Boston Scientific Corp (BSX) 2002 Q1 法說會逐字稿

Please stand by. Good day everyone. Thanks for holding and welcome to the Guidant Corporation 1Q earnings conference call. Just a remainder that this call is being recorded. Guidant expects that this call will include forward looking statements including projections concerning product development and regulatory approval time

and earnings. Actual results may differ materially from those projected due to the factors listed in exhibit 99; the Guidant's most recent 10-K. Guidant does not undertake to update its forward-looking statements. Now at this time for opening remarks and introduction, I would like to turn the call over to Director of IR, Mr. Andy Rieth, please go ahead sir.

Thank you Kevin.

For those of you on the webcast, I want to thank you for joining us this afternoon to review our first quarter performance to discuss our prospects as we look forward. Today, we are going to try something little new by providing some shots and slides as a part of our webcast. We hope they will be helpful in

some key financial and milestone data. For those of you listening by phone only, if you want to review the slide

site at www.guidant.com and on ccbn.com in the usual locations. Joining me today are Ronald W. Dollens, President & Chief Executive Officer, Jay A. Graf and Ginger Graham, Guidant Group Chairman, and Keith E. Brauer, our Chief Financial Officer. Ron will review the quarter including some observations about our contact

regulatory status; drug eluting stent progress, financial guidance, and then we will open the phone line for your questions. Ron, I will turn the call over to you.

Thank you Andy.

As we have repeated numerous times, we view the role of management to be kind of singularly focused and that is to increase the value of the company. When we look at their responsibility near term, we will analyze our focus and execution really in three areas. First and maybe foremost, we need to make sure that we deliver the financial results consistent with our guidance and what we saw in this quarter, we were absolutely in the middle of that range. Our guidance was 700 to 720 million dollars for the quarter. We delivered 710 million dollars. On the earnings side, the guidance was 46 to 48 cents a share and we delivered 47 dollars. As we said, most recently as we give guidance, we try to put 90 percent uncertainty associated with the guidance provided our company. Something we won't discuss in great detail today, but is hugely important to being able to meet these goals is really the robust new product pipeline and what we will see during 2002, that across each of our product areas, we will have a major product launch. That will generate this organic growth that we have come to depend on. We will have new stent platforms, we will have new pacemaker, new implantable defibrillator, new heart failure systems new AAA addition to the product line, and new product lines to our bypass

surgery line. We think again that is hugely important to being able to deliver on these financial expectations, but again we won't spend much time today. Secondly, the roll of management in terms of trying to create value within our corporation needs to be focused on their capability of leadership and drug eluting stent. We need to make sure that we take advantage of that growth opportunity that is absolutely to

. We need to also understand that we will be leveraging our capability, the

position that has given us market leadership in current stent business by really approximately 20 percent points. The Cook distribution alliance provides the first marketable product as early as this quarter. We will discuss the clinical data, our timelines for this

incredible opportunity. You will also guidance diligence area with the announcement in 1Q of a worldwide

agreement with Novartis for Everolimus. Our work on Everolimus has been in place for a long time and actually was in place prior to our first implants of actinomycin-D. Thirdly, we are focused on the ability to expedite a heart approval and to accelerate and build upon implantable defibrillator market by identifying a growing population that will benefit from this important therapy. We also recognize the additional benefit of the termination of the

trial, which identifies the patient population of approximately 0.5m patients in the US alone. Most importantly, these individuals are easily identifiable that we have ever had in past. We have made good progress in each of these areas during the quarter and I will elaborate in greater details. Lets review the results.

If we look at the income statement, again consistent with our guidance sales of 710 million dollar, a growth of 6 percent, on a constant-currency basis a growth of 7 percent. We had 11 million dollar impact year over year based on rates. From fourth quarter to the first quarter, sequential impact of exchange rates was 6 percent. Performance in the geographies was very consistent. US was up 6 percent. Our international business was up 5 percent, on a constant -currency basis the international business was up 11 percent. Worldwide volume was up 11 percent, the price was down 4 percent, and rates accounted for 1 percent reduction. No price impact was essentially seen from the fourth quarter to the first quarter of this year.

If we move down to the income statement and look at the gross margin at 75.8 percent, we gained 100 basis points over the prior year. Our operating expenses, we saw research and development at 14.2 percent of sales, again re-affirming the largest investment as a percentage of sales of any profitable medical devise company. Not only with investments and research and development, but also our investments in sales and marketing, each of those grew at 11 percent year over year. The operating expenses reflect a charge for purchased R&D associated with the Novartis agreement. Net charge was 6.8 million dollars. The rest of our discussion will be on an as adjusted basis.

If we look at operating income at 215 million dollars just greater than 30 percent of sales and if we look at other expenses, they went down 10 million dollars year over year, made up of essentially three components, an 8 million dollars advantage because of the lack of goodwill amortization, a benefit of approximately 5 million dollars through lower interest expense because of the reduction of debt. Those

offset somewhat by higher royalty increases. Net income was 144 million dollar up 13 percent year over year. EPS at 47 cents up 14 percent year over year. The tax rate is 26 percent. Profitability is an

of 20 percent. The free cash flow we have been generate to 145 million dollars for the quarter and we have been able to reduce the net debt position down to 175 million dollars over a reduction of 360 million dollars in the last year.

