ABBOTT LABORATORIES - 10-K Annual Report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

The aggregate market value of the 1,444,007,401 shares of voting stock held by nonaffiliates of the registrant, computed by using the closing price as reported on the consolidated transaction reporting system for Abbott Laboratories common shares without par value on January 31, 2001, was approximately $64,778,172,008. Abbott has no non-voting common equity.

Portions of the 2001 Abbott Laboratories Proxy Statement are incorporated by reference into Part III. The Proxy Statement will be filed on or about March 13, 2001.

Abbott Laboratories is an Illinois corporation, incorporated in 1900. Abbott's* principal business is the discovery, development, manufacture, and sale of a broad and diversified line of health care products and services.

FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS,
GEOGRAPHIC AREAS, AND CLASSES OF SIMILAR PRODUCTS

Incorporated herein by reference is Note 13 entitled "Segment and Geographic Area Information" of the Notes to Consolidated Financial Statements included under Item 8, "Financial Statements and Supplementary Data."

Abbott has five reporting revenue segments: Pharmaceutical Products, Diagnostic Products, Hospital Products, Ross Products, and International. Abbott also has a 50 percent owned joint venture, TAP Pharmaceutical Products Inc. On December 15, 2000, Abbott announced that it has a definitive agreement with BASF to acquire the pharmaceutical business of BASF, which includes the global pharmaceutical operations of Knoll. This acquisition is subject to approval by regulatory agencies and satisfaction of customary closing conditions.

This segment's products include a broad line of adult and pediatric pharmaceuticals which are sold primarily on the prescription or recommendation of physicians.

The principal products included in this segment are the anti-infectives clarithromycin, sold in the United States under the trademark Biaxin®, Omnicef®, an oral cephalosporin antibiotic, and various forms of erythromycin, sold primarily as PCE® or polymer-coated erythromycin, Erythrocin®, and E.E.S.®; agents for the treatment of epilepsy, migraine, and bipolar disorder, including Depakote®; a broad line of other products, including Flomax® for the treatment of benign prostatic hyperplasia, Mobic® for the treatment of arthritis, Micardis® for the treatment of hypertension, TriCor® for the treatment of elevated triglycerides, and the anti-virals Kaletra™ and Norvir®, protease inhibitors for the treatment of HIV infection. In addition, this segment co-promotes the proton pump inhibitor Prevacid® (lansoprazole) for short-term treatment of duodenal ulcers, gastric ulcers and erosive esophagitis under an agreement with TAP Pharmaceuticals Inc.

This segment markets its products in the United States. These products are generally sold directly to wholesalers, government agencies, health care facilities, and independent retailers from Abbott-owned distribution centers and public warehouses. Primary marketing efforts for pharmaceutical products are directed toward securing the prescription of Abbott's brand of products by physicians. Managed care purchasers (for example, health maintenance organizations and pharmacy benefit managers) are increasingly important customers.

Competition is generally from other broad line pharmaceutical companies. A significant aspect of competition is the search for technological innovations. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. Price can also be a factor. In addition, the substitution of generic drugs for the brand prescribed has increased competitive pressures on pharmaceutical products which are off-patent.

This segment's products include diagnostic systems and tests for blood banks, hospitals, reference laboratories, alternate-care testing sites, and consumers.

The principal products included in this segment are systems and reagents used to perform immunoassay tests including Architect®, AxSYM®, IMx®, Abbott Quantum™; Commander®, and Abbott PRISM®; screening and diagnostic tests for hepatitis B, HTLV-I/II, hepatitis B core, and hepatitis C; tests for detection of HIV antibodies and antigens, and other infectious disease detection systems; tests for determining levels of abused drugs; physiological diagnostic tests; cancer monitoring tests including tests for prostate specific antigen (PSA); therapeutic drug monitoring tests, fertility and pregnancy tests and systems such as TDx® and TDxFlx®; the Murex® line of microtiter-based immunoassay test kits; the LCx® amplified probe system and reagents; the Abbott TestPack® and Determine™ systems for rapid diagnostic testing; clinical chemistry systems such as Abbott Spectrum®, Aeroset®, Alcyon®, and Abbott Vision®; a full line of hematology systems and reagents known as the Cell-Dyn® series; the MediSense® product line of blood glucose monitoring meters, test strips, data management software and accessories for people with diabetes including Precision Xtra™, MediSense Optium®, Sof-Tact™, Soft-Sense™, Precision Q.I.D.®, MediSense II™, ExacTech® and ExacTech RSG®, Precision Link™ Direct, and Precision™ Sure-Dose insulin syringes. In addition, this segment distributes the i-STAT® point-of-care testing system through an exclusive worldwide sales and marketing alliance with i-STAT Corporation.

This segment markets its products worldwide. These products are generally marketed and sold directly to hospitals, laboratories, clinics, and physicians' offices from Abbott-owned distribution centers and public warehouses. Outside the United States, sales are made either directly to customers or through distributors, depending on the market served. Blood glucose monitoring meters and test strips for people with diabetes are also sold over the counter to consumers.

This segment's products are subject to competition in technological innovation, price, convenience of use, service, instrument warranty provisions, product performance, long-term supply contracts, and product potential for overall cost-effectiveness and productivity gains. Some products in this segment can be subject to rapid product obsolescence. Abbott has benefitted from technological advantages of certain of its current products; however, these advantages may be reduced or eliminated as competitors introduce new products. Certain of this segment's products are subject to restrictions on their sale in the United States. These restrictions are discussed in the section captioned "Regulation" on page 7.

This segment's products include drugs and drug delivery systems, perioperative and intensive care products, cardiovascular products, renal products, oncology products, intravenous and irrigation solutions, related manual and electronic administration equipment, and diagnostic imaging products for hospitals and alternate-care sites.

