Abbott Laboratories (ABT) Q4 2011 Earnings Report, Transcript and Summary

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

Thank you. Good morning, and thanks for joining us, everybody. Also on today's call will be Miles White, our Chairman of the Board and Chief Executive Officer; Tom Freyman, Executive Vice President, Finance and Chief Financial Officer; and Larry Peepo, Divisional Vice President of Investor Relations. Miles will provide his opening remarks, and Tom will review the details of our fourth quarter results, as well as our outlook for 2012. I'll then discuss the highlights of our major businesses. Following our comments, Miles, Tom, Larry and I will take your questions. Some statements made today may be forward-looking, including the planned separation of a research-based pharmaceutical company from the diversified medical products company and the expected financial results of the 2 companies after the separation. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. 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 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. And so with that, I'll turn the call over to Miles. Miles?

Okay. Thanks, John. Good morning. This morning, I'll review our 2011 performance, as well as our outlook for 2012, and Tom and John will walk you through the details of our fourth quarter and our full year results, as well as our 2012 outlook, and then we'll take your questions. As you can see from our earnings news release, Abbott reported another year of strong performance in 2011 despite what's been another challenging year for the healthcare industry and for the global economy. We managed through these challenges as we've always done and delivered full year ongoing EPS growth of nearly 12%. And as we announced this morning, we expect to deliver another year of strong performance as we issued guidance of $4.95 per share to $5.05 per share for 2012. I'll talk more about the year ahead in a moment. In 2011, Abbott sales grew more than 10%, driven by double-digit growth in Established Pharmaceuticals, International and Nutritionals, Molecular and Point of Care Diagnostics, International Vascular and Global Proprietary Pharmaceuticals. HUMIRA had another outstanding year, and with nearly $8 billion in sales, solidifying its global position as the anti-TNF market leader. In addition to full year double-digit sales growth as forecasted, we improved the profitability of many of our operating businesses, and in the fourth quarter, we delivered an adjusted gross margin ratio of nearly 64%. We also generated more than $9 billion of operating cash flow, which was another record year. And we returned $3 billion to shareholders in the form of dividends. Our payout ratio is strong at more than 40%. We've increased our dividend for 39 consecutive years, making Abbott one of only a handful of U.S. companies to deliver with such consistency. Our return of cash to shareholders through dividends, together with Abbott's stock price…

Thanks, Miles. We're very pleased with how we ended 2011 as we had a strong fourth quarter, delivering double-digit ongoing earnings per share growth. And we had strong overall performance in 2011, with ongoing EPS above the original guidance range we provided at the beginning of the year. For the fourth quarter, we reported ongoing diluted earnings per share of $1.45, an increase of 11.5% over the prior year. For the full year 2011, ongoing EPS was up 11.8%. Sales growth in the quarter was 4.1%, including a favorable 0.2% impact from exchange rates. With the significant movement in a number of currencies during the quarter, impact from exchange was almost 1% less favorable than we had forecasted on the third quarter call. We continue to see the benefit of our strategies to expand in the emerging markets with total emerging market sales across the company of $2.5 billion, representing nearly 25% of total sales, with particularly strong growth in Nutritionals, Vascular and Diagnostics in the quarter. The adjusted gross margin ratio was 63.8%, up 320 basis points from the prior year. While changes in exchange rates contributed roughly half of the improvement over 2010, we did see significantly better operating performance across most of our businesses, including Vascular, Pharmaceuticals, Nutritionals, Diabetes Care and Diagnostics. Overall, as we look at 2011, we delivered strong ongoing EPS growth despite a number of factors that impacted our industry. We continued to expand our presence across emerging markets, advanced our late-stage pipeline and made great strides to improve the overall efficiency of the company while continuing to invest in the business to drive future growth. And we generated record operating cash flow of more than $9 billion in 2011. Most importantly, we announced our plan to separate into 2 leading healthcare companies, each…

