Boston Scientific Corp (BSX) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the financial results for the second quarter conference call.

At this time all participants are in a listen-only mode and later we will conduct a question and answer session.

The instructions will be given at that time.

If you should require assistance during the call, please press star, then 0.

And as a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Chief Financial Officer, Mr. Larry Best.

Please go ahead.

Thank you and good afternoon.

Our focus of the day is the second quarter results.

If you recall, this is really an update from the preliminary results that were reported and discussed several weeks ago in our mid-year conference call.

As a result, this conference call will be somewhat abbreviated because we had a pretty exhaustive call several weeks ago.

On the call with me today is Jim Tobin, our Chief Executive Officer, also on the call is Paul LaViolette, Head of our Cardiovascular Group, as well as Steve Moreci, Head of our Endosurgery Group, and I also asked today to be on the call, if there are any questions for Paul Sandman, our General Counsel.

So, we will have a number of prepared remarks here and really as I mentioned, abbreviated and then turn it over to the folks on the line for any questions you might have.

And we'll do our best to try to answer them.

Before we begin, let me ask Paul Donovan, our head of Corporate Communications, to read the Safe Harbor.

Paul?

Thank you, Larry.

This call contains forward-looking statements.

The company wishes to caution the listener that actual results may differ from those discussed in the forward-looking statements and may be adversely affected by, among other things, risks associated with new product development and introduction, clinical trials, regulatory approvals, competitive offerings, intellectual property, litigation, the company's relationship with third parties, the company's overall business strategy and other factors described in the companies filing with the Securities and Exchange Commission.

Thank you, Paul.

Let me begin by just summarizing what's in the press release, on the results for the second quarter, as finalized in recent days.

Today we reported net sales for the second quarter, came in at $854 million as compared to $708 million for the second quarter of 2002, an increase of 21%.

Excluding the favorable impact of $40 million of foreign currency fluctuations, net sales were $814 million, an increase of 15%.

Net income for the quarter, excluding net special charges, increased 33% to $126 million or 30 cents per share diluted as compared to $95 million or 23 cents per share excluding net special charges in the second quarter of 2002.

Reported net income for the quarter, including special net charges of $12 million after tax was $114 million or 27 cents a share as compared to reported net income of $25 million or 6 cents per share in the second quarter of 2002.

The net special charges for the quarter included purchased in process R&D costs related to recent acquisition.

The amount was $12 million after tax or 3 cents per share.

Attached to the release that we put out this afternoon are detailed supplemental schedules detailing out our sales by division worldwide and our sales by geography worldwide.

So, hopefully you will find those helpful.

For purposes of your modeling and getting your records accurate on the second quarter, let me provide some additional numbers that some of you use just for your reference so you can continue to do your modeling.

What I will start with very quickly is with regards to worldwide numbers: Let me breakdown the cardiovascular number for purposes of your modeling.

The cardiovascular number for the quarter came in at $532 million, compared to $431 million, up 23% from the prior year.

It was broken down by interventional cardiology sales of $386 million, compared to $294 million in the prior year, up 31%.

Also in the cardiovascular group, sales peripheral interventions came in at $123 million, compared to $114 million in the prior quarter -- second quarter prior year.

And then thirdly, vascular surgery came in at $23 million and that was flat with the prior year of $23 million.

So, hopefully that will give you the numbers, the breakout of cardiovascular on a worldwide basis.

Moving to international numbers, and then by process of elimination, you will be able to determine the domestic numbers.

Interventional cardiology in international was $187 million.

That compares to the prior year of $139 million, up 35%.

Peripheral interventions international, $41 million versus $32 million, up 28%.

Vascular surgery, $11 million versus $9 million, up 22%.

And that should add up to cardiovascular international $239 million, compared to $180 million in the prior year, up 33%.

Additional franchises, electrophysiology was $9 million, flat with the prior year, $9 million.

Neurovascular international was $36 million, compared to $29 million the prior year, up 24%.

And that gives you a total -- total cardiovascular group international, $284 million, compared to $218 million on the prior year, up 30% as a group.

Moving on to endosurgery, oncology was - came in at $18 million, versus $15 million prior year, up 20%.

Endoscopy came in at $58 million, versus $46 million, up 26% and urology, $12 million versus $9 million, up 33%.

That adds up to a total international endosurgery group of $88 million versus $70 million in the prior year, up 26%.

Overall, international came in at $372 million compared to $288 million in the prior year, up 29%.

With that, let me turn it over just briefly before we open it up for Q&A.

And let me remind you again, when we get to Q&A, Jim Tobin is available, we have Paul LaViolette, Steve Moreci and Paul Sandman.

But first, before we go to questions and answers, let me ask Paul LaViolette to, even though we gave a pretty elaborate update I think two or three weeks ago, let me ask Paul if he has any additional update on our biggest program and product, that being Taxus.

Paul?

Sure, Larry.

Just a few highlights coming out of our international launch activity and starting first with Europe, we've made continuous progress since our last report several weeks ago.

We believe we exited June in Europe with a market share of 54%, based on the penetration rate that reached 14% in the quarter.

And -- and continuing to show the progress of about 1% per month throughout the quarter.

Penetration showed some minor upticks and has made some steady progress, probably led mostly by Spain and Portugal, which we now think is about 33% penetrated.

The U.K. is about 23% penetrated and as you're aware, France has approved reimbursement and we expect France to begin probably toward the end of July to increase penetration there.

Market shares for Taxus generally increased steadily throughout the quarter, exiting May at around 42% and, as I'd mentioned, June at 54%.

So, we believe we made fairly significant progress throughout the last month of the quarter.

We believe we now have market shares of greater than 85% in the U.K. and in the nordic region, the four countries that comprise the nordic area for us.

Iberia, Spain and Portugal, as I mentioned, we expect it to begin to grow with this delayed impact because of tenders and consignment.

We believe we now hold a 47% market share in that area.

And then the mid-size countries in central Europe, a basket of seven or eight countries, including Austria, Switzerland, the Netherlands, Poland, we believe that group now represents a market share for Taxus of 64%.

So, things have made considerable progress.

We continue to forecast modest penetration gains for drug eluting stents in the aggregate, we think we'll see another point, up to 15% penetration in July and we also expect to see share gains throughout the quarter.

Intercontinental has been a similarly active region.

The market share that we hold in units as of the end of the second quarter, in those countries where we have launched the product, has grown to 72%, up from the low 60 percentage point area in the beginning of Q2.

Penetration is continuing as new countries are added.

We think penetration increased about 4 percentage points in June.

Market share highlights there include: 60% or greater market share in every market that we serve with the exception of the Australia/New Zealand market, which, as you're aware, we only opened up two weeks ago.

In those markets, in Australia/New Zealand, we believe as of today we hold about 70% market share gained in these last several weeks and that's from markets that are 44% penetrated, so, significant share in significantly penetrated markets.