The principal products included in this segment are hospital injectables including Carpuject® and FirstChoice® generics; premixed intravenous drugs in various containers; ADD-Vantage® and Nutrimix® drug and nutritional delivery systems; anesthetics, including Pentothal®, Amidate®, Ultane®, isoflurane, and enflurane; products for anxiety, nausea and pain associated with surgery; Precedex™ for sedation; cardiovascular products including Corlopam®; Techstar®, Prostar®, and The Closer™ vessel closure products; Opticath® and OptiQ™ advanced sensor catheters; Transpac® for hemodynamic monitoring;

peripheral wires, catheters, and other specialty cardiac products; Calcijex® and Zemplar™, injectable agents for treatment of bone disease in hemodialysis patients; intravenous solutions and related administration equipment sold as the LifeCare® line of products, LifeShield® needleless products, and Venoset® products; irrigating fluids; parenteral nutritionals such as Aminosyn® and Liposyn®; Plum®, Omni-Flow®, and Abbott AIM® electronic drug delivery systems; Abbott Pain Manager®; patient-controlled analgesia systems; venipuncture products; diagnostic imaging products used in MRI (magnetic resonance imaging) and CT (computed tomography) imaging; and Faultless® rubber sundry products.

This segment markets its products primarily in the United States. They are generally distributed to wholesalers and directly to hospitals from Abbott-owned distribution centers and public warehouses. This segment also develops and manufactures products for other companies.

This segment's products are subject to competition in technological innovation, price, convenience of use, instrument warranty provisions, service, product performance, long-term supply contracts, and product potential for overall cost effectiveness and productivity gains. Some products in this segment can be subject to rapid product obsolescence. Abbott has benefitted from technological advantages of certain of its current products; however, these advantages may be reduced or eliminated as competitors introduce new products.

This segment's products include a broad line of adult and pediatric nutritionals. These products are sold primarily on the recommendation of physicians or other health care professionals. The segment also includes specialty pharmaceuticals and self-care consumer products.

Principal nutritional products include various forms of prepared infant formula, including Similac®, Similac®II, Isomil®, Isomil®II, Alimentum®, and NeoSure®; and other adult and pediatric products, including Ensure®, Ensure Plus®, Ensure® High Protein, Ensure® Light, Jevity®, Glucerna®, PediaSure®, Pedialyte®, and Pulmocare®. Principal consumer products include the Fact Plus® and Fact Plus® One Step pregnancy tests, the dandruff shampoo Selsun Blue®; Murine® eye care and ear care products; and Tronolane® hemorrhoid medication. The principal pharmaceutical product is Survanta®. In addition, this segment co-promotes Synagis® under an agreement with MedImmune Incorporated.

This segment markets its products in the United States. Nutritional products are generally sold directly to retailers, wholesalers, health care facilities, and government agencies. In most cases, they are distributed from Abbott-owned distribution centers or public warehouses. Primary marketing efforts for nutritional products are directed toward securing the recommendation of Abbott's brand of products by physicians or other health care professionals. Competition is generally from other broad line and specialized health care manufacturers. Nutritional products are subject to competition in price, formulation, scientific innovation, and promotional initiatives.

This segment's pharmaceutical products are generally marketed and sold directly to physicians, retailers, wholesalers, health care facilities, and government agencies. In most cases, they are distributed from Abbott-owned distribution centers or public warehouses. Primary marketing efforts for this segment's pharmaceutical products are directed at securing the prescription of these products by physicians. Competition is generally from other broad line pharmaceutical companies. A significant aspect of competition is the search for technological innovations. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. Price can also be a factor. In addition, the substitution of generic drugs for the brand prescribed has increased competitive pressures on pharmaceutical products which are off-patent.

Consumer products and PediaSure®, Pedialyte®, and Ensure® retail products are promoted directly to the public by consumer advertising. These products are generally sold directly to retailers and wholesalers. Competitive products are sold by other diversified consumer and health care companies. Competitive

factors include consumer advertising, formulation, scientific innovation, price, and availability of generic product forms.

Ensure® is the leading adult nutritional supplement and Similac® and Isomil® are leading infant formulas in the United States. (Source: A. C. Nielsen Co.)

This segment's products include a broad line of hospital, pharmaceutical, and adult and pediatric nutritional products marketed and primarily manufactured outside the United States. These products are sold primarily on the prescription or recommendation of physicians and other health care professionals. This segment also includes consumer products.

This segment's principal products include the anti-infectives clarithromycin, sold under the trademarks Biaxin®, Klacid® and Klaricid®, tosufloxacin, sold in Japan under the trademark Tosuxacin®, and various forms of the antibiotic erythromycin, sold primarily as PCE® or polymer-coated erythromycin, Erythrocin®, and E.E.S.®; the anti-viral Norvir®, a protease inhibitor for the treatment of HIV infection; Lupron®, also marketed as Lucrin®, and Lupron Depot® used for the palliative treatment of advanced prostate cancer, treatment of endometriosis and central precocious puberty and for the preoperative treatment of patients with anemia caused by uterine fibroids; Prevacid® (lansoprazole), a proton pump inhibitor for the short-term treatment of duodenal ulcers, gastric ulcers, and erosive esophagitis; various cardiovascular products, including Loftyl®, a vasoactive agent; Hytrin®, also marketed as Hitrin® and Flotrin®, used as an anti-hypertensive and for the treatment of benign prostatic hyperplasia, and candesartan, sold under the trademarks Blopress™ and Tiadyl™, an angiotension 2 antagonist; meloxicam, a preferential COX-2 inhibitor; various forms of infant formulas and follow-on formulas, including Similac Advance®, Gain®, and Abbott Grow™; various adult medical nutritionals, including Ensure®, Glucerna®, and Jevity®; and a broad line of hospital products, including the anesthesia products sevoflurane (sold outside of the United States primarily under the trademark Sevorane® and in a few other markets as Ultane®), isoflurane, and enflurane; specialty injectables such as Calcijex® and Survanta®; and electronic drug delivery systems sold in select international markets.