Thanks, Tom. This morning, I'll review the fourth quarter performance for 2011 and the 2012 outlook for our major business categories. I'll also provide a brief overview of our pipeline and the major milestones we expect this year. I'll describe our fourth quarter and full year 2011 results on a reported basis, that is, including the impact of foreign exchange. For our 2012 division outlook, when I get there and given recent FX trends, I'll provide both operational and reported expectations. So let me start with our Proprietary Pharmaceuticals business, where our worldwide reported sales in the fourth quarter increased nearly 7%. For the full year 2011, worldwide reported sales in pharmaceuticals increased 11%. Global demand for HUMIRA continues to outpace the market with reported sales up nearly 16% in the fourth quarter. Performance was driven by strong U.S. sales growth, consistent with underlying trends in the quarter. We continue to see steady market growth globally, including strong performance for HUMIRA in the gastroenterology and dermatology segments. International HUMIRA growth in the quarter was impacted by our previous change to calendar year reporting for our international operations. Therefore, adjusting for results on a calendar year basis, HUMIRA international sales would have increased approximately 15% in the fourth quarter on a reported basis. Full year 2011 recorded sales for HUMIRA increased 21% globally, ahead of our original outlook at this time last year, which was low teens growth. As we look ahead to 2012, we expect low double-digit reported sales growth for HUMIRA worldwide, which includes the negative expected impact of foreign exchange. Global reported sales of CREON in the quarter were approximately $175 million, up approximately 13%. Full year 2011 global reported sales were approximately $630 million, and that was up 45%. CREON maintains market leadership in the pancreatic enzyme…

[Operator Instructions] First question today is from Rick Wise from Leerink Swann.

Let me start with gross margin; outstanding. I guess, I'd ask Tom. What took so long to get here? It's such a major leap forward. Can you talk about a couple of points? Are the efficiency initiatives completed? What more is there to be done? How sustainable is this? And maybe just help us understand a little better why maybe the sequential dip in first quarter and why it ramps through 2012?

Sure. Well, we've been talking a long time about a number -- really the focus of the entire company and every single business on improving gross margin. And as we've also talked about over the last couple years, it's -- our progress, our underlying progress has really been masked by some of the pricing pressures in pharma through healthcare reforms and austerity in Europe, as well as an occasional generic issue. And what's really been going on in the business has really been quite good. And I think this quarter, as we moved into the fourth, you're really starting to see the benefits of that play through. And we do expect this to continue into next year. For 2011, we finished with an ongoing gross margin a little under 61%. And as I indicated in my remarks, we should be approaching 62% next year, and that's despite the effect of TriCor and the slowdown of Niaspan. So as we talk about the operating margins in the business and when you see those operating margins in the 10-K when we file it in a few weeks, you're going to see that most of the businesses are making very nice progress, and we expect it to continue longer-term. So we do expect this improvement of at least one point next year overall despite the headwinds. And we expect continuing improvement beyond 2012 because every division is focused on it, every plan. And including, for example, the program Miles went through in nutrition has pretty detailed plans on how to get there, and we're very focused on executing it.

Second question, let me turn to the stent business if I could. It's sort of half-related to the margin question. As promised, volume declines. Can you talk a little bit about how you keep margins whole? Is it all through the uptick of the new products and XIENCE PRIME? And maybe any just broader perspective about your view of the market outlook for 2012 and growth and pricing pressures and how you’re -- what you've dialed into your numbers.

Well, overall, I mean, obviously, we are offsetting the PROMUS effect with product mix improvements and really business mix improvements. And so just like the other headwinds, when you net it all out, we are showing an overall improvement. In terms of the overall environment, clearly, in particular, the pharma business went through the austerity period in Europe and the U.S. healthcare reform. But we've seen a bit of a more stable outlook for 2012. Certainly, we’ve factored in some degree of adjustments in our forecast. But I think 2010 and 2011 were a bit of a step function, and we expect that aspect of pricing, et cetera, to be a little more normal in 2012.