If we highlight some of our sales results, we discussed the total earlier. If we focus now on worldwide coronary

and all these numbers will be on a worldwide basis that are on the presentation. Worldwide

stents at 200 million, up 4 percent in actual terms and a constant-currency term, they are up 6 percent. Our units worldwide were up 14 percent. Again while making the case, our coronary interventions are being used to treat coronary artery disease globally. The penta as the platform is a significant contributor for us, as was the Pixel for small vessel stents, growing to account the one and four of our sales. If we look at the US, we did 158 million dollars in the quarter, slightly above the prior year. Average selling prices were relatively stable at 1137 dollars, down 23 dollars from the prior quarter. We were able to do this maintaining our market share from 4Q to 1Q.

If we look at the international stent business, it is 63 million dollars, up 13 percent and constant currency of 20 percent and we will make the observation that was in the pace of some competitive launches. The world was led by Japan share gains. On implantable fibrillators worldwide, we did

dollars up 13 percent and in units we were up 17 percent. Obviously, they made

to referral impact, we think is starting to cause some acceleration, we would say vs. what we were seeing late last year, we are talking about market growth That is probably twice the rate that we were seeing late in 2001. In the US, we had a 156 million dollars in sales with really the same growth profile, as worldwide and interestingly, in 4Q, we had been able experience sales of approximately 6 million dollars of clinical trial material that was not available to us in this 1Q number. And again, this is clinical trial usage for heart failure. International, in terms of implantable

, we did 38 million dollars, up 14 percent, up 18 percent constant currency and again the unit growth internationally was up 20 percent. Europe, the entire growth was driven by having available the renewable product line again for heart failure participation in the implantable defibrillator market. Pacemakers at 142 million dollars were up 2 percent year over year, up 4 percent in a constant-currency mode, led by the US at 92 million dollars, up 6 percent year over year. The average selling prices worldwide were up slightly year over year and down 1 percent year over year in the United States. Angioplasty at 96 million dollars was down 6 percent. That was contributed by really two elements, some price pressure as well as some share erosion during the period. If we look at emerging therapies defined as our new radiation business, treating peripheral vascular disease, treating abdominal aortic aneurysms, endoscopic vessel harvesting and

bypass, beating heart surgery, we accumulated those therapies in the quarter, and we had 58 million dollars, up 25 percent again year over year. To give you a little color, radiation was 6 million dollars for the quarter, which is really obviously a relevant number, but we have seen some very substantial up tick. We have moved from 11 active accounts at the end of last year to over 80 accounts so far in this first quarter. We have contracts in place and dialogue in the system for approximately 170 accounts moving to our goal of approximately 200 by the end of the year. The utilization is exactly as we planned, approximately 24

per quarter per size and that is twice what is required for us for this to be an

for Guidant. Also there was some interesting analysis in our comp 100 Guidant

accounts. We

those that are

therapy or radiation, which I believe is a reasonable penetration and also understand that of all the agreements we have, 40 percent of them leverage our broader product line, specifically coronary stents.

Looking at cardiac surgery, 20 million dollars in the quarter, up 19 percents. Endovascular solutions, we did 32 million dollars, up 10 percent year over year.

I would like to now give you a status update on drug eluting stent programs that we have. One observation I would make our actinomycin-D experience, it did confirm the importance of getting clinical experience to determine how

a program was to be. We think we have that understanding both in Paclitaxel and some understanding by extrapolation with Everolimus. If we talk about the Paclitaxel distribution agreement, with Cook, Inc, if we look at the activities that were initiated just during this last quarter or since the beginning of 2002, we have done European filing at the end of January based on the eluting

study. Again not

to the approach that Cook also has used for their own filing in Europe. We were able to complete the enrolment of the deliver trial. We completed the enrolment of 1043 patients really in record time and part of that record time was due to the capabilities of the organization. Capabilities in that we were able to do the trial with 20 different combination of sizes and length as the capability of our implementation from a regulatory clinical standpoint, but also in terms of Cooks ability to provide that kind of breadth and depth or product line and the volumes required to do that in record time. We will report on the delivered in terms of the

data or the major advert clinical event next month at the Euro PCR in Paris. We also have reasonable expectation or I will say we are prepared for launch in midyear of 2002 or within the next two months. That is just consistent with our review of the regulatory process and the activities of others. We will complete angiographic followup, which will be occurring along the way as the patients reach their eight-month timeframe. We will get that done in early to mid fourth quarter. We will then do the SEA

and also in the quarter we will initiate the inspire trial utilizing the Pixel small-vessel stent with Paclitaxel. Our projected US approval date will be 3Q of 2003. We believe it is important for us to be able to have this ability on our European success, as we are able to launch the product and see the competitiveness of that product even before we are able to get to the US market.

If we look at some clinical trial results that have been developed and

in numerous settings, but I think probably are not as well understood. But one

is that as we look

diameter stenosis in three different trials, two of them done by Cook, Incorporated with the elute and the aspect and the third one with Boston

in terms of taxus while one can see really some pretty exceptional results. And the thing that makes this exceptionals is on a couple of fronts. One is that there were different stent platforms in each of these trials. Two of the trials did not use polymer, one of the trials did and the consistencies you see at the high dose levels is, one is able to obtain a 14 percent diameter stenosis, which obviously compares well to the 50 as reported in the

study. So, if you see there also is an excellent dose response relationship between the aspects and elutes product. Higher doses consistent with the Cook Guidant program on the

