprietary research technology that could lead to combination biologic therapies with potential application in a number of therapeutic areas including immunology and oncology. In our oncology pipeline, our compounds continue to move through development with two compounds in advance clinical trials and several more in earlier stages.
In HCV, we have a multipronged approach to our research base on our – based on our foundational work in the development of protease inhibitors, as well as an internal program focused on additional viral target. We currently have three compounds in human studies and we will see data on each of them this year. We expect data from about a dozen different pipeline programs through – throughout 2010 including data from several programs within our medical device portfolio.
In our medical technology pipeline, vascular continues to be a source of opportunity with 10 coronary technologies over the next five years. Of course recent XIENCE approval in Japan will allow us to compete in a large $500 million to $600 million market that's PRIME for Everolimus-based DES product. We will also be launching several new DES products in the U.S. in the coming years including XIENCE Nano in 2011 and XIENCE PRIME in 2012. We also have our bioabsorbable drug-eluting stent, which is slated to launch in Europe during 2013.
And finally, we have two new late-stage medical device technologies that we added last year. Synchrony is a new Accommodating Intraocular Lens or IOL technology that allows the eye to move and focus like a natural lens. We anticipate approval in 2011. And the Evalve MitraClip technology will be the first of its kind in the United States to treat mitral valve disease where there is a significant patient population that has only one treatment option and that's open-heart surgery. We also anticipate approval for MitraClip in 2011.
Innovations such as these will help us remain a leading health care company in the years to come with new medicines and devices that can make a real difference for people with cancer, chronic pain, Hepatitis C, Alzheimer's disease and heart failure, life threatening diseases where successful treatment options can have a major impact on the quality of life.
As we look back on 2009 a the significant impact we absorbed from Depakote, the difficult currency fluctuations earlier in the year and one of the worst global recessions ever, we still managed to meet our major strategic and financial commitments while investing in new opportunities that will help us achieve our targets in the coming years.
As we enter 2010, we have good visibility on Abbott's future. We are pleased with our momentum and the fundamental performance of our businesses. We have well defined leadership positions across multiple growth areas with significant growth to come. We are also confident about our financial position with record operating cash flow and a well diversified base of reliable earnings growth drivers.
As a result, we anticipate another year of top-tier double-digit EPS growth in 2010. We remain confident about our long-term strategic direction and we are optimistic about Abbott's future.
With that, I'll turn it over Tom and John for a more detailed look at our fourth quarter, as well as our outlook for 2010. Tom?
Thanks, Miles. As you can see from our earnings news release, we had a strong fourth quarter, delivering double-digit sales and earnings growth. And we are very pleased with our overall performance in 2009 as we delivered results ahead of original expectations for the year. Our fundamentals are strong and our major businesses are healthy.
During 2009, as Miles indicated, we accomplished a number of strategic objectives that helped position Abbott for a sustainable double-digit EPS growth. For the fourth quarter, we reported ongoing diluted earnings per share of $1.18, an increase of 11.3% over the prior year and at the high end of our previous guidance range.
Sales growth in the quarter was 10.6% including a favorable 2.4% impact from exchange rates. The adjusted gross margin ratio was 58.3%, reflecting improved operating performance of the diagnostic and nutritional businesses, offset by expected lower Depakote sales due to generic competition, as well as the negative impact of foreign exchange on the ratio.
We also had strong investment spending in the quarter with SG&A expense up nearly 7%, higher than originally planned as we took advantage of opportunities to accelerate programs that we expect will drive growth in 2010 and beyond. R&D investments reflect continued progress in our broad based pipeline including programs in biologics and vascular, as well as promising Phase I and Phase II clinical programs in HPV, oncology and neuroscience.
The full-year 2009 ongoing tax rate of 16.8% reflects continuing favorable trends. We expect these trends to continue into 2010 as I'll discuss in a moment. The fourth quarter ongoing tax rate was 14.5%, reflecting the mix of income by taxing jurisdiction. We took advantage of the tax rate in the quarter to increase our investment spending and SG&A above our original forecast as I indicated.
Overall, as we look at the full-year 2009, it was a very successful year. We exceeded our original EPS targets, delivering 12% EPS growth despite the loss of nearly $1 billion in sales from generic Depakote. We also showed improvement in the operating and net margin ratios, while continuing to invest in the business to drive future growth.
As Miles indicated, today we are issuing 2010 ongoing earnings per share guidance of $4.20 to $4.25, reflecting another year of strong double-digit growth. This guidance includes the impact of Solvay Pharmaceuticals acquisition, which is expected to close by the end of February.
Regarding sales in 2010, we expect strong double-digit growth including nearly $3 billion in sales from the Solvay Pharmaceuticals acquisition. In our sales outlook for 2010 was also reflected the negative impact to our business in Venezuela from the devaluation of the Bolivar that occurred earlier this month. We had sales of more than $350 million in Venezuela in 2009.
In addition, we've also included realistic expectations for sibutramine, known by the brand names Reductil and Meridia, based upon ongoing regulatory reviews of the product including the European recommendation last week to suspend the product in the EU member countries following the review initiated in November of last year. Sibutramine sales were more than $300 million globally in 2009 with somewhat less than half in the EU.
Our 2010 sales forecast reflects an estimated favorable impact from foreign exchange of 1% to 2% based on current exchange rates including the impact of the devaluation of the Venezuelan Bolivar. Also for 2010, we are forecasting an improvement in the full-year gross margin ratio over 2009 with a ratio of around 59.5%. This increase reflects the favorable impacts of improved product mix and efficiency initiatives, as well as the addition of Solvay Pharmaceuticals.
Also in 2010, we are forecasting continued investment in research and development program to drive future growth with R&D of approximately 9.5% of sales. This includes the incremental R&D capacity from Solvay. In 2010, we will be adding Solvay, which had a higher SG&A to sales ratio than Abbott to the expense base. This will increase SG&A as a percent of sales in 2010 to more than 27%.
As we said when we announced the Solvay acquisition, our 2010 estimate of accretion assumes no significant efficiencies in SG&A, but we would expect to see efficiencies in 2011 and beyond.
Regarding other aspects of our 2010 outlook, we are modeling less than $100 million of other income for the full year 2010 related to the ongoing payments from our previous joint venture. This reflects in part the latest performance expectations for the Takeda products that are associated with these royalty payments. In addition, we expect no milestone payments related to Takeda products – pipeline products in 2010. As a reminder, in addition to the royalties and milestones of Takeda products, we also receive the Lupron franchise which continues its steady performance as part of the equal split of the joint venture.
We expect net interest expense in 2010 of approximately $450 million. For 2010, we are forecasting a full-year tax rate of between 16% and 16.5%. This rate is based on growth of key products and the related mix of income across various taxing jurisdictions.
Now, let's turn to our quarterly outlook. For the first time, we are providing first quarter ongoing earnings per share guidance of $0.79 to $0.81 including a partial quarter of impact from the Solvay acquisition. The midpoint of this EPS range represents growth over the prior year of approximately 10%. Expected EPS growth in the first quarter is negatively impacted by the comparison to the prior year when other income was $156 million, reflecting royalties and milestone payments related to our previous joint venture. Recall that our international business reports on a one-month lag, so the first quarter of 2010 will only include a very small portion of Solvay's international results.