We believe across all of intercontinental that we hold no less than 60% share in markets such as India, Mexico and Brazil and no less than 80% market share in other major markets such as China, Turkey, South Africa and the southeast Asia region.

If you add all of our international markets in total with no markets excluded, so, this therefore includes markets such as Canada, where we have not yet launched, we believe Europe intercontinental combined we hold 53% of the drug eluting stent market and that's approximately 8 weeks after we commenced our unconstrained launch and throughout these past weeks and as of today we have no back orders on the Taxus product.

Very briefly, clinical update, Taxus 5, which is our only significant ongoing clinical activity, enrollment continues.

We've enrolled about 970 patients to date and we've also initiated 16 sites for the in-stent restenosis arm and then, just very generally, all other operations and the other success factors for Taxus, including our interactions with the F.D.

A., remain essentially unchanged from our update of several weeks ago.

And on target for our projected time line.

So I'll conclude my comments there and I'll turn it back, Larry, to you.

Thanks, Paul.

Why don't we- uhm, uhm, go right directly to any questions that you may have and I'll turn it over to Laurie to help me out.

Ladies and gentlemen, if you wish to ask a question, please press star, then 1 on your touch-tone phone.

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And as a reminder, if you pressed star, 1 prior to this announcement, we ask that you please do so again at this time.

It's been requested that you limit yourself to one question and one follow-up question.

For any additional questions, you'll need to queue up again.

One moment, please, for our first question.

Our first question is from the line of Steven Greer with SG Healthcare Fund.

Please go ahead.

Hi, can you shed some light on the discussions that's been going on in the last week or so with the Department of Justice investigation and so forth?

Well, that's why I had Paul Sandman on the phone.

It's kind of a general question, but, Paul, maybe you could give a summary.

You're aware of some of the discussions in Wall Street about the increased activity with regards to the Department of Justice inquiry that's now almost five years old.

So, maybe you can respond by summarizing our interpretation of where we're at with that inquiry.

Again that's almost five years old.

Sure.

The investigation is continuing.

I think is -- is really the main event here.

The focus continues to be on events related to the sale and recall of the (Sox) product in the late summer and early fall of 1998.

The process has involved a regular issuance of subpoenas by the Department of Justice for documents and witnesses, both from the company and from third parties.

And...that activity seems to be ongoing.

Okay.

Thanks a lot.

Paul, maybe you can at least give a little clarity as to at least what your best guess or -- or expectation is to -- to -- is this something that will be clarified and put to bed in the next month or two?

Or is it something that will take a little longer for clarity on?

What's your best guess?

At this point it's a little hard to say.

We have voluntarily extended the statute of limitations for a period that is not definite at this point and it looks like the process could, for that reason, extend through the end of the year or perhaps even beyond.

Any -- next question, thanks, Paul.

Thank you, our next question is from the line of Dhulsini de Zoysa with Fulcrum Global Partners.

Please go ahead.

Good evening.

If I may just a follow-up on that last question.

We're aware of a sealed case that has been brought by the government related to this.

Can you comment or are you aware of the extent of that investigation?

Is it limited to the near recall?

Or is it more broad-ranging than that?

And I have a follow-up on your market share comment.

I'm sorry, I didn't understand the reference to a field case?

There, I believe, is a case brought...in Massachusetts, I believe, that's sealed, it's not open --

Oh, a sealed case, I see.

A sealed case.

I'm wondering if you're aware of sort of the -- the scope of that investigation and case.

We are aware of -- of what is evident from our own interactions with the government and -- and what we learn from third parties about their reaction, which -- which is probably not exhaustive.

The investigation has covered a lot of territory, frankly, in the nearly five years it's been running.

And in addition to the events in the fall -- late summer and early fall of '98, probably the other issue that has come up concerns our relationship with (Medinal), which supplied the stent which was the subject of launch and recall.

Okay.

So are you saying that that the scope of that case is beyond just the near recall...

Or?

I can't, we -- we only know what -- what we learn from our own interactions with the government and what we can surmise from that.

And -- so, I really can't conjecture on whether there are other things that may be going on here.

Okay, that's fair enough.

And then Paul, for you, just one question -- in the release, the comment on market share is -- let's see, unit market share leadership and that just caught my attention.

The market shares you were just going through, is that dollars or units?

And would there be a significant discrepancy one to the other?

Well, good question.

We reported in units because that's the easiest thing for to us try to track.

Of course, there is not a lot of disclosure about average selling prices from either competitor.

So, we start with the consumption of stents.

You know, you're dealing with a -- a significant price premium, so, ASPs would distort the overall market as you start to add drug-eluding stents and bare metal stents together.

So as we build our market models we start with the total stent unit per country.

We then factor in the penetration rate, which is the percentage of procedures and stents per procedure that have converted to drug eluding stents and then we very quickly calculate our share of that market.

So it's easier for us, clearer to for us, I think more accurate for to us focus on unit share.

I will tell you that there is, in my observation, relatively little difference in the average selling prices, so, if you looked at the dollar share and tried to calculate that, I don't think those shares would be off the unit shares by more than a few points.

Okay.

Thank you.

Our next question is from the line of Robert Faulkner with Prudential.

Please go ahead with your question.

Thank you.

Just on the -- the lovely legal theme, I wondered if you could update us on recent Medinal patent cases and the J&J patent case?

Paul?

Sure.

On the Medinal front, we -- we did have the case in Germany in which we were found to infringe one utility model and one patent.

There were five other pieces of intellectual property that - where we didn't have adverse verdicts against us and we are appealing the -- two on which we lost.

There was also a cancellation proceeding in Germany with regard to the utility model.

That proceeding has been initiated by J&J after they had lost a case with Medinal and us couple of years ago and in that proceeding the utility model was upheld.

And our view, basically,in Germany, is that we do not infringe the patent literally and if the patent is interpreted in a way that covers the Express, then the patent is invalid because it would read on the prior art.

And we think we're going to be able to find a German judge that agrees with that because we -- we think it's pretty strong argument.

On the horizon with regard to Medinal, in October we have a -- a case they've brought against us in the Netherlands.

The hearing there is mid-October, I believe, and in mid-November there is an opposition proceeding in the European patent office on the patent that's involved in Germany as well as the Netherlands.

On J&J, I'm speaking to you from Wilmington, Delaware, where we have a hearing going on in which Boston Scientific and J&J are seeking preliminary injunctions against each other on their -- each of our drug eluting stents.

That hearing will conclude tomorrow from our point of view, the hearing is going well.

My expectation is that there will be a post-hearing briefing schedule and that any decision by the judge will not occur for some period of time after that is concluded.

Thanks.

What do you think the range of implications of these cases is?

And maybe if you could outline some of the worst case scenario from a business perspective?

So, what you will or won't be able to sell?

Or, et cetera, I don't want to put words in your mouth?