stent. It is also apparent that the ability.......... we need not have to have the ability to add polymer and as the durability, I think is amplified as one sees the clinical results associated with the delivery of these products. These observations may be unique to Paclitaxel and probably are. We also felt good about what was presented at the American College of Cardiology when they looked at the aspect data and what we were able to see for the first time with the

intravscaular ultrasound is that there was no difference from the control and stent mal acquisition. What is also understood is that the company has responsibility to have multiple programs in drug eluting stents and we have announced earlier the Novartis agreement where we have worldwide

exclusive rights to Everolimus products. The thing that I think is interesting in this regard is that each company had independently studied the application and done pre-clinical work and felt good about that data. Novartis will work with Guidant not only in supplying the drug, but also in preparing regulatory filings, systemic trials on this compound for us to have some sense and because of the clinical capability, the fact that Everolimus belonged to the same family as Sirolimus, we think is an important attribute. We anticipate human implant first during this year and we would expect to be able to launch in Europe in 2004 followed by a US launch in the following year.

as we had mentioned before in our Cook agreement of being each conversion from a metallic stent to a drug eluting stent will be worth 2-2.3 times from an operating income and this agreement will also be very positive. As you can expect, we will evaluate the intellectual property requirements in order for Guidant to participate with Novartis in this interesting indication and we are very confident with that situation.

If we move forward and take a look at where we are in terms of heart failure and contact CD, we continue to be very encouraged. The

review with the SCA. We are at the advanced stages of that review. There are no outstanding questions. We are in labeling discussions and we are finalizing the specific indications for use. The sales organization had been trained and the physician-training plan has been submitted to the agency and the agency is very engaged in that dialogue. Product inventory is prepared for full market launch. We currently have five months of inventory available to us or as some would say, If it sells as quickly as we would

. Interesting also when we look at how well product development is doing on within the category as well once the conclusion one would come to is our product development is outpaced our regulatory approval and that we have the renewal too prepared for launch in Europe in 3Q and the renewal be the first half of next year. We are already on the easy track two in the marketplace in Europe and next generation will also be within this year. In addition to our current pacing heart failure combination products, we will add to that product line as early as next year. So consistent with out financial guidance, we expect to have a contact CD and Easy

available to us in the US for a significant portion of this quarter. In addition to the heart failure application to encourage the growth of the implantable defibrillator, obviously the

trial has a potential of having a huge impact for us. As presented at the American College of Cardiology, there was also incredible national media coverage in the group and I did an exceptional job in that regard in terms of making patients aware. The publication in renewing internal medicine also is outstanding. We are currently awaiting FDA approval, which we have submitted in December end and they have stated that that will be reviewed on an

basis. The reason made

is important for a number of reasons. One is

that the patients are identifiable. There only requirements for benefiting from an ICD is that they had a prior heart attack and they had compromised heart function or ejection fraction less than 30 percent again on office based test, where we should be able to identify those patients readily. Also, when one looks at the trial, it was compelling. We had 31 percent reduction in all cause mortality vs. best medical therapy. The market potential implication is somewhat staggering. Understanding, in the US alone, we have 2.5m patients. If all of those were to get an implantable defibrillator at current pricing, it would be 55 billion dollars. From an estimate standpoint, we have doubled the number of current patients indicated, when we get the labeling for this indications, we will go to approximately 600,000 new patients a year, which would be somewhere between a 13 and 15 billion dollar a year the marketplace, if all of those could be identified and treated with today's therapy. Needless to say, whatever that number is, it is incredibly large number and bigger than we have experienced currently. It is also important, from a reimbursement standpoint, the CMS has ruled that payment decisions will be made on a local basis. We felt that was exactly were we needed to be. We need to make sure there was not a non-coverage decision nationally from CMS and I think also an insightful observation is the

patients will recover from a reimbursement standpoint.

If we take a look at the key advance for 2Q, not for the complete year, but only for the quarter we have to be in, I think it is somewhat

. We expect to have a launch of the INSIGNIA pacemaker and put some acceleration really around that product line. We do expect to contact CD heart failure approval and launch for the significant part of this quarter. The multi link data we expect to have a European launch and I would just use this it identify the ability to have a new platform each year within the stent business, has allowed Guidant to have the leadership in every quarter, but one since its launch in 1997.

We also believe that capability will be required for leadership in drug eluting stents. The ACHIEVE standard of drug eluting stent, we expect to have first international launch in the quarter and we expect to add to the

in the graph line during this quarter. Other significant events you may look for is we will we giving the US drug eluting stent may stay at the

PCR Paris course next month. In June, we are scheduled to have summary judgment hearings on the Boston scientific and Cooke litigation. Again we feel strong that the Cooke has the rights to have a distributor. We also, within the next week, probably should have a ruling from the Medtronic Guidant RX arbitration ruling, which could be insightful. We also will have a six-month follow up this quarter of the multi link vision, which is the cobalt chromium's event and we will also begin trials on a side-to-side branch

with the Frontier and we think the concept of lesion

has ended up being very important to the growth of this area. Because of all that activity, we think we will start a process of having mid quarter calls. We will schedule this one in the May 21-22 timeframe just following our annual meeting.

Finally let me share the guidance that we also had in the press release.

Our guidance for 2Q is to have sales growth of 10 to 13 percent, which would put us in the 720 to 740 million dollars sales range. EPS growth from the 25 to 30 percent, which would put us in the 48 to 50 cents a share range, and for the year, reconfirm our 19 to 22 percent earnings growth of 1.98 to 2.03 cents.