Looking forward to the remaining quarters of 2010, EPS growth is expected to be in the low-teens in each of the remaining three quarters. We are forecasting strong double-digit sales growth in the first quarter including Solvay. We expect a favorable impact from exchange on sales of approximately 3% to 3.5% and an ongoing gross margin ratio approaching 57% in the quarter.
So in summary, our global diversified business strategy is continued – continuing to deliver sustainable results. In 2009, we met or exceeded our goals and continue to shape Abbott for the long term. Our diversified mix – business mix, the market-leading products within our core franchises, and the strategic actions we've taken all provide a strong foundation from which we expect to continue to grow.
With that, let's turn to the business operating highlights. John?
Thanks, Tom. This morning, I'll review the quarterly performance of our major business segments pharmaceuticals, nutritionals, and medical products including diabetes care, diagnostics and Abbott vascular.
So let me start with our global pharmaceutical business where worldwide sales in the fourth quarter excluding the impact of Depakote increased approximately 9%. Fourth quarter's reported sales, 5.2%. For the full year, excluding the impact of Depakote, operational sales increased approximately 9%.
In the immunology, global HUMIRA sales in the fourth quarter increased 23% to more than $1.6 billion. Performance was driven by strong international sales growth of 48%. For the full year, global reported HUMIRA sales increased 21.4% to more than $5.4 billion, exceeding our previous guidance for HUMIRA of 18% to 20% reported sales. In line with our expectations, U.S. HUMIRA sales growth in the quarter was impacted by the comparison to the fourth quarter of 2008 when sales growth exceeded 40%.
Underlying demand for HUMIRA continues to outpace the market with particularly strong growth in dermatology and gastroenterology segments. During 2009, HUMIRA continued to gain total prescription share in the U.S. anti-TNF market and we are building a strong share position across all indications.
Internationally strong double-digit growth continues in the major European countries. We continue to enhance our number one share position in Western Europe and Canada and we are well positioned to expand our number one position into new regions in 2010. Today, more than 425,000 patients worldwide are being treated with HUMIRA. The growing awareness of HUMIRA among physicians and patients and the expanding body of best-in-class clinical data and further market penetration across indications will continue to drive demand in the years to come.
Recently, HUMIRA was the first biologic approved for the treatment of psoriasis and psoriatic arthritis in Japan. As you may recall, HUMIRA received approval for rheumatoid arthritis indication in Japan in 2008. Additionally, we have completed regulatory submissions in Japan for both Crohn's disease and ankylosing spondylitis, and review is currently underway.
We also anticipate approval for RA, our first indication in China during the first half of 2010 and we are continuing to launch the psoriasis and Crohn's disease indications in new countries around the world. HUMIRA continues to represent a strong and steady growth driver and we remain confident in our outlook for continued double-digit sales growth. So for the full year 2010, we anticipate reported global HUMIRA sales growth of approximately of 20%.
Moving on to our lipid franchise, where Niaspan sales in the quarter were $254 million, up nearly 15%, significantly outpacing the total cholesterol market, which as you know, is growing in the mid-single digits. Full-year Niaspan sales were more than $850 million. We expect double-digit growth for Niaspan to continue in 2010.
As Miles mentioned, the release of the Arbiter-6 HALTS study data at AHA November has had a favorable impact on Niaspan prescribing trends. The data add to a consistent body of evidence supporting the role of Niaspan in reversing plaque buildup in the arteries and also underscore the importance of looking beyond LDL to address other lipid targets such as HDL.
Also during the quarter, we filed an application with the FDA for two new dosage strengths of Simcor that include 40 milligrams of simvastatin. When approved, the new dosage strengths will provide additional flexibility for physicians as approximately 50% of simvastatin prescriptions are written for the 40-milligram dose. We anticipate approval for these new dosage strengths during the first half of 2010.
TriCor/TRILIPIX franchise sales in the quarter were $419 million. Sales growth this quarter was impacted by the comparison to the prior year when sales increased around 16% and then included nearly $40 million related to the initial TRILIPIX launch. In addition, growth in the quarter reflects the temporary reduction in net price associated with broader managed care access and expanded patient assistance programs that were initiated in the third quarter of 2009 as we previously discussed.
Total prescriptions for the TriCor/TRILIPIX franchise continue to grow in the high-single digits exceeding the growth rate of the overall cholesterol market. So in 2010, we expect low-double digit growth for the total TriCor/TRILIPIX franchise. Also, as Miles mentioned, we continue to be on track for a first half 2010 approval and launch for CERTRIAD. The regulatory filings for the product is supported by data from multiple studies of TRILIPIX in combination with the most commonly prescribed dosages of CRESTOR in large controlled clinical trials.
Given the size of the market as well as the impressive clinical data and product profile, both companies, us and AZ, believe CERTRIAD represents a significant long-term opportunity. For 2010, we expect continued strong double-digit reported growth for our total lipid franchise.
So as we look ahead to 2010 and our overall global pharmaceutical business including the addition of nearly $3 billion in sales from the Solvay acquisition, we expect strong double-digit growth. This includes more than 15% growth in the U.S. for the full year 2010 and more than 25% growth internationally for the full year.
Turning now to our global nutritionals business, reported sales in the quarter increased almost 9%. U.S. sales in the quarter increased nearly 7% where we've gained market share in the retail sector, driven by the launch of numerous new formulations and line extensions as we've discussed in the past. In our infant formula business, specifically our innovative products continue to resonate in the hospital and retail setting, helping us to maintain a strong share lead over our nearest competitor.
Many of our other U.S. products including Glucerna for diabetes and our EAS performance nutrition brand also reported double-digit growth in the quarter. International nutritional sales reported in the quarter were 11% versus the prior year reported period when sales increased nearly 20%. We saw a double-digit growth across geographies including Latin America, Japan and the Pacific Asian market, as well as broad based growth across both pediatric and adult product categories. This was a result of launching next-generation products across many of our brands, which we are continuing to roll out in 2010.
So as we look ahead to 2010 on our global nutritional business, we expect continued double-digit reported sales growth with mid-single digit growth in our U.S. nutritionals business for the full year and mid-teens reported growth internationally for the full year.
Turning to our medical products businesses, let me start with our worldwide diagnostics business where reported global sales in the quarter increased nearly 9%. In our core laboratory diagnostics segment, which, as you know, includes immunoassay – immunochemistry and hematology, reported sales increased about 6.5%. We continue to reduce overall cost, improve efficiencies, and expand operating margin in this business.
During the quarter, we achieved an important milestone as we placed our 10,000 ARCHITECT systems globally. The ARCHITECT family of analyzers offers immunoassay, clinical chemistry, and integrated modules with sizes that fit the needs of any clinical lab. Its unique ability to process samples has changed the way customers process critical test results and how patients receive care. Abbott launched a new ARCHITECT test for ovarian cancer in Europe and submitted a new HIV combo assay for ARCHITECT to the FDA.