Yes. So Rick, we would expect -- as you know, price declines have moderated, so from year-over-year high single-digit declines, which we saw last year, it's more in the mid single-digit range, which is encouraging. And in addition to what Tom said, we would obviously expect to pick up a lot of that business with XIENCE PRIME, which we continue to sell and market in the U.S. and outside the U.S. And now that we have nano and PRIME, we have the full complement of ranges and sizes and lengths that's not always available with some of the other competitors. And that's one of the reasons why we've done so well internationally. We keep talking about the fact that this business has grown to more than 50% internationally, where double-digit growth is the norm in a lot of these key emerging markets for us, as well as some other more developed Western Europe countries as well, where we continue to take share with PRIME. So I think those things plus the MitraClip, x U.S. run rate, is now at roughly $100 million on an annual basis, and that's helping as well.

Rick, I'd say one last thing. Clearly, as PROMUS pulls out of the market and really if we're going to have 2 independent products as opposed to the same product, that is going to bring a better dynamic to the DES market for us.

Our next question is from Mike Weinstein from JPMC.

Miles, let me ask you, I guess, the tough question first. Going back a year ago on the fourth quarter of '10 call, someone had asked you about 2012, which was setting up to be a difficult year, and whether you thought sustaining 10% EPS growth was still achievable. And you had commented at that time that, that was still your goal. And then someone asked you at the October analyst meeting on the spin announcement whether the double-digit EPS goal was still an appropriate target. And your answer at that point in time was, yes, you thought that was still an appropriate goal. But then today's guidance is 6% to 8% EPS growth for 2012. So can you comment on that? And has anything in your view changed that makes 6% to 8% the appropriate target for this year versus the 10-plus percent before?

Yes, I think that's a pretty simple answer. I think everybody is aware the single biggest thing that's changed is exchange. There's been a pretty big shift in currency in the last 3 to 4 months here. And that's the single biggest part of any change in our expectations going forward really.

The other thing I'd note too, Mike, as you know, is our guidance of $4.95 to $5.05 brackets what the first call consensus is right now, which is $5.02.

Understood. So Tom, maybe you just want to add to that. So Tom, you think that the FX impact right now and the bottom line for 2012 would be a negative 2 to 4 points?

Yes, I mean, we factored these rates in, and clearly, that had an impact on the progression of our forecast as we worked through the fourth quarter and worked on our plan. And these rates have definitely affected us, and that's in our numbers for 2012.

Okay. Any additional sensitivity you can give us on that, Tom, just so we can think about it going forward? Obviously, if the dollar weakens or strengthens from here, we can think about the potential impact on the company's bottom line. I think historically people have viewed Abbott as being relatively insulated, absent some of the currencies where you can't hedge, like Latin America.

Yes, as we -- the closer we get to a year, the more -- the less exposed we are to currency. And that has to do with the way exchange rates get into inventories and some of our other natural positions. So the further out you are, the harder it is to forecast. The closer you get into a year, it gets a little less -- a little more predictable. And I feel like we're in pretty good shape here. And certainly, it's manageable. Even if rates do go up or down, I think we can manage 2012 within this guidance range.

Okay, 2 other maybe quick follow-ups. One, could you just talk about HUMIRA in the quarter and then focus really on the U.S., which was obviously very, very strong? Just would like to get your sense of the -- if there's anything in there that aided the quarter because it's obviously well above recent trends. And then second, the FX impact on gross margin is a bit tough. Obviously, it helped a little bit this quarter. In that 2012 guidance for gross margin improvement, how much is FX a factor on that line?

Yes. On HUMIRA, nothing unusual in the U.S. The script rates are strong. And when you look at the overall dynamics on the product growth, it's very much in line with expectations there. For 2012, I'd say a modest part of the margin improvement is exchange. And there's a lot of -- the majority of it is operating performance, the cost-reduction programs that we've talked about, efficiencies, product mix and the like.