So, with that let me stop and we will take your questions.

If you have any questions,

using your telephone, press the star key followed by the digit 1. Your questions will be addressed in the order that you signal. Once again, that is star 1, please. First up in our roster is Matt Dodds with SG Cowen Securities Inc.

Good evening Ronald. A couple of questions

taking worldwide from

international. you are up 17 percent this quarter dropped to 2 percent minus 4 percent international. So, can you explain what the change was there on sequential basis? It doesn't sound like anything has changed regarding the contact CB timing, but I did hear that possibly your review and we have reviewed our change for the product. Can you say if that is true or not?

No. That is not true and on the sequential growth, again we don't typically get into it but here was a distributor purchase pattern in Japan. So, that is why you saw the international difference and there was a 3-4 million dollar difference there.

Thank you, Ronald.

Okay.

And moving on, we have a question from Rick Wise of Bear Stearns & Co. Inc.

Hi. This is actually Sheetal

.

We heard earlier this week that Johnson & Johnson is charging about 2,300 euros or 2000 dollars for the drug-coated stent in Europe. Do you have any reaction to that or any sense of what your pricing strategy would be in Europe?

Yes, a slightly higher.

Slightly higher?

Yes.

Can you give us any sense of percentage or anything like that?

One.

Okay. And second question. Can you break out your CHF revenues in the quarter?

No. We can't because as we move down the road, I am actually convinced that market is going to come together and what ends up looking like the implantable defibrillator and heart failure capability, it is going to be

to tell the difference where we have seen that in Europe and I think, it probably is more relevant on the

side, but I don't think the

application will be as relevant in the US. So, we have decided not to do that.

Okay. Thanks very much.

I do think that the observation is when one sees the substantially higher growth rate or somewhat substantially higher growth rate of ICD is in Europe having available the renewal and having available heart failure therapies is a substantial driver there.

We will take a question now from Michael N. Weinstein at JP Morgan Securities Inc.

Thanks. Can you hear me?

Surely

, Mike.

Ronald, maybe it is for you. I am afraid

ask in particular. This was the slowest growth we had seen in pacing in the last few years. So, maybe we can just touch on what we think is going on. How much of this was the timing of the INSIGNIA approval? How much of this is not having a pacing base resynchronization device and what would you be assuming on pacing growth in 2Q?

You know, I think it is really, if you look at it from the US standpoint, what it is, I mean 6 percent and it is not as aggressive as we were before and we had substantial competitive launches in the quarter and our launch will happen this quarter and you know, we will be back on track. I just really can't make much more other than that, Michael.

Do you have thoughts on the, just a question on whether or not the

in Medtronics has obviously

, their instant device is out there. Is that giving them more to talk about and

obviously, it has been putting a lot of focus on your pacing devices and now what made it to happen and your reps are probably focusing more on the ICD side, does that make it more difficult to execute the above market growth rates in pacing?

I don't know. I think the market growth rate, when you sum across, it may not look much different than the 6 percent that we had, but any time that you have more to talk about, I think and you get to access some places you did not have before. Something we are going to look forward to is we have to contact CD approval in that regard and I think, as we have continued to have pacing launches that will happen, but there is no doubt that, I think that I am slightly less robust in terms of what the

growth rate is from a market standpoint. Brady by itself anyway and maybe what we had experienced as a marketplace in the last two or three quarters.

Right, maybe just refresh it then since we have had a couple of, maybe the pacing growth is not what we

a couple of quarters ago, but the ICD growth is stronger. Do you want to give us what is in your overall assumptions for 2002 on both of those?

We think that our pacing will pick back up in terms of at least the sales level with the product launches. But you are absolutely right. The tachy growth and we are having, it is a hard thing for us to state with great

because just to

to itself, we think probably has this market growing already in that mid-to-high teens and it is going to accelerate from here and as the labeling and the publicity happens, I think, that is an improvement for us. Then we add on to that the heart failure indications and there will be continued acceleration as I think also some of the share

that will happen in that regard. So, there is no doubt. I think the thing that had been confusing to us is that we had talked for years and years talked about brady growing at the sixth percentage unit or four percent dollars than for the last year or so. Each of us was quoting, for the last year

numbers that were substantially greater than that and we have been double digit for about six years in a row. So, you know, I just don't have great confidence at this point of time.

Moving on now from Robertson Stevens, this is Wade

.

Hi. Could you give us an update on the companion trial please as relates to how many patients have been involved and when you expect to complete enrolment?

This is Jay. The current enrolment in companion is about 1,500 patients and that trial is anticipated to enroll 2,200 patients.

And any date on expectations on completion of enrolment, Jay?

Candidly, we have seen some fall off in enrolment as a result of the early terminations that made it to

by the same

, we are now seeing implants in enrolment begin to pick up. We are having a clinical investigators' meeting at the end of this month to re-invigorate enrolment, to get the trial close to our goal and it is an aggressive one I will admit is to try to have companion enrolled by 1Q of next year.

Okay. Thank you, and secondly just storking ahead on expectations per CE markings for the ACHIEVE and also the submission of the prism AVT here in the US, could you give us any update on your expectations there?

Well, on ACHIEVE, what we have said is that we are prepared for a mid-year

in Europe. We think that is very consistent with our filing at the end of January and understanding to some extent where others have filed and what their approval times are. So, we know that we need to be prepared for, as early as sometime in June to be able to go the marketplace with the ACHIEVE in Europe. So, we feel good about that. Prism AVT end of this year.