This segment's pharmaceutical and nutritional products are generally sold directly to government agencies, retailers, wholesalers, and health care facilities. In most cases, they are distributed from Abbott-owned distribution centers. Certain products are co-marketed with other companies. Some of these products are marketed and distributed through distributors. Primary marketing efforts for pharmaceutical products are directed toward securing the prescription of Abbott's brand of products by physicians. Competition is generally from other broad line and specialized pharmaceutical companies. A significant aspect of competition is the search for technological innovations. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. Price can also be a factor. In addition, the substitution of generic drugs for the brand prescribed has increased competitive pressures on pharmaceutical products. Primary marketing efforts for nutritional products are directed toward securing the recommendation of Abbott's brand of products by physicians or other health care professionals. Competition is generally from other broad line and specialized health care manufacturers and food companies. Nutritional products are subject to competition in price, scientific innovation, formulation, and promotional initiatives.

This segment's hospital products are generally distributed to wholesalers and directly to hospitals from distribution centers maintained by Abbott. This segment is subject to competition in technological innovation, price, convenience of use, instrument warranty provisions, service, product performance, long-term supply contracts, and product potential for overall cost effectiveness and productivity gains. Products in this segment can be subject to rapid product obsolescence. Abbott has benefitted from technological advantages of certain of its current products; however, these advantages may be reduced or eliminated as competitors introduce new products.

Under an agreement between Abbott and Takeda Chemical Industries, Ltd. of Japan (Takeda), TAP Pharmaceutical Products Inc. (owned 50 percent by Abbott and 50 percent by an affiliate of Takeda), together with its subsidiary, TAP Pharmaceuticals Inc. (TAP), develops and markets pharmaceutical products for the United States and Canada. TAP markets Lupron®, an LH-RH analog, and Lupron Depot®, a sustained release form of Lupron®, in the United States. Lupron® and Lupron Depot® are used principally for the palliative treatment of advanced prostate cancer and for the treatment of endometriosis and central precocious puberty and for the preoperative treatment of patients with anemia caused by uterine fibroids. TAP also markets Prevacid® (lansoprazole), a proton pump inhibitor, and has a co-promotion arrangement with Abbott for Prevacid®. Its principal indications are for short-term treatment of duodenal ulcers, gastric ulcers, and erosive esophagitis.

TAP's products are generally sold directly to physicians, retailers, wholesalers, health care facilities, and government agencies. In most cases, they are distributed from Abbott-owned distribution centers. Primary marketing efforts for pharmaceutical products are directed toward securing the prescription of TAP's brand of products by physicians. Managed care purchasers (for example, health maintenance organizations and pharmacy benefit managers) are increasingly important customers. Competition is generally from other pharmaceutical companies. A significant aspect of competition is the search for technological innovations. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. Price can also be a factor. In addition, the substitution of generic drugs for the brand prescribed has increased competitive pressures on pharmaceutical products that are off-patent.

Abbott purchases, in the ordinary course of business, necessary raw materials and supplies essential to Abbott's operations from numerous suppliers in the United States and overseas. There have been no recent significant availability problems or supply shortages.

Abbott is aware of the desirability for patent and trademark protection for its products. Accordingly, where possible, patents and trademarks are sought and obtained for Abbott's products in the United States and all countries of major marketing interest to Abbott. Abbott owns and is licensed under a substantial number of patents and patent applications. Principal trademarks and the products they cover are discussed in the Narrative Description of Business on pages 1 through 5. These, and various patents which expire during the period 2001 to 2021, in the aggregate, are believed to be of material importance in the operation of Abbott's business. Abbott believes that no single patent, license, trademark (or related group of patents, licenses, or trademarks), except for those related to clarithromycin (which is sold under the trademarks Biaxin®, Klacid® and Klaricid®), are material in relation to Abbott's business as a whole. The original United States compound patent covering clarithromycin is licensed from Taisho Pharmaceutical Co., Ltd. of Tokyo, Japan, and will expire in 2005. In addition, the patents, licenses, and trademarks related to divalproex sodium (which is sold under the trademark Depakote®) are significant for Abbott's Pharmaceutical Products segment. The original United States compound patents covering divalproex sodium will expire in 2008. Litigation involving Abbott's patents covering divalproex sodium is discussed in Legal Proceedings on pages 10 and 11.

There are no significant seasonal aspects to Abbott's business. The incidence of certain infectious diseases which occur at various times in different areas of the world does, however, affect the demand for

Abbott's anti-infective products. Orders for Abbott's products are generally filled on a current basis, and order backlog is not material to Abbott's business. No single customer accounted for sales equaling 10 percent or more of Abbott's consolidated net sales. No material portion of Abbott's business is subject to renegotiation of profits or termination of contracts at the election of the government.

Abbott spent $1,351,024,000 in 2000, $1,193,963,000 in 1999, and $1,228,777,000 in 1998 on research to discover and develop new products and processes and to improve existing products and processes. Abbott continues to concentrate research expenditures on pharmaceutical and diagnostic products.

Abbott believes that its operations comply in all material respects with applicable laws and regulations concerning environmental protection. Regulations under federal and state environmental laws impose stringent limitations on emissions and discharges to the environment from various manufacturing operations. Abbott's capital and operating expenditures for pollution control in 2000 were approximately $23 million and $59 million, respectively. Capital and operating expenditures for pollution control are estimated to approximate $27 million and $62 million, respectively, in 2001.

Abbott has been identified as one of many potentially responsible parties in investigations and/or remediations at 24 locations in the United States including Puerto Rico under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as Superfund. The aggregate costs of remediation at these sites by all identified parties are uncertain but have been subject to widely ranging estimates totaling as much as several hundred million dollars. In many cases, Abbott believes that the actual costs will be lower than these estimates, and the fraction for which Abbott may be responsible is anticipated to be considerably less and will be paid out over a number of years. Abbott may participate in the investigation or cleanup at these sites. Abbott is also voluntarily investigating potential contamination at six Abbott-owned sites, and is engaged in remediation at three sites, in cooperation with the Environmental Protection Agency (EPA) or similar state agencies.

While it is not feasible to predict with certainty the costs related to the previously described investigations and cleanup activities, Abbott believes that such costs, together with other expenditures to maintain compliance with applicable laws and regulations concerning environmental protection, should not have a material adverse effect on Abbott's financial position, cash flows, or results of operations.

