Abbott Laboratories 2013 Annual Report Download - page 64

ABBOTT 2013 ANNUAL REPORT
62
A comparison of significant product and product group sales is as
follows. Percent changes are versus the prior year and are based
on unrounded numbers.
Percent Percent
(dollars in millions) 2013 Change 2012 Change
Total Established
Pharmaceuticals
Key Emerging Markets $2,358 1 $2,324 4
Other Markets 2,616 (7) 2,797 (10)
Nutritionals —
International Pediatric
Nutritionals 2,257 9 2,075 8
U.S. Pediatric Nutritionals 1,508 — 1,505 14
International Adult
Nutritionals 1,601 8 1,489 4
U.S. Adult Nutritionals 1,374 (1) 1,392 6
Diagnostics —
Immunochemistry 3,458 5 3,279 4
Vascular Products (1) —
Drug Eluting Stents (DES)
and Bioresorbable Vascular
Scaffold (BVS) products 1,563 (2) 1,599 3
Other Coronary Products 579 (3) 598 (1)
Endovascular 475 5 452 1
(1) Other Coronary Products include primarily guidewires and balloon catheters.
Endovascular includes vessel closure, carotid stents and other peripheral products.
Excluding the unfavorable effect of exchange, total Established
Pharmaceutical Products sales increased 0.7 percent in 2013 and
2.1 percent in 2012. The Established Pharmaceutical Products
segment is focused on 14 key emerging markets including India,
Russia, China and Brazil. Excluding the effect of exchange, sales
in these 14 key emerging markets increased 6.3 percent in 2013
and 12.8 percent in 2012 as macroeconomic and market pressures
in various emerging markets negatively affected 2013 growth.
Excluding the effect of exchange, sales in Established
Pharmaceuticals’ other markets decreased 4 percent in 2013 and
5.6 percent in 2012. These declines in the Other Markets category
reflect unfavorable market conditions, including the continued
effects of European austerity measures and 2012 Japanese
pricing actions.
Excluding the unfavorable effect of exchange, total Nutritional
Products sales increased 5.4 percent in 2013 and 8.9 percent in 2012.
International Pediatric Nutritional sales increased in 2013 and 2012
due primarily to volume growth in developing countries. A suppli-
er’s recall of product in August 2013 in certain international markets
negatively impacted International Pediatric Nutritional sales in the
third and fourth quarters of 2013. While there were no health issues
associated with this supplier recall and the supplier subsequently
determined that the product had been safe for consumption, this
event created significant disruption in these markets. Abbott
expects this sales disruption to continue to negatively impact
International Pediatric Nutritional growth in the first half of 2014.
U.S. Pediatric sales were flat in 2013 due to lower formula share,
partially offset by higher shipments of toddler products. U.S.
Pediatric Nutritional sales in 2012 reflect market share gains for
Similac and unit growth for PediaSure.
The 2013 and 2012 increases in International Adult Nutritional
sales are due primarily to volume growth in developing countries
and were negatively impacted by the effect of the relatively stron-
ger U.S. dollar. The 1 percent decline in 2013 U.S. Adult Nutritional
sales reflects Abbott’s exit from certain non-core business lines as
part of the business’ margin improvement initiative; most of the
sales decline resulting from this exit was offset by higher Ensure
revenues. The increase in 2012 U.S. Adult Nutritional sales reflects
unit growth for the Ensure and Glucerna products.
Excluding the unfavorable effect of exchange, total Diagnostic
Products sales increased 8.3 percent in 2013 and 7.3 percent in
2012. The sales increases reflect unit growth across geographical
regions. 2013 and 2012 sales of immunochemistry products,
the largest category in this segment, reflect continued execution
of Abbott’s strategy to deliver integrated solutions to large
healthcare customers.
Excluding the unfavorable effect of exchange, total Vascular
Products sales were flat in 2013 and decreased 5.6 percent in 2012.
In 2013, growth in international markets, driven by continued
share gains in key geographies of XIENCE Xpedition and Absorb,
was offset by declines in the U.S. market due to the negative
impact of pricing pressure and a decline in procedures due to market
conditions, as well as the expected decline of certain royalty
revenues. In 2012, the decrease in Vascular Products sales was
due to pricing pressure, as well as the expected winding down
of royalty and supply agreements related to certain third-party
products, including Promus. Excluding this royalty and supply
agreement revenue in both periods and the unfavorable effect of
exchange, Vascular Products sales increased 3.4 percent in 2012.
Abbott has periodically sold product rights to non-strategic
products and has recorded the related gains in net sales in accor-
dance with Abbott’s revenue recognition policies as discussed in
Note 1 to the consolidated financial statements. Related net sales
were not significant in 2013, 2012 and 2011.
The expiration of licenses and patent protection can affect the
future revenues and operating income of Abbott. There are
currently no significant patent or license expirations in the next
three years that are expected to affect Abbott.
OPERATING EARNINGS
Gross profit margins were 50.4 percent of net sales in 2013,
50.6 percent in 2012 and 49.1 percent in 2011. The gross profit
margin in 2013 remained relatively unchanged versus the prior
year as improved margins in the Nutritional and Diagnostics
Products segments were offset by margin declines in Established
Pharmaceuticals and Vascular Products due to pricing pressures
and unfavorable product mix as well as the impact of unfavorable
foreign exchange across segments. The increase in the gross profit
margin in 2012 was impacted by improved gross margins across
all reportable segments as a result of cost reduction initiatives,
the impact of exchange and favorable product mix.
In the U.S., states receive price rebates from manufacturers
of infant formula under the federally subsidized Special
Supplemental Nutrition Program for Women, Infants, and
Children. There are also rebate programs for pharmaceutical
products in numerous countries. These rebate programs continue
FINANCIAL REVIEW