Which cases?

Really, all of the above.

Medinal, J&J...

The worst case scenario, I suppose, is we could lose them all.

I don't really have any expectation at all that's going to happen.

Right.

But what are the business implications, you know, for example, do you think it's royalties, do you think it's an injunction, cross license...

Yeah, yeah, Rob, that would be pure speculation as to how you could settle these cases.

We would have to speculate on, you know, how a court would rule.

,You got different jurisdictions and I think the most important thing as Paul has pointed out, we feel real good about our position in most of these cases.

And we do not expect to see the worst case scenario.

I don't think in any of them, but let me not put words in your mouth, Paul.

Maybe just kind of the best you can, put a realistic perimeter on, it as opposed to going to, you know, what happens if the Sun never shines again.

Right.

And I'm just trying to quantify it, obviously, not that -- not that -- not the worst case scenario --

It's not productive to talk about the worst case scenario.

You know, it's productive to talk about what is realistic.

Uh-huh.

So, maybe refer to -- respond to that, Paul.

Yes, in Europe we, of course, have a very small presence in the German market and we have developed a mechanism that we believe will enable us to continue to supply Taxus and Express products to German customers who desire them.

With regard to the Netherlands case, based on the outcome of -- or the decision in the recent Medinal / J&J case, our expectation is that even if we were to lose that, which we don't think is going to happen, the impact would be limited to the Netherlands, which, again, is a -- a pretty small area of activity for us.

Okay.

I'll leave it there.

Thank you.

Our next question from the line of Dan Lametry with Merrill Lynch.

Please go ahead.

Mr. Lametry, we have your line open.

Do you have a comment?

I'm sorry, can you hear me now?

It's that mute button thing.

Paul, just one follow-up question and then I have a question for Jim.

But the action you were talking about in November, is that the equivalent of having a patent re-examined?

And if that's the case, what would be the likely timing of -- of anything that came out of a re-examination?

It's -- it's kind of a combination -- it's kind of an invalidity proceeding, Dan.

And the range of options include revisions to the patent or revocation of the patent...

Or some combination of that with respect to the various claims in the patent.

My recollection is that the opposition group generally decides on the outcome at the hearing and supplies a written decision some period of time afterwards.

Okay.

Thanks.

Jim, since this isn't going to be a numbers call, thought it might be a good time to ask a strategy question for you.

And I'm just wondering if you can kind of roll the clock forward, and I don't mean to put the cart before the horse here, but let's say the whole Taxus thing plays out the way it looks and feels like it may.

And you guys do emerge in the U.S. and sell a lot of stents here, earn a ton of money and get toward '05, and your earnings power is substantially higher and the market is penetrated and you do face the prospect of competition.

All of which will be incredibly good if it happens, but I'm just wondering, how do you talk to your Board?

How do you think about, how should we think about the reinvestment risk in terms of what are you going to do with the money?

And how do you keep it from looking like getting to an end of something like this and not having a lot of visibility as to what comes next?

Yeah, a couple of comments, Dan.

First of all, we have doubled our R&D over these last few years and that's -- that's bearing fruit.

Secondly, we've been investing 600 million bucks a year more or less on tuck-in acquisitions and those things are going -- I would say very well.

And so there's -- there's pipeline behind- sort of life after Taxus.

On top of that, we have -- we have -- we have aspirations to broaden our footprint and we may find ourselves in the fortunate position of being able to do so in the not so distant future.

So, those are the kinds of things we would think about, of course, it always takes two to tango in that regard and those kinds of things happen or don't, you know, depending on the Sun, the moon, the stars, everything lining up.

It comes under the heading of, you know, we will see if that happens at all!

But basically I don't think that the post, sort of, '05 time frame is going to turn out to be nearly the air pocket that people are making it out to be.

Okay.

Thanks, you guys.

Our next question is from the line of David Bouchey with Unterberg Towbin.

Please go ahead.

David Bouchey, Ph.D.: Thank you.

I noticed it didn't take you guys very long to get market leadership in Europe.

Hopefully that means you can get Jim's plane fixed!

Paul, I had a question for you, I'm hearing some antidotal evidence that the Courtis division is diverting stents away from the European and intercontinental market in an attempt to kind of shore up their supply problems in the U.S. market.

Are you hearing similar kinds of stories?

No, I haven't heard that nor have I seen any particular evidence of extreme supply problems.

I will say if there's a diversion of stents in the United States, I haven't seen any evidence that they're more plentiful.

David Bouchey, Ph.D.: Okay, thank you.

Our next question is from the line of Wade King with Wells Fargo Securities.

Please go ahead.

Hi, good evening.

Two questions, please.

First, could you give us an idea of the programs that you're implementing in Europe to help drive that (truckalony) penetration rate up to a higher level given your strong dynamics in that market?

And second for Paul, could you please detail for us a little more specifically, how are you coming up your unit most stellar volume numbers by market in Europe given I'm not aware that J&J is releasing that kind of data by market.

And there's not IMS data certainly detailing the various European submarkets.

I know you can get certain data from specific hospitals, but they're kind of fractionated.

So could you just give us a better idea of where your figures are coming from, please?

Sure.

Well, both questions link.

We're -- we build the market account by account.

We know exactly-- and of course, we do have major stent data and there has historically been a collaborative database contribute -- with actual data contributed from the four major stent suppliers that's been rolled up and provided us with a very clear glimpse of unit markets and market share.

We have then been able to take that and triangulate it against our own data to build country-by-country specific databases.

We then, clearly have, I think fairly good alignment with J&J on basic drug eluding stent market penetration numbers and we, of course, know that by country based on whether or not drug eluding stents have been reimbursed.

We know, obviously, what accounts we have gained business in.

Obviously prior to our launch, the accounts that J&J had gained penetration and were highly, highly visible to our sales force.

So, when you canvas the market as comprehensively as we do, it is not difficult to calculate these -- these numbers.

We have great coordination between our sales organization and our financial organization and I will tell you all the numbers that I convey to you are fully edited and passed the sobriety test, if you will, of our financial organization.

These are not raw sales numbers.

They are fully scrubbed and they are triangulated against all of our market models so we're not finding that the market is, you know, 120%.

So, I feel very comfortable.

I will tell you that we're trying our best to be fully forthcoming.

We've been disclosing, although I didn't go into the details on this call, market shares and penetration rates essentially by country so that if there is any concern about the accuracy of our information, we can get into that discussion but to my knowledge, there really hasn't been any pushback.

So, I'd say we have a very comprehensive set of approaches and we're probably not very far off.

In terms of penetration, it does essentially get down to the money.

Individual countries fund it as a function of their healthcare system, fund drug eluding stents.

And those systems where there is a division between public and private funding, the private institutions follow, you know, basic insurance patterns, much the same way a non-Medicare provider would in the United States.

