Abbott Laboratories 2014 Annual Report Download - page 73

FINANCIAL REVIEW
71
ABBOTT 2014 ANNUAL REPORT
While the aggregate cost to complete the numerous projects cur-
rently in development is expected to be material, the total cost to
complete will depend upon Abbott’s ability to successfully com-
plete each project, the rate at which each project advances, and
the ultimate timing for completion. Given the potential for signifi-
cant delays and the high rate of failure inherent in the development
of pharmaceutical, medical device and diagnostic products and
technologies, it is not possible to accurately estimate the total cost
to complete all projects currently in development. Abbott plans to
manage its portfolio of projects to achieve research and develop-
ment spending equal to approximately 6 percent to 7 percent of
sales each year. Abbott does not regularly accumulate or make
management decisions based on the total expenses incurred for
a particular development phase in a given period.
GOODWILL
At December31, 2014, goodwill recorded as a result of business
combinations totaled $10.1billion. Goodwill is reviewed for impair-
ment annually in the third quarter or when an event that could
result in an impairment occurs. The results of the last impairment
test indicated that the fair value of each reporting unit was substan-
tially in excess of its carrying value except for the Medical Optics
unit. While the fair value of the Medical Optics business exceeds
its carrying value, extended economic pressure on government-
reimbursed cataract procedures in Europe and on the global
LASIK surgery business as well as longer regulatory approval
timelines for products currently under development, the integra-
tion of OptiMedica and the negative impact of foreign currency
movements could result in a valuation in the future where the fair
value of the Medical Optics unit has declined below its carrying
value, thereby triggering the requirement to estimate the implied
fair value of the goodwill and measure for impairment.
FINANCIAL CONDITION
CASH FLOW
Net cash from operating activities amounted to $3.7billion,
$3.3billion and $9.3billion in 2014, 2013 and 2012, respectively.
The increase in Net cash from operating activities in 2014 was
due to an improvement in operating results as well as lower
cash contributions to pension plans. The decrease in cash from
operating activities from 2012 to 2013 was due to the separation
of AbbVie on January 1, 2013. Net cash from operating activities
in 2013 reflects approximately $435million of one-time net cash
outflows related to the separation of AbbVie and $724million of
contributions to defined benefit pension plans. The income tax
component of operating cash flow in 2014, 2013 and 2012 includes
$268million, $427million and $408million, respectively, of
noncash tax benefits primarily related to the favorable resolution
of various tax positions pertaining to prior years and 2013 also
includes a $103million tax benefit for the retroactive impact of
U.S. tax law changes, which is expected to be realized in future
years. Trade accounts payable and other liabilities in Net cash
from operating activities in 2012 includes the payment of approxi-
mately $1.5billion related to a litigation accrual recorded in 2011
related to the business operations of AbbVie. This was partially oset
by increases in other liabilities, primarily restructuring reserves.
customize treatment based on the patient’s vision needs and life-
style. The TECNIS® OptiBlue Toric IOL was approved in Japan
in both standard and preloaded options for treatment of cataract
patients with astigmatism. The Compact Intuitiv phacoemulsifica-
tion system for removing cataract was approved in the US and
Europe. Abbott received approval in the US and Europe for cOS 3.0,
a new software upgrade, and LOI-12, a new disposable patient
interface, for its CATALYS precision femtosecond laser cataract
system that together improve surgeon eciency.
In 2015, Abbott will continue to work to develop and introduce new
products including the TECNIS-1 Monofocal IOL in a preloaded
insertion system, an upgrade to its Signature phacoemulsification
system for cataract removal, an upgrade to its CATALYS laser
cataract system that helps surgeons to identify a cataract patient’s
axis of astigmatism and iDesign, its advanced vision diagnostic
and LASIK treatment planning system.
Molecular Diagnostics—Various new molecular in vitro diagnostic
(IVD) products and next generation instrument systems are in
various stages of development and commercialization. In December
2014, IRIDICA, an instrument used to rapidly identify a broad range
of infection causing pathogens, including bacteria, fungi, and
viruses in critically ill patients, became available in Europe and
other CE-Mark recognized countries. Abbott’s companion diagnos-
tic program continues to expand and includes collaborative eorts
with multiple major pharmaceutical companies.
Core Laboratory Diagnostics—Abbott is working on the development
of next-generation blood screening, hematology, and immunochem-
istry instrument systems, as well as assays in various areas
including infectious disease, cardiac care, metabolics, oncology, and
automation solutions to increase eciency in laboratories.
Diabetes Care—In the third quarter of 2014, Abbott received CE
Mark in Europe for its FreeStyle Libre Flash Glucose Monitoring
System. The system eliminates the need for routine finger pricks
by reading glucose levels through a sensor that can be worn on
the back of the upper arm for up to 14 days. The FreeStyle Libre
System also requires no finger pricks for calibration.
Nutrition—Abbott is focusing its research and development spend
on six platforms that span the pediatric, adult and performance
nutrition areas: immunity, cognition, lean body mass, inflammation,
metabolism and tolerance. Numerous new products that build on
advances in these platforms are currently under development,
including clinical outcome testing, and are expected to be launched
over the coming years.
Given the diversity of Abbott’s business, its intention to remain a
broad-based healthcare company and the numerous sources for
potential future growth, no individual project is expected to be
material to cash flows or results of operations over the next five
years. Factors considered included research and development
expenses projected to be incurred for the project over the next year
relative to Abbott’s total research and development expenses as
well as qualitative factors, such as marketplace perceptions and
impact of a new product on Abbott’s overall market position. There
were no delays in Abbott’s 2014 research and development activi-
ties that are expected to have a material impact on operations.