In the fourth quarter, we also strengthened Abbott's competitive position in the global diagnostic market with the acquisition of STARLIMS, a leading provider of laboratory information management systems. STARLIMS will enable Abbott to provide advance web-based software applications to help laboratories efficiently store, retrieve and analyze data. We plan to complete this acquisition here in the first quarter.
In both our point-of-care and molecular diagnostics businesses, reported global sales in the fourth quarter grew again double digits. In molecular, reported sales were up more than 30%, driven by our m2000 platform performance. This quarter, we launched a real-time assay for colorectal cancer on the m2000 in Europe. This DNA-based test provides a less-invasive option to colonoscopies and is the first cancer test available on the m2000. In our point-of-care business, reported sales were up more than 10%, driven by continued success of our Chem8 test in cardiac menu.
So as we look ahead to 2010 in our worldwide diagnostic business, we expect mid-to-high single-digit reported sales growth. This includes mid-single digit sales growth in our core laboratory business, where we expect continued profitability and cash flow improvement. We are forecasting double-digit reported growth in both molecular diagnostics, as well as point-of-care.
So let me turn quickly now to our other medical products businesses. In our diabetes business, worldwide reported sales in the fourth quarter declined modestly. While the market has been negatively impacted by the economy, we continue to focus on growing our retail prescription share through expanded consumer outreach and patient education. Similar to what we've done in our core laboratory diagnostics business, we are focused on improving the profitability of diabetes care as we look to 2010 and beyond. So as we look ahead to 2010 in our global diabetes business, we expect mid-single digit reported growth.
Let me move on to vision care and AMO where sales were $317 million in the quarter. AMO results in the quarter included December international sales, reflecting a transition to calendar year reporting for AMOs international business. There was no significant profit contribution associated with these sales given that it also included operating costs in December. Therefore, the bottom line impact was negligible.
In addition, we closed our acquisition of Visiogen in the quarter, bringing us to late-stage pipeline technology Synchrony. Synchrony is an accommodating IOL which is designed to mimic the eyes' ability to change focus, delivering improved vision at all distances and potentially eliminating the need for glasses and contact. Synchrony is on the market in Europe and we anticipate U.S. approval, as Miles said, in 2011 based on the likely timing of panel review in the second half of this year. We expect sales of more than $1 billion for AMO in 2010.
Turning now to our vascular business where worldwide sales in the fourth quarter were $723 million and that was up approximately 9%. Global DES franchise sales in the fourth quarter were more than $370 million. DES franchise sales include XIENCE, XIENCE PRIME, as well as our other third-party DES product revenues and we were up double digit sequentially, as well as year-over-year. Sales performance was driven by the continued success at our drug-eluting stent XIENCE, as well as the international launch of our next-generation product XIENCE PRIME, which as Miles mentioned, we are launching in the U.S. in 2012.
Two important clinical trials, SPIRIT IV and COMPARE were presented at TCT at the end of September as you know. And earlier this month, COMPARE results were published in the medical journal, The Lancet. In this 1,800-patient investigator-led study, XIENCE demonstrated statistically superior outcomes in key safety and efficacy measures compared to TAXUS Liberte. In the coming months, we anticipate SPIRIT IV will be published in a top-tier medical journal as well.
The publications of these two studies, COMPARE and the other publication, will further increase awareness of these trials among our customers and physicians. Since TCT and the disclosure of these data, we've seen positive market share moves for XIENCE and the XIENCE platform in the U.S. and we expect that to continue over the course of this year.
From the third quarter of 2009 to the fourth quarter, end of the year 2009, we saw approximately 3 to 4 points of market share move to the XIENCE platform share, which includes PROMUS with roughly equal gains from both products. In Europe, with this data and the launch of the next-generation DES XIENCE PRIME, we are seeing positive market share trends as well. In the U.S. DES market, PCI volume is up low-single digits year-over-year and DES penetration is approximately 77% and that's up about 4 points versus last year. As Miles mentioned, we received approval XIENCE in Japan and we expect to launch in the first week of February immediately following final reimbursement authorization.
In addition to our leading stent portfolio, we have expanded our business to include structural heart repair through the acquisition of Evalve, a leader in mitral valve repair. Evalve's MitraClip device is minimally invasive option for treating mitral regurgitation, which is approximately four times more prevalent than aortic disease and is currently treated through open-heart surgery. The MitraClip is on the market in U.S. – in Europe and is anticipated to be approved in the U.S. in 2011. We are on track to submit MitraClip to FDA this quarter and also expect to see the U.S. pivotal trials of EVEREST II at the upcoming ACC medical meeting this March.
So as we look ahead in 2010 in our vascular – global vascular business, we expect double-digit reported sales growth as well as continued strong improvement in the operating margin. Moving on to our broad based pipeline overall, we took a range of strategic as Miles and Tom mentioned in 2009 to bolster our early and late-stage pipeline, as well as continued – as well as continue to see progress with many of our internal programs. In 2010, we expect to see continued advancement of our pipeline including the anticipated approval for a number of new products or indications in data from more than a dozen pipeline programs.
In our pharmaceutical pipeline, we have a number of unique compounds in early to mid-stage development for oncology, immunology, HCV, neuroscience, and pain management. Our oncology program is comprised of breakthrough research focused on unique, less toxic treatments. Our compounds in development employ unique mechanisms to inhibit tumor growth and improve the response to common cancer therapies.
Abbott continues to progress ABT-869, our multi-targeted kinase inhibitor, which is already generating compelling data in liver, lung and kidney cancer. We recently initiated a Phase III trial of 869 in hepatocellular carcinoma and additional Phase II studies in other cancer types are ongoing. ABT-263, our Bcl-2 family inhibitor, is currently in Phase II for chronic lymphoid leukemia. And ABT-888, our PARP-inhibitor, is currently being evaluated in a number of cancer types including metastatic melanoma. Abbott is also evaluating a number of additional promising mechanism in our – mechanism in our preclinical pipeline.
In immunology, we are leveraging our experience with the development of HUMIRA to identify new mechanisms with the potential to treat an array of immune-mediated diseases. Our pipeline includes early-stage work on oral DMARD therapies, as well as a number of biologic candidates including ABT-874, our IL 12/23 for psoriasis, currently in Phase III. And our proprietary DVD-Ig technology represents a promising approach that could lead to combination biologic therapies with potential application in a number of therapeutic areas including immunology and cancer.
In HCV, we are currently at three compounds in human studies, expanding multiple mechanisms of action with the ultimate goal of developing a best-in-class combination treatment. We have ongoing work in three different target classes, each of which is shown to be effective in humans. We are well positioned to explore combinations of new therapies, a strategy with the potential to markedly transform current treatment practices by shortening therapy duration, improving tolerability and increasing cure rates.
In neuroscience, we are developing compounds to address Alzheimer's, schizophrenia, pain and other neurological conditions. We recently advanced two compounds from our NNR and H3 platforms into Phase II development for Alzheimer's as Miles mentioned.
And in our vascular pipeline, as we've discussed recently, we are working on more than 10 coronary technologies over the next five years, making it the most robust pipeline in the industry. These include new devices such as XIENCE Nano, small vessel DES, XIENCE PRIME in the U.S. in 2012, an ultra-thin metallic DES, next-generation balloons, as well as our bioabsorbable drug-eluting stent where we are several years ahead of any competitor in the DES space.