Okay, very good. Thank you very much.

Next, Glenn M. Reicin, Morgan Stanley.

Hi folks.

Good evening.

the six million dollar launch, first quarter, I want to know whether that is on track, how it is going to be ramped this year because I think, originally we were looking for something on 70 million, my quick

is right? That is one question. Second question is if you look at your competitive offering for conventional ICDs, it does look like you are the only supplier right now that has not introduced any product in a while, so when you use vitality, it is going to vitalize the product line?

On the

therapy, Glen, I believe, we are about, most around 45 million dollars at least in the US for

. We have, you know, seen this kind of huge step up, but obviously it is the situation of small numbers, but we generally feel good for sure about what the usage looks like on

and each month, I mean it is a pretty quick progression in going from 11 centers to 80 centers from Q4 to Q1, you can imagine what that impact is. So, we have got approximately 126 contracts signed and 170 that are really in the process right now, and we only expect to get to 200, so we should be able to bring them on board in a relatively timely manner. So, we are going to continue to see some pre

escalation quarters sequentially.

make any representations for the year?

Pardon me.

You want to make any estimates for the year at this point?

, we think 45 is a good number.

Okay 45. Okay.

Vitality

would be either very in the second quarter or very early third quarter in the US.

Thank you.

Moving on, this is Dan Lemaitre, Merrill Lynch & Co.

Hi everybody. Just two quick questions. One, could we just because of the heart failure trial timing and alike, could we maybe send some

strip out the heart failure numbers be underestimating the strength in your brady business and I am just wondering if that was part of the impact, why that slowed down, because either there was more companion stuff last quarter or more high powered stuff last quarter. So, can you, maybe just help us understand what the heart failure impact was last quarter vs. this quarter?

Well Dan, this is wrong. As I outlined on the tachy side

brady side. From the tachy side, because we are not knowing the CAPs or the clinicals in the US, we saw approximately a six million dollar sequential hit from Q4 to Q1. So, that gives you some sense that, that still doesn't answer your question broadly because we think that there is substantial amount of off

used that is going on now for heart failure indications

as soon as we get approval on the contact CD, we will be able to participate into real level of aggressiveness.

Okay. Just my last question really has to do with the

as a

I am sure you guys have been in the

in the sense of the way J&J is trying to blunt some of the criticism at the cost by trying off at the hospital, some global savings by doing some bundling and obviously you have to face that without a coated stent until you get the ACHIEVE. Any sense of aided reaction to that at the customer level and

, what kind of things you can do to overcome that, so you are not at risk to have some pull through sale taken away from you?

Well, you know, you think about it as the strategy wouldn't make much sense because the

is going to go up and try to participate at a higher value level, which makes, you know, some credible sense. You know, why kind of take the challenge of that and then try to make accommodation in the back door, because they have done a great job of taking the phase on and saying this is what the value that technology is. It is interesting in Europe. The dialogue is now accepting the best of the value now having to position the product so that it is used in a kind of site specific lesion with specific patients in a specific manner and now work their way through it and so, the concept of trading A for B is want to kind of defeat what you are trying to get down in the first

. So it is not something that we've seen much of to date. We think there was some leveraging trying to go on both in Europe and in the US in terms of some promises made and none of that came to fruition in terms of impacting metallic share. As I mentioned before, with International shares growing in units of 20 percent year-over-year that the International

very well.

Okay thanks.

Dan, I'd also

that we have plenty of opportunities to do our own bundle and so we can be competitive on that front without giving up too much. And from a European standpoint, Dan, we expect to be there in two months anyway. So, it is, you know, everything will be obviously short-lived and

is bright enough to know that those things only go in one direction and anyone that has going to

insightful enough of them to identify the value of this more power to them.

Okay. Thank you.

A question now from John Calganini at CIBC World Markets Corp.

Well. Hi guys. Just

out a quick question on

. There was some discussion when the data was first presented, about some portioning of heart failure. I think it was relatively minor, but the investigators expressed some concern about that. So, we saw, you know, obviously a tremendous improvement in mortality, you know, which we think will be the key driver there. But, did we ever get an answer on this progression of heart failure issue?

I think Dr.

answered that better than anybody else. He basically

it to these patients living longer. They are healthier. Their heart failure continues to progress and so you are going to see that because it is a degenerative progressive disease.

Okay.

It is nothing but nothing that was causative by the therapy and nothing substantial.

There seems to be some

. The second thing was, I wondered if you could comment on this article that was published on angioplasty in Community Hospitals and what your thoughts are on that topic?

In the New York Times article?

Yeah. Any thoughts on that?

This is Ginger. It is certainly the concept of direct angioplasty has been the best outcome for patients is something that we have supported and believe, we have generated substantial data first with angioplasty, being the first company and the only company in the field to do two randomized studies and submitted those, and got an indication for approval for direct angioplasty and then on supporting

and direct stenting, it has been our observation over the number of studies as was reported in the article as well that there is a very significant accumulation of data that says, getting people to the hospital to open up that blockage is great outcome and for every study that achieved

flow for patients with high quality angioplasty, the outcome

better for the patient. So, we are obviously pleased that someone else is demonstrating that same data. We had also at one point, if not current, but at one point, we did do an analysis that demonstrated that 67 percent of the US population will withstand an easily

major hospital in this country that did have surgical backup and the capability of doing 24-hour angioplasty. So, certainly there are some limitations, but I believe, in today's environment we are getting fewer and fewer, and in fact more programs are opening now to everyday in this country for

angioplasty and stenting and because of that, I think, direct angioplasty continues to get a good amount of information including the great results published by Dr Stone and

journals around

and direct stenting.

