Boston Scientific Corp (BSX) 2001 Q3 法說會逐字稿

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Good day everyone and welcome to the Guidant Corporation third quarter 2001 earnings release conference call. Just a reminder, this call is being recorded. Today's presentation will be hosted by the Vice President of finance and Chief Financial Officer Mr. Kieth E. Brauer President, Chief Executive Officer Mr. Ronald W. Dollens Group Chairman Mr. A. Jay Graf, Group Chairman Ms. Ginger L. Graham, and Director of Investor Relations Mr. Andy Reith. Before this conference call begins, you are reminded that Guidant management will be discussing some forward-looking information that is subject to uncertainties based on management's current knowledge of factors affecting the companies operations. Actual results could differ materially from those currently anticipated. A complete description of the factors, which could affect results, is outlined in exhibit 99.1 to the companies form 10-Q for the second quarter ended June 30, 2001. At this time, I would like to turn the call over to Mr. Andy Reith. Please go ahead sir

Thank you Tony and thank you for joining us this afternoon to review our third quarter performance and discuss our prospects as we look forward. And also, I would like to take the opportunity to remind everyone on this call that our annual investor day will be held next Tuesday October 23, 2001 from 8:30 until 3:00 PM Eastern time in New York city. For those who are not able to make it in person, the proceedings will be webcast live, and I would like turn over to Ronald Dollens, please. Go ahead Ron.

Thanks Andy. As Andy mentioned, joining us today are Jay Graf, Ginger Graham, and Keith Brauer. As I reviewed the quarter, we would like to make some observations about current situation on really two additionally issues are; our heart failure fibrillation approval process as well as the drug-coated stent program and then we will open up the phone lines for your questions. When we reviewed the financial and market performance data for the third quarter, we see third quarter performance was solid for Guidant. As committed, we achieved double-digit top line sales growth of 10% on an as-reported basis. On a constant currency basis, we grew 12%. Our performance was balanced geographically showing growth from all of our global operations. The US grew 9 % and after currency impact growth was 13% in Europe, 11% in Japan, and 15% in the remaining geographies outside the United States. This performance was note worthy in light of the usual seasonality seen in the third quarter for Guidant. Last year, we experienced a sequential decline of 10% compared to this year recording growth and admittedly, we experienced the defocus or refocus to say the least due to the terrorist acts in New York and Washington.

Especially, early I spent considerably more time reading and listening to the accounts of these tragic events, and then I did look into income statements. But, we are pleased with the performance on the sales and the gross margin lines and comparisons of the net income and EPS lines were negatively impacted by the $20 million non-recurring benefit recorded in the prior year resulting from a favorable legal ruling and some licensing fees. While we are discussing legal rulings, let me make observations about recent litigation and arbitrary actions that took place this quarter. As you can see, from our income statement, Guidant recorded a $ 10 million benefit from several legal settlements. We chose to make a contribution to the Guidant foundation in an equal amount and therefore the settlement does not impact our EPS for the quarter. However, the rulings tell an even more interesting story. They demonstrate the importance and value of intellectual property in our space. The settlements included in this quarter, we had a final ruling and payment on a rapid exchange infringement case against Medtronic regarding the [New York patents].

In addition, there is an arbitration process schedule for late January or early February on rapid exchange infringement claims also. During the quarter, there was a settlement of arbitration with J&J quarters over certain dilatation catheter patterns collectively known as the Pinchuk patterns. This settlement was part of the broad agreements struck with J&J, which along with other things provided access to the Palmaz/Schatz coronary stent pattern portfolio, and established J&J as a distributor for Guidant-manufactured rapid exchange catheter systems. Also in the quarter, we received a favorable federal court of appeals ruling regarding guidance stent infringement case against Boston Scientific. This has two important outcomes. It created a payment to Guidant under the settlement agreement previously negotiated with Boston Scientific, therefore giving Boston Scientific license to those patterns, but more importantly it strengthens the claims construction on Guidant's stent patterns that issue with all other parties except Boston's Scientific and as previously mentioned and [_______] incorporated.

If you go back to the quarter guidance revenue of $662 million was up 12% on a constant currency basis and 10% after the impact of foreign exchange. As mentioned, we were pleased with the volume and unit growth experienced during this quarter. Also, we noted very stable pricing performance in the quarter as compared to the prior quarter of this year. Worldwide pacemaker pricing was up 2% and much similar in the United States. Worldwide implantable defibrillator pricing was also up 1% sequentially again true also in the US. Worldwide coronary stent pricing was up 2-1/2%. We will discuss some of the unique pricing activities that happen within the quarter specifically in the US. All of this led to an overall stable price environment compared to Q2 2001. This performance demonstrates the markets willingness to recognize the value of our devices. In the vascular intervention business, we were pleased by the performance turned in by this organization. Total vascular intervention sales are mammoth at $290 million and were up 14% versus last year and 16% on a constant currency basis. The VI business experienced double-digit growth in all geographies and was up 15 % in the United States to $183 million. International sales of $107 million up 11 % after foreign exchange impact. The launch of the PENTA stent in the US was a big contributor to our performance and demonstrates the value of continuing product development in this market.

US coronary stent sales were $135 million and were up 21% versus the prior year. While we had a favorable comparison from year ago, the strength of the US PENTA launch also will add as grow sequentially versus the second quarter of this year. This is most impressive when you consider that Q3 is usually the smallest revenue quarter of the year. We believe our US stent share averaged 40% for the quarter and exited the quarter with our share trending higher. This is one of the first times our internal survey data has been consistent with the third party reporting of MD data direct as they have reported Guidant approaching a 45% share on a weekly basis. As you are well aware during the quarter, we also had the opportunity to secure a larger longer-term position in the rapid exchange portion of the coronary stent and dilatation catheter markets. When Medtronic exited from the rapid exchange segment, we pursued opportunities to convert the business to guide. We were able to leverage our market leading position in rapid exchange catheters and stents to target accounts for conversion.