In late 1998, the United States Food and Drug Administration (FDA) suspended its approval of the release of production lots of Abbott's pharmaceutical product Abbokinase® due to current Good Manufacturing Practice concerns raised by the FDA following inspections of Abbott and its raw material supplier. In January 1999, after Abbott revised the product's labeling to add additional warnings and the FDA issued a health care provider information sheet, the FDA released certain lots that were under its review. No lots have been released since January 1999. Abbott submitted a letter to the FDA on October 7, 1999, responding to the FDA's concerns and committing to meet all outlined criteria for the release of Abbokinase. On December 10, 1999, Abbott met with the FDA to review Abbott's plan for the qualification of new raw materials and reinitiation of manufacturing. The FDA concurred with Abbott's strategy. In the future, Abbott will sell only Abbokinase that is manufactured with new raw materials that meet current criteria. Abbott cannot predict, however, whether it will be successful in qualifying new raw material sources or the effect of this matter on future sales of Abbokinase.

On November 4, 1999, a consent decree was entered in the United States District Court for the Northern District of Illinois which settled issues with the United States government involving alleged noncompliance with the FDA's Quality System Regulations at Abbott's diagnostic manufacturing operations in Lake County, Illinois. The decree required Abbott to make a payment of $100 million to the United States government and to ensure its diagnostic manufacturing processes in Lake County, Illinois conform with the FDA's current Quality System Regulation. The consent decree does not represent an admission by Abbott of any violation of the Federal Food, Drug and Cosmetic Act or its regulations. The decree allows for the continued manufacture and distribution of medically necessary diagnostic products made in Lake County, Illinois, such as certain assays for hepatitis, retrovirus, cardiovascular disease, cancer, thyroid disorders, fertility, drug monitoring, and congenital and respiratory conditions. However, Abbott is prohibited from manufacturing or distributing certain other diagnostic products until Abbott ensures the processes in its Lake County, Illinois diagnostics manufacturing operations conform with the current Quality System Regulation. Under the terms of the consent decree, among other actions, Abbott has submitted to the FDA proposed master compliance and validation plans to ensure its processes conform with the current Quality System Regulation. Originally, the decree required Abbott to ensure its facilities are in conformance with the current Quality System Regulation by November 3, 2000. However, on December 19, 2000, upon a joint motion by Abbott and the U.S. government, the Court entered an Amended Consent Decree, which extended to January 15, 2001, the deadline for ensuring conformance with the Quality System Regulation. The consent decree does not affect Abbott's MediSense, i-STAT, hematology or Murex products; the clinical chemistry products Abbott Spectrum®, Aeroset®, and Alcyon®; or any other Abbott divisions or their products. The consent decree allows Abbott to export diagnostic products and components for sale and distribution outside the United States if they meet the export requirements of the Federal Food, Drug and Cosmetic Act.

The development, manufacture, sale, and distribution of Abbott's products are subject to comprehensive government regulation. Government regulation by various federal, state, and local agencies, which includes detailed inspection of, and controls over, research and laboratory procedures, clinical investigations, and manufacturing, marketing, sampling, distribution, record keeping, storage, and disposal practices, substantially increases the time, difficulty, and costs incurred in obtaining and maintaining the approval to market newly developed and existing products. Government regulatory actions can result in delay in the release of products, seizure or recall of products, suspension or revocation of the authority necessary for their production and sale, and other civil or criminal sanctions.

Continuing studies of the utilization, safety, and efficacy of health care products and their components are being conducted by industry, government agencies, and others. Such studies, which employ increasingly sophisticated methods and techniques, can call into question the utilization, safety, and efficacy of previously marketed products and in some cases have resulted, and may in the future result, in the discontinuance of marketing of such products and may give rise to claims for damages from persons who believe they have been injured as a result of their use.

The cost of human health care products continues to be a subject of investigation and action by governmental agencies, legislative bodies, and private organizations in the United States and other countries. In the United States, most states have enacted generic substitution legislation requiring or permitting a dispensing pharmacist to substitute a different manufacturer's version of a pharmaceutical product for the one prescribed. Federal and state governments continue to press efforts to reduce costs of Medicare and Medicaid programs, including restrictions on amounts agencies will reimburse for the use of products. In addition, the federal government follows a diagnosis-related group (DRG) payment system for certain institutional services provided under Medicare or Medicaid and is implementing a prospective payment system (PPS) for services delivered in hospital outpatient, nursing home, and home health settings. DRG and PPS entitle a health care facility to a fixed reimbursement based on diagnosis rather than actual costs incurred in patient treatment, thereby increasing the incentive for the facility to limit or control expenditures for many health care products. Manufacturers must pay certain statutorily-prescribed

rebates on Medicaid purchases for reimbursement on prescription drugs under state Medicaid plans. The Veterans Health Care Act of 1992 requires manufacturers to extend additional discounts on pharmaceutical products to various federal agencies, including the Department of Veterans Affairs, Department of Defense, and Public Health Service entities and institutions.

In the United States, governmental cost-containment efforts have extended to the federally funded Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). All states participate in WIC and have sought and obtained rebates from manufacturers of infant formula whose products are used in the program. Over the last five years, all of the states have conducted competitive bidding for infant formula contracts which require the use of specific infant formula products by the state WIC program. States participating in WIC are required to engage in competitive bidding or to use any other cost containment measure that yields savings equal to or greater than the savings generated by a competitive bidding system.

Governmental regulatory agencies require prescription drug manufacturers to pay fees. The FDA imposes substantial fees on various aspects of the approval, manufacture, and sale of proprietary prescription drugs.

Abbott expects debate to continue during 2001 at both the federal and the state level over the availability, method of delivery, and payment for health care products and services. Abbott believes that if legislation is enacted, it could have the effect of reducing prices, or reducing the rate of price increases, for medical products and services.