Yes. Mike, the only thing I'd add to there on the HUMIRA is what we said in the past and what we talked about in October at the meeting and Rick talked about is the differentiation of HUMIRA in terms of breadth of indications, depth of clinical data, our differentiating efficacy and safety profile, our strong managed care position. Derm share has been picking up nicely, as is gastro share. Those have all combined to make this what we think is a durable growth vehicle going forward. I think some of the expectations and uncertainty around some of the other products in the market have dissipated as more data has come out on things like orals and so forth. And so we've seen competition in the past. Every year since we've had this product, there have been multiple products that have been in the market. HUMIRA continues to shine in terms of its overall profile. And so we don't expect anything to change that overall trajectory of strong double-digit growth here, particularly for this year.

Mike, this is Miles again. I can't help but chuckle here because I recall in October, you advocating to me that we should take a more cautious view of earnings growth in 2012. And I'm wondering if you had some prescient view of exchange. And if you had, I wish you'd said so.

No, if that's the case, I wouldn't be on this call. I'd be doing something else. Actually, the conservatism is -- for me is, as you know, is top and bottom line, just setting a bar that's reasonable and achievable.

Yes. And I'd also say, too, Mike. You know this. I mean, the other countries are also discussing the impact of foreign exchange. And I think when all the companies report at the end of the day, like is usually the case, in a week or 2, our growth on a relative basis will be strong and in the upper half of the group.

I think I could add to that. I'm pretty happy with what I see in the operating performance of the company right now on so many dimensions. I'm happy with the commercial performance of a lot of our businesses. There's still places we can make improvements, no question. But I think, in general, I'm very pleased with what I call the operating execution. And I'm pleased to see, even earlier than I might have expected, some of the impact on gross margin because I do expect even greater improvement because I think there's a couple of target-rich opportunities for us in the businesses to improve our margins so that's a good thing. While we've got a lot of these product launches or registrations underway, with both EPD, and frankly, even our Nutrition business internationally, we had 52 new products launched in the Nutrition business last year, which is very important to filling out the product lines and the strategies and the countries. And so we've got a lot of really good things going on. Now we know that we'll experience the beginning of our lipid franchise going generic this year. HUMIRA's growth and momentum will, I think, nicely offset that to a large degree. There's actually a lot of good fundamental things going on here that I think position us well actually in both companies. So exchange is little harder to predict. If it goes better than we think, we'll be happy. And if it doesn't, we'll do everything we can to adjust to it. But I think with all the moving parts of the businesses right now, I think this is the prudent place to be. That's the one thing we can't control very well.

Our next question is from David Lewis from Morgan Stanley.

Miles, I wanted to come back to Hep C, where you made some interesting comments. I think one of the interesting things when you started talking more about your Hep C program earlier this year was the diversity of that program. And I guess, as you look out at the next 3 to 5 years in terms of the multitude of players that are getting more active in this market, are you comfortable with your organic program or internal program on Hep C as you see the market developing over the next 3 to 5 years?

Yes, I think so. I mean, I think that there's been an awful lot of attention paid to everybody in the category. And I think we surprised some people when we exposed our program in more detail in October. I mean, we've obviously seen a -- so we said changing competitive response out there. I think we've got a really promising program here. And we like what we're holding. Well, I think as you've seen from the -- well, it's fair to say, some of the reaction out there, it's a highly valued segment. And I observe that, and I think, man, if that's how people think of it, the value of our pipeline must be astronomical. I mean, we have all the types of assets we need. I'm very pleased with what we've got and the potential for it as it particularly impacts patients and the disease. So yes, I'm very hopeful and very optimistic about the program and very excited about it for the pharma business.

Yes. And as a reminder, Dave, we talked about this in October. But we did show some of that first 12-week course of therapy. It's a smaller subset of patients, but it did demonstrate that 90% cure rate, and most importantly, without interferon. And we think that's critical obviously to these new therapies and where we're going and the promise of our program. And as I mentioned in my remarks, we're going to present some of the initial Phase IIb full data set later this fall and also in the spring.