We did offer a one-time special pricing to secure ongoing product conversion and offer customers an alternative to stocking competitive products. To that end, we do not see these efforts as altering price dynamics in the future. We would expect quarter-to-quarter pricing levels to be essentially flat going forward where we finished up in the US in the third quarter for stent pricing was $1177 if we net the activities that we had during the three days around the Medtronic removal or average would have been $1208 dollars. This opportunity afforded to us through the enforcement of intellectual property rights should provide additional revenue realization and early fourth quarter demand seems to reinforce this view. As we look forward in the fourth quarter, we will see an opportunity to launch the PIXEL stent for small diameter vessels in the US. The PIXEL was approved in the US during the third quarter and will achieve distribution during the fourth quarter. As our European experience is usually a good proxy for things to come in the US, the PIXEL will allow us to grow our overall market share as we enable physicians to treat smaller diameter vessels with a stent specifically designed for that purpose. In the US, we believe small vessels stenting accounts were approximately 20 to 25% of procedures. This presents an upside opportunity for us when we launched PIXEL, especially as we see small vessel stent growth with the availability of radiation therapy to treat potential restenotic lesions. Our angioplasty business remained strong posting $92 million in worldwide sales up 8% in constant currency. As I conclude comments on the vascular intervention business when we highlight additional milestones that occurred during the quarter. We announced initiating the implants on our next generation metallic stent the MULTI LINK vision as part of a 250 patient registry trial.

We are pleased to announce that we have completed enrollment in this registry. This represents the most rapid enrollment of the registry trial we have ever experienced. We would also make a note we think that augurs well in terms of enrollment in our drug-coated stent programs. This new stent the vision incorporates Cobalt chromium alloy enabling lower profile and more deliverability while maintaining radio patch and radio strength. We have also developed the systems to cope this novel material with drug-eluting Palmaz. During the quarter, we also had approval of the TRISTAR coronary stent system in Japan and reimbursement is expected by November 1. We also had several drug-coated standard accomplishments, which I will speak to you a little later. On the cardiac rhythm management side of our business, it grew 7% to $328 million for the quarter. On a worldwide basis, pacemaker sales grew 8% to $151 million and sales from implantable fibrillator products increased 7% to $177 million. Our Brady system's performance continued to be robust. US pacemaker sales were up 10% versus the prior year to $97 million; this follows the last quarter's 15% year-over-year growth. In fact Guidant has experienced double-digit US Brady growth every year for the past six years. At some point in time, we may have to relook what we think that overall market growth is or will end up with all the other, but anyway it is just a side comment. The benefits of the dual blended [__] industry-leading [e-ground] storage and atrial management features continued to be well received in the market. We have recently announced the next generation INSIGNIA family of pacing devices offering greater longevity, reduced size, and enhanced diagnostics along with the atrial ventricular features offered by the current PULSAR MAX 2 family. As per [ICV] sales, we were quite pleased with the revenue growth of 32% outside the United States driven by 22% increase in Europe.

This follows strong OUS growth of 20% experienced in the second quarter. Our US tracking performance totalled $140 million dollars and reflected growth of 2% versus the prior year. Our dual-chamber products continued to account for about 60% of revenues. US market growth appears stable in the high-single digit low double-digit rate with Guidant share averaging approximately 40%. We see this market growth rate as sustainable until the emergent of additional [___] such as the positive made two trial results or the market approval of our heart failure fibrillation device. Let me elaborate. In terms of [_____] true trials, if the results are positive which we expect, it will allow for much easier identification of the target population of patients indicated for prophylactic implantation of cardioverted fibrillator. As you recall, [_____] is studying a cohort of patients who have had a prior heart attack with a limited pumping capacity as recorded by a low ejection fraction. The patients are randomized to receive an implantable defibrillator prophylactically or receive best medical management. They are followed to determine all causes of mortality. Over 1200 patient have been enrolled today and while the study have slated to enhance sometime in 2003, all the earlier studies such as [____] following similar patient populations have found substantial reductions in mortality such as that these studies have been terminated early. In Europe, we previously described substantial growth in implantable defibrillator results. It is note worthy to observe that one-half of our growth came from heart failure and fibrillation devices. It has long been believe that half of the patients receiving conventional implantable defibrillators have heart failure symptoms. But more importantly, over half of the deaths of heart failure patients, result from sudden cardiac death, with 50% of heart failure patients dying in five years, the patient population is considerable.

Widespread availability of heart failure defibrillation devices will substantially expand the use of devise-based therapy. I will provided a brief update on heart failure in a moment. In terms of the cardiac surgery and endovascular solutions products, our cardiac surgery business was up 46% this quarter to a record $80 dollars, which also reflects its strongest growth of the year. Both endoscopic vessel harvesting and out pump cardiac bypass systems are experiencing dramatic growth in popularity, as increasing experiences gained with these techniques. Turning to endovascular solutions products, we experienced revenues of $25 dollars; this was just showed of last years level when we had full market released of the ANCURE AAA endo graft system. During the third quarter of this year, ANCURE achieved $12 dollar in sales despite being available for only a portion of the quarter. Physicians remained enthusiastic about endovascular AAA repair and clinical performance remained strong. We resumed position training in order to familiarize more physicians with endo AAA. Peripheral vascular products grew 57% to $13 million, growth was driven by new peripheral stents trials and carotid stenting, cerebrovascular stenting, and embolic protection continued. If we look at the income statement, our gross profit for the third quarter record was just under $500, representing 75.1% of sales essentially identical to last year. This sequential gross margin declined from Q 2 this year was due to a limited obsolescence charges and charges associated with inventory replacements during the PENTA launch. These expenses are reflected in the gross margin calculation and we would not expect them to be present in the following quarter. Within operating expenses, R&D amounted to 14.4% of sales as we continued to invest in drug-coated stents and heart failure trials. Sales in marketing grew, we continued to invest in distribution capability and prepare for the launches of new products.