International operations are also subject to a significant degree of government regulation. Many countries, directly or indirectly through reimbursement limitations, control the selling price of most health care products. Furthermore, many developing countries limit the importation of raw materials and finished products. International regulations also are having an impact on United States regulations. The International Organization for Standardization (ISO) provides the criteria for meeting the regulations for medical devices within the European Union. Abbott has made significant strides in gaining ISO 9000 and European Norm 46000 certification for facilities that manufacture devices for European markets. FDA regulations governing the manufacture of medical devices appear to encompass and exceed the ISO's approach to regulating medical devices. The FDA's adoption of the ISO's approach to regulation and other changes to the manner in which the FDA regulates medical devices will increase the cost of compliance with those regulations.

Efforts to reduce health care costs are also being made in the private sector. Health care providers have responded by instituting various cost reduction and containment measures.

It is not possible to predict the extent to which Abbott or the health care industry in general might be affected by the matters discussed above.

Abbott markets products in approximately 130 countries through affiliates and distributors. Most of the products discussed in the preceding sections of this report are also sold outside the United States. In addition, certain products of a local nature and variations of product lines to meet local regulatory requirements and marketing preferences are manufactured and marketed to customers outside the United States. International operations are subject to certain additional risks inherent in conducting business outside the United States, including price and currency exchange controls, changes in currency exchange rates, limitations on foreign participation in local enterprises, expropriation, nationalization, and other governmental action.

Abbott's corporate offices are located at 100 Abbott Park Road, Abbott Park, Illinois 60064-6400. The locations of Abbott's principal plants are listed below.

Location		Reportable Revenue Segments of Products Produced
Abbott Park, Illinois		Pharmaceutical Products, Diagnostic Products, and Hospital Products
Abingdon, England		Diagnostic Products
Altavista, Virginia		Ross Products
Ashland, Ohio		Hospital Products
Austin, Texas		Hospital Products
Barceloneta, Puerto Rico		Pharmaceutical Products and Diagnostic Products
Bedford, Massachusetts		Diagnostic Products
Brockville, Canada		International
Campoverde, Italy		International
Casa Grande, Arizona		Ross Products
Columbus, Ohio		Ross Products
Dartford, England		Diagnostic Products
Delkenheim, Germany		Diagnostic Products
Haina, San Cristoba, Dominican Republic		Hospital Products
Irving, Texas		Diagnostic Products
Laurinburg, North Carolina		Hospital Products
McPherson, Kansas		Hospital Products
Mexico City, Mexico		International
Montreal, Canada		International
Morgan Hill, California		Hospital Products
North Chicago, Illinois		Pharmaceutical Products and Hospital Products
Queenborough, England		International
Rocky Mount, North Carolina		Hospital Products
Salt Lake City, Utah		Hospital Products
San Jose, Costa Rica		Hospital Products
Santa Clara, California		Diagnostic Products
Sligo/Donegal/Cootehill/Finisklin, Ireland		Diagnostic Products and International
Sturgis, Michigan		Ross Products
St. Remy, France		International
Tokyo, Japan		Diagnostic Products
Zwolle, The Netherlands		International

In addition to the above, Abbott has manufacturing facilities in six other locations in the United States, including Puerto Rico. Outside the United States manufacturing facilities are located in 15 other countries. Abbott's facilities are deemed suitable, provide adequate productive capacity, and are utilized at normal and acceptable levels.

In the United States, including Puerto Rico, Abbott owns 11 distribution centers. Abbott also has 13 United States research and development facilities located at: Abbott Park, Illinois; Ashland, Ohio; Bedford, Massachusetts; Columbus, Ohio (two locations); Irving, Texas; Long Grove, Illinois; McPherson, Kansas; Morgan Hill, California; North Chicago, Illinois; Redwood City, California; Santa Clara, California; and San Diego, California. Outside the United States, Abbott has research and development facilities in Argentina, Australia, Canada, France, Germany, Ireland, Japan, The Netherlands, South Africa, Spain, and the United Kingdom.

The corporate offices, and those principal plants in the United States that are listed above, are owned by Abbott or subsidiaries of Abbott. The remaining manufacturing plants and all other facilities are owned or leased by Abbott or subsidiaries of Abbott. There are no material encumbrances on the properties.

Abbott is involved in various claims and legal proceedings, including (as of January 31, 2001), 125 antitrust lawsuits and 2 investigations in connection with Abbott's pricing of prescription pharmaceuticals, 3 cases involving Abbott's patents for divalproex sodium, a drug that Abbott sells under the trademark Depakote®, 21 antitrust lawsuits and 2 investigations involving Abbott's patents for terazosin hydrochloride, a drug that Abbott sells under the trademark Hytrin®, 5 cases involving Abbott's alleged noncompliance with the United States Food and Drug Administration's Quality System Regulation at Abbott's Diagnostic Products division facilities in Lake County, Illinois, and 6 investigations regarding the marketing and pricing practices of Abbott with respect to certain Medicare and Medicaid reimbursable products.

As of January 31, 2001, 110 prescription pharmaceutical pricing antitrust cases were pending in federal court and 15 were pending in state courts. The prescription pharmaceutical pricing antitrust suits allege that various pharmaceutical manufacturers and pharmaceutical wholesalers have conspired to fix prices for prescription pharmaceuticals and/or to discriminate in pricing to retail pharmacies by providing discounts to mail-order pharmacies, institutional pharmacies, and HMOs in violation of state and federal antitrust laws. The suits have been brought on behalf of individual consumers and retail pharmacies and name both Abbott and certain other pharmaceutical manufacturers and pharmaceutical wholesalers and at least one mail-order pharmacy company as defendants. The cases seek treble damages, civil penalties, and injunctive and other relief. Abbott has filed or intends to file a response to each of the complaints denying all substantive allegations. The federal cases are pending in the United States District Court for the Northern District of Illinois under the Multidistrict Litigation Rules as In re: Brand Name Prescription Drug Antitrust Litigation, MDL 997. The state cases are pending in the following state courts: Clarke County, Alabama; Monterey County, California; San Francisco County, California (5 cases); San Joaquin County, California; Santa Clara County, California; Prentiss County, Mississippi; Burleigh County, North Dakota; San Miguel County, New Mexico; Hughes County, South Dakota; Cocke County, Tennessee; and Marshall County, West Virginia. Abbott has settled the consumer lawsuit pending in Prentiss County, Mississippi and is awaiting a formal dismissal order. The investigations are being conducted by the Attorney General of Illinois and the Federal Trade Commission.