Okay, very helpful, John. And maybe one more strategic here for Miles and maybe one for Tom. Miles, I know it's early, but you did mention a restatement of your prior remarks, which is that you are committed to a total dividend for both assets that's equivalent to the prior dividend. I guess, is it still too early to suggest that -- is it a reasonable assumption to assume that of the 2 assets, we see, generally speaking, a higher relative dividend on the pharma asset, and generally speaking, perhaps more debt on the pharmaceutical asset relative to the diversified asset?

Yes. It's too early for me to comment on any of that. I think when we're ready later in the year to put out the split of the economics of the companies and all those sorts of things, we'll address it then. But yes, it's too premature. The main thing is, look, our investors have come to rely on and expect a certain cash return. And we're well aware that the profiles of the 2 businesses, which frankly owes to the different investment identity of the 2 businesses, would suggest they would not be necessarily identical on a lot of dimensions. So I understand the nature of the question. I think we'll deal with it when the time comes. But look, they are 2 different investment identities. We understand the question, and we'll have an answer for you later in the year. But in the meantime, our investors, in addition to the growth profile we provide, do expect a certain cash return that's a combination of dividend and/or share repurchase from time to time. And what we do know is that because investors will initially hold both shares, it's important for us to make sure there's no diminution of that cash return to investors. How we split it remains to be seen.

Okay, very helpful, Miles. And just real quickly, Tom. You’ve talked a lot about Nutritionals and opportunity for margin expansion, which seems very clear. And Miles also reiterated it. But from a top line growth perspective, are you comfortable with where the current growth profile of the Nutritional business and the current market share for Nutritionals sort of post the recall? Are we sort of back to where you want to be? Or is there still significant room for upside in either growth reacceleration or share?

David, you've got 2 different markets. There's the U.S. market, and then there's the international market. And of course, there's 2 different markets internationally, 1 Europe, 1 the rest of the world. The U.S. market for Nutritionals is not particularly a growth market as a market. But our team has done really well there. We have regained all the share that was impacted by the recall. And they've done a nice job in the U.S. of gaining share relative to competition over the last several years. But the U.S. market for infant nutrition is a declining market, slightly declining. At least for the last couple of years, it has been. And we've gained share against that headwind and grown. So do I expect to see the same kind of performance out of our business? I will say that is certainly what we press for. It's a well-performing business. I like the plans; I like the team; I like the product portfolio. I think it's a well-executing team. So I expect to continue to see good performance out of the U.S. The growth profile overseas, I think, should improve. And I think it's already a strong growth profile, but there's a tailwind of market growth there, too, particularly in emerging markets. And I think in addition to margin expansion, there's a growth expansion expectation that I expect to see here over time as we fill out the product offerings and the product lines in the given geography. So I think this business has an awful lot of opportunity for us going forward here.

Our next question is from Rajeev Jashnani from UBS.

Just on the gross margin guidance, I guess, given the pending split, perhaps you could tell us a little bit about more where the margin expansion is coming from, whether it's the pharma side or the diversified side first.

I'd say the pharma side is relatively stable. You have HUMIRA continuing to grow, which is a solid product, and we do have the kind of the slowdown in the lipids, so fairly neutral on pharma and better progress in the diversified businesses.

Okay. And secondly, this – I’ll apologize in advance; it might be a tough question. But Miles, I was wondering if you could comment on what you intend to do with your shares in the pharma company post the split. Would you intend to hold them? Or would there be potential conflicts of interest there that -- or other reasons that might prevent you from doing so?

No conflicts of interest. I intend to hold them. I'm confident for both companies.

Our next question is from Barbara Ryan from Deutsche Bank.

So maybe as you talk about -- and I can understand the huge undertaking of splitting the 2 businesses. But can you give us some sense of timing beyond later this year and just in terms of seeing numbers for the different businesses? And how would you envision that coming out? Would it come out with a quarterly earnings release? Any more color on that would be really helpful.