Our sales organizations grew 20% globally over the last 12 months while growing year-over-year total, our operating expenses was down 3% sequentially. Our effective tax rate remained at 28% providing net income of $122 million and a return on sales of 18.5%. Pre-cash flow was $118 million and we have seen our net debt position decline over $300 million since last year. Turning to guidance for the reminder of this year and next, we are reiterating our guidance initially established earlier year this year for the fourth quarter double-digit sales growth is again expected with EPS in the range of $0.46-48. For 2002, we expect the EPS in the 188-193 range resulting from sales exceeding $3 billion. This guidance includes no accounting for the goodwill amortization, which we assumed to be a dime, so that will be a net addition to what we have given the guidance on. In terms of heart failure, now I would like to bring you up-to-date on the steps that we are taking to gain approval for the heart failure defibrillator systems. We have fully dedicated the company to required course of action to address the observations and concerns of the panel and the FDA. Along the way in this discussion, we will respect the FDA process. Therefore, we will be somewhat constrained in answering certain questions. As previously disclosed, we submitted a PMA amendment on September 6 in order to address concerns raised during the July 10 advisory panel meeting as well as questions provided by the Food And Drug Administration. We believe the amendment we filed offers compelling evidence that further supports the safety and efficacy of contact CD and easy tract lead systems in the identified heart failure population.

Timing for the next step is up to the agency. They are in control of the ultimate timing of approval. We would make the following observations. The Food And Drug Administration has been prompt in their responses and is dealing with a contact CD submission in a timely manner. Internally, it is only prudent for Guidant to take the necessary steps to prepare for product approval for any point in time. We are certifying our sales organization and building inventory. We continued to develop next generation heart failure technologies as evidenced by our CE mark and European approval of renewal and the first human implants of the third generation renewal too. We remained confident that heart failure fibrillation therapy would be shown to be exceptionally important to heart failure patients and offer life saving benefits to a large population of patients who are at substantial risk of certain cardiac death. As it has already been demonstrated outside the United States, the heart failure defibrillation devices have the potential to accelerate the use of defibrillator systems. In terms of drug-coated stents, finally I am pleased to report the progress on a variety of drugs concerning our drug-coated stent program. Regarding our Pharma link [_____] internal development program our pivotal trial in Europe called action is going quite well. As of the yesterday, we have enrolled 190 patients over one half of the total study goal. Last month, we announced that we had completed enrollment of the first 90 patients in the action trial. This is significant because the first 90 patients will be followed under the protocol for six months and serve as the basis for our US [IDE] filing to began a pivotal trial. We remain on track for the European and US market release of an internally developed [____] and decoded stent in the second half about two year up therefore available all of 2003 and a late 2003 early 2004 availability in the United States.

Regarding our collaboration and distribution agreement with [COOK] Incorporate, we are more than delighted with the progress. Clinical results reported today with paclitaxel-coated stents employing [COOK's], proprietary coding process have been dramatically positive. Further, we recently announced the filing of the IDE in the US for paclitaxel-coated achieves stent. We are planning for this trial to deliver to begin patient enrollment in the United States during this quarter. While we acknowledge the challenge that BSX has made to our distribution agreement with [COOK], we remain confident that [COOK] was and is within its right to enter into such an agreement. To that end, [COOK] and Guidant have filed a lawsuit to seek prompt and positive resolution to the claims being made by Boston Scientific in the United States District Quarter, Southern Indiana. Our effort from remain full speed ahead ... [COOK] has made all manufacturing and filing milestones today and we have great confidence this situation will continue. So, in summary, I would state that we established financial performance commitments to our owners, and we have fulfilled those in Q3, and we expect that going forward. We have given guidance for Q4 and 2002 and we are committed to being able to deliver that. We have a drug-coated stent program in that there are multiple programs within it. They are very much on schedule or ahead of schedule. The collaboration is working very nicely in terms of available supply and capability, as well as we thank the legal activities will help substantiate peoples visibility on our ability to bring forward the paclitaxel-coated stent. In terms of heart failure, we believe the data is compelling. We will work with the agency and do whatever is required to get this product approved. The field is currently being certified and inventory is being built. Thus, this pricing environment is even better than stable and I think we will also noticed in this quarter that intellectual property positions remained important. So, with those concluding comments, let us open it up for your questions

Today's question and answer session will be conducted electronically. If you would like signal to ask a question, please press the * followed by the digit 1 on your touch telephone. Again that is * 1 to signal to ask a question at this time. If you do find your question has been answered and would like to remove yourself from the queue, please press the # to remove yourself. Once again that is * 1 to signal. We will pause for just a moment to assemble our router. We go first to [Phil Melbourne] with Salomon Smith Barney

Yes. Good evening. My first question relates to the GALILEO coronary radiation system. Could you give us an update on the expectations for the timing of the US launch, what the anticipated pricing will be? And then in longer term, how does Guidant give the opportunity for intracoronary radiation in light of the very good drug-coated stent added to-date? And finally, is there a peripheral vascular applications for GALILEO down the road?

This is Ginger Graham and let me try to address those questions in order. First, I believe your question was regarding the timing in the US as we have communicated to you before we are awaiting final labeling and approval in the US, we are prepared for a market launch as soon as we receive that including a preparation for all of our inventory of products and a complete training of all of our field organization. Obviously, we are anxious for that approval and we will be looking forward to it as soon it comes. In addition, your question about pricing, we have demonstrated already in markets outside the US that the pricing can be significantly increased compared to a traditional procedure based on the value of this technology and the reduction and restenosis associated with it and also the complexity of the patients being treated. The mechanism for pricing includes the course ... the capital equipment to that support [with] project and Guidant has put together a program that enables customers to buy the entire package or to use the equipment as needed in their program at a very reasonable prospects for the capital, but does allow us to have almost a 100% premium for the procedure itself. In terms of the long-term play for radiation, certainly the data at this point will suggest that radiation doesn't work. It is a very meaningful improvement and reducing restenosis in extremely complex lesions ... instant restenosis and other patients that we have seen in trials like [PRIZM] that are very complex. So, we know that radiation works. Obviously, the very exciting data that has been presented in the recent months around the stent drug-eluting stent does propose the opportunity for something that even more significant in reduction restenosis, but these studies today are in a pretty narrow sample of lesion links and patient type and because of that I think we can make the definitive statements either about all patients or about the very long-term results of radiation or a drug-coated stent. We do have very long-term data now on radiation and we do know it works. So, our view is the radiation is both meaningful and a short-term for Guidant because we know that the US market place is at a run rate currently in excess $80 million annually. We believe the product GALILEO and its features said it is a very safe and reliable and precise product for delivering radiation and we know radiation reduces restenosis for patients.