As of January 31, 2001, three cases were pending involving Abbott's patents for divalproex sodium, a drug that Abbott sells under the trademark Depakote®. On October 24, 1997, after having been notified that TorPharm, a division of Apotex, Inc. ("TorPharm") had applied to the Federal Food and Drug Administration (the "FDA") for approval for a generic version of divalproex sodium, Abbott sued TorPharm in the United States District Court for the Northern District of Illinois alleging patent

infringement. TorPharm contends that its product does not infringe Abbott's patents and that, in any event, the patents are invalid and unenforceable. A trial had been scheduled for October 17, 2000, but has been postponed. A new trial date has been scheduled for October 16, 2001. On August 28, 1992, after having been notified that Alra Laboratories, Inc. ("Alra") had applied to the FDA for approval for a generic version of divalproex sodium, Abbott sued Alra in the United States District Court for the Northern District of Illinois alleging patent infringement. On October 20, 1997, the court granted Abbott's motion for summary judgment and found that Alra's product infringes Abbott's patents. Alra filed a motion for reconsideration of the court's ruling. That motion was granted in part and denied in part. On November 23, 1999, the court re-affirmed its prior rulings granting Abbott summary judgment. Alra has appealed. On March 9, 2000, after having been notified that Andrx Corporation had filed an abbreviated new drug patent application to market a generic version of divalproex sodium, Abbott filed a patent infringement lawsuit against Andrx Corporation, Andrx Pharmaceutical, and Andrx Pharmaceutical, L.L.C. in the United States District Court for the Northern District of Illinois alleging patent infringement. On April 14, 2000, Abbott filed patent infringment lawsuits aginst these three Andrx companies in the United States District Court for the Southern District of Florida. The case in United States District Court for the Northern District of Illinois was then transferred to United States District Court for the Southern District of Florida and consolidated with the case pending in that court. A trial is scheduled for November 2001.

As of January 31, 2001, 18 antitrust cases were pending in federal court and 3 were pending in state court in connection with the settlement of litigation by Abbott involving terazosin hydrochloride, a drug sold by Abbott under the trademark Hytrin®. Generally, each seeks actual damages, treble damages, and other relief. Each case alleges Abbott violated state or federal antitrust laws, and in some cases, unfair competition laws when it settled 2 cases involving Abbott's patents for terazosin hydrochloride. On March 31, 1998, Abbott and Zenith Laboratories, Inc. ("Zenith") reached an agreement that resolved the patent litigation and the litigation of other claims between the parties. In the settlement, Zenith acknowledged the validity of Abbott's terazosin hydrochloride patents and agreed to refrain from selling a generic version of terazosin hydrochloride until the expiration of one of Abbott's patents for terazosin hydrochloride (U.S. Patent No. 4,251,532). On April 1, 1998, Abbott and Geneva Pharmaceuticals, Inc. ("Geneva") reached an agreement under which Geneva would not market its Food and Drug Administration approved generic terazosin hydrochloride products until resolution of the pending patent litigation between the parties. Abbott agreed to make quarterly payments to Zenith and monthly payments to Geneva until the date on which they could enter the market for terazosin hydrochloride under their agreements. Under the agreements, both Zenith and Geneva would have been free to enter the market for terazosin hydrochloride in the United States if certain of Abbott's patents for terazosin hydrochloride were determined to be invalid and if another company legally entered the generic market in the United States. On August 12, 1999, Abbott and Geneva terminated their April 1, 1998 agreement, and Geneva returned to Abbott a portion of the payments held in escrow under the agreement. On August 13, 1999, Geneva entered the market with its product. The 18 federal court cases are pending in the United States District Court for the Southern District of Florida under the Multidistrict Litigation Rules as In Re: Terazosin Hydrochloride, MDL No. 1317. The 3 state court cases: Asher and New Utrecht Pharmacy v. Abbott Laboratories, Geneva Pharmaceuticals and Zenith Goldline Pharmaceuticals, Inc.; Drug Mart Pharmacy Company Corp. v. Abbott Laboratories, Zenith Goldline Pharmaceuticals, Inc. and Geneva Pharmaceuticals, Inc.; and Lisanti v. Abbott Laboratories, Zenith Goldline Pharmaceuticals, Inc. and Geneva Pharmaceuticals, Inc. have been consolidated by and are pending in the Supreme Court of the State of New York, County of New York. Abbott has filed or intends to file a response to each complaint denying all substantive allegations. The State of Florida, Office of the Attorney General, and the State of New York, Office of the Attorney General, are conducting the investigations.

As of January 31, 2001, 5 shareholder derivative suits were pending relating to Abbott's alleged noncompliance with the Food and Drug Administration's Quality System Regulation at Abbott's Diagnostic Products division facilities in Lake County, Illinois. (This matter is discussed in greater detail in