So, our job is to build cost-effectiveness information and to -- to market cost-effectiveness data along with, obviously, clinical outcomes, to payers, whether those payers be at the government level, as in the case of the NICE institution in the U.K. or at the National Healthcare System level in France or Belgium or at the Regional payer level in most of the other countries.

And that's basically how we do it.

It is a field level, execution job, using cost-effectiveness data to the payer be they government or private.

Thank you very much.

Our next question is from the line of Bruce Jacobs with Deutsche Banc.

Please go ahead.

Bruce Jacobs, CFA: Thanks.

Paul, I'm wondering, would you hazard a guess as to the dollar amount of drug eluting stents outside the U.S., in the entire market, just to give us a rough sense of what all these share numbers mean in terms of dollars?

Well, we haven't been releasing our sales, nor has J&J.

I think what I prefer to do right now is just really stick with the unit numbers.

I think what we said on prior calls, Bruce, was we're going to be very open with Taxus worldwide numbers once we get into the U.S. for probably a matter of two quarters.

And somewhere around there we'll start delineating and dissecting our total stent numbers.

But in the meantime, you know, we don't think it makes a lot of sense for competitive reasons and the numbers are not yet material so, when they become material we'll be dissecting them for you.

Bruce Jacobs, CFA: Okay.

Fair enough.

Then just one other question, can you give us an update on the Express fix that you had I guess filed with the FDA some time ago and the timing of getting that resolved and the new stents out there on the market?

Sure.

I think, Paul, you probably have an update on that.

Yeah, I do.

There, haven't been actually much of a change.

We have been interacting fairly routinely with the FDA.

I don't mean to convey that it's daily, but every once in a while we have a question and we provide an answer.

The most recent request, maybe one of the final requests is for some form of post-market follow-up in an effort to measure and determine the benefits gained by the change.

Quite frankly, with a failure rate in this particular area of 1 in 7,000, we're having a difficult time coming up with a means that's going to be highly accurate, but we've proposed one.

So, the -- the issue remains at the same extraordinarily low and stable rate.

It basically is not much of a factor for us.

It hasn't been an issue in the marketplace.

I haven't gone into this, but our market share for Express has remained, you know, rock solid steady 25%, plus or minus a point, in the United States, bare metal stent market and we still expect to get approval anytime.

It's been a difficult regulatory process because we have been under this real-time review approach and -- and yet it has -- it has been a bit amorphus for us.

Bruce Jacobs, CFA: Fair enough, thanks, guys, appreciate it.

Our next question is from the line of Glenn Novarro with Banc of America Securities.

Please go ahead.

Thank you.

A quick question for Paul Sandman then for Paul LaViolette.

Paul Sandman, can you update us on the Medinal key in the U.S.?

And am I correct to assume that the U.S. case does not involve a patent enrichment?

And then for Paul LaViolette: Any sense of when we would get an FDA panel for Taxus?

An then can you maybe discuss a little bit the longer term development plans for Taxus?

Are you guys working on a stent beyond Express that would include a different alloy?

Thanks.

On the U.S.

Medinal case, you're right, Glenn, the case does not involve patent infringement.

In terms of the status, over the next month and a half or so, the parties will be briefing some rejudgment motions.

Our expectation is that the judge will hold a hearing on those motions sometime later in the fall and reach a decision subsequent to that, but there has still not been any trial date set.

Okay.

So -- so in the U.S., again, you know, you never want to talk about worst case scenarios, but in the U.S., if you lost the Medinal, there's no chance of that actually being in the market, is that correct?

I don't see that as -- well, no, they have asked, I think, that we be prohibited from selling the Express.

Their theory is not patent infringement.

It's that we copied their trade secrets.

I don't frankly think that theory is going to hold up.

Okay.

All right.

Great, thanks.

Glenn, in terms of your second question, first of all on the FDA panel, we don't have a date and it's impossible to say.

It's not atypical for the FDA to assign a panel date around 100 days after submission.

So, we're sort of gazing toward that.

I would say we're fully engaged in a panel preparation process right now.

And -- and we would hope that we might have a panel sometime in the fall, probably around about the October time frame, that's totally a guess on our part right now.

In terms of long-term development plans, we are very engaged in long-term development plans.

We have previously disclosed that the next generation stent platform is the Liberty platform, a very novel geometry as with Express, again, entirely developed within the walls of Boston Scientific.

It is an ideal sort of symmetrical, extraordinarily conformable and deliverable stent geometry, which will have somewhat thinner walls and -- and looks -- looks great.

We also do have alloy platforms that we will employ in the Liberty in subsequent iterations, but I will tell you that we are not limiting our development portfolio to that, we are obviously working on the ongoing development of paclitaxel dosing alternatives.

We have a pipeline of new polymers, new drugs, we're obviously continuing to evolve delivery system technologies which is one of our great strengths.

So, we -- we have a very robust long-term pipeline and -- and included in that, clearly, will be stent improvement.

Okay, great, thanks, Paul.

Our next question is from the line of Mike Winestein with JP Morgan.

Please go ahead.

Yeah, thanks, guys, actually first quick follow-up on the last question.

Paul, the Liberty filing relative to the approval, when would that be?

In the U.S. it's likely that with paclitaxel, we would need at least registry data.

We haven't secured the final requirements and therefore we don't have the final timeline, but my guess is we will need to do a registry in a nonrandomized registry with a new stent in a proven drug.

That won't take that long, and then we would have the PMA supplement route, which would be 180 days.

In terms of number of patients it would be similar to what J&J is talking about, would be a few hundred patients and then follow-up being how long?

Well, probably up to maybe 400 patients.

I don't have a follow-up number and I -- I don't know.

There are strategic questions in there, so, whether they really will expect, you know, efficacy data as if it were a nonfeariority trial or would they really be looking primarily for safety data?

If it's a safety trial, we may not need to produce long-term data.

We don't have a final answer to that yet.

Okay.

Paul, you haven't touched on the internal peripheral program with the paclitaxel.

Could you just update us on where that stands?

Yes.

We're doing two things: One, because the peripheral applications will be focused in those vascular systems that are primarily dependant upon self-expanding stents, we're doing all of the technology development associated with polymer refinements and delivery system refinements so that you can deliver a self-expanding stent with a polymer on it and we're making great progress there.

And then the second part is really to validate in the different vascular beds, in preclinical models our dosing approach and we're currently engaged in that, as well.

And are you set on the polymer at this point?

Or not?

We're set on the polymer itself, but the polymer has different characteristics as a function of drugloading and because you're dealing in self-expanding stents with constraining delivery systems, usually typically sliding membranes that have to move over the polymer, you're dealing with polymer on polymer physical challenges that simply are different from what you have with a balloon expandable stent in the coronaries.

Sure, sure.

Last question.

Jim, maybe this could give you the opportunity to expand on one of your responses earlier.

You made the comment that you thought the post-2005, I think you called it an air pocket, wasn't going to be as rough as some on the Street were indicating.