Because of that we are committed to a very effective launch. We have customers who are awaiting the products and we are looking forward to being able to deliver that. We also think it does make Guidant by far the most broad-base supplier of product for the [____] and we think that is important. With regard to more information at the American Heart Association, there will be continued discussion about our products and the clinical results and we are also, of course, with the American Heart Association will be talking about GALILEO and inhibit study. With regard to your comment on peripheral, we do find that the data early is very interesting with radiation in the periphery, and as you know a lot of peripheral diseases is very diffuse. It can be an extremely long lesion and it can cause parts of the body to wear ... you desire to put a tremendous amount of metal are certainly reduced because it is exposed. So, because of that, we are optimistic that not only could radiation play a role in the short-term, but it may also have very important clinical utility for the long-term.

You know, building on Ginger's comment on the breadth of the product line being important. If you think of Guidant's position next year with obviously, we have the PENTA and the PIXEL and they would be very important products. We will have the vision as we mentioned earlier the Cobalt chromium as metallic stent. We probably will have at least 3 drug-coated stent programs going on the same time, and we will have radiation available for the account. So, as one talked about working with an account and trying to make sure that we will leverage our position ... leverage not only radiation position, but also the rest of the products line. It can have a greater impact on Guidant's success than just the product itself.

Thank you. If I could allowed one additional question this relates to the market opportunity for drug-coated stents over the long-term. Could you address the initiatives that Guidant and the industry in general has taken to date toward reimbursement for drug-coated stents and give us your thoughts on what you believe pricing will look like for that product?

The thing I think that is most impact over the last year because we know drug-coated stents were coming forward. We knew that treatment of congestive heart failure was coming forward. We knew that new technologies whether they were high were suggest true advancements were coming forward that would most likely have higher price tags associated with them. We got legislation past and was called a new technology DRG. So, we have a placeholder, which now we are negotiating with CMS around different therapies to try to determine what would be the reimbursement for those therapies. Now, all of that is to be negotiated. We are not in a placed that we would like to be to date, but we do have great [_____] support about patients having accesses to new therapies. I think if you look at drug-coated stents and look you at the step up that we had with metallic stents from dilatation catheters, you are going see that surpass with drug-coated stents. The word that we have heard on the street in terms of competitive pricing is something in an excess of $3400, which sounds very reasonable to us. So, I think you are going to see that in terms of the market impeachment; it has two effects. You are going to have this enhanced value as reflected in the selling price, but you are also if these restenosis rates end by being so low, we are going to make an impact on bypass surgery and the willingness of patients to have a procedure done, you know, much earlier in the disease process. So, we are going to see an escalation above the 10% growth that we were seeing of patients going to intervention and on the top of that we are going to see pricing levels that could be multiples of where we are today.

Thank you very much. I will get back in the queue

Next we will got to [Brick Wise] with Bear Sterns.

Good afternoon couple of questions. A couple of questions. First, could you break out the heart failure ... the US high power and low power? And second, may be you could expand a little bit on your comments on heart failure. My understanding is that the traditional year end cardiovascular panel has been canceled ... the dialogue clearly going well, should we expect that you will have to go before panel again, you know, any thoughts there? And what heart failure [____] dial into your thoughts in that $3 billion number you are talking about next year? Thank you very much.

Yeah right, a couple of things. Now, we are not going to separate out the heart failure numbers because those patient populations we are going to start over a lot before us and I think we take a snap short and we said this a long time three years from now or four years from now ... you are going to treat very few patients that don't have the combination of a backup tachyarrhythmia device as well as a heart failure device. So, I think it ends up being ... probably inappropriate to separate that out. So, we don't plan to that. In terms of the that lay in the panel, our position has always been that we don't need to go back to a panel ... we think that we are responding to the panels observation and we will continue to respond to the FDA observation. So, we have no indication today that we would require any panel interaction.

Just a quick followup. Would it be fair to assume that the heart failure revenues were fairly consistent with recent quarters, were you probably better?

I think we would have to say they have increased.

Thank you very much.

We will go next to [Michael Winestein] with JP Morgan.

Good afternoon. I need to start with a question to make sure I understood the guidance. You talked again about the $1.88 to $1.93 range you had discussed in the last conference call, but additionally, you do say that you have the $0.10 and goodwill accounting that is out there. A number of the companies that we have heard from so far this quarter have taken the opportunity to actually spend some of that non-cash accounting and say they are either reinvested internally or use it externally. Is it your expectation that you will do the same or you know that full $0.10 dropped to bottom line?

Yes, since we had a hard time passing the red phase test, Mike, understanding that, I mean, we couldn't find any cash that was associated with it and it was strictly an accounting phenomena and so we said, I mean, hell if we can make a case from making the investment, we all have to stand up enough to make a case for it. So it is not our intention, but if you want to keep it in your back pocket as a fallback, I have it.

Okay, let me follow it up with just a couple of questions on some numbers. Could you give us 1) The break out on the stent business between the different geographies? Additionally, I just want to clarify what the numbers were within cardiac surgery, if there is any break out, can you give us there in terms of products. That will be great. Thanks.