We recently presented three-year data from our bioabsorbable clinical trial, which showed impressive efficacy and safety results, consistent with our two-year data. And we've initiated a trial called ABSORB EXTEND, which will enroll up to 1,000 patients with more complex disease.
Outside of DES, we are continuing to update our product portfolio. We recently received CE Mark for MULTI-LINK 8, our next-generation bare metal stent, which serves as a stent platform for XIENCE PRIME. We anticipate launching MULTI-LINK 8 in the U.S. later this year.
We are also reshaping our balloon offerings with a goal to recapture the number one share position. In 2009, we launched our VOYAGER NC balloon and we've gained about 6 share points of the total U.S. balloon market. We plan to launch our next-generation frontline balloon later this year with the expectation for continued market share gains.
So in summary, we are pleased with our overall performance in 2009. We've got momentum as we enter 2010 and prepare to close our Solvay Pharmaceuticals acquisition.
With that, Elan, we'll now open the call to questions.
Thanks, John. (Operator instructions). Our first question today is from Mike Weinstein from JPMC.
Mike Weinstein – JPMC
Thank you. Good morning, guys.
Mike Weinstein – JPMC
Let me ask this first. The two big swings on the income statement in 2010 for your guidance or the big drop-off that you are assuming in your payments from Takeda, which is fairly meaningful to the bottom line and then that is offset or even more so by the tax rate. Could you just spend a minute on the two and is there a linkage between the two, is there a tie there because the payments are coming down from Takeda that brings your tax rate down as well, is that contributing?
No, there is no direct linkage, Mike. This is Tom. What's happening with the tax payments is the development of the product, which as you know, would have been part of the joint venture and we would have been participating even more if the joint venture has continued. The progress of those pipeline products just has not been what was expected a couple of years ago. And as a result, the amount of other income associated with the split-up of the joint venture is going down.
I think one way of looking at that is certainly over the next three or four years – and we all knew this was going to decline and we've now taken this out of the mix and it's something that people can pretty much, given the modest level we are running at here, take out of their radar screen in terms of something to be concerned about in the future. So that's the situation there.
Totally independent of that, we continue to see, given the growth of key products, just continuing positive trends in the tax rate. You saw that as we left 2009 and we pretty much just carried forward the trends we saw as the year progressed into 2010 with very slight improvement from those levels.
So two independent things, but I think you are right. They tend to offset each other. From a modeling perspective, it really means that the fundamentals of the business and the growth that we are projecting for 2010 are sound.
Mike Weinstein – JPMC
Okay. Let me ask a few others and take it in the order. I guess the number one, as you've gotten further into your Solvay planning, have your thoughts around accretion from that transaction changed at all plus or minus? Two, you talked about HUMIRA, but could you talk a little bit about your thoughts about U.S. versus O-U.S. performance in 2010 and then I'll others jump in. Thanks.
I'll take the Solvay question. I mean, we still have not closed, although that is fairly eminent, we expect that by the end of February as we indicated in our remarks. And it’s – I think it's too early to say given that we haven't fully rolled up our sleeves and work with the management of Solvay to work on improving profitability. Certainly, as I indicated in my remarks, we do expect some efficiencies in SG&A, can take a while for those to pick in and really will be more of a 2011 opportunity.
And I just think it's too early to say whether there is any additional potential in 2010. But certainly we have high expectations for this deal, both commercially and from an efficiency point of view as we progress over the next couple of years.
Okay. Mike, yes, on HUMIRA, we are obviously very pleased with the outlook for the product through 2010 with global reported sales growth of approximately 20%. So we are doing very well internationally where penetration rates are low and lower than U.S. and we continue to expand our outlook there, is robust for 2010 as I talked about in my remarks.
In the U.S., remember, we have this oddball [ph] situation from last year that is affecting kind of the overall performance as reported – on a reported basis, but the growth of the product – underlying growth is still strong, the scrip trends are in the double digits. We continue to see steady improvement, we expect as Miles said, to become the number one anti-TNF. Eventually, that might not happen this year, but maybe shortly thereafter. Some of the market obviously is skewed by Enbrel and their decline. So we continue to see good progress there.
Our data, as you know, is best-in-class and so the new entrants to the market, some of the anti-TNF and then the other IL 12/23have had limited impact, in line with our modest expectations and we expect that will be the case as we go into 2010 here as well. And we've obviously accounted for those in our approximately 20% guidance for growth for this year.
So overall, we feel good about where we are at. And Miles, do you want to add anything to that or – ?
No, the only thing I'd say, Mike, is if you recall the uneven quarter-to-quarter look of HUMIRA last year from the fourth quarter of '08 to the first quarter of '09, sort of presents an uneven comparison for this year as well. So that looks a little bumpy, but the underlying fundamentals of it are what's more important and I understand that's what you are asking about here.
I think the bottom line is – I – clearly, a lot of factors in the market affected anti-TNF last year, biologics of all kind, and HUMIRA. But underlying that, I think we can do better and I think we can do better in our marketing performance of the product in the U.S. and frankly, I expect to see us do better with it this year any way.
So I – adding on to what John said, I think there was a number of factors affecting it, but part of it – part of it is what I think we can do.
And we continue to grow faster than the market, which I guess is the bottom line.
Mike Weinstein – JPMC
Thanks, Miles. I'll let some others jump in.
Thank you. Our next question is from Jami Rubin from Goldman Sachs.
Jami Rubin – Goldman Sachs
Thank you very much. Just a couple of questions. On the topic of U.S. HUMIRA sales this quarter, Tom, if my memory serves me right, I think you had called out about a $100 million in stocking fourth quarter of '09, so – or rather fourth quarter of '08. If I adjust for that stocking, is it correct within the U.S., HUMIRA sales would have been up around 19% this quarter?
And on that topic of inventory levels, you also had $40 million in TRILIPIX a year ago. So as you head into 2010, what sort of color can you provide around inventory levels going forward because that obviously was a factor in your 2009 numbers? And just question. The guidance for the first quarter of $0.70 to $0.81, which is below the consensus forecast, I would have thought easy HUMIRA comparison should have been a pretty significant tailwind going into the first quarter. What are some of the factors that we should be thinking about in adjusting our models? Thanks.
Okay. I'll go through those questions. I think I'll start with TRILIPIX. Clearly, what happened in 2008 is we launched the product in the fourth quarter. So certainly there was some launch quantities going out the door for TRILIPIX and that really is what made the comps difficult between the fourth quarter of '09 and the fourth quarter of '08. So that was really very much a product launch phenomenon and very normal type of thing.
HUMIRA stocking, there is probably a little confusion about this. Certainly, in the first quarter of '09, we saw roughly a $100 million of destocking that really affected that quarter. I would say that was even more than the advanced buying or the additional buying the wholesalers did given the strong demand we had in the fourth quarter of '08. It was even more than we saw in that period.