Okay. I think the point is interesting, because if you think about few such matters we just talked about, that made a trial and how we've identified a huge base of population that will benefit from the therapy we have to offer and now, we are talking about a continuation of this less than basic approach treating coronary artery disease looks to be again, I think, the goal standard and so this is a great competitive position for the corporation or the industry to be participating and I was able to make one observation. I think, Guidant is uniquely positioned in those two areas.

Okay, Ronald. Can I just ask more thing? The reimbursement, you know, we are talking with some of the people at CMS a little bit and it sounds like, you know what we are headed for in the US with drug-coated stents is a pass through code but that CMS is a little concerned that that almost lets the manufacturers write their own ticket. But is that where we are headed with this and will it be sort of a new technology pass through early on in the launch in the US and what kind of cost outcome benefit will the industry be prepared to show early, I mean, because I know you are plugged in on this kind of stuff. Can you shed some light on this?

Yes. It is kind of get to know that nowhere, it probably won't get

exactly to the new technology DRG and even if it did, it is not a pass through as such, because the negotiation has to be of CMS in terms of what that reimbursement level will be. My best guess is an ICD 9 code will be established and it will be mapped to a DRG or a price level that is not quite what the industry would like and that is just the way the world is, but it will be an advantage over where the institution is currently on reimbursement. So, I think it will be constructive. It will be positive, it will still put some pressure on the system in that regard but there is no doubt in my mind that CMS is being very responsive as people anticipate this substantial up charge and expense from the industry standpoint. The early case will be made for those patients that traditionally may have gone to bypass surgery. That if one thinks that you had a restenosis right in high teens or 20 percent per lesion and you were thinking about doing three lesions for coronary artery disease and one sums across that you are seeing, you know, why it bothers that you have not sent that patient to bypass surgery. The question now, if that number is kind of zero to five percent in terms of restenosis, then it may make sense to increase that patient population that is getting a drug coated stent as an example of that. And I think it is going to be relatively easy to show the cost advantage in that regard. So, that is where most of the industry conversations will be.

Are some of those studies being presented or is it just much too early to have that and how early, following approval, could we have this ICD

code established, do you think?

I believe you have the code established before approval.

Okay.

Moving on, this is Deutsche Bank's Cheryl Zimmer.

Hi there, Carol. Just a couple of quick questions. Could you talk a little bit more about the PTCA business and may be if you want to be US and International and whether you believe the trends we saw in the quarter are ones that you can reverse? And then the second question is would you be able to walk us through the change in sales growth? I guess, this quarter 6 percent and the second quarter 10 to 13 percent and it seems like you have lot of new products, but they are not going to be approved in time to a difference in the second quarter. And truly final question is that would you be willing to comment on the sales growth for the year?

I will ask Ginger will talk about the angioplasty piece but let me start with second quarter guidance. To tell you the truth, I think one can easily get to the sales growth that we have talked about because there really is not, if one thinks about having the heart failure approval during the quarter, one has the chance to have some acceleration plus you have got a new pacemaker line, going on to end the quarter. So, even though, it is going to be late in the quarter in terms of potential launch in Europe of drug eluting stents, but that won't be as impactful, but from a comparison standpoint year-over-year, it looks to looks to us as we had said, we only get guidance with whether we have 90 percent certainty around that it looks to us that 13 percent is very much within the mark.

Cheryl, comment about the angioplasty business, I do not believe there is a good deal of insight here in term of something radically different. We did see a little bit of what some of the volume standpoint, it is around 2 to 3 percent and various

our international markets did show some good growth in our

areas. We did have a little bit of erosion in our Japanese market. I think that truly affected more the revenues from the international prospective. But I do not believe that there is any substantial message there. We obviously are also

on our stent and drug eluding stent program including some reason-specific technologies like

, bifurcation, drug eluding stent program and we have not put in place a new roll out recently for a clinical

catheter. So, I think overall, the business is strong. We have good position. We saw a little bit of erosion in some volume in Japan and also in the US.

Ginger, do you have that total worldwide decline of 6 percent

US vs. international?

It is about equivalent. (Ginger)

Okay, then on the 2002 sales growth if you are willing to?

We essentially said and stated is that we are looking at double-digit growth for the year.

Hi good evening, let us focus on Japan if you could since we just brought it up, pacemaker sales I think were not that large last quarter, but given the new reimbursement I wonder how you are doing with pacemakers there? And also you mentioned in your comments that stents were taking share. Certainly

scientific loss to lot of share. Can you comment a little bit more and give us more granularity there? Finally, outside Japan, on drug coated stents, you mentioned as Pixel trial, any other complex

that are planned for the near term?

Not in the near term. Again we expect the Pixel to be in fourth quarter in the US this year again on a Paclitaxel. We do expect to do first implants on Everolimus. Did you ask the Japan question?

Yes.

What we essentially had at Japan and again it was a distributor ordering pattern and again we essentially had a 5-million-dollar reduction in our Japan

sales primarily just in terms of the ordering patterns of the distributor.

Okay and stents in Japan?