Yeah, like we said, in stents, I am not sure I mentioned on the top. We did a $193 million worldwide in stents and 135 million of that in the US, 57.7 outside the United States with 31.5 in Europe and 17.1 in Japan and 9.1 in Asia-Pacific, Latin America.

Ron, can I ask you a quick question?

Sure.

It is interesting seeing this, we just saw some other company's results where the third quarter looks like it didn't have maybe the degree of seasonality this year that we saw in previous years, it could be a lot of reasons why that is the case. Do you think there is any truth to that, do you think from your business and maybe from what you might have seen from other people's businesses that that could have been true this year?

You know, the only one that I am confused about is the [Brady] side, Michael, because I think that is right and [St. Jude] reported the other day and they had excellent growth and we have had excellent growth and so either the market has taken some kind of a step up, it appears, but other than that, I am not sure that I have seen it and the stent number, I cannot get to it, but you know you had some action. We think we got a very clean number, but you had some activities going on during the quarter, with people kind getting out of the business and whatever and chasing that. So, when one sounds the dollars for Q3 in the coronary stents, you may have a number that is somewhat higher than usage number. But I think [Brady] is the only one that to me is possibly something different in the Q3 stage stronger than normal.

Great. Thank you.

Okay, next to [Matthew Dodds] with SG Cowen.

Thanks. Good afternoon as well. For Insignia, can you tell me in the US if you started a clinical trial yet for an overdrive pacing out rhythms specifically and when you could get approval to have that component for Insignia?

The trial Matt, has not yet begun. It is beginning however, is [even] ...

And also, is vitality US still any day for approval and launch?

Vitality would be ready for launch late in the fourth quarter and in Europe, and in the US sometime early next year.

Right and then one last question on heart failure. Is it possible that your 96 PMA supplement submission looks specifically at the same end points as Medtronic using the same fiscal analysis or did you give slightly different data on your all your end points?

A part of the submission used the definitions of outcomes as had been substantiated by the panel in terms of looking at Medtronics data, but we used our own outcomes, it was our own indications, but it was the definitions of what it had been to us.

Thanks Ron.

Next to [Andrew Jay] with Wachovia Securities.

Yes, good afternoon. Could we talk a little bit about stent pricing in Europe? Could you give us some idea of what type of price erosion you have seen over the past year in Europe and also can we talk about the dollars there to pay a high ASP for coated stents here.

Well, everybody is going to try, Andrew and we had no sequential erosion in Europe.

And over the past 12 months, do you have the central pricing erosion that we seen in the market?

Like 10 %. Like I said, it was actually flat this last quarter and the erosion I gave the answer as being a bit of a rate impact also.

Balance sheet receivables and inventories?

Andrew, this is Keith. What would you like on these? Our DSOs are down a day from a year ago from 85 down to 84 days and our days in inventory are down 11 days from 140 last year to 129 and our net debt were down almost over 300 million from a year ago down to a little under 500 million, now above 490 million.

Those are the cash flows. Thank you very much.

Okay, next to [Wayne King] with Robertson Stephens.

Good afternoon. A couple of my questions on CHF have already been asked. Would you mind giving us the ICD numbers again. Ron, I thought you said that ex-US up 32%, up 28% in Europe, but US was up too and then you stated a blended figure for ICD at 10. Is that correct?

Yes. All the rest of that was absolutely correct you picked up and the total worldwide was 177 up 7 %, US as you stated at 140 million up too, the outside of United States up 32 % to $37 million. Europe was up 22 % at 30.6 million.

And then you indicated a compare with the prospect of low double digit of [ICD] growth. Can you account for the lower figure obviously in the US market in which you specifically think the US market was sure in terms of growth rates?

You know it is always difficult until we get all three reported. To tell you the truth, we were looking for a little better kind of sequential growth from the other guys who reported earlier on the week didn't see that. So, you know, this kind of where we are and I think this is where we are going to be until we do get one of those catalyst we talked about in terms of the [Meta-2] or heart failure [ICD] combination product.

Okay, very good. Thank you very much.

We are going next to [Danlon Mature] with Merrill Lynch.

Good afternoon, every body. Just one question first is on the status, I believe it is called a [Contact TR] but the stand alone bi-ventricular patient device only is in fact, Medtronic presents something that resembles our mortality benefit at the [AHA] on the [_____] thought it would be indicated for patients other than just the [ICD] candidates. Where do we stand in terms of the process from the time we need to get the [Contact TR]?

[Contact TR] and this just is running behind heart failure products and there is a reason for that. The heart failure with defibrillator backup has always had a higher priority because of the inherent, just because in heart failure patients because of their probable 50% rate of death and sudden death need to have a defibrillator, but it is [Contact TR] is going to be out probably in all three in the United States.

It does require [Companion], that is the trial to get the [TR] approved ...

It is embedded because we will need to complete the [Companion brand] but the clinical evaluation of [TR] is embedded in companion.

Okay, and may I have just one followup then?

Sure.

Just on the stent side, Ron when you talked about the fact that you thought you could have an [actinomisin] in de-coated stent approved sometime in the second half of 2002. Is that enough, in Europe, of a lead to entice you to launch the [COOK] products, if in fact they could be out of six months ahead of time and do you think they could be six months ahead of time?

Well that is why we are pushing ourselves on ...

So if we can gain any reasonable time at all, we will do that. We also have elected to do it and so it is just a question of, we are looking for the mechanism that would allow us to be our own time. If we can beat it, we will be there with the paclitaxel version.

Okay just one ancillary part of my second question. If in fact you have to make that decision, is there a lead time at which you would have to commit to some major manufacturing and if that, I guess, even if the window was there, would you be ready to take advantage of it?

Dan, I guess to put that more clearly, we are not waiting to think about getting to some point to kind of push back on this decision. We are working the process to develop a strategy to get there earlier and we have been very, I don't want to say surprised, we have felt very good about how well the capability building has happened across our organization, our two organizations, to make sure that we have sufficient volumes to take care of our needs. I wonder, Jay, if you have got any more comments on that or not?