Sure. So I think the next big data point will be the submission of the Form 10, which we expect by the later part of the first half. As you know, that's where we basically carve out the proprietary pharma business historically in a way that -- as if it had been an independent company during that period. That's a pretty extensive process. To go through that, we have to obviously -- we're just finishing the closing of the books for 2011. We've now completed that, and now we are in the process of going through a carve-out and audit procedure to come up with that Form 10 information. So that would be the first data point. And in the meantime, we'll be refining our outlook for the remainder of '12 and going into 2013 for the 2 businesses, and we'll be able to talk more prospectively about them. And you can expect increasing investor relations activity in the second half of the year in the timeframe consistent with completing the separation by the end of the year. So Miles and Rick and the various management teams will be out interacting and talking about the future outlook for these companies in that timeframe.

Yes. Barbara, the only thing I'm going to add there is on the Form 10, I would just caution everybody that, that is going to be a historical document. And as we work to separate the businesses and the products and so forth, you’ll have to be a little careful at the time of that document that you don't extrapolate that forward too much and draw too many conclusions. Separately, when we do the roadshows for these businesses, we'll talk about outlooks and things like that. So just be a little careful with that information. We can help you at the time of it. It serves a purpose, but it shouldn't be misconstrued in the wrong way about forward-looking projections and...

Okay, I guess, part of that is the capital structure that each company would have going forward versus the past.

Yes. To John's point, the historical capital structure of the 2 businesses in the Form 10 will be quite different than what the capital structure of these companies will be in the future. That's just one example of the types of things we're going to have to help investors through.

Our next question is from Tony Butler from Barclays Capital.

Miles, I wanted to ask one question to you and then one for Tom, if I may. You've given some lofty guidance or some thoughts around the Molecular Diagnostics business in the future. And if you take away 2012, can you help us understand how that business is going to grow? Is it organic or will there be external adds to that business? And moreover, if it's true that Roche happens to consolidate some sort of sequencing business, do they get an edge in the molecular side? Or is that really irrelevant to your vision of Molecular Diagnostics in the future? And the second question again for Tom is I think you made a comment about resuming share repurchases in '12. What is the existing authorization?

I'll take the second question first. We have about $3.4 billion remaining under the authorization, so we're in good shape to execute what would be appropriate during 2012.

And as far as the molecular business, Tony, as you know, that's been a great business for us. We're definitely an emerging leader in that business. It's about $450 million in sales in '11, growing to what we expect will be more than $1 billion by roughly 2015. And we factored in all of the different situations there in products and so forth that you're talking about. So we expect continued strong double-digit growth here in 2012, as well as over the LRP for that business.

Our next question is from Sara Michelmore from Brean Murray.

Just a follow-up on the EPD business. I'm just wondering that, I guess, that mid single-digit growth trajectory you're expecting for '12 struck me as maybe a little bit on the low side. And I was just wondering if you could help us kind of compare and contrast to kind of what the underlying growth was in 2011. Is that a similar rate of growth or an uptick? And then Miles, you have talked a lot about all these filings and that, that should improve the growth prospects going forward. Is that something that we could see kind of come to bear in the second half of this year? Or is that more of a 2013 or even a 2014 type of event?

Yes, I think you got 2 things happening here. In the mix of the EPD business or Established Pharmaceuticals, there's a chunk that is generics in Western Europe. And that business has been under the kind of pressure, austerity pressure we've seen in Europe. And so the kind of growth that we've seen in pure emerging markets has been pretty significant double-digit, and that's with only a modest number of these registrations done. So you've got 2 things happening here. Over the course of 2012, there will be, in addition to the couple of hundred that were filed in the second half of 2011, a lot of filings in a lot of these countries that are our targeted geographies around the world, particularly in emerging markets. And as you would imagine, it will take some time to establish those. So I think you'll see some of that late in the year, but I think probably you'll really see the impact of it moving into '13 and beyond. So while we'll be watching for it, do we get the filings done and do we get them done on time and do we get them done in the mass that we intend to in the various countries and so forth, the real financial impact of that will be as they take hold and grow beyond that, which is probably more likely to be visible to you in a '13 timeframe. And at the same time, we're going to have to, by growing those markets, dilute, we'll call it, the austere impact of that chunk of business in Western Europe.