So I think I split the fourth quarter '08 more in the $60 million to $70 million range and certainly I think that 19% you quoted is a little high, but certainly as John indicated, if you look at the fundamentals of this business, it's moving in a scrip basis in the low-double digits and probably a little bit more than that overall. So hopefully that gives you the math in negating between the two quarters.
And again, as I mentioned in my remarks, I think the big in the fourth – in the first quarter of '10 that is a comp issue because we had some pretty significant milestone payments under the Takeda arrangements in 2009. And as I indicated in my remarks, we are not expecting any milestone payments in 2010 and that really is the big comp issue I think and when I say that, we are still talking roughly 10% growth in the first quarter, but it's slightly less than the latter quarters, mainly because of that comp issue. So I still think the growth in the first quarter is very solid and there is really nothing else notable to factor into the mix there.
Yes. The other thing, Jami, I would mention is – this is John, is be a little careful with that – those estimates in the first quarter. There was a few people in there at 20%, 30% growth rates, which obviously skewed the number. So that's not – it's not quite a trued-up number.
Yes. Usually, as you know – as we go into the New Year, the quarterly estimates which – this is the first time we provided any quarterly forecast, they are not very well refined and they really are somewhat dependent on us giving guidance. So I think John makes a good point.
Jami Rubin – Goldman Sachs
Thank you. Our next question is from Glenn Novarro, RBC Capital Markets.
Glenn Novarro – RBC Capital Markets
Hi, thanks guys. Two questions.
Glenn Novarro – RBC Capital Markets
One, Tom, you gave a lot of guidance in the middle of the income statement for 2010, gross margins going higher, SG&A ratio going higher. A lot of this is being skewed by the Solvay deal. And today, a lot of us will be publishing our 2011 forecast as well. So can you help us how we think about what's kind of a sustainable gross margin is going forward, what a – sustainable SG&A ratio should be going forward so that we can kind of get our 2011 model at least close to how you are thinking about 2011? That's my first question.
Okay. Talking about 2011 is the challenge today, but as we look forward at gross margin, the mix of our business continues to improve and I would characterize our gross margin as steadily improving over the next two years, similar to the improvement you are seeing in 2010.
SG&A, certainly there is a step-up this year as we add the Solvay business, which has a higher SG&A ratio as I indicated in my remarks. But as we are looking at efficiencies in 2011, I am hopeful that we can bring that ratio down and start seeing the type of leverage again as you've seen in 2009.
I would – I'd say one more thing about 2009 going – and really it affects 2010 a little bit as well. Exchange, as you know, as it positively impacts our top line, it does put a little pressure on the margin ratio given the mix of our business and that has had a little bit of the impact on the margin ratio in 2009 and even in 2010. Hopefully, that will normalize out and really the fundamentals of the business will come true a little more clearly.
Glenn Novarro – RBC Capital Markets
Okay. And how should we think about that R&D ratio to longer term?
As we indicated in our remarks, that's going up quite a bit in 2010 to around 9.5% and certainly we are committed to maintaining at least that ratio going forward. Miles, you may want to chime in here, but we are very committed to very sustainable R&D spending over the long term.
Yes. The thing I would add to that, Glenn, is we – as we continue to build our pipelines and the company continues to perform well, I think the thing that I look at long term is obviously wanting to put more and more – I don't know that I'll ever want to stop that, put more and more in the engine room for sustaining the company long term. So personal intent than goal here, which of course 80,000 other people now share, to increase the spending in R&D and we are going to increase that profile. So we will be increasing that profile and that spending in '10 and my goal would be to continue to increase and improve that profile over time.
And I – actually, SG&A kind of depends. It depends on the – I think we are in a good balance in our sales and marketing. There is a lot of opportunities to spend on, I think, for market growth where we can measure the return we are going to get. And so I think that kind of depends on where we see the opportunities, but I'd like to have the power to do that and right now the earnings power of the company and the cash flow of the company are such that that we can. We are going to turn out a pretty healthy double-digit growth this coming year and be able to improve our spending in both R&D and SG&A and that's a pretty strong position to be in.
Glenn Novarro – RBC Capital Markets
Just one quick follow-up. The shares outstanding ticked a little bit higher than we thought in the quarter. What's a good shares outstanding for 2010?
For us, we do plan share repurchase in 2010. We – the shares outstanding for diluted purposes tend to go up and down with the stock price a little bit. That's just the way the formula works. So I think something roughly in the current level is a reasonable expectation for next year as the share repurchase at least offset the – any dilutive effective options, et cetera.
Glenn Novarro – RBC Capital Markets
Okay, great. Thank you.
Thank you. Our next question is from David Lewis, Morgan Stanley.
David Lewis – Morgan Stanley
David Lewis – Morgan Stanley
Tom, just on – coming back to tax rate here for a second, I would assume Solvay would have increased the tax rate sort of year-over-year. So can you talk about the specific dynamics on the core business that are resulting in sort of that net lower tax rate for '10?
Yes, it's very straightforward and you know what products are rapidly growing for us that tend to benefit – we have benefits from certain tax jurisdictions. So it's pretty much the mix of the business is driving the continued success of our key products.
David Lewis – Morgan Stanley
Great. So more of the same?
David Lewis – Morgan Stanley
Okay. And then last quarter and this quarter, you talk significantly about, specifically John did – the pipeline. Are you in any better position here Solvay coming up – closing here in a month? Talk about where this relative level of R&D investment is going to go, maybe help us sort of priority rank. Of all the things that John talked about in the pipeline, where we could see the greatest investment for the business here over the next couple of years?
Well, again, our plan is to – once we close the Solvay, to do a more thorough review, a very, very thorough review of that pipeline and continue to invest in the programs there that have good opportunity and to the extent we have better opportunities either in-house where we are getting more and more products out of our development pipeline or our discovery pipeline or even external opportunities similar to the PanGenetics deal we did or other things we continue to look at. It’s really going to be a process we will work through – really throughout the year and that's the way we are going to approach that.
David, you asked us specifically about a particular business or the company as a whole?
David Lewis – Morgan Stanley
You just did a nice job of laying out the pipeline more definitively now than you had in prior quarters. So I'm just wondering, given the increased investment, if you could help frame up for investors where we can expect more significant investment versus sort of less significant investment given your throughout kind of myriad of programs?
Well, I’d say just by sheer balance of size in the businesses, obviously pharma is going to be a place to get the disproportionate amount of R&D investment in absolute terms because it’s just a much bigger business, but I’d tell you also we remain pretty bullish on our pharma business, and the categories, therapeutic categories that we are in.
And so consequently I’d say overtime here that will get a fair amount of incremental investment, which I’d like it to, and one of the most effective things about the Solvay acquisition was the ability to redeploy some of that spending to things we want to spend on either new products coming out of discovery into our clinic or, frankly things we want to accelerate. So I like having the spending power and flexibility to do that. At the same time we’re putting some attention behind the expansion of products in emerging market.
And that’s kind of a – it’s a newer for us, it hasn’t gotten a lot attention, it will going forward, you heard from Tom that there is a significant number of opportunities emerging in our device businesses. And while I think there is a lot of opportunities there, and we could put a fair amount of investment behind them, pharma tends to be a fairly big consumer of spending as a generality. And as I said, we’ve done really well with pharma last 10 years, and we continue to, and we like our position, and remain bullish on the specific opportunities there. So I’d look to that kind of a proportion at balance.