"Regulation" on page 7 and is incorporated herein by this reference.) These lawsuits name as defendants the members of Abbott's Board of Directors as of November 1999, certain other former directors and, nominally, Abbott, and claim that the directors breached their fiduciary duties by, among other things, (a) allowing the alleged regulatory noncompliance, (b) failing to publicly disclose the alleged regulatory noncompliance in supposed violation of federal securities law, (c) misusing or permitting the misuse of corporate information for the personal profit of corporate insiders in supposed violation of federal and state law, and (d) causing Abbott to pay $100 million to the federal government and withdraw certain medical diagnostics kits from the U.S. market. In each case, the plaintiffs request unspecified monetary damages to be paid to Abbott, that the directors indemnify Abbott for all fines, penalties or damages paid by Abbott in connection with the alleged regulatory noncompliance, reimbursement of their legal fees and costs, and various forms of other relief. The United States District Court for the Northern District of Illinois consolidated into "In Re: Abbott Laboratories Derivative Shareholder Litigation" the four derivative lawsuits filed by Leonard Bronstein, the Carpenters Pension Fund of Arkansas and David Kaufman, Leo Farrell, and F. David Seinfeld. On November 9, 2000, these plaintiffs filed a second consolidated and amended verified complaint (the court having dismissed without prejudice their original consolidated complaint), generally alleging that the directors' breached their duty of diligence by failing to (i) prevent Abbott's alleged regulatory non-compliance or (ii) create a monitoring system to prevent and correct regulatory non-compliance. The second consolidated complaint seeks unspecified restitution and/or damages, including punitive and exemplary damages, injunctive relief, and reimbursement of their legal fees and costs. Abbott denies all of the substantive allegations in this lawsuit and will vigorously defend against it. Abbott has moved to dismiss the second consolidated complaint. The fifth shareholder derivative lawsuit was filed by Craig Heneghan and Marjory Motiaytis in the Circuit Court for the Nineteenth Judicial Circuit, Lake County, Illinois. On April 6, 2000, the Lake County Circuit Court granted Abbott's motion to stay the Heneghan/Motiaytis lawsuit until the shareholder derivative suits pending in federal court are decided.

Abbott has previously reported that fourteen other cases were pending that were related to Abbott's alleged noncompliance with the Food and Drug Administration's Quality System Regulation at Abbott's Diagnostic Products division facilities in Lake County, Illinois. Thirteen of these cases were consolidated by and pending in the United States District Court for the Northern District of Illinois as "In re Abbott Laboratories Securities Litigation." On January 26, 2001, the court dismissed with prejudice the consolidated complaint and each of the lawsuits. The fourteenth case was filed by Lena Gallagher in the United States District Court for the Eastern District of Illinois and purported to be a class action. On January 26, 2001, the court dismissed with prejudice this complaint. The plaintiffs may appeal these decisions.

Various state and federal agencies, including the United States Department of Justice and the California, Florida, Illinois, Nevada and Texas Attorneys General, are investigating the marketing and pricing practices of Abbott with respect to certain Medicare and Medicaid reimbursable products. These civil investigations seek to determine whether these practices violated any laws, including the Federal False Claims Act or constituted fraud in connection with the Medicare and/or Medicaid reimbursement paid to third parties.

While it is not feasible to predict the outcome of such pending claims, proceedings, and investigations with certainty, management is of the opinion that their ultimate dispositions should not have a material adverse effect on Abbott's financial position, cash flows, or results of operations.

In addition to the claims and legal proceedings involving Abbott described above, the United States Department of Justice is investigating the marketing and pricing practices of TAP Pharmaceutical Products Inc. for leuprolide acetate depot suspension (a drug TAP markets as Lupron Depot®). This investigation seeks to determine whether these practices resulted in any violations of civil and/or criminal laws, including the Federal False Claims Act, the Anti-Kickback Act, and the Prescription Drug Marketing Act, or fraud in connection with the Medicare and/or Medicaid reimbursement paid to third parties. The

Texas Attorney General is also investigating some of these practices. Abbott owns 50 percent of TAP. While it is not feasible to predict the outcome of these proceedings with certainty, management is of the opinion that their ultimate disposition should not have a material adverse effect on Abbott's financial position or ongoing cash flow and results of operations but that they could have a material adverse effect on Abbott's cash flow and results of operations for a particular period.

Executive officers of Abbott are elected annually by the board of directors. All other officers may be elected by the board or appointed by the chairman of the board. All officers are either elected at the first meeting of the board of directors held after the annual shareholder meeting or appointed by the chairman after that board meeting. Each officer holds office until a successor has been duly elected or appointed and qualified or until the officer's death, resignation, or removal. Vacancies may be filled at any meeting of the board. Any officer may be removed by the board of directors when, in its judgment, removal would serve the best interests of Abbott. Any officer appointed by the chairman of the board may be removed by the chairman whenever, in the chairman's judgment, removal would serve the best interests of Abbott. A vacancy in any office appointed by the chairman of the board may be filled by the chairman.

Current corporate officers, and their ages as of March 1, 2001, are listed below. The officers' principal occupations and employment from January 1996 to March 1, 2001 and the dates of their first election as officers of Abbott are also shown. Unless otherwise stated, employment was by Abbott for the period indicated. There are no family relationships between any corporate officers or directors.

1999 to present — Chairman of the Board and Chief Executive Officer, and Director.

2000 to present — Executive Vice President, Pharmaceuticals and Chief Scientific Officer, and Director.

1999 to 2000 — Elkan R. Blount Professor of Biological Sciences, Harvard School of Public Health and Professor of Medicine, Harvard Medical School.

1996 to 1999 — Frederick H. Rawson Professor of Medicine and Pathology and Chief of the Section of Cardiology, University of Chicago.

1996 to present — Senior Vice President, Finance and Chief Financial Officer. (Mr. Coughlan has announced that he plans to retire on March 31, 2001).

1996 to 1999 — Divisional Vice President, Human Resources, Diagnostic Products.

1996 — Divisional Vice President and General Manager, U.S. and Canada, Diagnostic Products.

1996 to 1999 — Executive Vice President and General Manager, Quintiles Strategic Product
Development Consulting Services (global regulatory and quality systems
consultation service organization).

1996 — Deputy Director, Center for Biologics Evaluation and Research, United States Food and Drug Administration.

1997 to 1999 — Divisional Vice President and President and General Manager, Canada, Abbott
International Division.

1996 to 1997 — Divisional Vice President, Business Development, Abbott International Division.

1996 to 1997 — General Manager, United Kingdom and Ireland, Diagnostic Products.

1998 to present — Vice President, Pharmaceutical Products, Marketing and Sales.

1999 to present — Vice President, Hospital Products Controller. (Mr. Freyman has been elected Senior Vice President, and Chief Financial Officer, effective April 1, 2001).

