Abbott Laboratories 2013 Annual Report Download - page 67

ABBOTT 2013 ANNUAL REPORT
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In addition, approximately $1 billion of accumulated other
comprehensive losses, net of income taxes, primarily related to
the pension and other benefit plan net liabilities as well as foreign
translation was transferred to AbbVie.
In 2013, discontinued operations includes a favorable adjustment
to tax expense of $193 million as a result of the resolution of
various tax positions pertaining to 2010 related to AbbVie’s
operations. Summarized financial information for discontinued
operations for 2012 and 2011 is as follows:
Year Ended December 31
(in millions) 2012 2011
Net sales $18,380 $17,444
Earnings before taxes 5,958 3,963
Taxes on earnings 574 361
Net earnings 5,384 3,602
Abbott and AbbVie entered into transitional services agreements
prior to the separation pursuant to which Abbott and AbbVie are
providing various services to each other on an interim transitional
basis. Transition services may be provided for up to 24 months with
an option for a one-year extension by the recipient. Services being
provided by Abbott include certain information technology and
back office support. Billings by Abbott under these transitional
services agreements are recorded as a reduction of the costs to
provide the respective service in the applicable expense category in
the Consolidated Statement of Earnings. This transitional support
will enable AbbVie to establish its stand-alone processes for various
activities that were previously provided by Abbott and does not
constitute significant continuing support of AbbVie’s operations.
For a small portion of AbbVie’s operations, the legal transfer
of AbbVie’s assets (net of liabilities) did not occur with the
separation of AbbVie on January 1, 2013 due to the time required
to transfer marketing authorizations and other regulatory
requirements in each of these countries. Under the terms of the
separation agreement with Abbott, AbbVie is subject to the risks
and entitled to the benefits generated by these operations and
assets. The majority of these operations were transferred to
AbbVie in 2013 with the remainder expected to be transferred in
2014. These assets and liabilities have been presented as held for
disposition in the Consolidated Balance Sheet. At December 31,
2013, the assets and liabilities held for disposition consist of inven-
tories of $243 million, trade accounts receivable of $163 million,
other current assets of $32 million, equipment of $28 million,
other assets of $38 million, trade accounts payable and accrued
liabilities of $386 million and other liabilities of $7 million.
Abbott’s obligation to transfer the net assets held for disposition
to AbbVie of $111 million is included in Other accrued liabilities.
Abbott has retained all liabilities for all U.S. federal and foreign
income taxes on income prior to the separation, as well as certain
non-income taxes attributable to AbbVie’s business. AbbVie gener-
ally will be liable for all other taxes attributable to its business.
In connection with the separation, Abbott has adjusted its employee
stock compensation awards and separated its defined benefit
programs for pensions and post-employment medical and dental
benefit plans. See notes 8 and 12 for additional information.
RESEARCH AND DEVELOPMENT PROGRAMS
Abbott currently has numerous pharmaceutical, medical device,
diagnostic and nutritional products in development.
RESEARCH AND DEVELOPMENT PROCESS
In the Established Pharmaceuticals segment, the development
process focuses on the geographic expansion and continuous
improvement of the segment’s existing products to provide benefits
to patients and customers. As Established Pharmaceuticals does
not actively pursue primary research, development usually begins
with work on existing products or after the acquisition of an
advanced stage licensing opportunity.
Depending upon the product, the phases of development
may include:
• Drug product development
• Phase I bioequivalence studies to compare a future Established
Pharmaceutical’s brand with an already marketed compound
with the same active pharmaceutical ingredient (API).
• Phase II studies to test the efficacy of benefits in a small
group of patients.
• Phase III studies to broaden the testing to a wider population
that reflects the actual medical use.
• Phase IV and other post-marketing studies to obtain new clini-
cal use data on existing products within approved indications.
The specific requirements (e.g. scope of clinical trials) for
obtaining regulatory approval vary across different countries
and geographic regions. The process may range from one year
for a bioequivalence study project to 6 or more years for complex
formulations, new indications, or geographic expansion in specific
countries such as China.
In the Diagnostics segment, the phases of the research and
development process include:
• Discovery which focuses on identification of a product that
will address a specific therapeutic area, platform, or unmet
clinical need,
• Concept/Feasibility during which the materials and manufac-
turing processes are evaluated, testing may include product
characterization and analysis is performed to confirm clinical
utility, and
• Development during which extensive testing is performed to
demonstrate that the product meets specified design require-
ments and that the design specifications conform to user needs
and intended uses.
The regulatory requirements for diagnostic products vary across
different countries and geographic regions. In the U.S., the FDA
classifies diagnostic products into classes (I, II, or III) and the
classification determines the regulatory process for approval.
While the Diagnostics segment has products in all three classes,
the vast majority of its products are categorized as Class I or Class
II. Submission of a separate regulatory filing is not required for
Class I products. Class II devices typically require pre-market
notification to the FDA through a regulatory filing known as a
510(k) submission. Most Class III products are subject to the
FINANCIAL REVIEW