Stents in Japan were exceptional in terms of growing to a level of almost about 22 million dollars in the quarter. We are up about 12 ship links in the last year. About 10 of those in

star was introduced and that is our belief, Thomas J, that in the third and fourth quarters, that we will get approval on PENTA and PIXEL in Japan.

Great, thanks.

This question will come from Glenn Navaro at First Boston.

Couple of questions. First on the ACHIEVE in Europe, do you have contingency plans built in just in case your

authorities do not approve the ACHIEVE? Will you start a new trial there or will you use results from DELIVER? Second, have you had a chance to further dissect the action trial and we know sure now that the polymer was not the cause of the poor results and will this be the same polymer used with the Everolimus stent? And lastly, SG&A spend was up again almost double-digit. What is driving this increase spend we have seen now this in the last two quarters?

Let me start from the back and move forward. SG&A was up because of the sales and marketing piece of that was up 11 percent. The

was actually not drawing nearly at that level and we are continuing to expand our field operations as we started 18 months ago. And we have mentioned we have added 400 people to the field over that time period or approximately 25 percent increase. So, that is where that kind of Year-over-year comparison comes from. The other question in terms of is the back up plan first of all is to ACHIEVE. We have a back up plan for everything and sometimes you have got to have confidence on what you are going with works. We are actually confident that from dialogue that we have had with the agency and what others have also done now in our sales that Cooke, Inc. within our own program have done that this is a very viable approach because they are able to look at good clinical data and some good pre-clinical data, and given this is new ground for Europe even to look at clinical data. I think we have got some real certainty. The only uncertainty will be of exact time frame. On the

, it is exactly the same polymer and we do feel that the polymer is not the issue. We do feel good that if you think of Paclitaxel, we do have both non-polymer and polymer capabilities and products going in that marketplace, but from what we have been able to see in terms of our pre-clinical data doing polymer alone and watching that overtime now, we even have a greater amount of time than we had early on the actinomycin B and we can compare both drug versus nondrug. It gives us greater confidence in the polymer. Also the polymer is one that is used in other application, other vascular applications, where if one were to see some kind of reactivity to the polymer, it would have been obvious

applications that doesn't exist. So, we would say, we have high confidence that the issues we had around actinomycin B were drug issues, not polymer issues. Interestingly, some of the angiographic issues we saw with actinomycin B did not look significantly different and involve

with some of the radiation stent technology in terms of

which also I think, lead us to a drug only issue.

Just a follow up. You said that you added 400 people in the last year or so and most of these were CRM based I would assume. Are you pleased with their contribution? Are they ramping up in line with your expectations? We talked a lot about this weak pacing cells. Usually these reps get trained first on pacing. So, can you just comment - are you pleased with their contribution and ramp up?

I would ask Ginger to comment. But one of the things we have done a little differently, we haven't just gone out and hired competitive reps like our competition generally does and when you hire competitive reps, you kind of get the business on day one. We had said we are in this business for the long call and so we are going hire people that can be committed to the corporation and at the same time, we have tried to decrease the size of somewhat huge territories to give us better coverage in that regard. So, this is a somewhat longer process than one typically saw when you went out and hired competitive reps. We believe in this model. We track very closely to productivity of our newest editions. We feel very good about how quickly they are coming on board and as they look at this product offering during the rest of this year, we are convinced that was and is the right decision. Ginger you want to...

Yes, just a few more comments, we have added about 250 people to our US

organization and I do think that if you look at our CRM group, we have hired some exceptional talent and as Ronald mentioned, we are measuring productivity across the entire organization on a very regular basis. We are on track with our forecast for these new people. There is a good deal of training. So, a number of them were actually in training for a few months before they do get to meet the first customer, we want to make sure that they are adequately trained. And one of the things that I want to address about your comment is that we prepare them to be

certified in tachy and brady. So, we are working to make sure that this field organization is adequately trained for both segment as well as heart failure and they have been going through extensive training on heart failure in preparation for what we believe to be a very significant opportunity. So, if you look at the overall organization, I think it is a terrific group of people, we are very pleased with what we have added. As Ronald mentioned, we have estimated our very large territory reps to guide these new individuals and to give us account

, we are building those relationships. We feel like this is a great investment for the business and as we begin to see the tachy market come back from a very significant double-digit plus growth rate and heart failure approval, we do anticipate continuing our expansion to make sure they were adequately covering what could be a very substantial increase in procedures in this country and therefore the need to really add more talent like the great talent we just added.

We will continue now with the question now from Andrew J of Wachovia Securities, Inc.

Good afternoon. I have a three-part question. Can you break out the European and Japanese stent sales in hard numbers for us? Two, given that the express has been on the market after several quarters and its relative inroads, can you talk about your confidence given that both coming to market essentially with the Paclitaxel coated stent? And let me stop and make it a two-part question. Oh! What do

the clinical data that you used for rule out the Paclitaxel coated stent in Europe?

In terms of the clinical date that we

used on the roll out, in terms of stent business, international business, Europe is 33 million dollars and Japan is 22 million dollars. Japan is up 74 percent constant currency and Europe is up 3 percent constant currency. So, from the volume standpoint, which may give you the best handle from the competitive standpoint, Europe is up 13 percent in terms of volume and Japan is up 74 percent.

Other comment, express is getting market share in Europe. As you know, there are lot more players in that business in Europe than in United States. So, I have to first comment on who is our

from. But they are not getting it from us.

That was my agenda, thank you.