1996 — Vice President, Total Compensation, Nestlé USA (diversified food company).

1999 to present — Vice President, Diagnostic Operations, Europe, Africa and Middle East.

1997 to 1999 — Divisional Vice President, European Region, Diagnostic Products.

1996 to 1997 — Area Business Development Director, Europe, Middle East and Africa, Diagnostic Products.

1996 to present — Vice President, Diagnostic Products Research and Development.

1997 to 2000 — Divisional Vice President, Manufacturing, Abbott International Division.

1996 to 1997 — Divisional Vice President, Commercial Operations, Chemical and Agricultural
Products.

1997 to 1999 — Divisional Vice President, Licensing and New Business Development, Abbott
International Division.

1996 to 1997 — Director, Licensing and Acquisitions, Abbott International Division.

1997 to 1999 — Divisional Vice President, Pharmaceutical Development, Pharmaceutical Products
Research and Development.

1996 to 1997 — Therapeutic Area Venture Head, Pharmaceutical Products Research and
Development.

1997 to 1999 — Vice President, Diagnostic Operations, Europe, Africa, and Middle East.

1997 to 2000 — Divisional Vice President, Information Systems, Diagnostic Products.

1998 to 1999 — Divisional Vice President, Discovery, Pharmaceutical Products Research and
Development.

1996 to 1998 — Divisional Vice President, Area Head, Pharmaceutical Products Research and
Development.

1999 to present — Vice President, Hospital Products Research and Development, Medical and
Regulatory Affairs.

1996 to 1999 — Divisional Vice President, Immunodiagnostics and Chemistry, Diagnostic Products.

1999 to present — Vice President, Diagnostic Quality Assurance, Regulatory Affairs and Compliance.

1996 — Divisional Vice President, Quality Assurance and Regulatory Affairs, Diagnostic Products.

1996 — Divisional Vice President, Strategic Planning and Technology Assessment, Diagnostic Products.

1996 to 1998 — Divisional Vice President, Worldwide Marketing, Diagnostic Products.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The principal market for Abbott's common shares is the New York Stock Exchange. Shares are also listed on the Chicago Stock Exchange and the Pacific Exchange and are traded on the Boston, Cincinnati, and Philadelphia Exchanges. Outside the United States, Abbott's shares are listed on the London Stock Exchange and the Swiss Stock Exchange.

	Market Price Per Share
	2000				1999
	high		low		high		low
First Quarter	36	¹/2	29	³/8	51	⁷/16	43
Second Quarter	44	¹¹/16	35	³/8	53	⁵/16	41	⁵/16
Third Quarter	48	¹/2	39	⁵/16	45	⁷/8	36	⁵/16
Fourth Quarter	56	¹/4	45	⁷/16	42	⁷/8	33

Market prices are as reported by the New York Stock Exchange composite transaction reporting system.

There were 101,272 shareholders of record of Abbott common shares as of December 31, 2000.

Quarterly dividends of $.19 per share and $.17 per share were declared on common shares in 2000 and 1999, respectively.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table details the components of sales growth by segment for the last three years:

			Components of Change %
	Total % Change		Components of Change %
	Total % Change		Price		Volume		Exchange
Total Net Sales
2000 vs. 1999	4.3		(0.3	)	6.6		(2.0	)
1999 vs. 1998	5.3		(0.1	)	6.1		(0.7	)
1998 vs. 1997	5.2		0.6		7.4		(2.8	)
Total U.S.
2000 vs. 1999	6.1		(0.7	)	6.8		—
1999 vs. 1998	4.8		(0.5	)	5.3		—
1998 vs. 1997	6.4		1.0		5.4		—
Total International
2000 vs. 1999	1.5		0.4		6.3		(5.2	)
1999 vs. 1998	6.1		0.6		7.4		(1.9	)
1998 vs. 1997	3.4		(0.1	)	10.7		(7.2	)
Pharmaceutical Products Segment (a)
2000 vs. 1999	7.6		(2.5	)	10.1		—
1999 vs. 1998	2.7		—		2.7		—
1998 vs. 1997	5.2		3.4		1.8		—
Diagnostic Products Segment (b)
2000 vs. 1999	(2.9	)	—		0.7		(3.6	)
1999 vs. 1998	8.9		(1.2	)	10.7		(0.6	)
1998 vs. 1997	5.8		(2.1	)	11.9		(4.0	)
Hospital Products Segment (a)
2000 vs. 1999	11.5		(1.7	)	13.2		—
1999 vs. 1998	2.7		(1.5	)	4.2		—
1998 vs. 1997	12.3		(0.4	)	12.7		—
Ross Products Segment (b)
2000 vs. 1999	4.0		1.6		2.4		—
1999 vs. 1998	6.0		0.9		5.1		—
1998 vs. 1997	(0.2	)	0.9		(1.1	)	—
International Segment
2000 vs. 1999	3.2		0.9		7.1		(4.8	)
1999 vs. 1998

/x/		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
/ /		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

An Illinois Corporation		36-0698440
		(I.R.S. employer identification number)
100 Abbott Park Road		(847) 937-6100
Abbott Park, Illinois 60064-6400		(telephone number)

Title of Each Class		Name of Each Exchange on Which Registered


Common Shares, Without Par Value (including Preferred Stock Purchase Rights)		New York Stock Exchange Chicago Stock Exchange Pacific Exchange

	Year ended December 31
	2000		1999		1998		1997		1996
	(dollars in millions, except per share data)
Net sales	$	13,745.9	$	13,177.6	$	12,512.7	$	11,889.3	$	11,018.0
Net earnings		2,786.0		2,445.8		2,334.4		2,079.1		1,873.8
Basic earnings per common share		1.80		1.59		1.52		1.34		1.19
Diluted earnings per common share		1.78		1.57		1.50		1.32		1.18
Total assets		15,283.3		14,471.0		13,259.9		12,101.8		11,161.1
Long-term debt		1,076.4		1,336.8		1,339.7		938.0		933.1
Cash dividends declared per common share		.76		.68		.60		.54		.48