David Lewis – Morgan Stanley
Okay, just one last question, I’ll jump back in queue, but John, you talked about TriCor – the TriCor/TRILIPIX sort of back on track with pretty good growth rates for 2010. Is there a conversion percentage that the company is striving for here by the end of 2010?
Yes, obviously we want to keep moving it up steadily which is what we have been seeing in the marketplace, and as we have talked about in the past that level of TRILIPIX continues to increase in the most steady pace, and so no specific targets I can give you other than steady improvement.
David Lewis – Morgan Stanley
Okay. Thank you very much.
Thank you. Our next question is from Sara Michelmore from Cowen.
Sara Michelmore – Cowen
Great. Thanks. Miles, what we have here is the interest in kind of your thoughts in terms of long-term picture here and where your growth drivers would be coming from? Today, if I look at the portfolio, a lot of the key growth drivers, or a number of them anyways, come from products that you have acquired externally, and it sounds like the company is, maybe, shifting more towards internal innovations, and I am just wondering if you could comment on that?
And then also, now that you have got close to closing the Solvay deal, is that – should we think about that being kind of the acquisition that you are focused on for 2010? Does that preclude you from doing other things, et cetera? Thank you.
Okay. Well, I will tell you the notion of where your products come from kind of ebbs and flows, as you point out a number of those products that are growth drivers today were the result of acquisition. Of course, they were in development at the time of acquisition, and in a lot of cases, we have already forecasted success for those products.
We have been pretty fortunate that a number of those products have been extra successful in a lot of ways, and I think we have done a great job with the development of those products in taking them to market which, I credit my management team with. So we have been beneficiaries of that.
The developmental of a pharmaceutical type may not, frankly today, even a very innovative device pipeline takes a lot longer than it used to, or at least on the device type, and your organic pipeline takes years to evolve and develop, I am very pleased by what I see coming out of discovery now into Phase I and Phase II. But I am also mindful that investors are a little more impatient in waiting 10 years to see a product develop. So you have got to try to stage your pipeline than your products in a steadier fashion for the investment committee and so consequently a supplement what should do with licensing and to our acquisition.
Now having said that, I don’t think any company – at least this company should rely – should not rely on just licensing and acquisition. You got to have a pretty good organic engine room that can innovate, discover, develop, design etcetera, new products. I am pleased by what I see there but I put an awful a lot of emphasis on that internally because I don’t want to just be reliant on external sources of new products. So it ebbs and flows there.
We look pretty comprehensively at both. We’ve got a pretty good idea of what's coming out of our own innovation, but at the same time I don’t think we can ever feel satisfy that there is enough and so consequently we push ourselves to look not only internally but outside and until there is a balance.
Now with regard to the future I think there is things I see in pharma, there clearly will be growth drivers. We’re paying attentions to the long-term there. They’re five to 10 year out period because and not all products are sustainable. There is thing that go generic etcetera. We’re mindful of that, we’re mindful of the timing. This year we weathered a largest product that ever gone generic in our history. That was difficult and I would suggest in some ways nobody even noticed because we had so much growth out of other new products that we managed to maintain double-digit growth in this tough economy with the biggest generic, our product going generic we ever had.
We have to plan that way for the long-term future and so we do. And I think we balanced the investment in external opportunities with the internal very well, but I wouldn’t skew too far in any one direction. Remind me again the second part of your question.
Sara Michelmore – Cowen
Yes. Just on M&A, I mean do you feel like your plate is full at least in the near-term for large deals with Solvay and kind of how should we think about your appetite for M&A going forward? Thanks.
Well, we did a lot in 2009, as you know, we had I think six significant additions to the company, some more significant than others in terms of your size. We’re obviously focused on the integration preparation for Solvay, when it closes – I would tell you that we had so much experience with the rapid integration of a midsize company like that that I think we’re well prepared and well organized for that. AMO is fully integrated, we are sort of done with that and up and running and fine, and the smaller things that we added to the company whether Evalve, Visiogen, et cetera. They are all I think well integrated.
So Solvay is getting the preparation right now. I don’t in anyways think that that consumes our activity so much that we are unprepared for anything else. I wouldn’t tell you that we are so busy and at capacity that we can’t do anything else. That said we’re being rather opportunistic and selective as we look at what – what kinds of things we continue to be interested in. I think it’s an opportune time last year and going forward for a while in the external role. I think there are opportunities there, we are keeping – we’re keeping our eyes open for things that would be additions to or expansions of our existing franchises or businesses around the world, we’re mindful of further geographic footprint.
I have mentioned before that the emerging markets are clearly a priority for us, and our footprint there important to us in a number of our businesses. So I wouldn’t rule out any kind of licensing activity, I am always looking for things to enhance our pipeline. And I think that’s a constant effort and I don’t feel constrained from an activity standpoint or capacity standpoint at this point then.
And I think from a financing standpoint we are just prudent. We try to keep things in balance because we know that it's important for us to maintain certain flexibility and maintain a certain financial profile to our investors. So, kind of long-winded answer of saying, no I don’t feel overly constrained.
Sara Michelmore – Cowen
That's helpful, Miles. Thank you.
Thank you. Our next question is from Rick Wise from Leerink Swann.
Rick Wise – Leerink Swann
Hi, good morning.
Rick Wise – Leerink Swann
How are you doing? Let me start with the EPS guidance one more time. If you look at the low end, the $4.20, $4.25, if Solvay is going to add roughly $0.10 this year, it would seem – clearly, you are more cautious on maybe, let's call it the core of the '09 core Abbott, is that all Takeda and the Meridia impact? I mean, is that the major delta in the context of – I know you are always desirous of being conservative to start the year?
Well, certainly, you are right, it's beginning of the year, but I wouldn’t characterize it that way, Rick, at all. I mean, let's look at the basic areas. If we didn't have the $0.10 to Solvay we would be growing, again, double digit even excluding the Solvay addition over the 2009 numbers.
So, again, very, very strong earnings growth regardless certainly we had a couple headwinds that I mentioned early in the year where we factored those into our guidance and we are still delivering guidance that is very consistent with what have been saying for a long period of time and very specifically what we’ve talked in the third quarter call despite these events.
So, I think that shows how strong the underlying business is, our ability to withstand things that happened, and I think our growth forecast, at this point in time, are very solid even before the addition of Solvay.
Rick Wise – Leerink Swann
Okay. So I just try this differently. ABT-874 could you update us a little bit? I don’t think I heard you mention it, an early – any early signs from the competitive anti-IL-12 that have been launched about half of this type of drug you think received in the market? And maybe just talk about timing of the data in launch? Thanks.
Hi, Rick. Yes, I did mention in my prepared remarks that 874 continues to progress in Phase III development, so the timing there is the same as what we talked about before. Our target is to continue to look to file their product in the first half of this year. That of course, as always with any of these products you have to meet with regulatory authorities and prove you’re pre-NDA submissions and so forth. So nothing really new there.