Maybe you can just elaborate just a little bit on your thoughts on that?

Well, simply that first of all, I think that we haven't introduced our last coated stent.

Secondly, we've -- we will be able to spend a lot of R&D money and we have, over the last few years, found those investments to be productive.

And so I think that you're likely to see some things popping out of the pipeline here.

You know, there hasn't been a word said all this whole session on endosurgery.

You know, that's an area where we have a lot of room yet to grow.

And we have some things cooking there that we haven't talked about very much that could be, you know, $500 million opportunities.

So, I think we're going to surprise you with that.

We've stuck to the Taxus theme now for quite a long time.

Because, frankly, that's all that matters in the short-term.

It doesn't mean it's the only thing we're doing.

Very good.

Thank you.

Our next question is from the line of Larry Keusch with Goldman Sachs.

Please go ahead.

Yeah, hi, good afternoon.

Two questions.

First for Paul Sandman.

I just want to make sure I understand, on the European patent office relative to the, you know, the Netherlands case, et cetera.

I just want to make sure I understand the potential timing for -- you talked about that October hearing and where the -- the Euro PTO decision could come because what I'm trying to figure out is if you -- if you lose in the Netherlands and the PTO hasn't ruled yet, could you potentially be enjoined until there is a PTO ruling?

So, that's question 1.

And I guess question 2 for Jim is: Maybe you could talk a little bit, you know, since you focus a lot in on manufacturing, sort of what your yields are now running for Taxus in Europe?

And again, how do you really make sure, just given the volumes that are going to be necessary for the U.S., that we don't run into supply problems, obviously that J&J's had.

And I know you don't have the same polymer issues, but if you could just talk to tactically how do you deal with that?

Larry, on the Medinal front, the sequence of events here is that the hearing in the Netherlands is in October.

The EPO proceeding is in November.

The Dutch court will not announce its decision until six weeks after the hearing.

So, my expectation is that the EPO decision would be available prior to the issuance of the decision by the Dutch court.

As for the manufacturing stuff, glad you asked!

Here's where we are, there are really two issues with what we do.

There's making the product and there's testing the product to show that it's what we meant it to be.

It turns out that the testing has been more of a challenge than the making.

The making was a big challenge, but the testing turned out to be an even bigger one.

On the making side, we are -- our yields are now better than anything we had modeled say six months ago.

And so yields are -- are at this point really no longer an issue at all.

The testing has -- we were losing more in testing than we were in production at one point.

We have now had a run of weeks without losing a single batch on the -- on the testing side.

So, we seem to have overcome that problem, as well.

I would characterize these kinds of issues as sort of normal learning curve stuff and we have been fortunate enough to be able to incur that learning curve outside the U.S. in an environment where we've -- we're been able to manage it, I think, fairly -- fairly well.

You never want to have any back orders, but we've been able to manage it pretty well.

And once we got unconstrained inventory, well, you saw what happened.

The challenge I have issued to the organization, cleaned up for public consumption is, no back orders, period.

Zero back orders, 100% service levels and I mean 100% and that's what I intend to deliver is 100%.

And we can do that because we will have built huge amounts of capacity, we're willing to build inventory and we're willing to use that inventory constructively to put it in the right place.

We have basically one set of products, 26 codes, the -- the outside U.S., inside U.S. products differ only in label copy and shelf life.

So, we are able to repackage ah say a few codes in the U.S. that get a little long in the tooth, we can repackage for outside U.S. consumption and that takes away any -- any incentive to hold back on inventory for the U.S.

So, we are in a very fortunate position but not by accident, we've been aiming at this for a long time now and I expect to deliver levels of service that, in this business, are unheard of.

And Jim, just would you -- can you give us a sense of what the yields are now in Europe?

I had sort of heard 70?

And when do you actually start building inventory for the U.S.?

What triggers that build?

The strategy we are going to use is to actually build outside U.S. inventory ahead and then take all our capacity and throw it at the U.S., starting later rather than sooner but 100% aimed at U.S. requirements.

That way if we end up with relatively short shelf life for the U.S. product, we'll be starting with maybe only a couple of months clock already and anything that turns out to be -- say we got six months initially out of the blocks and we had some codes that got to be more than six months old, we can move them into international.

Just -- in other words, just relabel them.

Got it.

Thank you.

Our next question is from the line of Rick Weiss with Bear Stearns.

Please go ahead.

Good afternoon.

A couple of questions.

First, Can you talk, Paul LaViolette, perhaps, talk a little bit about the impact of the( INAUDIBLE) cobalt chromium approval?

Maybe the impact on your -- your bare stent business?

And maybe talk about the notion that there might be a separate segmentation of the market into more hybrid stenting, you know, driven by cost concerns.

Do you think that's likely, Paul?

I would say it depends, but it's unlikely.

And I would say it's unlikely based on the fact that really there is no data that is persuasive to any cardiologist to imply that the cobalt chromium product lines actually produce a better clinical result.

And the only stratification that might be justified would be, if you had a clinical result that actually did, you know, split the difference between bare metal stents and drug eluting stents.

There is absolutely no data to support that.

And there are efforts to market it that way, but they're really unfounded.

My sense is that the drug eluting stent conversion is really quite compelling and may end up being quite complete and the bare metal stent market that is residual will not be differentiated based on -- on the metal itself.

It will continue to be dependent upon overall stent performance, ease of use, the factors that we've come to know and love.

My sense is that cobalt chromium in and of itself has a few benefits that enable a little bit of extra radiopacity, a little bit of thin wall reduction and those are nice steps in basic stent platform development.

They -- they are steps that are absolutely not dependent upon cobalt chromium as a material and that the current efforts, as I understand them, in my view, to price that product as a premium and to try to move bare metal stent market into an upscale segment pursuit of some form of superior clinical outcomes is not likely to work.

So, we shouldn't expect to to see you lose market share pre your drug stent approval, to this category in the coming quarters?

Well, first of all, I don't see it as a category I see vision stent, as an example, as another stent.

To the extent that the vision stent works better than bare metal stents on deliverability or other functional characteristics, it may gain some share.

We're not expecting it to gain significant share.

Okay.

A couple of other quick ones.

French reimbursement, you indicated reimbursement would be three months post-J&J, any update there?

That's about on track.

And last, Jim, you talked about expanding -- expanding our footprint as one part of the future growth post-Taxus.

Is that going to be limited to cardiovascular?

Does it include large acquisitions?

Can you flush that a little bit?

No, not really.

You know, we -- we will have, I believe, opportunities that we have not had in the past and but as I said before, you know, sometimes those things happen, sometimes they don't.

We will just have to wait and see.

Thank you.

Our next question is from the line of Tim Nelson with U.S.

Bancorp Piper Jaffray.

Please go ahead.