All I can add to that is that so far, [COOK] has met every committed milestones and gives us absolutely no indication that they are going to be able to do anything other than ramp up to our demands.

Okay, great. Thanks guys.

We will go next to [Cheryl Zimmer] with Deutsche Bank.

Hey guys, just a couple of quick questions. Is there is some sort of [_____] label use of the [GEM 3] as the resynchronization therapy, is that growing, is it stable and is that impacting your business at all in the US, and then separately, in terms of radiation, are you still comfortable with your estimate for 2002, which I think was 80-90 million, and if the approval puts me on to your odds, maybe you could give us the odds to that and if it does should we start to haircut that a little bit?

[Cheryl], this is Ginger. Let me take the last one first in terms of our view for next year. We have talked quite a bit about the number of instant restenosis patients that we think are available in the US, and that number looks to be somewhat of a 140,000-160,000 level and if that is true, and we have a full year in the marketplace. I think we still believe the radiation has a significant opportunity for us and it does really help us to manage worldwide the introduction of drug-coated stents in Europe if those happen as anticipated in the second half of next year. So, we still have a very strong view about our ability to implement in the radiation market and as I mentioned earlier, it is already running in excess of an 80 million-dollar annual market at the close of this quarter. So, we think that growth goes well for us to be able to participate in that market. In the probability that it would be later as I mentioned, you know, our submissions is in, we believe that it is in the final stages of the review and we are anticipating that, we are ready on every front and have no reason to believe that we would close this year without that approval. So, that would be a surprise to us and certainly not considered in our planning for next year and that we believe we will have a fruitful year.

So [Cheryl], we think we are at any day kind of response on the GALILEO.

Great and then just on the [GEM 3 of label]?

On the [GEM 3 of label] you know we are not probably not the best ones to ask exactly on how that is happening. We clearly do see it in the marketplace. We do believe that our physicians are expressing their confidence in heart failure what they believe are meaningful patient outcome by their willingness to put together a heart failure system ad hoc so to speak. Clearly, our products are not amenable to that right now. We do think it is meaningful out there and growing.

Okay. Thank you guys.

We go next to [Gwen DeBarrow] with Credit Suisse First Boston.

Yes, a question for Keith and then for Ginger. For Keith, can you quantify the write offs in the quarter on the gross margin line and EPS implication and then for Ginger, have you had an opportunity, but first can you tell what the dosing of paclitaxel will be in the Paclitaxel US trials that will start shortly. Is it similar to the high-dose arm of [Aspect] and then have you had a chance to look at the high-dose data in the [Aspect trial] and any reason why that trial ... high-dose arm showed re-stenosis versus the [Taxel trial] that did not, could it be the Palmaz?

[Gwen], I can quantify that for you. The charges, Ron mentioned about the exchanges for the PENTA launch and some inventory obsolescence, which was a few intermittent leads with the majority of this, was just the exchange that we normally do when we have a new product. That total of those were about $7 million and I think if we take a look at that, that accounts for the whole difference between the second quarter gross margins and the one we just posted.

On your question about dosing, it is appropriate to think about it as the [Aspect] kind of dose. So, the high-dose data Is presented there and frankly, at the re-stenosis rate that we are seeing presented here, I believe it is fair to say that they are statistically equivalent re-stenosis right, so at the 0,1,2,3, number, you have the same number, we are dealing with statistics and certainly, these are not robust trials in terms of thousands of patients that were complex than multi-lesions, but the data basically said that restenosis angiographically are so small that they are almost zero, and what that means clinically, is they are zero. Remember, we are looking for re-stenosis here and in a clinical situation it would be much lower. So, I think the net effect is you would not have patients coming back with re-stenosis.

You are not concerned that the [COOK] system does not employ a Palmaz, which I guess timely releases the drug in an effective manner.

We are relying very heavily on the fact that the data speaks for itself. Obviously, we believe in Palmaz capability with our Pharma link system. We believe that has capability that allows us to dial in different drugs at different doses and different dose rate. We think it provides us capability for the future. We also believe in the presence of data and the [COOK] data speaks for itself that that particular process with that dose of drug, at that particular mechanism also works.

We have done a reasonable amount of preclinical work, obviously before we got into this agreement and we were impressed and in this case I think I could say surprised at how well their process worked.

One last followup. [COOK] has been very quiet about the delivery mechanism. Can you elaborate any further in terms of what is delivering the drug for? Thanks

No, we really can't [Gwen]. It is a proprietary process and not one we could comment on.

Okay, thank you.

[Gwen], this is Andy. I will add one thing to that in that if you recall, the previous [TC TV] there were a lot of data presented on pharmacokinetics and pharmacodynamics from the [COOK] delivery system and they show a very robust ability to deliver drug in an effective manner. So, that is probably why you are seeing such effective clinical results.

Thanks guys.

We go next to [Tom Gunderson] with Piper Jaffray.

Hi, good afternoon. Ron, you brought up, made it to, I think we heard at the CHF meeting that had been expanded from 1200 to 1500 patients. Was that at the request of any of the subcommittees or request of doctors who just wanted to continue or was that a Guidant guided number?

That was really at the request of doctors that wanted to continue.

Okay, but not a subcommittee of any, you know, the coordinating committee, endpoint subcommittee, or anything like that Jay?

Well. We wouldn't have done it and the request wouldn't have been made, if it didn't have the support of an executive committee ... every study like this does have one, but again the request came from the principle investigator.

Okay, and then you mentioned quick completion of the registry on vision last quarter ... you indicated that that would be out in fall of 2002 ... given your recent speed with getting the siderations through the FDA, do you want to amend that to may be mid summer now?

No. Yeah. Okay, in this position, It would be okay if we could have a little bit longer product launch cycle.

And then, last the on ANCURE uptake. Good start in the quarter. Can you give us sense of what it looked like coming out of the quarter? What it looks like now? Are we back to normal or should we expect pretty good sequential growth going forward.

