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Abbott Labs (ABT - Analyst Report) reported third quarter earnings of $1.30 per share, a couple of cents above the Zacks Consensus Estimate of $1.28 and 10.2% above the year-ago earnings. Third quarter 2012 earnings exceeded the company’s guidance of $1.26 to $1.28 per share.

Including one-time items, third quarter earnings came in at $1.21 per share, well above the year-ago earnings of 19 cents per share.

Third quarter revenues, however, declined 0.4% to $9.8 billion, missing the Zacks Consensus Estimate of $9.9 billion. Foreign exchange fluctuations negatively impacted sales by 4.5%.

The Quarter in Detail

Several of the business categories reported growth during the quarter despite the negative impact of currency fluctuation. Proprietary Pharmaceutical sales were $4.4 billion, up 2.4%. Humira was a major contributor with sales coming in at $2.3 billion, up 10.1%. While Humira recorded sales growth in the US (27.0%), international sales (down 2.2%) were affected by negative currency fluctuation.

Abbott Labs is looking to get Humira approved for additional indications which would help drive growth further. The company gained EU approval for Humira for use in patients with non-radiographic axial spondyloarthritis and the treatment of moderately active Crohn's disease in adult patients who have not responded sufficiently to conventional therapy.

Abbott Labs also gained US approval for Humira for the treatment of moderately to severely active ulcerative colitis (UC) in patients who have not responded adequately to conventional therapy.

Abbott Labs is currently evaluating Humira’s safety and efficacy in adult patients with moderate to severe hidradenitis suppurativa (HS). Other indications for which Humira is being studied include uveitis, peripheral spondyloarthropathies (SpA), and axial SpA (US).

AndroGel also contributed to Proprietary Pharmaceutical sales growth.

The Nutritionals business grew 4.5% to $1.6 billion. Nutrition sales in the US increased 5.0% to $715 million. The company said that Similac continued to gain share in the US. Outside the US, Nutrition sales grew 4.1% to $890 million.

Other areas that witnessed growth include the Core Laboratory Diagnostics and Point of Care Diagnostics businesses. Established Pharmaceuticals sales continued to decline with sales coming in at $1.3 billion, down 7.3%.

2012 Outlook Narrowed

Abbott Labs narrowed its earnings guidance for 2012. The company expects 2012 earnings per share in the range of $5.06 to $5.08 (old guidance: $5.00 to $5.10). The Zacks Consensus Estimate currently stands at $5.06 per share.

The company declared a quarterly dividend of 51 cents per share.

Pipeline Update

Abbott Labs also provided an update on its pipeline. Abbott Labs is also working on strengthening its neuroscience portfolio and has several candidates in different stages of development for the treatment of diseases like schizophrenia, pain, Parkinson’s, Alzheimer’s and multiple sclerosis. Abbott Labs, along with partner Biogen (BIIB - Analyst Report), is evaluating daclizumab in a phase III study for the treatment of relapsing-remitting multiple sclerosis (RRMS). Results are expected in 2014.

Abbott Labs is also working on levodopa-carbidopa intestinal gel (LCIG) for advanced Parkinson's disease – positive phase III results were reported on this candidate and Abbott Labs expects to file for US approval by year end.

Another promising pipeline candidate is bardoxolone, which is in phase III studies for chronic kidney disease.

The company, which recently reported impressive phase II data from its interferon-free hepatitis C (HCV) program, said that it has initiated a phase III study with its interferon-free regimen.

Split Remains on Track

Abbott Labs remains on track to split into two separate publicly traded companies on January 1, 2013. While one company will deal in diversified medical products, the other (AbbVie) will focus on research-based pharmaceuticals. We are positive on the split which should allow the two separate entities to perform in a more focused manner.

Moreover, the company’s pipeline is moving along. The successful development of the interferon-free HCV regimen would be a major boost for the stock. We currently have a Neutral recommendation on Abbott Labs, which carries a Zacks #3 Rank (short-term Hold rating).

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