I would tell you that the other IL 12/23 product that you mentioned, which did come to market, has had about the impact we expected, which is modest, and that’s explainable, particularly given that it’s psoriasis product in terms, as we talked about before, it tend to be more conservative in their treatment. And probably we'll wait to see more data and get more comfortable with these new mechanisms of action and their safety profile as we go through time. That contrasts obviously with the anti-TNF and HUMIRA in particular, which has not only strong robust efficacy data on the psoriasis side, but also many, many years of safety that’s also go with it.
So I think there is more of a comfort there. So as I mentioned in my remarks about the 20% global reported growth for HUMIRA this year that does factor in these new mechanisms of action which tend to be used in a more for failures to begin with match the expectation we have going forward.
Rick Wise – Leerink Swann
Got it. And just last, may I if I could follow-up on the earlier question that asked little differently but just, maybe just update us on your latest talks about cash used or how your priorities or your thoughts are changing as you look out this year and next. And maybe broadly, would you rather if you could acquire would you – get the right price, would you rather would be doing on the pharma side or in the rest of the franchise? And maybe any thoughts on where we stand with health care reform as well. Thanks so much.
Okay, well that should take the next hour. I would tell you this. On the cash use, first of all we get a very strong cash flow. And we've maintained a steady dividend growth to the delight of many investors now from 37 years as we pointed out, and double digit dividend growth. So that’s a healthy thing I think for investors, and particularly the kind of investor that we often appeal to.
Secondly, we repurchased shares. So our cash return to investors is very strong. I think we are prudent investors of capital, our cash flow is strong enough that we can do all of that. And still have the flexibility to whether it’s in licensing or certain selective acquisitions and so forth, we can do that. We try to maintain a particular balance with all of that.
To add on to Tom’s point earlier about our forecast coming into the year, I think we've given investors a very strong forecast, this is an accelerating double digit earnings forecast, on top of a double digit performance in the prior year that many companies did not deliver and owing to clearly economic factors and specifics to their companies and so forth.
So I think what you’re seeing here is a very steady strong and even accelerating financial and economic performance, and the underlying balance sheet and cash flows contribute to that. My desire is to keep all that in balance; we try not to extend any particular extreme.
And then with regard to M&A activity we try to just keep it balanced, and so that we can respond to opportunities. I wouldn’t say our priorities have changed; I wouldn’t say we are shifting in any particular direction other than what we have done. If you look at last year, we were able to do all other things that we did and passed through no dilutions. I know our investors, particularly in this environment, are concerned about that. They want steady, reliable, you told me you were going to do this, please do it kind of forecasting and that’s what we have given them.
We said we are going to do X. We went on and did our strategic investments and we didn’t alter X. We didn’t disrupt our investors with changes in our earnings or earnings forecast or our long-term earnings or earnings forecast or returns forecast going forward. We haven’t altered our dividend profile or our cash profile or our return to investor’s profile.
And I think if you do that, if you maintain a certain balance, and – we have to maintain a little bit of contingency planning in there. You can call it conservatism, you can call it whatever, but we always enter a year understanding that we are going to need some sort of contingency planning for the unknown whether it’s the Venezuela devaluation or suspension of a product or these things happen.
And yet, we have not passed those through to the investors, we have managed them, and that's what we are supposed to do. We are supposed to manage them so we can remain a reliable, steady, predictable investment for our investors and I would add to the top of that, if you go back and look over the last four or five years, I'd say pretty consistently or at least probably 70% to 75% of the time we have beat our forecast in the quarter.
And I'd say, that given our investor confidence, I remember, Rick, you used to ask me if we were – if we had a stronger performance, would we reinvest it or give some back to the investor and I used to tell you we do both and that’s exactly what we have done. We have done both. We passed some of that back to the investor and we have also invested either to M&A or the investment in our profile.
So I think we had been really good story for investors and a good balance. We’ve done what we said we were going to do and more. And we’re forecasting to continue to do it.
Are you there, Rick?
Rick Wise – Leerink Swann
No problem. That’s why I didn’t want to stop him out.
John was giving me the hook – anything else, sir?
Rick Wise – Leerink Swann
Thank you very much.
Thank you. Our next question is from Bruce Nudell from UBS.
Bruce Nudell – UBS
Good morning. I have a very tactical question and then I have a more strategic question. Looking at your 70 million stocking at 4Q '08 around 7% price out of the 10% less is what we were guessing, that would imply perhaps a little bit of destocking this quarter, are we just over-optimistic on the price component. Could you just give us little modeling guidance there?
Yes, you are very high estimating that. As you know there maybe a wholesale adjustments but when you net it down to rebates, et cetera, you get to a pretty low-single digit-type number. So I think you’re very much over estimating that. I think that’s the situation.
Bruce Nudell – UBS
That would explain it. Thank you. And then on the strategic level dynamics in the drug-eluting stent market in aggregate are bad. Pricing is more than offsetting any volume growth. In terms of an investment opportunity, do you see that market turning around? And can you contrast that with the structural heart disease opportunities through your vascular business, either the mitral one or perhaps an aortic one down the road? Thanks a lot.
Bruce, I’ll give you some overall just sense of the market, I think a lot of markets took a lot of pressure in the last year or two, largely because of the economy, and to a degree some consumer discretion and then on top of that some pretty intense price competition.
If I look at the DES market in particular, I’d say this. The market has tougher conditions but we couldn’t be in a better position in that market. Both in terms of XIENCE and the XIENCE/ PROMUS platform, we go head on against our competitor Boston Scientific against our own product. And that’s an interesting dynamic in the market, but frankly it’s benefiting a product. And if you are going to be in any kind of a market at all whether its under pressure or not to having the superior product, superior medically, technically and from a scientific standpoint et cetera, that’s a pretty strong position to be in.
I don’t think the need for these products is going to go away. I don’t think the concern about the cost that health care is going to go away. But in a market where there is pressure on cost et cetera, there is always going to be opportunity for superior products that make a real difference. And that’s what XIENCE/PROMUS is, and frankly that’s what the pipeline is like coming out of our vascular business.
So, I’d say we remain pretty optimistic about the opportunities in that segment. I think if you just got a me-too product or an inferior product, you are going to struggle in these markets. And we see that, and we see that a couple of our businesses, not this one. We see that in some other companies and their products.
So I think we are in a pretty strong position, we are in a position where we can afford to be pretty, I guess, strong in terms of our investments and our expansion. The way you look at market like this, if you want to take as much share as you can with your products while you got a strong position, and that's what were doing, and we see that happening and we’ve got geographic expansion on top of that, and then a pipeline of improved products coming behind it where we are way ahead of our competition, like bioabsorbable stents, et cetera. We just are way ahead of everybody else in terms of things that are coming. So, I think that remains a pretty attractive market. Remind me again the second half – about Evalve.
Bruce Nudell – UBS
But more broadly, Evalve is probably the first of many things that you could do and that’s based overtime?
Yes, I will tell you, Bruce, right now we are very excited about the mitral space. That’s, as I mentioned, a space that’s about four times the size of a aortic. It’s about $3 billion market opportunity. We are there first; we've got a considerable lead. It's a pretty exciting technology; as you know, and the alternative is open it up your chest with open-heart surgery, so obviously a critical patient need.