Hi, in an effort to let Steve participate on the call here, could you talk about the current initiatives to -- to -- to the effect of the quarter sale, Steve, in endosurgery and urology and with a focus maybe on some of the acquisitions like DEI and maybe something like that a little bit?

Well, I think I owe you a beer someplace if we ever get a chance to hook up.

I was beginning to wonder.

Thanks for the queue-up.

Endosurgery had a very good quarter.

I think with urology and the gynecology franchises, we did very well.

You mentioned BEI.

BEI actually had the first million dollar month and is right on track for what we said we would do in the model.

The oncology franchise, you mentioned some of the acquisitions there, the cath innovations and RTC both had very high double-digit growth rates in the quarter and, Larry mentioned the oncology sales growth overall was very strong.

Endoscopy with the Enteryx acquisition is on track, for what we expected from that very important new product and we're excited about the initial training sessions we've held and the initial sales results we've seen so far.

That's more of a marathon than a sprint because of the reimbursement challenges and the clinical data we have yet to put on the board to support adoption rates that we hope we will see in the coming years.

But by and large, I think I've been very pleased with the results we've seen, the acquisitions that we have put in place are paying off and we expect to do a lot more of that type of activity as time goes on.

Endoscopy had a more difficult quarter than it usually has but we don't think that's long-term.

We expect to rebound here in the second half and have double digits in the future.

The BEI, in one (INAUDIBLE) month was up, was that the last month of the quarter?

Yes, it's on track to do 14, maybe $15 million this year.

Which is exactly what we said when we made the acquisition last summer.

And (INAUDIBLE) floor?

Actually, the (INAUDIBLE) franchise, which includes BEI, is the gynecology franchise, was up 40% over prior year, primarily because of the BEI acquisition, but also because of new ancillary products we've introduced in (INAUDIBLE) reconstruction, the Capio product which is used for pulling up the (INAUDIBLE) did very well.

So, by and large we're doing just what we expected there.

In fact, since you mentioned that, we are planning to introduce, we have introduced the Advantage TVT product here and it's in launch as we speak and will be in full launch in the fall.

This a product that will compete with J&J's TVT and some other products from AMS.

So we're excited about the pelvic floor franchise in general.

Great.

Thanks.

Thank you.

We'll go next to the line of Ed Shenkan with Wells Fargo Securities.

Please go ahead.

Thanks, gentlemen.

In an effort to better understand some of the risks involved with this Department of Justice inquiry, and as you said, you know, it's hard to know how long it goes or what becomes of it.

But for us in the investor community to better understand it, is there a risk that the inquiry could somehow be related to the Taxus drug eluting stent in the United States?

And that that could delay the submission -- or could delay consideration by the FDA and, do you know, do you think a likelihood of that is more than 1%?

Or perhaps just explain why that scenario, you know, wouldn't play out because, you know, you guys are a lot closer to this type of situation than we are.

Go ahead, Paul.

I don't see any evidence of a connection like that.

As I say, we don't know everything that's going on.

But we do, I think, have a fairly good picture of what is involved and I just haven't seen any nexis that relates to Taxus.

Let me try to put it in a perspective.

This is having to do with -- was prompted by a neuron ranger (audio cut out) we launched in 1998.

We no longer sell the product.

It was in the market for six weeks.

Where we voluntarily recalled it, after six weeks, with a very small insodent rate.

There's never been any assertion by a patient or a physician that the product was anything but okay.

There is no trailing liability, product liability or otherwise and there certainly isn't any -- there hasn't been any issues with our relationship with the FDA.

Over the past five years.

We've -- I think last year we had a record number of approvals.

So, just to put it in perspective, this is a product -- one of the few recalls in the history of Boston Scientific, the product was launched, voluntarily recalled by Boston Scientific six weeks later, there's never been any assertion of harm to a patient -- by a patient or a physician.

And we have cooperated 100% with responding to the requests of the Department of Justice.

And we, as Paul pointed out, have even extended the statute of limitations in -- in the spirit of cooperation.

So, it doesn't focus on any product we're selling today and we don't believe it implicates our business as you know it today.

Thank you very much for the thorough explanation.

It's helpful.

Thank you.

Our next question is from the line of Mark Landy with Leerink Swann.

Please go ahead.

Good evening, guys.

I have a legal procedural question.

Given that the commentary period for patent 856 has expired, and the patent has issued, it's my understanding that the EPO cannot invalidate the patent.

Now, if this is so, what's the timing on getting afront of the regulatory bodies in each country to challenge the validity of 856.

And if I'm wrong, is there any precedence of the EPO invalidating a patent after the commentary period has expired and the patent has issued?

And my second question is a whole lot easier, it's bar metal stent pricing in the U.S. and Europe.

I will take that first. 1041 in the U.S. for the second quarter.

Europe, I don't have the number off the top of my head, primarily because we've converted much of our business to drug eluting stents, but it's fairly stable in the $600, $650 range.

There is, in fact, an opposition proceeding with respect to the 856 patent.

That's what's being heard in the EPO in November.

Okay.

But my understanding is that the original part of that proceeding that the EPO actually upheld 856.

That's not my understanding.

Okay, so there is precedence there of the EPO having overturned a patent after a commentary period has expired?

I -- I really don't know what you're referring to.

There is an opposition proceeding.

As I --

Scheduled for in November.

As it's been explained to me, that when a patent is filed in Europe, there is a Euro commentary period, or nine-month commentary period.

After that period expires and the patent issues, the EPO doesn't have jurisdiction to overrule the patent.

Yes, and my understanding is that Johnson and Johnson filed its opposition within the relevant deadline.

To 856?

That's my understanding.

Okay.

Next question?

Thank you, our next question is from the line of Glenn Raeicin with Morgan Stanley.

Please go ahead.

I thought I was losing a step there.

Just a couple of follow-up questions on some of the relevant businesses here.

On -- on the endoscopy business, can you, Steve, maybe talk a little bit about what's happening there?

This is the second quarter in a row that -- at least the domestic piece of the business had sputtered, maybe give us a little bit of light there?

And then just in general, can each of you just go through and give us a commentary about these businesses, you know, which parts of the business performed well in the quarter?

What's giving you sort of a little bit of heartburn?

Maybe just give us a slight overview, just a couple of lines on each of the major businesses?

Steve, why don't you start, Paul, why don't you prepare! [ Laughter ]

I'm ready to go!

All right.

Glenn, thanks for the question.

Endoscopy, the three main franchises of endoscopy that had a little sluggishness, I will call it, in the second quarter, that was a continuation of the first quarter.

The most important two are the ones that link to colonoscopy.

And what we see in the second quarter, which we didn't anticipate, is still a continuing softening in the procedure rates.

We also had a comparable problem with comparisons to last year.

If fact, you may remember that when we met with you guys in December, we talked about the Medicare reimbursement for colonoscopy and how robust it was last year.

When you compare second quarter this year to last year, you see a tough comparison.