Thank you. Absolutely, we should see very good sequential growth I think the fourth quarter will look very similar to the fourth quarter of last year, which was really of high watermark and we will be off and running.

That's it. Thank you.

Okay. The next question is coming from [Kurt Kruger] with Bank of America Securities.

Hi, this is [Nathan Wings] for Kurt ... just a couple of quick questions. Can you give us an update on the status of the PRIZM [AP] when you think that might hit US market here?

PRIZM [AP] would be and again these are our best guesses, but we will launch PRIZM [AVT] in Europe in the fourth quarter and we would expect further PRIZM [AVT] would be our best guess beyond on the US market late next year.

Okay. You know Medtronic gets a lot of business with its atrial fibrillation indications ... do you expect a boost in your defibrillator sales when that comes in the market, you know, sort of as long of the nature that Medtronic gets?

You know, actually I think that we would express a little bit of the surprise to the contrary that we have not seen a significant uptake on [GEM 18] and that certainly there was a lot of noise. From our perspective the functionality of the devices in the market place in terms of treating atrial or monitoring the atrial activity ... it is something that we can speak of very competitively. We do not have the device currently with initial [____] headline, but we have not seen the effect in the market place for a very dramatic shift to [GEM 18].

I think, it is fair to say that they have converted a lot of their own business and particularly a lot of their dual chambers business to 18, but as Ginger said they are not getting a lot of new business from us ... not much at all.

Well I think it does see to the fact that are devices are actually quite equipped for features that matter in atrial arrhythmias and so the fact that we have as a functionality our customers recognized that we have not seen a share shift because of that and I do agree with Jay that it is true that Medtronic has shifted their own distribution of product sales, but we don't see that as still having a market impact.

Okay. I just have one more quick one. Can you refresh my memory on what stent you are marketing in Japan right now?

Yes, we are actually ... we are marketing the TRISTAR the MULTILINK TRISTAR as effective immediately. Essentially, we got approval on the TRISTAR. We have been training physicians across the country. We had 300 just a week ago or so been exposed to the TRISTAR and we will be launching the product across Japan. So, we are just now to TRISTAR and obviously working on bringing the next generations phone into Japan as well.

But, previously it has been something called as modified and ...

It is a MULTILINK product. We had the original MULTILINK. We made improvements to the MULTILINK. We have been in the market with MULTILINK products and are just launching the TRISTAR lately.

Okay, so we can expect a little bit of pick up perhaps in the fourth quarter in Japan?

Yes, I would like to think so

Okay thanks a lot.

We go next go [Edman Depler] with SAC Capital.

Yes. Thank you. I have a couple of questions to you all. The first one is, with regards to your discussions with Boston Scientific, I mean you mentioned, I guess, you had sued them, are we done negotiating ... are we going to go straight to the courts or is there some more room for negotiating and second on the contact CD in congestive heart failure ... any visibility in the timeline here ... you mentioned there is no more panel, possibilities, or comp sales have been pushed back ... how do we know how this gets resolved and the third question on the tache ... you said 2% growth in the US can you give us a sense of what happened there?

In terms of Boston scientific, first of all, any discussion that would happen would happen between [COOK] and Boston Scientific and so we need to be careful about how we represent that, I think, there is number of dispute there. One is that, I believe, Boston Scientific thinks that there is an arbitration process. My understanding is [COOK] believes there is a specification of arbitration in the agreement between the person who gave the license and person who took the license ... not between the two people who took the license and [COOK] believes that ...

I think that I lost it ... can you say it again?

There is a arbitration process established in the agreement between angiotech and [COOK] and angiotech and Boston Scientific ... it is my understanding and again I am not legal counsel here, but the arbitration process, I think, Boston Scientific believes covers the two licensees and [COOK] ... the arbitration process was established between the person who gave the license i.e. angiotech and the licensee. That is to the agreement at that point and not between the two people who took a license and [COOKS] interpretation of their agreement and we had a great confidence in that interpretation is that they have the ability to establish distributor as they have 40 other distributors around the world in their normal business practices. So, what we have gone to it is we have reports in Indiana and we are trying to get a, you know, quick ruling on that to say yes that they have right to have distributors, so that as Guidant distributes the product ... we will not be infringing the patent rights of angiotech as they have licensed them to [COOK]. So it is pretty straight forward and we know don't think it is terribly dissimilar to probably what we have done in terms of J&J as a distributor for a rapid exchange and that we couldn't give a license to J&J, but we could make them a distributor and that is the process we have been through and it seems to have worked nicely.

In terms of heart failure timing ... we just cannot give you much visibility on that other than ... we are working with the agency and as the agency has any further questions, we will get those answered in a very timely manner. We are actually convinced though this is very, very valuable therapy and we have no indication to think the FDA thinks any differently than this is very valuable therapy, but we have just got to them to the position that they are assured of the efficacy and we will get that job done. In terms of ...

Ron the point here this time is that next time we hear from you it will be in approvals ... right?

It probably will or, you know, if there is another decision in there that changes our outlook ... if there is a decision there and somehow that changes our guidance ... we will be sharing that with you.

What is you guidance till then ... the guidance ...

The guidance ... I mean our financial guidance going forward. And on the tache side, you know, we mentioned what the growth in that had been and in the US we are really at that kind of 140 + number in terms of implantable defibrillators. We do see sequential growth say in the fourth quarter both from the Brady and tache line. The tache will probably be mostly because we have had implants approved for more heart failure patients, and we have gotten an increase from the agency in that regard. So, we will get some help there. We don't want to see many other dynamics going on. We just don't see much movement and we sure don't see much or any movement really across companies to speak and so it is really going to be predicated on what the market does, and we just don't see that happening. We could see it happening potentially near term, but it is going to be driven by our approval of a heart failure defibrillation device again using Europe as an example or the early combination of [____].

One thing that you said, I think, you indicated that we now know we are not going to go to panel and we don't believe that we need to go to panel, but our knowledge is not certain there and it is possible that we may have to ... yes that is the decision that is going to be made by the FDA.