We will be presenting data at ACC. In fact, as we were talking, we just found out that our late breaker EVEREST II has been accepted as a late breaker presentation at ACC. So, that, I think is a focus area for now. There is no other plan to expand beyond that in any significant way at this time, but that's what we can tell you so far.
Bruce Nudell – UBS
Thanks so much.
Okay. Well, operator, we will take one more question.
Thank you. Our final question is from Derrick Sung from Sanford Bernstein.
Derrick Sung – Sanford Bernstein
Hi, good morning.
Hi, good morning.
Derrick Sung – Sanford Bernstein
Miles, just staying at the high level first, HUMIRA has been driving tremendous growth obviously as we all know for the company over the last few years and we'll probably continue to do so certainly this year and maybe next year. But inevitably that growth is going to slow and you're going to be facing potential generic competition in 2014 and maybe the oral kinase – things that are going to be – competition before that.
How comfortable do you feel in terms of the positioning of the company as it stands today that you will be able to fill that gap when that inevitable slowdown in growth happens and how do you get investors comfortable with your ability to do so?
Well, a couple of things. Am I comfortable, I am comfortable that we will address that dynamic when the time comes probably, because we are working on it now and we have been and I would tell you if an investor is looking for a single product that replaces the slowing down of a HUMIRA it's probably not a single product. I think you can count on a single bullet that’s going to miraculously somehow replace a product like HUMIRA.
HUMIRA patterns last until 2018 outside the U.S., early 2017 in the U.S. And we look at that and we say okay, we're going to need, it's going to be a different dynamic I think with the biologic than your typical oral med in the U.S. I think what we're going to see is a decline that would be more gradual than a typical small molecule. But even then, I think we have to prepare for a number of other growth drives across the board that would replace the growth being driven by HUMIRA, and we are. We are not counting on any one thing. We are not counting on only a couple of things.
So we are addressing a lot of growth drivers from a lot of sources. Some of that’s pharma, actually some of its geographic, some of its devices. We are well aware of what the profile could look like out there. I don’t think it’s a statant type profile when the time comes, but nevertheless we are planning and preparing and making our strategic moves with the notion that it will be a combination of factors. Now, as how do I get the investors confident about that. There is a lot of investors Derrick that are confident so they can see something in the rearview mirror behind them.
But I would say this, a lot of times investors gain their confidence by the track record and the performance of the company. And if you look at what we've done over the last six or seven years, and how we navigated Depakote going generic by AxSYM and chloroeremomycin going generic, et cetera.
As I said earlier, you didn’t even notice that Depakote went generic because there were other growth drivers in the pipeline, and they arrived and launched and drove growth at exactly the offsetting time as Depakote. And I would tell you that was not an accident. That had been planned, that had been managed, that had been prepared for years earlier, and the same is happening here with the anticipation that some day HUMIRA will not be the growth driver that it is today.
And all I would tell you – all I could tell you is, to the extent that there is not crystal clear crystal ball visibility to what those drivers maybe when the time comes, I think the investor has to take some confidence that the management and the strategies of the company historically have repeatedly done that.
If you go back to what this company looked like in say 10 or 11 years ago, we were about $12 billion in sales. We spun off Hospira and about four to $5 billion worth of pharmaceutical products went generic in the interim. That leaves us a company with about a $5 billion base stack then, and this year we projected you 36, $37 billion in sales. That wasn’t an accident, that was managed, and I would say to investors that we are obviously much broader base company today, we've got more growth drivers today. It didn’t happen to us like an active god, we planned ahead for the things that would go generic and that we would have to replace.
We invested in our pipeline accordingly and the things that we brought to the company, and we will do the same going forward in that five to 10-year period when HUMIRA will slow and other things will obviously go generic. A company like ours has to keep replacing itself with new technologies, new products, new growth drivers and we are.
We are not sitting back just watching HUMIRA and enjoying the growth. In fact, that's part of what we do today, and that's part of where investors are focused today because you look for an answer every 90 days. We are spending a fair amount of our time on our investments and our pipeline, and our research and development and we are planning and plotting years six through 10 out there in the LRP.
I think that right now, absence – detailed visibility and forecasting of elements of our pipeline of new products coming, that's probably the best we can ask of investors as to keep believing in us because of what we have already done and delivered on a fairly consistent basis and better than most over the last 10 years.
Derrick Sung – Sanford Bernstein
Okay. Thank you. A follow-up to the HUMIRA pricing question, so you have been taking maybe 5% to 6% price increases annually, and I understand that pulls up pricing with rebates that may not flow through, but, my question is how sustainable is that moving forward? How much of that is built into your guidance for 2010 in kind of given the cost containment environment? Do we continue to assume that that continues on for the next few years?
Yes, certainly – I mean, we were pretty realistic about the markets, and it’s clear that in all of our health care business across the Board, we generally don’t count on price. We recognize that this is a competitive market and we have to be efficient and that’s fundamentally the way we put our long-range forecast together. So, fundamentally we can't count on it going forward. In a way we have not built expectations of it into our forecast going forward.
Derrick Sung – Sanford Bernstein
Okay, one real quick one. Your guidance for TriCor and TRILIPIX in 2010, what is that assume about results from the ACCORD trial, positive impact, negative impact neutral impact and when are we expect to see those results? Thank you.
Yes. Okay. Well, I was waiting an hour and a half before I could take questions. So for the uninformed, the ACCORD trial as we talked about in the past is an NIH study and was designed back in the late 90's, started enrolling patients shortly thereafter, not our study. I think the key things to remember with that it’s a base line patient population that has near normal trig levels. So clearly not our target patient population, which tends to be patients who have trig levels that are quite a bit more alleviated in that 200 to 300 in most cases. The other thing is that most of those patients that were in that trial were already at goal and taking a statin as well.
So there is a number of confounding factors there. I think the expectation is that most people understand that now that that not something that would typically start be set up at least from our view point to try to demonstrate the efficacy of the product that been well demonstrated through other studies and so forth. So, the only thing I would tell you on that is we don’t control the study. We don’t when it's coming. ACC would seem like a likely venue but it's completely for all of NIH.
And the other I'd say is as we with any clinical trial result I think it's important to look at the full context of the data, look at the full body of the data with some total. That can be the primary endpoint, that can be secondary end point, safety, efficacy. So we’ll see, but we are obviously aware of that, we factored it in. We don’t expect any significant impact on that I guess is the bottom line. And if you remember the field study, which got a lot of attention at that time, we actually grew our scrip share quite nicely from that base. So that’s the story.
Derrick Sung – Sanford Bernstein
Thank you very much.
Okay, you are welcome. That concludes our conference call today. A replay of this call will be available after 11:00 a.m. Central Time on our Investor Relations website at abbottinvestor.com, and after 11:00 a.m. Central, via telephone at 203-369-3535, confirmation code for that is 2762342. And as always, the audio replay will be available until 4:00 p.m. next Wednesday, February 3rd. Thank you all for joining us.
Thank you. And this concludes today's conference. You may disconnect at this time.
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