So we do see some procedural comparison issues, we also saw some competitive pricing pressure in that area, and that helped depress some of the ASPs.

And we also think there may have been some issues with electric procedures being delayed somewhat, more this year than in past years, probably due to the increased deductibles that people have in their insurance and we expect to see procedures pick up in July.

We're seeing it already for the colonoscopy franchise.

Those are some of the big drivers in endoscopy.

The other one is a (INAUDIBLE) franchise.

We had launched some new products in there and we had some quality issues as I mentioned in the last time around.

Those are behind us, although it didn't help us enough to get off a flat comparison to prior in the second quarter.

Good news is that has also turned up and so we think that we'll be in better shape in the second half in those franchises.

On the real plus side, endoscopy, which is the biggest in my group, the animal feeding business and the hemostasis business both were up very substantially with animal feeding up almost 40%, hemostasis up 25.

And international growth, as Larry pointed out, was also 12%.

So, still a tough two quarters in a row.

We're not exactly sure exactly why procedures were as flat as they were in the first two quarters, but we do see that coming back and hopefully that will bode well for the second half.

The other two divisions, quickly, as I already mentioned a little bit about Enteryx, I won't go into that, but urology, as I said, had a pretty good quarter, as well.

The stone business is up 9%, driven by continued strength in the basic franchises, the radio (procestectomy), which is a new product we introduced in the second quarter which gives (INAUDIBLE) strength in the urology side.

And I mentioned gynecology.

As I said, driven by HGA sales.

As I said before, a million dollars a month and actually that HGA is 40% up from the first quarter, as well.

So, very happy with what we've been able to do there.

We have TVT.

It's now on the market in limited launch.

It will be a full launch in the fourth quarter.

We expect a new, injectable for incontinence called (Durisphere) EXP, to help re-energize our injectable for incontinence in that business, and we're still on target for, in the urology side of the franchise, for the (INAUDIBLE) partnership for BPH which we expect to launch sometime in the first quarter.

And finally, the oncology business, I think we mentioned before, very strong growth, is up 21% in the United States.

As I mentioned, double-digit growth at Venus Access, continued market share gains from the Passive franchise we acquired last year.

We also introduced some new titanium and plastic ports that use the passive technology for chemotherapy, they were up 30%.

The RTC business is up 35% and the probes for RDC, that's a disposal and hardware component, the disposal part was up almost 60%.

And then finally, embollzation, the contour SC for Microsphere, that had a 40% growth rate in the first quarter.

So, other than the softness in the two - two major franchises of endoscopy, which were mostly procedure driven with competitive pressures, as well, I think the endosurgery batch had a decent quarter.

Not what we expected, but fairly well where we thought we should be and we're hoping to build up some strength as we go forward.

And Paul, I hope I delayed it long enough so you could fully gather your notes.

I've got notes, I can't do as well as you did!

Just quickly, Glenn, on target and EPT.

Our neuro business, you know Larry mentioned, worldwide business is up 23%.

The truth is our international business is a little soft, up only 12% for a couple of reasons, but our U.S. business is up 50%.

So, we feel, you know, the technology pipeline is very strong, Matrix is now implanted over 5,000 coils, we trained a couple of hundreds doctors on on the neuro form stent and, you know our technology leadership, I think, is showing its prowess.

International for target is slower primarily because we have taken our time both on the matrix and on the neuro form launches because we really had more training to do, and we're also holding back a little bit on the neuroform launch in international because we have an upgraded product and wanted to really go ahead and launch neuroform 2 with an improved delivery system.

So, you know, overall 23%, we expect Q3 will grow faster than Q2.

EPT also pretty strong.

As 11% growth in the U.S., it wasn't growing internationally because we're shifting some of our distribution strategies.

We've simply found that to invest in direct EP distribution in every country is not really worthwhile.

So, we are losing some momentum, primarily as we shift to some distributors, but think that will turn into acceleration.

Domestically, June was up 18%.

Chile, our cold ablation program, up 36%.

Our advanced diagnostic products, up 55%.

So, EP showing some strength and that's despite the in fact we haven't yet received our PMA approval, which we expect any day now, on the -- on the product for (INAUDIBLE)flutter to compete against J&J.

So, you know, we've got a lot of things in the pipeline and both these businesses are growing pretty robustly.

Inside cardiology, the (INAUDIBLE) franchises, of course, there's tremendous- tumultuousness as a result of drug eluting stents, but other than the direct stent business, which, you know, in the U.S., obviously on a comparison basis was up 113% versus last year, but that's -- less the issue .

The issue is more on the sequential basis now.

Other than stent erosion, which is down in the 30% range in Q2 over Q1 because of DES, you really have mostly strength.

Our balloon business in the quarter was up 19%, but that doesn't really tell the whole business because of the -- the progress that you're going to see, you know, when you have a full quarter of drug eluting stents.

Our post dilutation business, post-DES is up 35%.

And our pre-dil is up with procedures, which we think is probably going to continue to track close to double digits.

Our vascular access business grew 5% in the quarter.

We think that's going to accelerate with procedures.

So, the only two franchises that are having any sort of direct impact are stents and the cutting balloon.

And we think the cutting balloon is -- continues to do extremely well clinically.

It's flattening out a bit , down maybe 5 to 10%.

And it's primarily because it's an $800 item.

People are looking to save money and reduce utilization of items of that price level where they can.

But frankly, other than that, our overall franchise is extremely strong, our U.S. coronary business was up 26%.

So, you're basically looking at a -- a lot of turmoil but we're holding share in bare metal stents, our balloon business is up, you know, -- let me give you some specifics, our pre-dilutation balloons, post Cipher, up 16%, that's the (Mader) franchise.

Our guide catheters and wires, post Cipher, up between 10 and 15%.

Diagnostic procedures, we think up 8%.

Our -- our post-dilutation (INAUDIBLE), as I mentioned, is up 35%.

So, when you look at that franchise strength and look at our preparation to launch Taxus into the U.S. market, we feel as if, you know, we have a solid foundation.

How about Ivis, Paul?

Ivis is up fairly significantly.

We have to kind of take the capital equipment out, but I would put -- the Ivis business has been trending plus 20% and that was pre-Cipher and right now we're seeing Cipher, the Cipher impact, probably add another 5 to 8 percentage points in growth on top of that.

And the peripheral business?

The peripheral business has been frankly different.

Our peripheral business is growing in stents where we are -- I take that back, it's growing in balloon expandable stents, where we continue to, you know, penetrate with the express LD.

We've been harmed in our Wallstent franchise by two things.

Number one, as you may recall in the past, we've talked about the favorable pull through that the Wallstent and Wallgraph get as adjunctive stent therapy with the (Ancher) device.

And obviously, that device is no longer being implanted.

So we're seeing a reduction in our Wallstent utilization as a result of that.