When is the next panel meeting of FDA scheduled?

In fact the ones that were in schedule for December have been pushed into next year and I don't believe any panel dates have been reassured. In the interest of time, we have got some folks in the queue; so lets limit your questions to just one part please ... go ahead.

We will go next to [Larry Kurish] with Goldman Sachs.

Good afternoon. Ron, I am wondering if you sort of mentioned that you exited strong on your stent franchise in the US and I am wondering if you could give us some color on how that has progressed into this fourth quarter in light of Medtronic exiting the Rx market. I suspect that it has actually strengthened and you are picking up share there and have you, sort of, altered your expectation for the fourth quarter?

You know we ... not that we are going to publish [Larry], but I would say we started that quarter at least as we look at the data more like a 38% share. We averaged in the quarter 40 and we came out of that quarter north of 40 and as I said our data coming out of the quarter although our internal survey data is essentially a month behind, but we were right on the same estimates as MD data directed at that point time, and I noticed they have a stranding in the last weekly to 45, and it is too early in the quarter to make projections, but we are getting run rates, that say, a reasonable amount of this has stuck.

Okay and it appeared that you guys are picking up the bulk of that ... do you think that is a fair assumption?

That is a pretty fair assumption ... yes.

Okay and then lastly ... could you just quickly since we are talking about a lot here ... just talk a little bit about the algorithms that you have in place in your device particular the pacing and how that is made different from the other ones out there because it certainly appears that you are beginning to do pretty job on that product.

The way I would comment on that is that the algorithm is available in both PULSAR MAX 2 and INSIGNIA ... and that we call ventricular rate and that regularizes the ventricular response to atrial fibrillation, which is traditionally coupled or tied to symptoms ... breathlessness, lightheadedness, and palpitations. It has got an extraordinary feature, so do physicians who have begun to implant with that device and turn the feature on.

Okay, terrific and thank you very much.

We will go next to [Sandra Hollinforce] with Prudential securities.

Thank you ... just a couple of house keeping questions ... what is the share count going forward here?

The total shares outstanding are 299 ... yes there are like 302, I think, this quarter than the attachment, but I will think we will probably next year average about 312.

Okay and in the fourth quarter we will probably be around 302 then?

306.

Okay. Can you give us the actual foreign exchange impact in the quarter and we are hearing that companies that they are looking at last impact in the fourth quarter ... may be what you think you looking for there?

Well the impact was as we mentioned, I think, about a 2% overall rate ... it was about 9 1/2 million dollars [Sandy] and it was flat and actually might have been favorable on a sequential basis slightly. Mostly no impact going from Q2 to Q3 and so we have to see what Q4 brings.

It is all a mixed issues there because it is really ... it is all, you know, the Japan and the emerging markets were essentially flat including Europe [Sandy] for us and that kind of depends on where your business resides.

Okay. What do you think the shares are in Japan right now in terms of market share projections for stents?

We believe ours is around 28%, I believe, [Sandy] we are real course there.

Okay, and who do you think your next closest competitor is right now?

Well, we obviously had some real dynamics that are going to be going on the next quarter. We think that with our launch of the TRISTAR you got the DX velocity ... that is just coming and then you got Boston Scientific that has traditionally had a higher share ... so we would think ourselves DX next velocity would be increasing.

Okay. And in term of a pacemaker trends in the quarter ... was that ... what are you seeing for the end of the quarter and may be you know going into this quarter.

You know we don't have any unique news around this and in the quarter we have had a very nice and study progression in gross ... and as you know we have added substantial field capacity over the last four quarters and as Ron mentioned our Brady business has been growing double-digit now for six years. Still we have a lot of quarters stacked up here for us and I would say that the PULSAR MAX 2 is an adequate feature now with INSIGNIA coming out now with greater longevity and the features that are already built in the PULSAR MAX 2 as basis ... that we consider our increased fields plus the great product flow coming out of our CR in business as being continued progression in its march to become more and more of a formidable player in pacing.

We expect a nice lift of sales in fourth quarter from INSIGNIA, I mean, it is much smaller product and has a unique tear drop base, which is physiologically is important physicians and patients.

Okay great thanks.

We take our final question today from [Tim Nelson] with US Banc Corp.

Yes. Could you give us the geographic break out of your angioplasty sales please and than comment on the fact that you are more optimistic about coronary stents for Q4, but you haven't changed guidance, so is there anything that you are less optimistic about?

Well, let me tackle the Q4 question and then we will give you the specific numbers. Certainly, we are very optimistic about our stent line in Q4 for some important reasons, I think; one is that PENTA has demonstrated all around the world that it is an exceptional product. We have full availability in the US now as well as the European market, which we had to ask Europe and our Asia-Pacific and Latin American cohort to manage and reduce products slowing in the third quarter ... that would be released now in the fourth. We have PIXEL. PIXEL is the first 2O product in the US. It gives you 5 and 250 though we did not have TETRA a small stent that we are actually coming on ... our PENTA will coming on with the PIXEL and we think that will increase only our share of the small vessel stent but also continued to expand that segment of the market, which we think is under services point, and still from the radiation addition are drug-coated stents in the market and from the strengths in the product line we think that the Q4 for the [____] business is very strong. If you look at our other businesses as well, the Brady market continues to march on our field expansion, as I mentioned, and we do also believe that the continued active protocol for heart failure devices ... the Japanese tache business and just fourth quarter market size in the Europe compared to third quarter ... to say a lot of reasons that our fourth quarter business will be attractive.

If you want to review the angioplasty numbers for Q3 2001 worldwide ... they are 91.6 million. Our US business is at 47 million and our international business is about 45 million. Great thanks

This does complete our question and answer section for today. I would like to turn the conference back for any closing or additional comments.

We have no additional comments. Thanks everybody for being on the line. We look forward to hearing from you all. Take care everybody. This does conclude today's Guidant Cooperation third quarter 2001 earnings release conference. You may disconnect at this time.