And I'll just add. I think if you were to look at normalized growth rates in 2011 versus '12, you'd see roughly mid single digits in both. And one thing to keep in mind is this organization's been in place a little more than one year. They're just in the very early innings of execution and driving additional growth out of the portfolio, and as Miles said, adding more and more products to the portfolio. So you're going to see decent growth this year with very strong emerging markets and accelerating, we believe, as we go into 2013 and beyond. And as we said back in October, we think that overall, probably mid- to upper-type growth is what you should see in this established business over the longer term.

Okay, that's really helpful. And then Tom, you did say that the company would again be in the market doing share buybacks. And I get that there's a lot of management resources being spent on the spin right now. But I was hoping if just you could -- you or Miles could comment on kind of your thoughts on M&A. I look at that diversified medical products business in particular, and think there's a lot of tuck-in or other type of asset acquisitions that you could do that could further enhance what you have there. So just curious if M&A is off the table for 2012 or if you're still out there kind of actively looking at things.

Yes, okay. I'll take that, Sara. I don't think I'd say it's off the table per se. But I would say this, philosophically, I'm not looking for -- we're not looking for big significant things. I mean, I'd point out to you, we did the Reata transaction or deal after our announcement of split. I think we're always vigilant, looking, analyzing, et cetera, in all of our businesses. We'll always be focused on pipeline enhancements for pharma because I think you practically always have to be. I don't think there's a particularly robust opportunity set out there today. I think it's pretty limited, and I think valuations are, let's call it, stratospheric and difficult to justify at this point. So I think it's very easy to be selective right now on the pharma side. But I know that Rick and his team and our organization are constantly looking for additional enhancements to our pharma portfolio. On the device side, I think you characterized it well. You might call it tuck-in or you might call it geographically opportunistic. There's a few very targeted things that we're interested in. I would call them focused and smaller. As a matter of generality, I'm not looking for big deals. And I think, to be realistic -- and I agree with our investors on this point. I think our investors would say look, unless you got some really great boy-you-can-hardly-stand-it opportunity, husband your cash. There's better things to do with your cash. And our investors in these kind of economic times value cash return or holding and accumulating some cash, and we are. So I'm not looking for places to go spend it necessarily unless something is really compelling. And I'd say right now, my push in the organization is a much greater focus on…

Our final question today is from Larry Biegelsen from Wells Fargo.

Just 2 here. First, I was encouraged to see that you guys settled the AndroGel patent cases with Teva and Perrigo. Should we assume that the terms are similar to the Watson timeline, I think 2015 or so?

Yes, Larry, we did have settlements with both of those parties, but the terms of those are confidential.

So no update on kind of when we should assume kind of a generic launch?

In October, we talked about 2015, and we feel good about 2015.

Great. And lastly, on emerging markets, the $2.5 billion for the quarter, what was the year-over-year constant currency growth rate? I mean, the last time you gave that number for emerging markets, you had $2.6 billion, I think, in the second quarter of '11. The growth rate would be helpful.

Yes, there definitely was currency affecting all sales in the quarter. But on a constant currency basis, for the diversified companies, it was up in excess of 10%, so double-digit growth there. And again, we define emerging markets pretty broadly. And in the proprietary business, there were some tender ins and outs between the third and fourth quarter. So it was little less robust in the proprietary business in the quarter.

Okay, thank you. And that concludes our conference call today. A replay will be available after 11 a.m. Central Time on Abbott's Investor Relations website at abbottinvestor.com. And after 11:00 Central Time, via telephone at (203) 369-1366, confirmation code 33692. The audio replay will be available until 4 p.m. Central Time on Wednesday, February 8, and the IR team is always available. Thank you for joining us today. Bye-bye.

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