And we've also seen some erosion to the Wallstent franchise over to self-expanding (Nitinol) platforms.

We think that's going to be reversed when we launch the Centinol product a little bit later this year.

The rest of the business, though, is -- is low single digit growth to -- to stronger growth.

I will tell you and it's sort of mia culpa, our PTA business has not enjoyed the kind of growth we're looking for because we haven't really launched successful new balloon products for a while.

We think we've got some technologies coming down the pipe to reverse that.

That's the only area that I'm disappointed in PV.

Final follow-up, not to be a pain in the ass here, can you give us the summary of the acquisitions and the contribution in the quarter?

The year-over-year contribution?

I will get that for you, Glenn, we're pretty much apples to apples.

The contribution in the quarter from 2002 acquisitions is roughly $5 million.

And that's what, Enteyx is a million you said?

That's BEI, that's Smart.

BEI, Smart and Enteryx is just started.

Just launched.

It really hasn't contributed.

Okay, thank you very much.

And if you want to go back to acquisitions from 2001 --

We don't need do that, just trying to find the apples and apples here.

It's pretty well apples to apples.

So --

Perfect.

Thank you.

Our next question is from the line of Eli Kammerman with Cathay Financial.

Please go ahead.

Yes, thank you.

My question relates to the changes in growth rates for angioplasty balloons in dollars versus units?

And the background for this is that in the late '90s they were rampant stories of price-cutting for balloons in order to gain market share for bare metal stents.

Can you explain why you do or do not expect the same thing to happen for drug eluting stents when you launch in the U.S.?

Well, frankly with procedural costs the way they are and the overall reduction historically in -- in POBA prices, what you now are looking at is a price difference of -- of 10 to 1.

Between a drug eluting stent and a balloon.

So, you know, plus or minus 15% on a balloon dilutation catheter today, would represent, you know, $40 to $50, which is an immaterial amount of money in the procedure that uses 1.4 to 1.7 drug eluting stents.

So, the fact that relatively speaking the balloons, you know, can't really make up that much of a difference, combined with the fact that through the years, the balloon prices have been reduced from, you know, 4, 5, $100, of course, they were 6 and $700 originally, down to the mid 200s, 250 to 270, they really aren't that expensive relative to many of the other devices that are used in the lab.

I would also say further to that, you know, that we're not the only -- we're not growing at the same rate as everyone else.

I think the uptick in balloon consumption is being enjoyed disproportionately by Boston Scientific because of our technology leadership in the area.

And so, you know, t's less an issue of price.

When you're paying $3,180 for a Cipher stent, you want to know that the pre-dil is going to make it successful and most importantly, given some of the clinical issues, you want to know that the post-dil is working.

And I think as a result of that, as a result of our market share leadership, our technology leadership and the overall pricing dynamics, we just don't see much exposure there as Taxus launches.

If anything, we will get further pull through as we become one of two drug eluting stent players.

Okay.

Thank you very much.

Okay.

We're going to wrap it up.

We've got two more questions.

We will take two more questions and then we will call it an evening.

Next question?

Our next question is from the line of Bob Hopkins with Lehman Brothers.

Please go ahead.

Thanks very much.

One last legal question regarding the Netherlands case versus Medinal.

The Medinal press releases directly suggest that the Netherlands case is a cross border case and has jurisdiction over most of the rest of Europe outside of Germany.

But I think I heard from your commentary earlier on the call that you don't believe that's the case.

I was just wondering if you could clarify that?

They -- in fact, bring it as a cross border case, but as occurred in their suit with J&J, when the court is deciding in preliminary proceedings, which is what these are, both in the J&J instance and in ours, they cut back the application of any adverse decision to the defendant.

So that it's restricted to the Netherlands.

They do not take action with respect to the other European jurisdictions.

So, how would that happen?

How would the other -- so, this -- the ruling on this case, six months post the October 10th hearing will only involve the Netherlands, is there a case that involves the rest of Europe at some point?

That would have to occur in a second stage and it would likely have to play out in each jurisdiction based on nullity proceedings against the local patents in those areas.

Okay, thanks very much.

You're welcome.

One more question and we will wrap it up.

Thank you.

Our next question from the line of Bruce Nudell with Sanford Bernstein.

Please go ahead.

Hi.

This is for Paul Sandman.

Paul, it looks to us, based on our looking at the 856, which is the European patent and the utility model that both have survived one challenge of validity.

Most recently, you know, the tag team attack on the utility model by both J&J and yourselves and the utility model looks a lot like 856.

Just to clarify, are -- do you guys think that that patent is basically invalid or is it only in certain lights and certain interpretations that that patent's invalid?

And the follow-up would be for Paul LaViolette, is -- is -- what conservatively speaking, using whatever internal planning you might have, when do you think Taxus Liberty will hit the street in Europe and in the United States?

Thank you.

Paul Sandman, why don't you start.

We want to end a high note! [ Laughter ]

We think the patent is invalid if it is interpreted to to cover Express.

Okay.

So there's something about the way they're looking at it --

Yes.

The breath of the way they'll looking at it.

Yes, exactly.

In the context of express.

That's correct.

Okay, fair enough.

Okay, and that was Taxus Liberty, we're in the process of first of all, conducting a clinical trial on Liberty, which is an important first step.

We don't see any issue with that, but it is required.

The clinical trial is both proceeding well and showing us we've an outstanding stent platform, number one.

Number two, all of the internal efforts to convert the Liberty into a drug eluting stent platform are under way, as well and we see no technical hurdles there.

We have two stages we have to go through.

For international, the CE Mark requirements have been raised and we fully expect that we will have to generate clinical data for the next generation stent in Europe.

We -- we haven't had to do that in the past nor have other companies.

We think that's going to be a requisite in the future and as a result of that, there becomes less differentiation between European and U.S. launch timelines for drug eluting stents in the future.

My sense is that's an advantage, actually, for incumbent players because it raises the bar for new entrance and it also raises the bar for new entrances to then catch up with iterations.

The long and short of it, I think we will probably see Taxus Liberty in the first half of 2005.

And that will, again, be following the full clinical trial requirements.

So, we have basically six quarters to go before we will see that product in a drug eluting stent version.

In both major geographies?

Yeah.

Thank you very much.

First of all, thank you very much for all your questions and hopefully the call has been helpful.

In closing, I would just say the exciting -- the exciting event is -- the next one, of formally scheduled events, at least, and that is our analyst update on Taxus 4, on September 15th.

At the TCT, or Taxus 4 data will become public.

We're trying to schedule later in the week a -- another meeting because of all the subset data that will be announced on Tuesday and Wednesday of that week and try on get some clinicians in to give their perspective on the Taxus data.

So, first off, please mark your calendars, September 15, 5:00 to 7:00 in Washington D.C. and then we're trying to schedule something later in the week that wraps up the entire data set made public.

So, thank you very much and good evening.

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