This question would be from Kirk

from Banc of America

Hi guys. Can I just ask a little bit more about the AAA? I don't think you have addressed it specifically. You talked about the total endovascular group. We figured that you are about 14 or 15 million and was that flattish sequentially? What would you have us do

we go forward. Do you think that you would get a nice progression as we go up through the year, is that coming back to life or was it a little bit disappointing this quarter?

It is coming back to life and the analysis is correct in terms of the volume essentially sequentially flat. We think we are seeing some kind of month-to-month really pretty positive changes in that regard. Jay, do you want to comment

As we

away back although our market share is about 30 percent that

rate continues to grow and we saw sequential increase in implant rate of 11 percent. We have seen a double digit increase in implant rate every quarter since we have been back in the market. In the first month of this quarter, which is traditionally a very soft month, implants were strong and very encouraging. I think, there is couple of reasons for that. One because of the way in which our long-term data is playing with divisions the other is introduction of an accessory about 7-8 weeks ago called dual past

which has really simplified the implants by eliminating the need for introducer and thereby reducing the print size by

size and in reasonably skilled hands, we are seeing a reduction as a result of

in implant time of about 25 minutes. (Jay)

Also as Ronald mentioned in his introductory comment, we are anticipating the ability to launch the aorta-iliac product. As we do implement

and then AI, I think we continue to put products in the hands of our sales force to sales force to train in service position and make it easier for them to do the procedure in the long-term basis to support the preference of the particular product for this procedure. So, I think the field is doing great job on bringing the product improvement out there and obviously what we need to do is to continue to demonstrate the long-term result of the procedure so that the market can work more and more to

than open.

I don't think I understood what you meant when you said implant was up a little bit, but sales sequentially flat, why this difference?

It is in April that we are seeing the and again we did see an 11 percent implant rate increase which burns a little bit of inventory, but it is the implant rate that is the best measure of how divisions are inviting the therapy in our product in particular and that continues to go up. Sales lags back a little bit, but will catch up as well.

Have you

anything in the last couple of months about made it to the first

of those new 300000 patients - any kind stratification or quantification of the patients as far as first to get the therapy?

I do not think that we have seen any kind of patient differentiation. Remember there are couple things here. One is that the thought leaders are moving on

that we have early signs that they are moving based on the data. It was just started on November 2

just 2 weeks ago. They are still not in approved indication for the

in the US and obviously is looking forward to that. The energy and discussion level in my experiences over the last several months is dramatically different. We were having discussions with physicians about the obstacles to identifying the patients getting those referred out of the offices of physicians who don't do these procedures going to an electro physiology evaluation and dealing with the

obviously was the point of the discussion and we were able to reach one outside patient in that framework as we mentioned with

to the astounding data help here is that you no longer have to talk about inducability and EP studies in a referral for an uncertain outcome. What you have to do is identify a patient who has had a heart attack and then you can do an in-office assessment of their ejection fraction functionality and then immediately identify the patient. So, I do believe that the physician community is

about the implications of this. We are

as industry adhere the resort

because we think that it is

. And I do believe when we are able to more actively educate, promote, and inform that it will cause this to happen. We do think the penetration of these patients can be higher than what we have seen historically with the fibrillators because it is not easily identified and you do not have to wait for the other barriers to be taken down before we can treat these patient.

But I think the observation being, when one talks about stratification as I mentioned earlier in Europe time to decide which patient, which lesion, which vessel to use the drug eluding stent from an economic stand point, we are not hearing the same kind of conversation. There is very little to put your arms around and

how you discriminate other than the patient had a prior

of left ventricular. So, I don't know whether we are going to see any stratification, segmentation just if these patients are identified and bring the therapy.

I think, good news is that we can work for to the entirety of the new group being implanted?

I think that is right.

Okay, thank you.

At this point, we will be able to take one more question this evening and that will come from Ben Andrew of William Blair & Co

Great! Just briefly wanted to followup on

side. I know you guys are not going breaking that up. You got a pretty good sense on assuming how many LV leads you are selling. Can you give some sense on what is going on within the

business?

Two things. One is there is incredible

for use. And again we think that both very nicely as soon as we get an approved product and we will probably getting some of that off label to use ourselves. But not nearly to the extend where we will be able to catch it when you have the device that has the kind of lead system capability that contact CD

will have. So that is really the bigger than the heart failure number out there today in the US, based primarily on clinical trial, for sure it was in the ICD side. So, we look forward to participate in that. We do know at what level of sales level we are at.

Can you give us some sense on the percentage basis going into the launch?

It essentially doesn't exist in the US on ICDs and

and accounts for the vast majority of growth in Europe. But I am not exactly what we are going to do with that other than be excited that the growth rate in the field will increase substantially or build even on top of the made it

and Guidant will be in a more competitive position to participate in the soft label use from day one.

Could you say something about duel chamber side?

Our estimates are about 600 a month.

Is it not for you?

Well, in total, because we are getting some of those ourselves but not our fair share.

That will conclude the question and answer session. I would like to turn things back over to our conference host for any additional or closing remarks.

Again, it is Ronald. We thank you so much for the attention. We feel good about the quarter and in terms of being here to make the financial performance being able to give you some guidance in terms of going forward and identify the events around - drug eluding stents and also heart failure and made it too. As we said because there seem to be so much happened so quickly. We are going to start doing a mid quarter review with you and as I estimated it should follow our annual meeting. So it will be on either 21 or 22 of May.

That concludes today's Guidant Corporation's conference call. Again thank you all for joining us and happy good evening.